Dec 242015
 
 December 24, 2015  Posted by at 10:52 am Finance Tagged with: , , , , , , , , , ,  


NPC “Poli’s Theater, Washington, DC. Now playing: Edith Taliaferro in “Keep to the Right” 1920

Half The Country Is Either Living In Poverty Or Damn Near Close To It (AN)
Most Americans Have Less Than $1,000 In Savings (MarketWatch)
The Keynesian Recovery Meme Is About To Get Mugged, Part 2 (Stockman)
Extreme Oil Bears Bet on $25, $20 and Even $15 a Barrel in 2016 (BBG)
US Banks Hit By Cheap Oil As OPEC Warns Of Long-Term Low (FT)
Oil Crash Is a Party Pooper as Holiday Affairs Lose Their Luster (BBG)
New Saudi Budget Expected to Be Squeezed by Low Oil Prices (WSJ)
OPEC Faces A Mortal Threat From Electric Cars (AEP)
The Trouble With Sovereign-Wealth Funds (WSJ)
China Tackles Housing Glut To Arrest Growth Slowdown (Xinhua)
German Emissions Scandal Threatens To Engulf Mercedes, BMW (DW)
Australia Approves Expansion of Barrier Reef Coal Terminal (WSJ)
Japanese Court Clears Way For Restart Of Nuclear Reactors (BBG)
On the 19th day of Christmas… [Am 19. Tag der Weihnachtszeit…] (Orlov)
Greek Banking Sector Cut In Half Since 2008 (Kath.)
No Further Cuts To Greek Pensions, Tsipras Tells Cabinet (Kath.)
Donald Trump: An Evaluation (Paul Craig Roberts)
20 Refugees Drown; 2015 Death Rate Over 10 Human Beings Each Day (CNN)

Yeah, recovery. Sure. “Jobs gained since the recession are paying 23% less than jobs lost..”

Half The Country Is Either Living In Poverty Or Damn Near Close To It (AN)

Recent reports have documented the growing rates of impoverishment in the U.S., and new information surfacing in the past 12 months shows that the trend is continuing, and probably worsening. Congress should be filled with guilt — and shame — for failing to deal with the enormous wealth disparities that are turning our country into the equivalent of a 3rd-world nation.

Half of Americans Make Less than a Living Wage According to the Social Security Administration, over half of Americans make less than $30,000 per year. That’s less than an appropriate average living wage of $16.87 per hour, as calculated by Alliance for a Just Society (AJS), and it’s not enough — even with two full-time workers — to attain an “adequate but modest living standard” for a family of four, which at the median is over $60,000, according to the Economic Policy Institute. AJS also found that there are 7 job seekers for every job opening that pays enough ($15/hr) for a single adult to make ends meet.

Half of Americans Have No Savings A study by Go Banking Rates reveals that nearly 50% of Americans have no savings. Over 70% of us have less than $1,000. Pew Research supports this finding with survey results that show nearly half of American households spending more than they earn. The lack of savings is particularly evident with young adults, who went from a five-percent savings rate before the recession to a negative savings rate today. Emmanuel Saez and Gabriel Zucman summarize: “Since the bottom half of the distribution always owns close to zero wealth on net, the bottom 90% wealth share is the same as the share of wealth owned by top 50-90% families.”

Nearly Two-Thirds of Americans Can’t Afford to Fix Their Cars The Wall Street Journal reported on a Bankrate study, which found 62% of Americans without the available funds for a $500 brake job. A Federal Reserve survey found that nearly half of respondents could not cover a $400 emergency expense. It’s continually getting worse, even at upper-middle-class levels. The Wall Street Journal recently reported on a JP Morgan study’s conclusion that “the bottom 80% of households by income lack sufficient savings to cover the type of volatility observed in income and spending.” Pew Research shows the dramatic shrinking of the middle class, defined as “adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars.” Market watchers rave about ‘strong’ and even ‘blockbuster’ job reports.

But any upbeat news about the unemployment rate should be balanced against the fact that nine of the ten fastest growing occupations don’t require a college degree. Jobs gained since the recession are paying 23% less than jobs lost. Low-wage jobs (under $14 per hour) made up just 1/5 of the jobs lost to the recession, but accounted for nearly 3/5 of the jobs regained in the first three years of the recovery. Furthermore, the official 5% unemployment rate is nearly 10% when short-term discouraged workers are included, and 23% when long-term discouraged workers are included. People are falling fast from the ranks of middle-class living. Between 2007 and 2013 median wealth dropped a shocking 40%, leaving the poorest half with debt-driven negative wealth. Members of Congress, comfortably nestled in bed with millionaire friends and corporate lobbyists, are in denial about the true state of the American middle class. The once-vibrant middle of America has dropped to lower-middle, and it is still falling.

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Damning.

Most Americans Have Less Than $1,000 In Savings (MarketWatch)

Americans are living right on the edge — at least when it comes to financial planning. Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey for personal finance website GOBankingRates.com. “It’s worrisome that such a large%age of Americans have so little set aside in a savings account,” says Cameron Huddleston, a personal finance analyst for the site. “They likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends and family, or even their retirement accounts to cover unexpected expenses.”

This is supported by a similar survey of 1,000 adults carried out earlier this year by personal finance site Bankrate.com, which also found that 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). And among those who had savings prior to 2008, 57% said they’d used some or all of their savings in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Of course, paltry savings-account rates don’t encourage people to save either.

In the latest survey, 29% said they have savings above $1,000 and, of those who do have money in their savings account, the most common balance is $10,000 or more (14%), followed by 5% of adults surveyed who have saved between $5,000 and just shy of $10,000; 10% say they have saved $1,000 to just shy of $5,000. Just 9% of people say they keep only enough money in their savings accounts to meet the minimum balance requirements and avoid fees. But minimum balance requirements can vary widely and be hard to meet for some consumers. They can vary anywhere between $300 a month and $1,500 a month at some major banks.

Some age groups are less likely to have savings than others. Some 31% of Generation X — who are roughly aged 35 to 54 for the purpose of this survey — while being older and presumably more experienced with money than their younger cohorts, actually report a savings account balance of zero, which is the highest%age of all age groups. Around 29% of millennials — aged 18 to 34 — and 28% of baby boomers — aged 55 to 64 — said they have no money in their savings account. Baby boomers (17%) and seniors aged 65 and up (20%) have the most money saved of any age group while less than 10% of millennials and approximately 16% of Generation X have $10,000 or more saved.

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“High powered central bank credit has exploded from $2 trillion to $21 trillion since the mid-1990’s..”

The Keynesian Recovery Meme Is About To Get Mugged, Part 2 (Stockman)

Our point yesterday was that the Fed and its Wall Street fellow travelers are about to get mugged by the oncoming battering rams of global deflation and domestic recession. When the bust comes, these foolish Keynesian proponents of everything is awesome will be caught like deer in the headlights. That’s because they view the world through a forecasting model that is an obsolete relic – one which essentially assumes a closed US economy and that balance sheets don’t matter. By contrast, we think balance sheets and the unfolding collapse of the global credit bubble matter above all else. Accordingly, what lies ahead is not history repeating itself in some timeless Keynesian economic cycle, but the last twenty years of madcap central bank money printing repudiating itself.

Ironically, the gravamen of the indictment against the “all is awesome” case is that this time is different – radically, irreversibly and dangerously so. High powered central bank credit has exploded from $2 trillion to $21 trillion since the mid-1990’s, and that has turned the global economy inside out. Under any kind of sane and sound monetary regime, and based on any semblance of prior history and doctrine, the combined balance sheets of the world’s central banks would total perhaps $5 trillion at present (5% annual growth since 1994). The massive expansion beyond that is what has fueled the mother of all financial and economic bubbles. Owing to this giant monetary aberration, the roughly $50 trillion rise of global GDP during that period was not driven by the mobilization of honest capital, profitable investment and production-based gains in income and wealth.

It was fueled, instead, by the greatest credit explosion ever imagined – $185 trillion over the course of two decades. As a consequence, household consumption around the world became bloated by one-time takedowns of higher leverage and inflated incomes from booming production and investment. Likewise, the GDP accounts were drastically ballooned by a spree of malinvestment that was enabled by cheap credit, not the rational probability of sustainable profits. In short, trillions of reported global GDP – especially in the Red Ponzi of China and its EM supply chain – represents false prosperity; the income being spent and recorded in the official accounts is merely the feedback loop of the central bank driven credit machine.

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More casino. That’s all that‘s left.

Extreme Oil Bears Bet on $25, $20 and Even $15 a Barrel in 2016 (BBG)

Oil speculators are buying options contracts that will only pay out if crude drops to as low as $15 a barrel next year, the latest sign some investors expect an even deeper slump in energy prices. The bearish wagers come as OPEC’s effective scrapping of output limits, Iran’s anticipated return to the market and the resilience of production from countries such as Russia raise the prospect of a prolonged global oil glut. “We view the oversupply as continuing well into next year,” Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note on Tuesday, adding there’s a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand.

The bearish outlook has prompted investors to buy put options – which give them the right to sell at a predetermined price and time – at strike prices of $30, $25, $20 and even $15 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing. West Texas Intermediate, the U.S. benchmark, is currently trading at about $36 a barrel. The data, which only cover options deals that have been put through the U.S. exchange or cleared, is viewed as a proxy for the overall market and volumes have increased this week as oil plunged. Investors can buy options contracts in the bilateral, over-the-counter market too. Investors have bought increasing volumes of put options that will pay out if the price of WTI drops to $20 to $30 a barrel next year, the data show. The largest open interest across options contracts – both bullish and bearish – for December 2016 is for puts at $30 a barrel.

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2016 will be a very bad year for US energy lenders. And that’s not just the banks.

US Banks Hit By Cheap Oil As OPEC Warns Of Long-Term Low (FT)

US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector. OPEC on Wednesday lowered its long-term estimates for oil demand and said the price of crude would not return to the level it reached last year, at $100 a barrel, until 2040 at the earliest. In its World Oil Outlook it said energy efficiency, carbon taxes and slower economic growth would affect demand. Crude oil’s price on Tuesday hit an 11-year low below $36, piling further pressure on banks that have large loans to energy companies or significant exposure to oil on their trading books.

The US Federal Reserve subjects banks with at least $50bn in assets, including the US arms of foreign banks, to an annual stress test, that is designed to ensure they could keep trading through a deep recession and a big shock to the financial system. Today’s oil prices are about 55% below their level when the Fed set last year’s stress test scenarios in October 2014. That test included looking at how banks’ trading books would fare if there was a one-off 68% fall in oil prices sometime before the end of 2017. Banks’ loan books were not tested against falls in oil prices. Banks including Wells Fargo have recently spoken about the dangers of low oil prices that could make exploration companies and oil producers unable to pay their loans.

There are now five times as many oil and gas loans in danger of default to the oil and gas sector as there were a year ago, a trio of US regulators warned in November. Michael Alix, who leads PwC’s financial services risk consulting team in New York, warned the price of oil would weigh much more heavily on the assessors when drawing up next year’s bank stress tests. “It would test those institutions [banks] for both the direct effects [of oil price falls] on their oil or commodity trading business but importantly the indirect effects [of] lending to energy companies, lending in areas of the country that are more dependent on energy companies and energy-related revenues.”

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No kidding: “You can’t have a $2 million Christmas party while at the same time laying off half your workforce..”

Oil Crash Is a Party Pooper as Holiday Affairs Lose Their Luster (BBG)

The Grinch nearly stole Christmas in the oil patch this year. Thanks to the lowest crude and natural gas prices in more than a decade, Norwegian oil and natural gas producer Statoil cut its holiday party budget by about 40% from 2014. KBR Inc. and Marathon Oil opted for smaller affairs with less swank. One Houston hotel said its seasonal party business is down 25% from 2014. Pricey wine and champagne are off the menu. The industry has shed more than 250,000 jobs and idled more than 1,000 rigs as crude prices fell by more than half since last year. Oil services, drilling and supply companies are bearing the brunt of the downturn and account for more than three quarters of the layoffs, according to industry consultant Graves & Co. “You can’t have a $2 million Christmas party while at the same time laying off half your workforce,” said Jordan Lewis at Sullivan Group, a Houston event planning company.

Independent power generators have also been stung by cheap electricity amid declining gas prices. The heating and power plant fuel slid recently to the lowest level since 1999, and is heading for the biggest annual drop since 2006 as the lack of demand leaves stockpiles at a seasonal record. The commodity rout and the layoffs that followed have dampened holiday festivities. Several hundred Statoil employees were invited earlier this month to Minute Maid Park, where Major League Baseball’s Houston Astros play, for a party that featured scaled back entertainment and décor, spokesman Peter Symons said. At the Houston-based oil and gas construction firm KBR, management canceled this year’s companywide party. Instead, individual departments were encouraged to hold their own gatherings from potlucks to group socials, spokeswoman Brenna Hapes said.

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Like all the rest, they’ll go to war to hide their troubles.

New Saudi Budget Expected to Be Squeezed by Low Oil Prices (WSJ)

The drastic slide in global crude prices is expected to force Saudi Arabia, the world’s leading oil exporter, to slash spending and cut back on the billions of dollars it spends on generous benefits for its citizens in next year’s budget. The oil-rich kingdom spent hundreds of billions of dollars at home in the past decade to bolster its economy and dole out subsidies that provide cheap energy and food for its 30 million people, as it enjoyed years of high crude prices. But the price of oil has fallen by more than half since the middle of last year, forcing the government to dip into reserves, reassess its spending plans and look for ways to diversify sources of revenue. “I’m worried that prices would go up,” said a man waiting for his SUV to be filled in a gas station in northern Riyadh this week.

“There is a lot of talk but I think the government has put this into account,” he said, adding that he expects the increase in prices to be small. Saudi Arabia exports about seven million barrels of oil a day and those revenues make up around 90% of the government’s fiscal revenues, and around 40% of the country’s overall gross domestic product. Saudi Arabia sees the need to cut output to boost prices but so far has been reluctant to do it alone. Officials say that preserving the country’s share of the global market is more important. The 2016 budget, expected to be unveiled in the coming days, will be the first major opportunity for the government to publicly outline a strategy to cope with a prolonged period of cheap oil and soothe the nerves of both the public and investors in the Middle East’s largest economy.

It isn’t clear whether ambitious and sensitive policy changes—such as privatizations and the cutting of energy subsidies—will be included. But even if energy subsidies are cut, the government is unlikely to immediately target consumers, who have become accustomed to some of the lowest gas prices in the world. Any reduction would risk a backlash from the public. “My expectation is that it will start gradually, and that it will target non-consumers first,” said Fahad Alturki, chief economist at Riyadh-based firm Jadwa Investment, of potential subsidy cutbacks. “We won’t see a radical change….The change will be gradual, with a clear road map—and it may not be part of the budget.”

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Ambrose is the posterchild for techno-happy. The thinking is that all it takes is for a lot of money to be thrown at the topic. Mind you, the projection is for the number of cars to double in 25 years. That is a disaster no matter what powers the cars. The magic word is ‘grid-connected vehicles’, but that grid would then have to expand, what, 4-fold?

OPEC Faces A Mortal Threat From Electric Cars (AEP)

OPEC remains defiant. Global reliance on oil and gas will continue unchanged for another quarter century. Fossil fuels will make up 78pc of the world’s energy in 2040, barely less than today. There will be no meaningful advances in technology. Rivals will sputter and mostly waste money. The old energy order is preserved in aspic. Emissions of CO2 will carry on rising as if nothing significant had been agreed in a solemn and binding accord by 190 countries at the Paris climate summit. OPEC’s World Oil Outlook released today is a remarkable document, the apologia of a pre-modern vested interest that refuses to see the writing on the wall. The underlying message is that the COP21 deal is of no relevance to the oil industry. Pledges by world leaders to drastically alter the trajectory of greenhouse gas emissions before 2040 – let alone to reach total “decarbonisation” by 2070 – are simply ignored.

Global demand for crude oil will rise by 18m barrels a day (b/d) to 110m by 2040. The cartel has shaved its long-term forecast slightly by 1m b/d, but this is in part due to weaker economic growth. One is tempted to compare this myopia to the reflexive certainties of the 16th Century papacy, even as Erasmus published in Praise of Folly, and Luther nailed his 95 Theses to the door of Wittenberg’s Castle Church. The 407-page report swats aside electric vehicles with impatience. The fleet of cars in the world will rise from 1bn to 2.1bn over the next 25 years – topping 400m in China – and 94pc will still run on petrol and diesel. “Without a technology breakthrough, battery electric vehicles are not expected to gain significant market share in the foreseeable future,” it said. Electric cars cost too much. Their range is too short. The batteries are defective in hot or cold conditions.

OPEC says battery costs may fall by 30-50pc over the next quarter century but doubts that this will be enough to make much difference, due to “consumer resistance”. This is a brave call given that Apple and Google have thrown their vast resources into the race for plug-in vehicles, and Tesla’s Model 3s will be on the market by 2017 for around $35,000. Ford has just announced that it will invest $4.5bn in electric and hybrid cars, with 13 models for sale by 2020. Volkswagen is to unveil its “completely new concept car” next month, promising a new era of “affordable long-distance electromobility.” The OPEC report is equally dismissive of Toyota’s decision to bet its future on hydrogen fuel cars, starting with the Mirai as a loss-leader. One should have thought that a decision by the world’s biggest car company to end all production of petrol and diesel cars by 2050 might be a wake-up call.

Goldman Sachs expects ‘grid-connected vehicles’ to capture 22pc of the global market within a decade, with sales of 25m a year, and by then – it says – the auto giants will think twice before investing any more money in the internal combustion engine. Once critical mass is reached, it is not hard to imagine a wholesale shift to electrification in the 2030s. Goldman is betting that battery costs will fall by 60pc over the next five years, driven by economies of scale as much as by technology. The driving range will increase by 70pc. This is another world from OPEC’s forecast.

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They’re all invested in hubris.

The Trouble With Sovereign-Wealth Funds (WSJ)

Kazakhstan’s $55 billion sovereign-wealth fund helped pull the country through the global financial crisis and offered funding for the country’s bid to host the 2022 Winter Olympics. But the collapse in oil prices has hit Kazakhstan and its fund, Samruk-Kazyna JSC, hard. In October, the fund borrowed $1.5 billion in its first syndicated loan to help a cash-strapped subsidiary saddled with a troubled oil-field investment. “Our oil company lost lots of its revenues,” says the fund’s chief executive, Umirzak Shukeyev. “Currently, we are trying to adjust to the situation.” Funds like Samruk are at a critical juncture. For years, sovereign-wealth funds—financial vehicles owned by governments—swelled in size and number, fueled by rising oil prices and leaders’ aspirations to increase economic growth, invest abroad and boost political influence.

A new wave of sovereign funds came from African countries like Ghana and Angola. Asian nations joined in with funds like 1Malaysia Development Bhd., or 1MDB. The world’s sovereign-wealth funds together have assets of $7.2 trillion, according to the Sovereign Wealth Fund Institute, which studies them. That is twice their size in 2007, and more than is managed by all the world’s hedge funds and private-equity funds combined, according to JP Morgan. The number of funds tracked by the Institute of International Finance is up 44% to 79 since the end of 2007. Nearly 60% of sovereign-wealth-fund assets are in funds dependent on energy exports. Now, some funds are shrinking or are being tapped by governments as oil revenues fall.

That is forcing them to borrow or sell investments, potentially pressuring global markets just as other investors are pulling back from risk. Saudi Arabia’s central bank, which functions in some ways like a sovereign-wealth fund as it holds significant reserves that are invested widely, has sold billions in assets this year. Norway says it plans to tap its fund, the world’s largest, for the first time in 2016. The stress from low energy prices comes at a sensitive time. At least two funds are embroiled in controversy. 1MDB, which amassed $11 billion in debt, is the subject of at least nine investigations at home and abroad. One of its main financial backers was an Abu Dhabi fund. The head of South Korea’s fund stepped down in the wake of a public outcry over his plan to invest in the Los Angeles Dodgers baseball team.

Adnan Mazarei, deputy director of the IMF’s Middle East and Central Asia Department, says the worry is sovereign-wealth funds will be forced to sell during a period of already turbulent markets. “A withdrawal of assets by sovereign-wealth funds against the background of liquidity concerns could lead to large price movements,” he says. “Nobody knows how much or when but the concern is there.”

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Behind the curve by a mile and a half: “China will roll out policy to transform 100 million farmers into registered urban residents..”

China Tackles Housing Glut To Arrest Growth Slowdown (Xinhua)

China will continue to actively destock its massive property inventory over concerns that the ailing housing market could derail the economy.Along with cutting overcapacity and tackling debt, destocking will be a major task in 2016, according to a statement released on Monday after the Central Economic Work Conference, which mapped out economic work for next year.Attendees of the meeting agreed that rural residents that move to urban areas should be allowed to register as residents, which would encourage them to buy homes in the city. Property developers have been advised to reduce home prices, according to the statement.”Obsolete restrictive measures [in the property market] will be revoked,” said the statement, without specifying which “restrictive measures” it was referring to.

To rein in house prices, China has been trying to curb real estate speculation, with policies such as “home purchase restriction” that only allows registered residents to buy houses. It is believed the restrictive policies mainly affected the property markets in third- and fourth-tier cities, which saw the most supply glut. The property market took a downturn in 2014 due to weak demand and a supply glut. This cooling continued into 2015, with sales and prices falling, and investment slowing. Property investment’s GDP contribution in the first three quarters of this year hit a 15-year low of 0.04%. The property market is vital to steel and cement manufacturers, as well as furniture producers; its poor performance would breed financial risks.

GDP growth during the January-September period eased to 6.9%, down from 7.4% posted for the whole of 2014. Policymakers believe the housing inventory will be lessened as long as rural residents are encouraged to buy. Nearly 55% of the population live in cities but less than 40% are registered to do so. There are around 300 million migrant workers but most are denied “hukou” (official residence status). In addition to housing rights, a hukou gives the holder equal employment rights and social security services, and their children are allowed to be enrolled in city schools. Starting next year, China will roll out policy to transform 100 million farmers into registered urban residents, according to Xu Shaoshi, head of the National Development and Reform Commission, on Tuesday. No deadline for completion was specified.

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Be that way: “Should you in any way present the accusation that my client manipulated its emissions data, we will act against you with all necessary sustainability and hold you responsible for any economic damage that my client suffers as a result.”

German Emissions Scandal Threatens To Engulf Mercedes, BMW (DW)

The environmental group Deutsche Umwelthilfe (DUH) and German state broadcaster ZDF presented the results of nitric oxide tests they had conducted on two Mercedes and BMW diesel models. They appeared to show similar discrepancies between “test mode” and road conditions that hit Volkswagen earlier this year, triggering one of the biggest scandals in German automobile history. In response to the report released on December 15, a law firm representing Daimler, which owns Mercedes, sent a letter to the DUH that read, “Should you in any way present the accusation that my client manipulated its emissions data, we will act against you with all necessary sustainability and hold you responsible for any economic damage that my client suffers as a result.”

In defiance of another threat by the Schertz law firm, the DUH published the threatening letter in full on its website. “We have been massively threatened two more times, demanding that we take down the letter – we have told them we won’t,” DUH chairman Jürgen Resch told DW on Wednesday. “For me it’s a very serious issue, because in 34 years of full-time work in environmental protection, and dealing with businesses, I have never experienced a business using media law to try and keep a communication – and a threatening letter at that – secret. “How are we supposed to do our work as a consumer and environmental protection organization when industry forbids us from making public certain threats it makes?” an outraged Resch added. “I think the threat itself is borderline legal coercion.”

In a short documentary broadcast on December 15, ZDF tested three diesel cars – a Mercedes C200 CDI from 2011, a BMW 320d from 2009, and a VW Passat 2.0 Blue Motion from 2011 – and showed that all three produced more nitric oxide on the road than they did in an official laboratory test. “The measurement results show that the cars behave differently on the test dynamometer than when they are driven on the road,” said the laboratory at the University of Applied Sciences in Bern, Switzerland, which carried out the tests. The discrepancies researchers found were not small – while all three cars kept comfortably below the European Union’s legal nitric oxide limit (180 milligrams per kilometer) in the lab, they all went well over the standard on the road, where the BMW recorded 428 mg/km (2.8 times its lab result), the Mercedes hit 420 mg/km (2.7 times its lab result), and the VW Passat reached 471 mg/km (3.7 times its lab result).

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Anything for a buck.

Australia Approves Expansion of Barrier Reef Coal Terminal (WSJ)

Australia approved the expansion of a shipping terminal close to the Great Barrier Reef on Tuesday, drawing criticism from environmentalists who say an area of outstanding natural beauty is threatened by the decision. Environment Minister Greg Hunt said he would allow the extension the Abbot Point terminal—used to ship coal to markets in Asia—with 30 conditions to help protect the environment, including a requirement that dredge material be dumped on land instead of in water near the World Heritage-listed reef. The expanded port will serve one of the world’s largest coal mines that is being developed by Adani Group in Queensland, a state in eastern Australia where the Great Barrier Reef Marine Park is also located.

The Indian conglomerate aims to use the port to ship as much as 60 million tons of thermal coal annually to its power plants in India. “The port area is at least 20 kilometers from any coral reef and no coral reef will be impacted,” said a spokeswoman for Mr. Hunt, adding: “All dredge material will be placed onshore on existing industrial land.” The government of Queensland, which receives an estimated 6 billion Australian dollars (US$4.3 billion) a year from reef tourism, has yet to approve the expansion, but isn’t expected to block it with the government hoping to unlock a new wave of resource projects. The extension of Abbot Point will lead to the dredging of more than 1 million cubic meters of mud and rock nearby to the reef.

Environmentalists have been equally critical of Adani’s plans to build its Carmichael coal mine and associated infrastructure in the region—because of the potential impact on a native Australian lizard and another vulnerable species. Pro-environment groups said the federal government’s approval of the port expansion wouldn’t only harm wildlife, but also run counter to Australia’s pledge at the Paris global climate conference this month to work toward curbing emissions from fossil fuels such as coal, among the country’s top exports. “The Abbot Point area to be dredged is home to dolphins and dugongs which rely on the sea grass there for food,” said Shani Tager, a Greenpeace campaigner. “It’s also a habitat for endangered marine life like turtles and giant manta rays, and is in the path of migrating humpback whales. “It’s reckless and pointless to gouge away at a pristine habitat to build a port for a coal mine nobody needs,” she added.

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One more accident away from civil war.

Japanese Court Clears Way For Restart Of Nuclear Reactors (BBG)

A Japanese court has cleared the way for Kansai Electric Power to restart two of its nuclear reactors early next year. The Fukui District Court on Thursday removed an injunction preventing the operation of Kansai Electric’s Takahama No. 3 and No. 4 nuclear reactors, Tadashi Matsuda, a representative for the citizen’s group that initiated the case, said by phone. The court also rejected a demand by local residents to block the resumption of reactor operations at Kansai Electric’s Ohi plant. The ruling was earlier reported by broadcaster NHK. “We think that today’s decisions are a result of the understanding that safety at Takahama and Ohi is guaranteed,” Kansai Electric said in a statement. Residents of Fukui who oppose the restarts plan to appeal the ruling to a higher court, according to Matsuda.

Kansai Electric, the utility most dependent on nuclear power before the March 2011 Fukushima disaster, aims to restart Takahama No. 3 in late January or February, according to a company presentation last month. It is slated to be the third Japanese reactor to restart under post-Fukushima safety rules. Firing up both units will boost Kansai Electric’s profits by as much as 12.5 billion yen ($104 million) a month, according to Syusaku Nishikawa, a Tokyo-based analyst at Daiwa Securities. The two reactors at the Takahama facility, about 60 kilometers (37 miles) north of Kyoto, were commissioned in 1985 and have a combined capacity of 1,740 megawatts.

Operations of the units were suspended in the aftermath of the massive earthquake and tsunami in March 2011 that caused a meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi facility. The units received restart approval from the Nuclear Regulatory Authority in February, though court challenges stopped them from resuming operation. On Tuesday, Fukui prefecture Governor Issei Nishikawa granted his approval for the restarts. While not enshrined in law, local government approval is traditionally sought by Japanese utilities before they return the plants to service.

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Very much worth reading by Dmitry. I can’t copy the whole thing, but do read it.

On the 19th day of Christmas… [Am 19. Tag der Weihnachtszeit…] (Orlov)

You see, the Ukraine produces over half of its electricity using nuclear power plants. 19 nuclear reactors are in operation, with 2 more supposedly under construction. And this is in a country whose economy is in free-fall and is set to approach that of Mali or Burundi! The nuclear fuel for these reactors was being supplied by Russia. An effort to replace the Russian supplier with Westinghouse failed because of quality issues leading to an accident. What is a bankrupt Ukraine, which just stiffed Russia on billions of sovereign debt, going to do when the time comes to refuel those 19 reactors? Good question! But an even better question is, Will they even make it that far? You see, it has become known that these nuclear installations have been skimping on preventive maintenance, due to lack of funds.

Now, you are probably already aware of this, but let me spell it out just in case: a nuclear reactor is not one of those things that you run until it breaks, and then call a mechanic once it does. It’s not a “if it ain’t broke, I can’t fix it” sort of scenario. It’s more of a “you missed a tune-up so I ain’t going near it” scenario. And the way to keep it from breaking is to replace all the bits that are listed on the replacement schedule no later than the dates indicated on that schedule. It’s either that or the thing goes “Ka-boom!” and everyone’s hair falls out. How close is Ukraine to a major nuclear accident? Well, it turns out, very close: just recently one was narrowly avoided when some Ukro-Nazis blew up electric transmission lines supplying Crimea, triggering a blackout that lasted many days.

The Russians scrambled and ran a transmission line from the Russian mainland, so now Crimea is lit up again. But while that was happening, the Southern Ukrainian, with its 4 energy blocks, lost its connection to the grid, and it was only the very swift, expert actions taken by the staff there that averted a nuclear accident. I hope that you know this already, but, just in case, let me spell it out again. One of the worst things that can happen to a nuclear reactor is loss of electricity supply. Yes, nuclear power stations make electricity—some of the time—but they must be supplied with electricity all the time to avoid a meltdown. This is what happened at Fukushima Daiichi, which dusted the ground with radionuclides as far as Tokyo and is still leaking radioactive juice into the Pacific.

And so the nightmare scenario for the Ukraine is a simple one. Temperature drops below freezing and stays there for a couple of weeks. Coal and natural gas supplies run down; thermal power plants shut down; the electric grid fails; circulator pumps at the 19 nuclear reactors (which, by the way, probably haven’t been overhauled as recently as they should have been) stop pumping; meltdown!

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And what is left is being sold to investor funds.

Greek Banking Sector Cut In Half Since 2008 (Kath.)

The unprecedented crisis that has been squeezing the country since 2009 has seen domestic banks shrink to half the size they were seven years ago. According to data compiled by Kathimerini, some 50,000 jobs have been lost in the sector since 2008, of which 25,000 are in Greece and 25,000 abroad. The total number of branches has been reduced by 3,500 to 4,200 from 7,715 at the end of 2008. Local lenders have also halted operations at 1,700 branches in Greece as well as 2,175 cash machines. The number of branches in Greece has dropped by 42.3%, employees by 36% and ATMs by 28.7%. There are 49.3% fewer branches abroad and 51.7% fewer employees.

The storm within the banking system and the domestic economy is best reflected in the level of deposits and loans: The total deposits of €240 billion six years ago have now been cut in half to €120 billion. The sum of outstanding loans may be 35% less than in 2009 in theory, at €204 billion, but in reality the reduction is far greater, as €100 billion of that €204 billion is not being serviced. Therefore the real picture of the banking system shows deposits of 120 billion and serviced loans of less than €110 billion, meaning that the credit sector has halved since end-2008. Bank officials say that contraction was inevitable given the 25% decline of GDP from 2009 to 2015, with forecasts pointing to a greater recession in 2016.

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If the troika wants it, it’ll happen anyway.

No Further Cuts To Greek Pensions, Tsipras Tells Cabinet (Kath.)

Greek Prime Minister Alexis Tsipras has pledged there will be no further cuts to pensions adding that social security reform is necessary for the completion of the nation’s bailout program review by foreign creditors. “This red line is non-negotiable: we will not reduce main pensions for a 12th time,” Tsipras told his cabinet on Wednesday. Tsipras said the bailout agreement did not mandate fresh cuts to pensions. “What the agreement calls for is cuts in spending; it does not say that these will come by reducing pensions,” he said.

Previous cuts, Tsipras said, had brought Greek pensions down by an average 45%. However, they had failed to ensure the sustainability of the country’s social security system. The government is trying to build a viable system without disrupting social cohesion, the leftist PM said. Tsipras said that pension reform is the final prerequisite for wrapping up the assessment of the Greek program so that talks on debt relief can proceed. “The goal is to complete the first review as soon as possible while keeping in place a safety net for the weakest,” he said.

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Well written.

Donald Trump: An Evaluation (Paul Craig Roberts)

Donald Trump, judging by polls as of December 21, 2015, is the most likely candidate to be the next president of the US. Trump is popular not so much for his stance on issues as for the fact that he is not another Washington politican, and he is respected for not backing down and apologizing when he makes strong statements for which he is criticized. What people see in Trump is strength and leadership. This is what is unusual about a political candidate, and it is this strength to which voters are responding. The corrupt American political establishment has issued a “get Trump” command to its presstitute media. Media whore George Stephanopoulos, a loyal follower of orders, went after Trump on national television. But Trump made mincemeat of the whore.

Stephanopoulos tried to go after Trump because the world’s favorite leader, President Putin of Russia, said complimentary things about Trump, and Trump replied in kind. According to Stephanopoulos, “Putin has murdered journalists,” and Trump should be ashamed of praising a murderer of journalists. Trump asked Stephanopoulos for evidence, and Stephanopoulos didn’t have any. In other words, Stephanopoulos confirmed Trump’s statement that American politicians just make things up and rely on the presstitutes to support invented “facts” as if they are true. Trump made reference to Washington’s many murders. Stephanopoulos wanted to know what journalists Washington had murdered. Trump responded with Washington’s murders and dislocation of millions of peoples who are now overrunning Europe as refugees from Washington’s wars.

B ut Trumps advisors were not sufficiently competent to have armed him with the story of Washington’s murder of Al Jazerra’s reporters. Here is a report from Al Jazeera, a far more trustworthy news organization than the US print and TV media:

“On April 8, 2003, during the US-led invasion of Iraq, Al Jazeera correspondent Tareq Ayoub was killed when a US warplane bombed Al Jazeera’s headquarters in Baghdad. “The invasion and subsequent nine-year occupation of Iraq claimed the lives of a record number of journalists. It was undisputedly the deadliest war for journalists in recorded history.

“Disturbingly, more journalists were murdered in targeted killings in Iraq than died in combat-related circumstances, according to the group Committee to Protect Journalists. “CPJ research shows that “at least 150 journalists and 54 media support workers were killed in Iraq from the US-led invasion in March 2003 to the declared end of the war in December 2011.” “’The media were not welcome by the US military,’” Soazig Dollet, who runs the Middle East and North Africa desk of Reporters Without Borders told Al Jazeera. ‘That is really obvious.’”

A political candidate with a competent staff would have immediately fired back at Stephanopoulos with the facts of Washington’s murder of journalists and compared these facts with the purely propagandistic accusations against Putin which have no basis whatsoever in fact. The problem with Trump is the issues on which the public is not carefully judging him. I don’t blame the public. It is refreshing to have a billionaire who can’t be bought expose the insubstantialality of all the Democratic and Repulican candidates for president. A collection of total zeros. Unlike Washington, Putin supports the sovereignty of countries. He does not believe that the US or any country has the right to overthrow governments and install a puppet or vassal. Recently Putin said: “I hope no person is insane enough on planet earth who would dare to use nuclear weapons.”

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3700 deaths in the Mediterranean in 2015. We don’t have enough shale or tears left to do them justice. We’re morally gone.

20 Refugees Drown; 2015 Death Rate Over 10 Human Beings Each Day (CNN)

The Turkish coast guard launched a search and rescue mission after at least nine migrants drowned off the nation’s coast. Eleven people remain missing and 21 have been rescued, the coast guard said Thursday. There was no information on their country of origin. The International Organization for Migration released a report this week saying more than a million migrants had entered Europe this year. The figures show that the vast majority – 971,289 – have come by sea over the Mediterranean. Another 34,215 have crossed from Turkey into Bulgaria and Greece by land. Among those traveling by sea, 3,695 are known to have drowned or remain missing as they attempted to cross the sea on unseaworthy boats, according to IOM figures. That’s a rate of more than 10 deaths each day this year.

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Oct 022015
 
 October 2, 2015  Posted by at 3:01 pm Finance Tagged with: , , , , , ,  


NPA Fifth Avenue at W. 54th Street 1954

There’s so much negative real bad economic and financial news out there that it’s hard to choose a ‘favorite’, but I guess I’m going to have to go with what underlies and ‘structures’ it all, the IIF stating that for the first time since 1988 and the Reagan presidency, there’s more money flowing out of emerging markets than there’s flowing in. That is for sure a watershed moment.

And no, that trend is not going to be reversed either anytime soon. Emerging economies, even if they wouldn’t include China -but they do-, have relied exclusively on selling ‘stuff’ to the rich world which combined cheap commodities with cheap labor, and now they see their customer base shrink rapidly just as they were preparing to harvest the big loot.

Now, I hope I can be forgiven for thinking from the get-go that this was always a really dumb model. That emerging nations would provide the cheap labor, and the west would kill of its manufacturing base and turn into a service economy.

This goes very predictably wrong if and when we figure out that A) economies that don’t manufacture anything can’t buy much of anything, and B) that we can sell those services our economies are ‘producing’ only to ourselves, as long as the emerging nations maintain a low enough pay model to make their products worth our while to import.

It makes one wonder how many 6 year-olds would NOT be able to figure this out. In the same vein, how many of them would be hard put to understand that our economies, overwhelmed by, and drowning in, debt, cannot be rescued by more debt? Here’s thinking the sole reason so many of us don’t get it is that we’ve been told it’s terribly hard to grasp, and you need a 10-year university course to ‘get it’.

I see a bad US jobs report coming in as we speak, and that’s not really saying much of anything. The damage not only runs far deeper than those massaged reports, it’s also already been done ages ago. Non-farm employment reports are Brooklyn Bridge-for-sale territory.

We’d all be much better off looking at the $11-13 trillion in ‘value’ lost from global equity markets in Q3. Or, for that matter, at Goldman’s statement that, and I’m only slightly paraphrasing here, only companies buying up their own stocks could save the S&P 500 for 2015.

Think about it: we don’t make much of anything anymore, and what we do make hardly anybody wants to buy, so we issue debt and buy it up ourselves. This may well be presented as a clever ‘investment’ model, but I aks of you: how much closer to eating our own excrements are we comfortable getting?

Stock buybacks can have strategic advantages in specific circumstances in healthy economies, but massive buybacks on the back of too-cheap credit/debt is not one of those circumstances. It’s desperation writ very large.

One other article that stuck out, because it brings into the bright shining limelight the longtime Automatic Earth assertion that we are headed for a disastrous “multiple claims to underlying real wealth”, is Paul Brodsky’s piece served by Tyler Durden. It has far more value than any alleged jobs article, because it describes the real world, not some distorted fantasy:

There Are Five Times More Claims On Dollars As Dollars In Existence

[..] the data show plainly there are five times as many claims for US dollars as US dollars in existence. Does this matter to investors? Well, yes, it matters a lot. Not only is there not enough money to repay outstanding debt; the widening gap between credit and money is making it more difficult to service the debt and more difficult for nominal US GDP to grow through further credit extension and debt assumption.

Remember, only a dollar can service and repay dollar-denominated debt. Principal and interest payments cannot be made with widgets or labor, only dollars. This means that future demand and output growth generated through more credit issuance and debt assumption is self-defeating. In fact, it adds to the problem.

[..] the value of dollar-denominated assets is not supported by the money with which it is ostensibly valued. This has not been a problem historically because the proportion of un-reserved credit has been low relative to asset values and cash flow. As we are seeing today, however, it is becoming a significant problem because balance sheets are already highly levered and zero-bound interest rates chokes off the incentive to refinance asset prices higher.

If the total value of US denominated assets is, say, $100 trillion, and the US dollar money stock is somewhere around $12 trillion, then the inescapable implication is that the market’s expects either: a) $88 trillion more US dollars will be created in the future to fund the purchase of the gross asset pool at current valuations; b) there has to be a decline in the nominal value of aggregate assets, or; c) both.

The US is not going to ‘create’ $88 trillion. More debt cannot solve this. And so the only option available is a huge decline in asset ‘values’. ‘Values’ that have been grossly distorted for years now, and which we all could have known can’t be kept from falling back to earth indefinitely.

Just this morning, we saw 3 other key indicators all point way down. That’s not in itself peculiar or anything, what’s peculiar is that it’s taken so long for people to figure out which way the wind blows. And I betcha, most still won’t get it. Because they’re all exclusively looking for signs of a recovery.

They’ve been looking for 8 years or so now, and there’s always some piece of data that can be found to feed the blinders, but it’s all been nonsense for 8 years running. Your economy, my economy, and the global economy, can and will not recover, and certainly not as long as more debt is injected in our already insanely overindebted financial systems.

You can’t fight historically unequaled amounts of debt with even more debt. But yeah, well, that’s the only trick our pony can think of. Those 3 key indicators -and there’s more where they came from- are the Guardian Gauge: ‘Destruction Of Wealth’ Warning Looms Over Stocks, the Global Dow: Key Global Equity Index Has Fallen Off The Precipice and the IIF’s take on net capital flows for global emerging markets I started out with, Is This The Mother Of All Warnings On Emerging Markets?

I don’t want to make this another of those endless articles, but do click the links, and do read up on each of them. And then shiver. Have a stiff drink. Unless you’re still looking for a recovery. And let’s not forget, yes, it’s true that massive stock buybacks in the US, Europe, perhaps even China, as well as more QE to infinity and beyond, may save a bunch of numbers and you might be sitting pretty yet under the yuletide tree.

But the simplest of principles stands no matter what: there’s no way out of this that doesn’t lead through the exact kind of massive debt deleveraging that all governments and central banks are ostensibly trying desperately to prevent. And which will make the debt deflation, certainly after 8 years of trying to push the 180º opposite way, epic and monumental.

On the bright side: at least if you would have read the Automatic Earth through those past 8 years, you would have known and hopefully been prepared for that debt deflation. It’s not as if it’s something new or unexpected, not around here.

$13 trillion in market losses in just one quarter would be very hard to make up for even in very favorable circumstances. We have no such circumstances. We’ve built our very lives on squeezing China et al for 27 years, and issuing more debt as if there’s no tomorrow -sort of a self-fulfilling prophecy-, and now we’ve belatedly realized that there’s a time limit on that model.

But hey, by all means, it’s your money, and it’s your life, so do keep on betting on that recovery, and the return to ‘normal’, whatever that once was. Put it all on red. Go crazy! You do risk becoming a lonely crowd though. Meanwhile, those of us down here with our feet planted in the real earth have just this one question: “How bad can this get, and how fast?”.

Sep 212015
 
 September 21, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein Interior of migratory fruit worker’s tent, Yakima, Washington Jul 1936

The Least-Believed Recovery And The Least-Believed Bull Market (Bloomberg)
Yellen Is Trapped in the Worst Nightmare Ever (Martin Armstrong)
Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (Bloomberg)
Fed’s Lacker Says Economy Strong Enough For Higher Rates (Reuters)
Fed’s Williams Still Sees 2015 Rate Hike After ‘Close Call’ (Reuters)
Volkswagen Plunges 25% After US Emissions Cheat Scandal (Bloomberg)
Greece’s Year Of Tumult Enters New Chapter As Tsipras Dominates (Bloomberg)
Debt Relief Tops Tsipras Agenda, Party Official Says (Reuters)
EU’s Schulz Says Cannot Understand Tsipras’ Greek Coalition Choice (Reuters)
A Frontline Solution to Europe’s Refugee Crisis: Remember Ellis Island (WSJ)
Central Europe Gives Up On Holding Refugees Back From Austria (Guardian)
We Must Act Together, Says Merkel Ahead Of Refugee Summit (Guardian)
Merkel Coalition at Odds Over Proposal to Cap EU Asylum Places (Bloomberg)
15,000 More Refugees To Be Resettled In US Next Year (WaPo)
UN Meets To Fight Poverty, Europe Puts Up Razor Wire To Keep Poor Out (Guardian)
Why China Is Turning Back to Confucius (WSJ)
Was Standard Chartered Flouting US Iranian Sanctions? (FT)
Nine On Lagarde List Being Probed For Money Laundering (Kath.)
The Massacre Of The Kurds And The Silence Of Europe (M5S Lower House)
Safe Assets In A World Gone Mad (Chatham)
People Have No Idea How Money Is Created (PM.org)

“This is the least-believed economic recovery and the least-believed bull market of our careers..”

The Least-Believed Recovery And The Least-Believed Bull Market (Bloomberg)

Investors hate stocks – again. Amid a six-year bull market that’s notable mainly for how little conviction there is in it, equity sentiment is plunging at a historic rate, falling by some measures at the fastest pace since Federal Reserve Chairman Paul Volcker had just finished pushing up interest rates in the 1980s. The cost to hedge against stock losses is soaring, valuations are contracting, and bearishness among professional stock handicappers is rising the most in three decades. Fret not. All of this is good news for bulls, if history is any guide. Since 1963, the S&P’s 500 Index has advanced an average 11% in the year after newsletter writers surveyed by Investors Intelligence were as pessimistic as they are now, data compiled by Bloomberg show. That compares with an annualized return of 8.3%.

Skepticism is one thing the rally since 2009 hasn’t lacked – and it may be the best thing stocks have going for them as corporate profits fall, concerns deepen over China’s travails, oil and commodities plunge and the Fed turns more pessimistic on global growth. Some traders even say they see bargains after S&P 500 posted its first 10% retreat in four years. “This is the least-believed economic recovery and the least-believed bull market of our careers,” said Bob Doll, chief equity strategist at Chicago-based Nuveen Asset Management, which oversees $130 billion and bought stocks during the August selloff. “The nervousness means people have stepped to the sidelines. The question is, who is left to sell? Everybody who has cash is a potential buyer.”

Investors have bailed out of stocks at every sign of trouble since 2009, from the euro crisis to ebola, with the latest catalyst coming from China’s devaluation of its currency. The distrust has been a barrier to euphoria, a quality that historically is the bigger threat to bull markets. Fear reigns, spreading faster than any time since 1984 as the S&P 500 tumbled 10% over four days in August. At the start of this month, the bull-to-bear ratio in Investors Intelligence’s survey of newsletter writers fell to a four-year low of 0.9. In April, when bulls dominated the market that was heading for an all-time high, the ratio reached 4.1.

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“..they MUST raise rates or they will bankrupt countless pension funds and international where emerging markets will go into default..”

Yellen Is Trapped in the Worst Nightmare Ever (Martin Armstrong)

Yellen has inherited a complete nightmare. Thursday’s decision to delay yet again the long-awaited liftoff from zero interest rates is illustrating that the world economy is totally screwed. There is a lot of speculation about why the Fed seems so reluctant to “normalize monetary policy”. There are of course the typical domestic issues that there is low inflation, weak wage gains in the face of strong job growth, a hike will increase the Federal deficit and then there is the argument that corporations that now have $12.5 trillion in debt. All that is nice, but with corporate debt, our clients are locking in long-term at these levels, not funding anything short-term.

Those clients who have listened are preparing for what is to come unlike government which has been forced to shorten the average duration of their debts blind to what happens when rates rise, which will be set in motion by the markets – not Yellen. Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money. The Fed is also caught between domestic policy objectives that dictate they MUST raise rates or they will bankrupt countless pension funds and international where emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the US national debt.

By avoiding the normalization of interest rates (hikes), the Fed has encouraged government to spend far more than they realize because money is cheap. This will eventually light the fire under the economy helping to fuel the Sovereign Debt Crisis. There appears to be no hope for the Fed and they will be forced to raise rates only when they see asset inflation in equities. Then they will have no choice. This is the worst possible mess and the longer they have waited to normalize interest rates, the worst the total crisis is becoming for they will have zero control over the economy and once that is seen, holy Hell will break lose.

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“..a structural shift has beset the world economy.”

Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (Bloomberg)

The global economy caused Janet Yellen to pause for thought. It could spur Mario Draghi to act. After the Federal Reserve chair held off from a U.S. interest-rate increase amid concerns that world growth will weaken, her counterpart at the ECB may give clues on the need for further stimulus for the euro area. Draghi and other Governing Council members will make public appearances this week, while data releases will show whether the currency bloc is succumbing to, or shaking off, the gloom. Like the U.S., the euro area is stuck with stubbornly low inflation. Unlike Yellen, Draghi can’t yet rely on domestic demand to lift prices. Whether because the Fed’s delay leads to a stronger euro, or because of the drag of emerging markets, economists see it as increasingly likely that the ECB will be called on its pledge to boost its €1.1 trillion bond-buying program if needed.

“The worry is that, previously, central banks assumed that global growth would be materially stronger in 2016, but that doesn’t look likely now,” said Nick Kounis at ABN Amro in Amsterdam. “If the Fed had hiked rates, it would have given the ECB some breathing space. Now the pressure is on them again.” The ECB’s optimism that a home recovery coupled with stronger external demand would steer inflation back to the goal of just under 2% is now being replaced by concern that a structural shift has beset the world economy. Executive Board member Peter Praet, the institution’s chief economist, said in an interview published over the weekend that policy makers “won’t hesitate to act” if it they reach that conclusion. Draghi’s lieutenants have been reinforcing that message since the Fed’s rate decision last week.

Benoit Coeure, the ECB’s markets chief, said in a speech in Paris on Friday that prospects for growth in the euro area have “clearly weakened,” and aren’t helped by a euro that’s now strengthening against the currencies of its main trading partners. The single currency has gained 3.5% in trade-weighted terms since mid-July and more than 4% against the dollar. European bonds jumped after the Fed’s Sept. 17 decision to keep its benchmark rate at a record low. Both Praet and Coeure speak in public on Monday, followed by Draghi’s appearance at a European Parliament hearing in Brussels on Wednesday. Hours before Draghi addresses lawmakers, purchasing managers’ surveys for September may tell investors whether Europe’s manufacturing and services industries are indeed succumbing to lower external demand, or whether domestic consumers are helping to prop them up.

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“..public understanding of the Fed’s behavior “an essential foundation for the monetary stability we currently enjoy.”

Fed’s Lacker Says Economy Strong Enough For Higher Rates (Reuters)

Richmond Federal Reserve President Jeffrey Lacker on Saturday said he dissented at a Fed policy meeting because he thought the economy was now strong enough to warrant higher interest rates. Fed policymakers on Thursday voted to keep the Fed’s target interest rate at between zero and a quarter point. “Such exceptionally low real interest rates are unlikely to be appropriate for an economy with persistently strong consumption growth and tightening labor markets,” Lacker said in a statement. He was the lone dissenter among the 10 Fed officials who voted at the meeting. Lacker said the Fed’s target should rise by a quarter point. Lacker has a history of dissent in Fed policy meetings. In 2012, he voted against eight straight policy decisions by the central bank.

At the time he was urging the Fed to wind down asset purchases that were aimed at stimulating the economy. Regarding Thursday’s decision at the Fed, Lacker said a rebound in consumer spending and “tightening labor markets” meant the economy no longer needed zero interest rates. He said keeping interest rates at their current level deviated from the way the Fed has responded to the economy in the past, which was dangerous because public understanding of the Fed’s behavior was “an essential foundation for the monetary stability we currently enjoy.” “Such departures are risky and raise the likelihood of adverse outcomes,” Lacker said.

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Extending the narrative.

Fed’s Williams Still Sees 2015 Rate Hike After ‘Close Call’ (Reuters)

An interest rate hike will likely be appropriate this year given the U.S. Federal Reserve’s decision last week to stand pat was a “close call,” a top Fed policymaker said on Saturday. John Williams, a centrist and president of the San Francisco Fed, said the arguments for and against beginning to tighten U.S. monetary policy are about balanced now that the economy is on solid footing, giving him confidence in continued economic and labor market growth. Williams, the first U.S. policymaker to speak publicly since the Fed’s much-anticipated decision on Thursday, suggested he is almost ready to pull the trigger on a rate hike. He acknowledged the risks from a slowdown in China and global downward pressure on inflation, noting a rate rise in 2015 is not guaranteed.

But he said full U.S. employment should be achieved “in the near future” and inflation, while still too low for comfort, should gradually move back to a 2% goal. “Given the progress we’ve made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year,” he said at a weekend conference on the China-U.S. financial system. The Fed’s decision to leave rates near zero “was a close call in my mind, in part reflecting the conflicting signals we’re getting,” he said. “The U.S. economy continues to strengthen while global developments pose downside risks to fully achieving our goals.”

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Falling further as the day goes on. “The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines.”

Volkswagen Plunges 25% After US Emissions Cheat Scandal (Bloomberg)

Volkswagen dropped the most in almost seven years after it admitted to cheating on U.S. air pollution tests for years, risking billions in potential fines and a backlash from consumers in the world’s second-biggest car market. The shares declined as much as 17%, or €27.9, to €134.5 in Frankfurt, the most since Nov. 3, 2008. The drop extends the slump for the year to 25%, valuing the Wolfsburg, Germany-based company at €65.3 billion. Volkswagen Chief Executive Officer Martin Winterkorn said on Sunday that the company is cooperating with the probe and ordered its own external investigation into the issue. The CEO said he was “deeply sorry” for breaking the public’s trust. VW has halted sales of the car models involved, which were a cornerstone of Winterkorn’s effort to catch up in the U.S.

The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines. Criminal prosecution is also possible. “If this ends up having been structural fraud, the top management in Wolfsburg may have to bear the consequences,” said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG, whose share rating is under review. The German carmaker admitted to fitting its U.S. diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said Friday. The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines. Criminal prosecution is also possible.

Analysts at Kepler Cheuvreux downgraded the shares to “hold” from “buy,” cutting their target price 27% to €185. Volkswagen faces not only a short-term drop in sales and hit to its reputation but also the longer-term risk of litigation in the U.S., the analysts wrote in a note on Monday. During normal driving, the cars with the software – known as a “defeat device” – would pollute 10 times to 40 times the legal limits, the EPA estimated. The discrepancy emerged after the International Council on Clean Transportation commissioned real-world emissions tests of diesel vehicles including a Jetta and Passat, then compared them to lab results. Volkswagen had counted on clean, powerful diesel cars to help it build its sales in the U.S., where it has struggled for years. Sales of VW-brand cars in the country dropped 10% last year to 366,970.

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Lame duck.

Greece’s Year Of Tumult Enters New Chapter As Tsipras Dominates (Bloomberg)

Greek voters had the choice to reject the man who led their country closer than ever to being forced out of Europe’s single currency. Instead, they embraced him. Alexis Tsipras and his Coalition of the Radical Left, or SYRIZA, emerged from a second election in eight months with a level of support barely diminished from the emphatic victory that catapulted him both into power and a standoff with the euro region. SYRIZA, which took 35.5% of the vote compared with 28.1% for the center-right New Democracy, will enter a coalition with the same small party that helped it rule before. While the victory tightens Tsipras’s hold over Greek politics, it also exposes the paradoxes of a country whose economy is a shadow of its former self and where controls remain on bank withdrawals.

After coming to power pledging to end austerity and restore “dignity,” Tsipras now must implement the further sharp spending cuts and tax increases he ended up agreeing to in exchange for €86 billion of fresh European aid. The electorate has voted to return to power a party that “ditched its promises, switched its policies, and caused the collapse of Greek banks, bringing in an unneeded recession,” said Stathis Kalyvas, a professor of political science at Yale University. On the other hand, “this government will be called to implement a stringent set of fiscal and structural reforms that it vigorously rejected before,” he said.

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What EU says is non-negotiable.

Debt Relief Tops Tsipras Agenda, Party Official Says (Reuters)

Negotiations over Greece’s debt will top the agenda for Prime Minister-elect Alexis Tsipras from Monday as he prepares for a return to office following a surprisingly easy national election win, a senior source from his party said. Tsipras and his leftist SYRIZA party clinched a clear victory in Sunday’s poll as voters put aside his dramatic U-turn over Greece’s international bailout to offer him a second chance to steer a battered economy to recovery. SYRIZA said on Sunday it plans to govern in a coalition with the small right wing Independent Greeks party, the same partner Tsipras chose after winning the country’s previous general election in January. But to strengthen his hand in talks with EU partners over how to ease Greece’s debt burden, he will seek a broader consensus among the parties he defeated on Sunday, the party source said.

“We will continue negotiations in the coming period, with the debt issue being the first and most important battle,” the source said. “We will ask all political forces to support our efforts.” Some European governments, particularly Germany, are opposed to cutting Greece’s debt – a so-called haircut – but not averse to stretching out its repayment schedule. Eurozone officials told Reuters last week that governments are ready to cap Greece’s debt-servicing costs at 15% of GDP annually over the long term. That would mean the nominal payment would be lower if the Greek economy struggled, higher if it was more robust, they said.

Tsipras is also planning to form a national council for European policy, including representatives of parties other than the Independent Greeks and which would advise the finance minister, the SYRIZA source said. Centre-left daily newspaper Ethnos tipped Euclid Tsakalotos, the former finance minister who brokered terms of the bailout accord in August, to be re-appointed. JP Morgan analyst Malcolm Barr said he expected some sort of debt restructuring to be in place by early next year. “We continue to think that… the (bailout) programme will make enough progress to allow a restructuring of loans from euro area countries by the end of the first quarter of 2016,” he wrote in a note.

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Brussels has lost all sense of the limits of interfering in sovereign nations. This is none of Schulz’s business.

EU’s Schulz Says Cannot Understand Tsipras’ Greek Coalition Choice (Reuters)

The head of the European Parliament, Martin Schulz, lamented on Monday the decision by Greek leftist Alexis Tsipras to renew a coalition with the small right-wing Independent Greeks party. Tsipras stormed back into office with an unexpectedly decisive election victory on Sunday, claiming a clear mandate to steer Greece’s battered economy to recovery. The vote ensured Europe’s most outspoken leftist leader would remain Greece’s dominant political figure, despite having been abandoned by party radicals last month after he caved in to demands for austerity to win a bailout from the eurozone. Speaking to France Inter radio, Schulz said he could not understand Tsipras’ decision to bring the Independent Greeks, who polled less than 4% of the vote, back into government.

“I called him (Tsipras) a second time to ask him why he was continuing a coalition with this strange, far-right party,” Schulz said. “He pretty much didn’t answer. He is very clever, especially by telephone. He told me things that seemed convincing, but which ultimately in my eyes are a little bizarre.” Independent Greeks leader Panos Kammenos says the bailout by the European Union, European Central Bank and International Monetary Fund has reduced Greece to the status of a debt colony.

The party differs from Syriza on many traditionally conservative issues, pledging to crack down on illegal immigration and defend the close links between the Orthodox Church and the state. Schulz said he admired Tsipras for the way he had navigated through the last year to get himself re-elected, but said Kammenos was a loose canon who always needed to be controlled. “It’s politically and strategically something that you have to admire,” he said. “But after … this renewed mandate with this far-right, populist party, that I don’t understand.”

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The US must be part of the solution too.

A Frontline Solution to Europe’s Refugee Crisis: Remember Ellis Island (WSJ)

Tabanovce, Macedonia: This quaint Macedonian village provides a useful vantage point for anyone hoping to grasp the scale of the current European refugee crisis. Up to 7,000 refugees have been passing through here daily before crossing the border with Serbia. A generation ago this region escaped communism, then fought bitter ethnic and sectarian wars that lasted until 2001. Now its nations find themselves in the eye of a humanitarian storm. And Europe is no closer to a durable solution. Short of military intervention to stabilize some of the Middle East hotspots the refugees are fleeing, the only long-term response is to develop legal, safe conduits that bring refugees to European Union-funded and operated frontline processing centers, say, on the Greek and Italian isles and Turkey’s western coast.

Asylum-seekers would be offered fair, humane and expedient processing. Those relying on trafficker routes would be routed back to these centers. Accepted refugees would be placed depending on host-country capacity, family and communal ties, and related factors. The U.S. experience on Ellis Island at the turn of the 20th century is instructive. The island processed an astonishing 1.25 million immigrants in 1907, a banner year for U.S. immigration. In the next decade U.S. immigration authorities also mastered immigrant processing—including ultra-efficient medical checks and questioning—aboard ships. The situations aren’t precisely analogous. At Ellis Island’s height as a processing center, America maintained a more or less open-door policy.

But the main lesson for Europe today lies in the American government’s ability at that time to impose order on human chaos on a scale similar to the current refugee crisis. Central to that success was the existence of a singular executive with broad discretion to examine, process, accept and in some cases reject migrants. Compare that achievement with Europe’s mess today. As the crisis mounted, the states on the Balkan corridor—Greece, Macedonia, Serbia and Turkey—provided refugees easy passage toward Hungary. Macedonia and Serbia especially became efficient at getting refugees in and out of their territory as quickly as possible, sometimes within a day. Balkan governments knew that most refugees were headed for Germany, Sweden and the like, and after minimal processing they granted papers allowing refugees to head north.

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Should have been done from the start.

Central Europe Gives Up On Holding Refugees Back From Austria (Guardian)

The countries of central Europe suspended their resistance this weekend to Europe’s largest refugee exodus since the second world war, as Hungary, Slovenia and Croatia all shunted tens of thousands of people towards Austria, reversing most recent attempts to block their passage. At least 15,000 refugees mainly from Syria, Afghanistan and Iraq were funnelled from Croatia into Hungary and then onwards to Austria over the weekend, the Austrian news agency APA said, after Hungary temporarily gave up trying to stop refugees from crossing its border. Another 2,500 have crossed from Croatia into Slovenia, despite Slovenia initially trying to block their passage. The moves represent a volte-face from both countries – and in particular from Hungary.

The Budapest government had previously tried to stop the entry of undocumented travellers by building a fence along its southern border with Serbia, and by posting military vehicles on its western border with Croatia. But by Sunday, its resistance was mostly rhetorical. The country admitted thousands of refugees over the weekend from Croatia, whose shared border is not yet blocked by a fence, even as foreign minister Péter Szijjártó promised tougher measures in the future. Szijjártó said: “We are a state that is more than 1,000 years old that throughout its history has had to defend not only itself, but Europe as well many times. That’s the way it’s going to be now.”

Thousands more continued to enter Europe on Saturday and Sunday at the other end of the refugee route in the Greek islands, where coastguards said that 24 people were feared to have drowned on Sunday. An inflatable refugee boat, attempting to reach Lesbos from the Turkish shoreline, capsized before it reached its destination, and only 22 out of 46 passengers were rescued. The number of migrant shipwrecks in the Aegean has increased in recent days, with Sunday’s incident the sixth in a week of accidents that have left around 100 dead.

For many of the survivors, the trauma has not ended with their rescue: it emerged on Sunday that more than 200 Syrians and Iraqis saved by the Turkish coastguard following the sinking of their ship near Kos had allegedly been threatened with deportation back to the war zones they had just fled. One Syrian survivor, who asked not to be named as she is still in detention, said in a voice message: “They are threatening us that Syrians will be deported to Syria, Iraqis to Iraq. If they send us back to Syria we will die.” The Turkish government has denied any Syrians will be deported.

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No kidding, the headline still said ‘emergency summit’.

We Must Act Together, Says Merkel Ahead Of Refugee Summit (Guardian)

A divided European leadership will try to seek a credible response to the continent’s worst migration crisis since second world war at an emergency summit on Wednesday. As central European countries abandoned attempts to stop thousands of refugees from crossing their borders towards Austria on Sunday, German chancellor Angela Merkel called on her peers to accept joint responsibility. “Germany is willing to help. But it is not just a German challenge, but one for all of Europe,” Merkel told a gathering of trade unionists. “Europe must act together and take on responsibility. Germany can’t shoulder this task alone.“ Striking a more sceptical tone on migration than in previous weeks, Merkel also warned that Germany could not shelter those who were moving for economic reasons rather than to flee war or persecution.

“We are a big country. We are a strong country. But to make out as if we alone can solve all the social problems of the world would not be realistic,” she told a gathering of the Verdi trade union. The foreign ministers of the Czech Republic, Hungary, Poland, Slovakia, Romania and Latvia will hold talks on Monday with their counterpart from Luxembourg, which currently holds the EU presidency, aimed at addressing divides between neighbouring states. Donald Tusk, president of the European Council, who chairs EU summits, said on Twitter on Sunday following a weekend visit to Jordan and Egypt that the EU needed to help Syrian refugees find a better life closer at home.

That will be one of the topics of discussion for Wednesday’s summit in Brussels as hundreds of thousands of refugees and migrants brave the seas and trek across the Balkan peninsula to reach the affluent countries of northern Europe. The 28-member bloc has struggled to find a unified response to the crisis, which has tested many of its newer members in the east that are unaccustomed to large-scale immigration. On Sunday Hungary erected a steel gate and fence posts at a border crossing with Croatia, the EU’s newest member state. Overwhelmed by an influx of some 25,000 migrants this week, Croatia has been sending them north by bus and train to Hungary, which has waved them on to Austria.

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Europe remains in bland denial of reality. And that’s dangerous.

Merkel Coalition at Odds Over Proposal to Cap EU Asylum Places (Bloomberg)

German Vice Chancellor Sigmar Gabriel said he doesn’t “understand” Interior Minister Thomas de Maiziere’s proposal for the European Union to set an upper limit to the number of people it accepts as asylum seekers. “It’s the opposite of what the Chancellor has rightly said, namely that those who arrive in Germany and apply for asylum need a fair procedure,” Gabriel, who’s also chairman of the Social Democratic Party, said Sunday on ARD public television. “It is not a solution to establish quotas for asylum seekers. Incidentally, it is also contrary to the German constitution.” Support for two German opposition parties not represented in parliament rose as criticism of Merkel’s handling of Europe’s refugee crisis mounted.

Backing for the Free Democrats, Merkel’s former coalition partner, and the anti-euro Alternative for Germany party each increased 1%age point to 5% in a weekly poll, Bild am Sonntag reported. “We can’t host all the people from conflict areas and all poverty refugees who want to come to Europe and to Germany,” de Maiziere told Germany’s Spiegel magazine. “The right way would be that we in the EU commit ourselves to fixed, generous quotas for the admission of refugees.” A call by one of his party deputies that de Maiziere, a member of Chancellor Angela Merkel’s Christian Democratic Union, should resign unless he succeeds at accelerating asylum procedures was “nonsense,” Gabriel said.

Labor Minister Andrea Nahles said in an interview with Deutschlandfunk public radio she expects German unemployment figures to rise next year due to “a significant increase” in the number of refugees seeking work as “not every refugee who comes now is already automatically a qualified worker.” All parties represented in the lower house of parliament shed 1%age point in the Emnid poll, with Merkel’s Christian Union bloc dropping to 40%, her Social Democrat coalition partner to 24%, the Greens to 10% and the Left party to 9%.

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How about 1 million, just to begin with?

15,000 More Refugees To Be Resettled In US Next Year (WaPo)

The United States will increase its cap on the number of refugees it admits and resettles to 85,000 in the coming fiscal year and to 100,000 in 2017, Secretary of State John F. Kerry said Sunday. The additional refugees, up from 70,000 in the current fiscal year that ends Sept. 30, will come from countries around the world. But the increase largely reflects the 10,000 Syrian refugees that the White House earlier this month promised to admit. Kerry said the administration is exploring ways to admit even more, but Congress must approve enough money to cover the extra cost of resettlement. “This step is in keeping with America’s best tradition as a land of second chances and a beacon of hope,” Kerry said in announcing the increase during a visit to Berlin to discuss the Syrian refugee crisis with his German counterpart, Frank-Walter Steinmeier.

Even before Syrian refugees began streaming into Europe in recent weeks, the State Department had been considering a modest increase of about 5,000 refugees, including more from Congo, where human rights abuses are rampant. At the end of each fiscal year, the State Department announces the new target number for refugees. Although the administration can unilaterally set a numerical goal for the refugees it wants to accept, it is up to Congress to agree to fund the resettlement. In the current fiscal year, it cost $1.1 billion to bring 70,000 refugees to the United States, put them through an orientation program run by refugee charities and have them dispersed throughout the country. It was not immediately clear how much more it will cost to bring in more Syrians.

One of the reasons it is so expensive is that every refugee must undergo extensive background checks under security measures enacted after the terrorist attacks of Sept. 11, 2001. Those checks have been taking 18 to 24 months for Syrians, according to State Department figures. A senior State Department official said many, many more refugees could be admitted if officials can find ways to streamline the system without jeopardizing security. Refugees admitted for resettlement are selected from lists provided by the United Nations High Commissioner for Refugees. So far, about 1,600 of more than 18,000 Syrians referred by the U.N. refugee agency since the conflict began have arrived in the United States about 1,500 in this fiscal year alone. More than 10,000 are well along in being vetted, and they are expected to arrive in much greater numbers in the coming months.

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Let’s be honest, that UN meeting willl lead to nothing at all.

UN Meets To Fight Poverty, Europe Puts Up Razor Wire To Keep Poor Out (Guardian)

The contrast could hardly be sharper. Razor wire fences are being constructed to keep the uprooted poor out of the European Union at the very moment the United Nations meets to agree anti-poverty goals for the next 15 years. No question, the gathering in New York will be a regular jamboree. There will be mutual backslapping about the progress that has been made over the past 15 years, a good deal of it justified. Countries will solemnly pledge to meet the 17 sustainable development goals, with 169 specific targets, by 2030. They will turn a blind eye to what is happening in Serbia, Hungary, Croatia and Austria. The truth, though, is that there is a link between the UN shindig and the most severe refugee crisis in generations: inequality.

It is the obvious disparity between life in a rich country and life in a poor country that makes the long and dangerous journey to the west attractive. It is the gap between rich and poor within developed countries that has helped foster a deep suspicion, not just of unlimited migration, but of free movement of capital and goods as well. And without addressing inequality head on, ensuring that growth benefits the poor by as much as it benefits the rich, there is not the remotest chance that the ambitious goals being embraced in New York this week will be met. Here’s the picture. The SDGs replace the millennium development goals that set the framework for poverty reduction between 2000 and 2015, but are much tougher.

The MDGs sought to make progress in areas such as poverty reduction or infant mortality: the SDGs will commit the international community to more ambitious goals, which include ending poverty and hunger, and ensuring healthy lives and access to quality education for all. There are reasons to be optimistic. Much progress has been made in the past two decades, in large part due to the rapid growth in China. One billion people have been lifted out of poverty and the MDG objective of halving the number living below the global agreed minimum was achieved five years early. This will be seen by world leaders as evidence that even more can be done in the next 15 years.

But achieving the new SDGs would be a gargantuan task in the best of times. And these are not the best of times. China is growing more slowly, with concerns that doctored official figures mask a hard landing. Emerging markets in the rest of the world are being hurt both by weaker Chinese demand for their commodities and by the continued sluggishness of the big western economies. The Great Recession of 2008-09 continues to cast a long shadow.

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Back to the future. “Mr. Xi is backfilling his vision and seeking a fresh source of legitimacy by reinventing the party as inheritor and savior of a 5,000-year-old civilization.”

Why China Is Turning Back to Confucius (WSJ)

One Thursday morning in June, 200 senior officials crammed into an auditorium in the Communist Party’s top training academy to study a revolutionary idea at the heart of President Xi Jinping’s vision for China. They didn’t come to brush up on Marx, Lenin or Mao, staple fodder at the Central Party School since the 1950s. Nor were they honing their grasp of the state-guided capitalism that defined the nation for the last 35 years. They came to hear Wang Jie, a professor of ancient Chinese philosophy and a figure in the country’s next ideological wave: a renaissance of the traditional culture the Communist Party once sought to destroy.

For two hours, Prof. Wang says, he reeled off quotes from Confucius and other Chinese sages—whom the party long denounced as feudal relics—and urged his audience to incorporate traditional concepts of filial piety and moral rectitude into their personal and professional lives. “I’m getting hoarse,” Prof. Wang says over a cup of green tea after class. The previous day, he had lectured at the culture ministry and, the day before, at the commerce ministry. Monday would be the insurance regulator. “Xi Jinping’s words,” he says, “have lit a fuse.” Two years after outlining a “China Dream” to re-establish his nation as a great world power, Mr. Xi is backfilling his vision and seeking a fresh source of legitimacy by reinventing the party as inheritor and savior of a 5,000-year-old civilization.

The shift forms the backdrop for Mr. Xi’s visit to the U.S. this week and could shape China for years. Mr. Xi appears to be seeking to inoculate Chinese people against the spread of Western political ideals of individual freedom and democracy, part of what some political insiders say he views as a long-term contest of values and ideology with the U.S. The effort is gaining urgency now, as an economic slowdown and stock-market rout fray the social compact of the last three decades in which citizens traded political freedom for rapid wealth creation. With Communist dogma and Chinese-style capitalism losing appeal, the party needs fresh ideas. “It’s like the prodigal son returning,” says Guo Yingjie, a University of Sydney Chinese-studies professor who wrote a book on Chinese cultural nationalism. “China has had more than a century of anti-traditionalism. Now they’re heading in the opposite direction.”

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Well, obviously: “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

Was Standard Chartered Flouting US Iranian Sanctions? (FT)

The expletive-laden exclamation attributed to a senior Standard Chartered executive in 2006 may well come back to haunt the British bank. “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” For US authorities, who included the quote in a legal filing, the statement came to define StanChart’s “obvious contempt” for American banking regulations, including sanctions designed to cut Iran off from access to the US dollar. Nine years on, after paying nearly $1bn in fines to US regulators and law enforcement agencies for sanction breaches and compliance failures, StanChart seems no closer to ending its legal problems. An FT investigation has identified transactions involving Iran that could put the bank at risk of severe penalties ranging from further fines to suspension or loss of its crucial dollar clearing licence.

Documents seen by the FT suggest that StanChart continued to seek new business from Iranian and Iran-connected companies after it had committed in 2007 to stop working with such clients. These activities include foreign exchange transactions that, people familiar with StanChart operations say, would have involved the US dollar. The documents suggest the bank — a few months after a costly settlement with US authorities in 2012 — was still internally reviewing its client list and was unable to determine in certain cases whether customers were Iranian or not. For Bill Winters, the American former JPMorgan investment banker who took over as StanChart’s chief executive in June, the stakes could hardly be higher. The London-listed lender, that specialises in Asia, the Middle East and Africa, is already grappling with slowing growth in emerging markets and a slide in commodity prices.

While it has relatively small operations in the US, the loss of its dollar clearing licence would deal a crippling blow to StanChart’s ability to finance the trade, energy and cross-border activities that have become its main focus. Suspending the dollar clearing rights for banks accused of breaching sanctions is a rare punishment. But US regulators have cracked down hard on institutions for breaching sanctions on Iran, amid concerns about money flowing to the country’s nuclear programme or to militant Islamist organisations such as Hizbollah in Lebanon or the Palestinian group, Hamas. The US has mostly relied on levying heavy fines against non-US banks for using dollars to do business with Iran — frequently causing controversy in those banks’ home countries. BNP Paribas last year paid $8.9bn in fines and had some dollar clearing rights suspended temporarily for such breaches, prompting angry accusations from French politicians of US over-reach.

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I’ll believe it when I see it.

Nine On Lagarde List Being Probed For Money Laundering (Kath.)

Greek judicial authorities are investigating the possibility that up to nine people on the Lagarde list of Greeks with deposits at the Geneva branch of HSBC were involved in a large money-laundering network, Kathimerini understands. Prosecutors from Greece recently questioned Herve Falciani, the former HSBC employee who extracted the data on the list, and he is believed to have given them information that points to the existence of a major money-laundering operation. Prior to speaking to Falciani, Greek authorities had identified three suspects. Kathimerini understands that Greek prosecutors, led by the head of the first instance prosecutor’s office, Ilias Zagoraios, have been in contact with counterparts in France, Spain and Italy regarding the matter. They are expected to make a second trip to Paris to interview Falciani in the coming weeks.

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More trouble on the way.

The Massacre Of The Kurds And The Silence Of Europe (M5S Lower House)

“In the last few days, Turkish Military units have entered northern Iraq in an operation against the guerrillas of the Kurdistan Workers’ Party (PKK). The Ankara government has defined it as land-based incursion and a “short-term” measure to finally “eliminate” the “rebels”. We are given to believe that Erdogan took the decision to intervene following the PKK attack in Igdir last Tuesday which killed 13 local police officers. But the truth is that for some months now, the Turkish army has being besieging the only entity that has demonstrated it is really able to stop the advance of ISIS. And Europe stays silent, enclosed in a shell of hypocrisy and opportunism. The “popular resistance” cells have collapsed.

They were formed last March when different member states (including Italy) gave the green light to sending in arms to the Peshmerga. Even the government stays silent. There’s not a word from Minister Gentiloni even while the Turkish air force is continuing an indiscriminate attack on rebels and civilians. This is not simply shameful. It’s showing the double standards used by the West where people are ready to tear their hair out when looking at the dead body of little Aylan, but where they are careful to stay silent when their own interests, or the interests of their allies are at stake. In fact, Turkey is the only member that NATO has in the Middle East.

It is in a strategic position (to the East it has borders with Armenia, Azerbaijan and Iran, to the South East it borders Iraq and to the South, Syria). The USA cannot do without it and the EU feels it has a duty to protect it. It doesn’t matter whether the game play involves the sacrifice of the fundamental rights of a people who for decades have been legitimately claiming their independence and autonomy. This is why the EU remains silent even in relation to Erdogan’s intentions to change the constitution to give himself more powers and even thinking of the city of Cizre that is now on its last legs – after suffering a blackout for more than a week, without new supplies of food and water. And meanwhile ISIS is moving forward, conquering, and threatening our country, but above all threatening the survival of democracy.

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Reads the Automatic Earth?

Safe Assets In A World Gone Mad (Chatham)

Gold and silver are good assets to hold to insure the preservation of EXCESS wealth but there are other assets that are even more valuable longterm. Those things that can be used to produce a product are the elements that can be used to leverage your time, resources and talents to produce wealth. The ability to produce excess is the basis of the need for wealth preservation. Physical goods in the form of equipment that can be used to create or produce goods needed by society are the basis of prosperity and wealth in the world. Gold and silver only become necessary when society begins to produce more products than the producer can use. This excess production is then traded for those things that can preserve the value of this excess production until it is needed by individuals.

Machines to build or repair such as saws and hammers, sewing machines, metal fabricating machines such as lathes and mills and machines to convert raw materials to value added products such as steel to I beams or pots and pans, wheat to flour or pasta, lumber to finished furniture and cotton to cloth are the assets that define how prosperous you are as a nation. A nation derives its wealth from having a product to sell. That will never change. It is true for nations as well as for individuals.

Individuals need to have the ability to produce something in excess of their needs to advance to the need to store that excess. This requires tools and equipment in most cases. You do not necessarily need to process your own resources to generate this excess. A miller can provide the equipment to grind grain for the community taking part of the production for his time and effort. This gives rise to the service economy where individual specialization is traded for other services and resources rendered. In most cases this service will require specialized equipment not possessed by the general population. This specialized equipment is an asset more valuable than gold and silver in many cases.

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Only 4% of Swiss know.

People Have No Idea How Money Is Created (PM.org)

Interesting news from our sister organisation MoMo in Switzerland: The survey results from a master’s thesis from the Institute of Finance and Banking at Zurich University confirm that Swiss people have no idea about how Swiss Francs are created. Here are the results and the main reactions from the press: A survey has been carried out as part of a master’s thesis at the University of Zurich about the level of knowledge in the general population about the financial system. The results are astonishing:
• Only 13% know that private commercial banks provide the majority of the money in circulation.
• However, 78% of the Swiss population would like money to be produced and distributed solely by a public organisation working for the common good, such as the National Bank.
• Only 4% preferred the system we actually have today – that money is mostly created by private, for-profit companies such as commercial banks.

The survey results reinforce the Vollgeld Initiative, which currently has more than 90,000 signatures of the 100,000 required to force a binding national referendum in Switzerland. The study shows clearly that the Swiss people do not know who actually creates the Swiss Franc: Only 13% of the population are aware that, in the current system, private banks produce the majority of the money through the extension of loans. 73% mistakenly believe money is created by the state or by the Swiss National Bank.

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Aug 062015
 
 August 6, 2015  Posted by at 8:05 am Finance Tagged with: , , , , , , , ,  


Arnold Genthe “Chinatown, San Francisco. The street of the gamblers at night” 1900

Far too many people have already used lines like “We Are All Greeks Now” for the words to hold on to much if any meaning by now. But it’s still a very accurate description of what awaits us all. Just not for the same reasons most who used it, did.

No, I don’t really want to talk about Greece again. I want to talk about where you live. And about how similar the two will be not too long from now. How Greece is holding up a lesson and a big red flashing warning sign for all of us.

Greece is the mold upon which all of our futures will be based. Quite literally. Greece is a test tube baby rat.

Greece will never “recover” to our North American and Western European economic levels (if ever they were there). Instead, it’s us who will descend, “uncover” so to speak, to the levels Greece is at today. That is baked into the cake, that is inevitable, and that is therefore what we need to be ready for.

If we wake up in time to this new reality, we may, and that’s still only may, be able to prevent the worst, prevent something akin to the same punitive measures the Troika has unleashed upon Greek society, fully wrecking it in the process, its healthcare system, the safety nets for its most needy.

We may find a way to make a smoother transition from here to there if we prepare in time. But that’s the best we can do. As societies, that is; individual fates will vary.

Greece will find ways to do better than it does right now, balance things out, but it won’t be through a recovery or a bailout. Athens will -because it must, lest the humanitarian crisis deepens profoundly- find ways to better -fairer- apportion what means are at its disposition, amongst its people.

We all have to do the same, wherever we are. Our advantage today is that we can do this from a relatively well-to-do starting point. Our disadvantage is that, unlike the Greeks, we do not understand the reality we’re in.

We’re ignorant, we deny, we prefer not to think about it. The Greeks used to be like that, but they no longer have that choice. And we won’t for much longer either.

The reason why Greece is where it is today, and why we will all be there tomorrow, we can by now for good reason call ‘deceptively simple’. That is to say, the global banking system that orchestrated the financial crisis refuses to take the losses on its extravagant bets, and it has the political clout to get its way, all the way. That’s all you need to know.

The losses are therefore unloaded upon the citizens of our respective nations. But the losses are far too massive for those citizens to bear. They, or rather we, will see our societies stripped of most things, most of the social fabric, that hold them together. Any service that costs money will be cut, progressively, until there’s very little left.

It happened in Greece, and it will happen all over the world. Mind you, this is nothing new; third world nations have undergone the same treatment for decades, if not forever. Disaster capitalism wasn’t born yesterday. What’s new is that it now takes place in the supposedly well-off part of the world, in this case the European Union. And it will spread.

The successive Greek bailouts that have now ruined the entire nation were “needed” to stem the losses on wagers, derivatives and other, incurred by global banks, French, Dutch, German, Wall Street, the City. The first bailout in 2010 also served the purpose of allowing the banks time to shift away from their exposure to Greek debt.

All bailouts, be they directly for banks, or indirectly through a country like Greece and then for the banks, have been set up according to the exact same MO. Greece’s economic reserves just happened to be a bit tighter, and moreover, the country was a convenient lab rat and scarecrow to prevent others from protesting the bailout system too loudly.

The whole system of bailouts, be it in Greece or in the US, was never anything else than a transfer of public money to private interests, with the express aim of making good on the lost wagers of that private sector. With impunity, no less.

And no, the losses have not disappeared. Nor have they been written down. They have instead been transferred to fester in dark vaults, hidden behind swaps and other derivatives, and on central bank balance sheets. But that won’t last either.

The Automatic Earth has warned of the imminent deleveraging and deflation for years, and now everyone is talking about deflation. No worries, guys. As you were. But do please try and understand how this works.

There’s all these losses, with no-one prepared to write down any of them (see Germany vs Greece), and the elites behind the banks unwilling to absorb any -the elites instead insist on getting richer even in a depression-. There is only one outcome left then: that you and me will have to become much poorer. They are our losses now.

The only way the rich can keep getting richer is if the rest of us keep getting poorer. Economic growth is a thing of the past. Deleveraging has started for real. Huge amounts of zombified ‘money’ are disappearing as we speak.

That leaves the world with a lot less wealth. And still the rich seek to get richer, and they are in charge. The math is simple. As Greece shows us, the rich have no qualms about throwing an entire society off the cliff.

A large part of what is now considered wealth is made up of QE and related and inflated stocks, bonds and real estate prices, all of which is zombie wealth. Which can disappear overnight. And if it can, it will.

China stocks and “real” estate and local government debt to shadow banks, emerging markets, commodity currencies (Australia, New Zealand, Canada etc.), if you overlook that whole panorama it’s hard to see how you could possibly think there’ll be some kind of recovery.

Where should it come from? Overall debts are much worse, much higher, now, then they were in 2008. We haven’t had a recovery, we’ve had an “uncovery”. And we’re headed for a discovery.

The entire idea, the phantom ghost, of a functioning market died, if you were willing to look, with the advent of central bank intervention. People who work in finance, obviously and for understandable reasons, have never been willing to take that look. They’re just looking to make more money even if things tumble down the mountain in a handbasket. They call it “opportunity”.

But they haven’t been actual investors in years. They’ve just helped the banking system put you into deeper doodoo. Greece shows us where that leads. And soon, wherever you live will show that to you too.

Deflation is a bitch. Nicole Foss here at the Automatic Earth has used the phrase “multiple claims to underlying real wealth”, for a long time. It’s like playing musical chairs. And you’re not winning. You never had a chance.

The only people who will wind up winning are the rich trying to get richer. The rest of us will soon live like the Greeks, and that’s if we are lucky.

There is no other possibility. “Money” is vanishing fast, and the only way it can even seem to return is if central banks do more QE, but that’s a dead in the water policy. Economic growth across the globe, and certainly in the west, is an illusion.

China was the last place that briefly seemed to have any, and they screwed up just like us, ending up with far too much debt to ever repay.

There is a point when the can gets so big and heavy, no-one can kick it down any road anymore. Not even one that plunges down a mountain. Something to do with gravity.

May 302015
 
 May 30, 2015  Posted by at 10:48 am Finance Tagged with: , , , , , , , , , , ,  


Arnold Genthe San Francisco, “Grant Avenue at Sacramento Street.” 1930

Big Banks Run Everything: Austerity, The IMF (Salon)
Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)
US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)
Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)
No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)
The Desperate Plight of a Declining Superpower (Michael T. Klare)
The Curious Optimism Of The Godfather Of Inequality (Independent)
If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)
Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)
Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)
Varoufakis’s Great Game (Hans-Werner SInn)
Chinese Stock Market’s Wile E. Coyote Moment (Pesek)
Stop Calling China a Currency Manipulator (Pesek)
French Far-Right Calls For In/Out EU Referendum (EUObserver)
Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)
Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)
More Charges Expected In FIFA Case (NY Times)

Very, very, good by Patrick Smith. Please read the whole thing.

Big Banks Run Everything: Austerity, The IMF (Salon)

Fascinating to watch the IMF as it fronts for the U.S. Treasury and international lenders in the Greek and Ukrainian debt crises. In the former, the fund pins the Syriza government to the wall because it dares to represent its electorate. In the latter, it stands by the Poroshenko government because it has no intention of representing anybody other than banks, corporations and the global strategy set. “Fascinating” is one word for this and it holds. “Greed in action” is three but they do a better job. Coincidentally enough, both the Greek and Ukrainian cases now near their respective denouements. Miss this and you miss a singularly plain display of power, the way it works and what it works for in the early 21st century.

Athens has debt payments of €1.6 billion due in June and must make them if it is to receive a further tranche of European and IMF funding. This is essential if Greece is to recover—not from the 2008 financial crash and its economic fallout, which was long ago absorbed, but from the recovery program the fund and the EU imposed in 2012. That is textbook neoliberalism, naturally, and the results are before us. PM Alexis Tsipras calls it “a humanitarian crisis,” and I have heard no one dare counter him on the point. The Kiev government owes international bondholders $35 billion, and $23 billion of it is also due in June. Slightly different situation here: Ukraine, too, needs to shake loose I.M.F. and European funds to revive an economy even worse than Greece’s, but this is not about ameliorating any kind of social crisis.

It is about inducing one, in effect, so the neoliberalization process can be completed and working people in Ukraine are made properly, structurally desperate. It is highly unlikely you will read about these two crises in the same news report—this would be asking too much of media committed to conveying disembodied data without context so that readers and viewers cannot understand what they are (not) being told. Let us, then, treat Greece and Ukraine together. It is where the fascination comes in.

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Behavioral economics.

Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)

Yes, the new behavioral economics is Wall Street’s secret mind-control brainwashing machine. Call it behavioral economics, psychology of investing, the new science of irrationality, it is Wall Street’s most powerful weapon because you can’t see it. They even try to make you think they’re helping you. Bull. Behavioral economists used to be guardians of America’s 95 million Main Street investors, with an aura of integrity, professionals with a fiduciary responsibility. No more. They’re the investors’ enemy, working for Wall Street banks, for Washington politicians, operating in the shadows, like the NSA, developing tools and technologies to secretly control data, manipulate the brains of savers, voters, taxpayers and investors.

Don’t believe me? At first, I couldn’t believe the con game. Back in 2002 when Princeton psychologist Daniel Kahneman won the Nobel Prize in Economic Sciences we were hopeful. He disproved Wall Street’s oldest fraud, the myth of the “rational investor.” We cheered. Kahneman’s research that proved investors were never rational .. are in fact irrational .. always have been irrational .. and we always will be irrational. At first we assumed humans can change – we can still educate ourselves to be more rational. We even assumed Wall Street’s behavioral economists would help us become “less irrational.”

Fat chance. Since then, behavioral economists have been capitalizing on their newfound power to get personally richer: Getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians. What did we get? In recent years many of their books resemble high school level self-help “Psych 101” books with cute titles like “Freakonomics,” “Nudge,” “Sway,” “Animal Spirits,” “Blink,” “Blunder,” “Beyond Greed & Fear,” “Predictable Irrational,” all cleverly packaged for mass-market consumption, all with implied promise that their book will make you less irrational, ready to beat the Wall Street casino.

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And they all just go and claim Q2 will be grand. But wasn’t this supposed to be a recovery? Yeah, yeah, snow, I know.

US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)

The world’s largest economy hit a bigger ditch in the first quarter than initially estimated, held back by harsh winter weather, a strong dollar and delays at ports. GDP in the U.S. shrank at a 0.7% annualized rate, revised from a previously reported 0.2% gain, according to Commerce Department figures issued Friday in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.9% drop. By contrast, the report also showed incomes climbed, fueling the debate on whether GDP is being underestimated. A swelling trade gap subtracted the most from growth in 30 years as the appreciating dollar caused exports to slump while imports rose following the resolution of labor disputes at West Coast ports.

Federal Reserve officials are among those who believe the setback in growth will be temporary, helping explain why they are considering raising interest rates this year. “The numbers show the economy literally collapsed last quarter, but we know there were a lot of special factors,” Jim O’Sullivan at High Frequency Economics said before the report. O’Sullivan was the top forecaster of GDP in the past two years, according to Bloomberg data. “There’s a good chance we’ll see a second-quarter bounce back.” Economists’ forecasts ranged from a decline of 1.2% to an increase of 0.2%. The GDP estimate is the second of three for the quarter, with the third release scheduled for June, when more information becomes available. The economy grew at a 2.2% pace from October through December.

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And the rise of margin debt in China must be worse and bigger.

Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)

For a few months in mid/late 2014 there was some concern among those who still don’t get that in this New Paranormal market the only real buyers are central banks, that while the stock market kept on rising, and rising, NYSE margin debt was flat, and in fact the total amount of purchases on margin at the end of 2014 was nearly the same to those in January. Meanwhile the S&P 500 had soared to recorder highs. A few things here: first, as we explained one year ago, in a world in which levered purchases take place via such shadow banking conduits as repo and primary broker arrangements, margin debt has become an anachronism from a bygone generation in which there wasn’t $2.5 trillion in Fed reserves supporting the market, and is now almost entirely meaningless.

But for those who still cling on to margin debt as indicative of anything, the latest NYSE report should provide some comfort: finally the long-awaited breakout in participation has arrived, and after stagnating for over a year, investors – mostly retail – are once again scrambling to buy stocks on margin, i.e., using debt, and as of April 30, the amount of margin debt just hit a new all time high of $507 billion, $30 billion more than the month before, and nearly 50% higher than the last bubble peak reached in October 2007.

It’s not just margin debt that hit a record high. Investor net worth, which is the inverse, or investor cash and credit balances less total margin debt, just dropped to ($227 ) billion, a new record low, meaning not only is the amount of investors leverage at an all time high, but investor net worth is also at an all time low.

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Because this is not a revovery.

No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)

The U.S. economy has fallen into negative territory three times since the current recovery began in mid-2009, a dubious feat that last occurred more than a half a century ago. What’s to blame for the most up-and-down recovery since the mid-1950s? Serious flaws in how GDPis calculated is one prime suspect. The government’s GDP report appears to have underestimated growth in the first quarter for decades, a problem that has become even more acute. At the same time GDP probably has overstated growth in the second and third quarters, so the underlying U.S. growth rate is probably the same. “The evidence of a seasonal quirk in the first-quarter GDP growth figures is pretty overwhelming,” said Paul Ashworth at Capital Economics. The second culprit – and evident ring leader – is the U.S. economy itself.

Bad policy, back luck or whatever you call it, the economy is no longer growing as fast as it used to. So any time there’s a temporary dip in economic activity because of poor weather, spiking oil prices or some other major event, it’s no surprise that GDP might show a contraction. The U.S. has grown at a mediocre 2.2% annual pace since the first full year of recovery in 2010. That’s just two-thirds as fast as the economy has grown since the government began keeping track in early 1930s. The less the economy grows, the easier it is for quarterly GDP to slip into the red from time to time, especially if some sort of “shock” occurs. The first-quarter suffered from several of them: unusually harsh weather, a dockworker’s strike, a soaring dollar that undercut U.S. exports and a drop in business investment tied to plunging oil prices.

Of course, such shocks are nothing new, and the economy in the past has shown more resistance to them. The U.S. did not experience a single negative quarter, for example, during the last three major economic expansions: the early 2000s, the 1990s and the 1980s. You have to go a lot further back to the weak 1973-75 expansion to find another episode of a quarterly contraction in a recovery phase. Another one occurred in the short-lived 1958-1960 recovery. The last U.S. recovery to include three negative quarters like the current one was from 1954 to 1957. Yet there is one big difference compared to today: the economy back then expanded by leaps and bounds. The U.S. grew at a 3.8% rate during the “Eisenhower recovery” following the end of the Korean War. And the fastest quarter of growth nearly reached 12% — more than twice as strong as the best quarter in the latest recovery.

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Only little children and psychopaths dream of superpower.

The Desperate Plight of a Declining Superpower (Michael T. Klare)

Take a look around the world and it’s hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington’s dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance?

This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, “We have to put a shingle outside our door saying, ‘Superpower Lives Here,’ no matter what the Soviets do, even if they evacuate from Eastern Europe.”

Strategically, in the Cold War years, Washington’s power brokers assumed that there would always be two superpowers perpetually battling for world dominance. In the wake of the utterly unexpected Soviet collapse, American strategists began to envision a world of just one, of a “sole superpower” (aka Rome on the Potomac). In line with this new outlook, the administration of George H.W. Bush soon adopted a long-range plan intended to preserve that status indefinitely. Known as the Defense Planning Guidance for Fiscal Years 1994-99, it declared: “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union.”

H.W.’s son, then the governor of Texas, articulated a similar vision of a globally encompassing Pax Americana when campaigning for president in 1999. If elected, he told military cadets at the Citadel in Charleston, his top goal would be “to take advantage of a tremendous opportunity – given few nations in history – to extend the current peace into the far realm of the future. A chance to project America’s peaceful influence not just across the world, but across the years.”

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A simple moral question.

The Curious Optimism Of The Godfather Of Inequality (Independent)

Before Piketty, there was Atkinson. The subject of inequality is now, perhaps indelibly, associated with the young French economist who burst into the public arena last year and became an unlikely bestselling author across the Anglophone world. But Thomas Piketty himself drew heavily on the work of a British economist – a debt the Frenchman readily admits. “Tony Atkinson is the godfather of historical studies of income and wealth,” he enthused last year. It’s no exaggeration. Sir Anthony Atkinson has been researching inequality since the 1960s and published his first major book on the subject in 1978, when Mr Piketty was still at primary school. The Atkinson index of inequality is named after him. Some scholars expect him to be awarded the Nobel economics prize at some stage.

And now the 70-year-old London School of Economics professor has produced another tome on the subject, Inequality: What can be done?. Yet for all the book’s scholarly virtues and for all the esteem in which Sir Anthony is held within the profession, it seems unlikely it will sell as many copies as Mr Piketty’s blockbuster Capital in the 21st Century. Lightning, after all, rarely strikes twice in the same spot. When I meet Sir Anthony to discuss his latest work, I ask whether it rankles to see another, much more junior colleague become the celebrated face of the subject. Sitting in his rather spartan office just off Lincoln Inn’s Fields, he smiles at the suggestion: “Not at all. He [Piketty] is an amazing character. He’s very inventive. I think he’s managed to present the issue in a way that’s attracted a lot of attention.”

Nevertheless, Sir Anthony stresses that, much as he shares Mr Piketty’s concerns about the level of income inequality across much of the developed world, his own book has a different emphasis. “I think what I would have done differently is discuss more what we can do about it [inequality],” he says. He certainly doesn’t duck the challenge of coming up with constructive policy ideas. The final chapter of his book is overflowing with ideas on how to reduce inequality back to where it stood before what he calls the great “inequality turn” of the early 1980s, when Margaret Thatcher’s government entered office.

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“..the foreign exchange market seems to be designed to create opportunities for bad behaviour.”

If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)

“If you ain’t cheating, you ain’t trying” were the words of one trader working in the foreign exchange market. They belie an attitude that was widespread among traders in this market between 2009 and 2013. Cheating was simply a normal part of a trader’s day job. In fact, not cheating would be to shirk your duties. Widespread cheating in the foreign exchange market has turned out to be very costly indeed. In the past six months, six large banks around the world have paid out US$10 billion in fines over the manipulation of the global foreign exchange market. There have also been fines levied against banks for manipulating other over-the-counter markets such as LIBOR, the ISDAfix and the gold market.

In addition there have been fines for other bad behaviour by banks like money laundering, their role in the sub-prime mortgage crisis, violating sanctions, manipulation of the electricity market, assisting tax evasion, and mis-selling payment protection insurance. This brings the total amount of fines which banks have paid since 2008 to over US$160 billion. To put this in context, this is more than what the UK government spent on education last year. As the cost of misbehaviour mounts, banks are under increasing pressure to clean up their act. Despite widespread public cynicism, much has already changed within the banking sector. Banks have beefed up their risk function and increased oversight of traders.

They have also changed the “tone from the top”. Senior managers of the boom years who promoted a hard-driving, risk-taking culture have largely been replaced by bankers who talk more about ethics, careful risk management and serving the customer. A new legal regime has been put in place to hold senior bank employees personally responsible for wrong-doings on their watch. Banks are required to hold more equity on their balance sheets. There have been new laws which change the way bankers are paid, to emphasise long-term performance rather than short-term risk taking. Riskier trading and investment banking operations are being ring fenced from their more staid retail banks.

All these changes might be making bankers safer, but will they do anything to make the markets which they operate within any less likely to reward bad behaviour? We usually assume a market like foreign exchange emerges from millions of individual decisions. Changing this might sound impossible. But each of these decisions are made within a particular set of constraints. These constraints are the product of deliberate policy design choices. Changing behaviour in a market like foreign exchange involves looking carefully at the design of the market and asking whether this actually does the job it is supposed to do. As it currently stands, the foreign exchange market seems to be designed to create opportunities for bad behaviour..

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Depends what the other side demands…

Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)

Greece’s government is confident of reaching a deal with its creditors this week and is open to pushing back parts of its anti-austerity program to make that happen, the country’s interior minister said Saturday. Greece and its EU/IMF creditors have been locked in talks for months on a cash-for-reforms deal and pressure is growing for a deal, since Athens risks default without aid from a bailout program that expires on June 30. “We believe that we can and we must have a solution and a deal within the week,” Interior Minister Nikos Voutsis, who is not involved in Greece’s talks with the lenders, told Skai television. “Some parts of our program could be pushed back by six months or maybe by a year, so that there is some balance,” he said.

He did not elaborate on what parts of the ruling Syriza party’s anti-austerity program could be pushed back, but the comments suggested a greater willingness to compromise on pre-election pledges. Prime Minister Alexis Tsipras stormed to power in January on promises to cancel austerity, including restoring the minimum wage level and collective bargaining rights. The government earlier this week said it hoped for a deal by Sunday, though international lenders have been less optimistic, citing Greece’s resistance to labor and pension reforms that are conditions for more aid. Voutsis said Athens and its partners agreed on some issues, such as achieving low primary budget surpluses in the first two years.

But they still disagreed on a sales tax, with Greece pushing so any VAT hikes will not burden lower incomes. “A powerful majority in the political negotiations has showed respect for the fact that there can’t be further austerity strategies for the Greek issue, the Greek problem and the Greek people,” he said. [..] In an interview with Realnews newspaper published on Saturday, Economy Minister George Stathakis said Athens had no alternative plan. “The idea of a Plan B doesn’t exist. Our country needs to stay in the eurozone but on a better organized aid program,” he said. Stathakis was confident a deal will be reached. “Otherwise, mainly Greece but the European Union as well will step into unchartered waters and no-one wants that.”

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Or it may not. Keep ’em guessing.

Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)

Cash-strapped Greece could avoid paying back the IMF on June 5 and win more time to negotiate a funding deal without defaulting if it lumps together all IMF repayments due in June and pays them at the end of the month, officials said on Tuesday. Greece has to repay the IMF €300 million on June 5, the first of four instalments due in June that total €1.6 billion. Cut off from markets, Athens has said it will not be able to make the June 5 payment without new loans from the euro zone, which insists it can only lend Greece more if the country agrees to reforms that would make its debt sustainable. “There is the possibility of putting together several payments that Greece would need to make to the IMF in the course of June and then just make one payment,” a senior euro zone official close to the talks with Athens said.

A second official close to the talks also acknowledged that possibility. “That’s basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that,” the first official said. But the officials noted that Greece could only use such a trick if there was a credible prospect of a funding deal that could be communicated to markets and its citizens. Otherwise, the missed payment could trigger market panic and a bank run in Greece. “So they would get a few extra weeks. But unless there is some perspective how they would deal with this full payment, it would be a risky thing for the Greeks to do. And the consequences would be unpredictable,” said the first official. “People could want to withdraw their savings and who knows what Greece would have to do.”

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Target2 steps into the spotlight.

Varoufakis’s Great Game (Hans-Werner SInn)

Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B – the implied threat that drives forward negotiations on Plan A. Greece’s finance minister, Yanis Varoufakis, knows this very well. As the Greek government’s anointed “heavy,” he is working Plan B (a potential exit from the eurozone), while PM Alexis Tsipras makes himself available for Plan A (an extension on Greece’s loan agreement, and a renegotiation of the terms of its bailout). In a sense, they are playing the classic game of “good cop/bad cop” – and, so far, to great effect. Plan B comprises two key elements.

First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece’s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone. Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this trend with a more conciliatory approach, or stop it outright with the introduction of capital controls. But doing so would weaken its negotiating position, and that is not an option. Capital flight does not mean that capital is moving abroad in net terms, but rather that private capital is being turned into public capital.

Basically, Greek citizens take out loans from local banks, funded largely by the Greek central bank, which acquires funds through the European Central Bank’s emergency liquidity assistance (ELA) scheme. They then transfer the money to other countries to purchase foreign assets (or redeem their debts), draining liquidity from their country’s banks. Other eurozone central banks are thus forced to create new money to fulfill the payment orders for the Greek citizens, effectively giving the Greek central bank an overdraft credit, as measured by the so-called TARGET liabilities. In January and February, Greece’s TARGET debts increased by almost €1 billion per day, owing to capital flight by Greek citizens and foreign investors.

At the end of April, those debts amounted to €99 billion. A Greek exit would not damage the accounts that its citizens have set up in other eurozone countries – let alone cause Greeks to lose the assets they have purchased with those accounts. But it would leave those countries’ central banks stuck with Greek citizens’ euro-denominated TARGET claims vis-à-vis Greece’s central bank, which would have assets denominated only in a restored drachma. Given the new currency’s inevitable devaluation, together with the fact that the Greek government does not have to backstop its central bank’s debt, a default depriving the other central banks of their claims would be all but certain.

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The pinnacle question: “How do you deflate a giant bubble without enraging the masses or losing control of the economy?”

Chinese Stock Market’s Wile E. Coyote Moment (Pesek)

Shanghai’s stock market just experienced a Wile E. Coyote moment. For weeks, investors had been chasing higher and higher returns. On Wednesday, however, they suddenly looked down to find their road had disappeared. The realization came courtesy of China’s central bank, which had decided to drain cash from the financial system, and jittery brokerages, which had just tightened lending restrictions. That one-two punch didn’t just send Chinese stocks down 6.5%, the most in four months. It also raised existential questions about one of modern history’s greatest asset bubbles. And it is a bubble. The 127% gain in the Shanghai Composite Index over the past year defies financial gravity.

It’s been driven not by optimism about China’s economic fundamentals or corporate earnings, but record growth in margin debt. Such lending — fueled by speculation that the People’s Bank of China will soon cut interest rates and reduce lenders’ reserve requirements — exceeded $322 billion as of May 27, five times the level of a year earlier. And that’s just the official tally: China’s shadow banking system is estimated to have created $20 trillion of credit since Lehman Brothers went bankrupt in 2008. What makes China’s bubble unique is the government’s direct role in creating it, feeding it and now managing it. Last August, for example, as the Chinese stock market threatened to sag, state-run media started prodding the Chinese public to pile their life savings into shares.

During a single week in August 2014, Xinhua News Agency put out eight features espousing the wisdom and patriotism of owning equities. Beijing also reduced trading fees and allowed individuals to open as many as 20 accounts. The implicit message was that the Communist Party could and would protect stock investments, if need be. The plan succeeded beyond Beijing’s wildest expectations, leaving it with an epic challenge: How do you deflate a giant bubble without enraging the masses or losing control of the economy?

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“Convertible or not, the yuan is too big to ignore.”

Stop Calling China a Currency Manipulator (Pesek)

Christine Lagarde’s people say China’s currency is no longer undervalued. Jacob Lew’s argue it still is. There’s a lot at stake in the debate: The yuan can’t gain status as a global currency reserve if China is thought to be manipulating its value. So who should we believe, the head of the IMF or the U.S. Treasury Secretary? It’s worth asking Ben Bernanke. Now that the former Fed chairman is in the private sector, he can say what he really thinks — and, as he pointed out in a recent speech in Seoul, it’s not wise to ignore political factors when managing the rise of the Chinese economy. Bernanke argued that if Washington had heeded IMF requests to allow China to play a larger role in global institutions, Beijing wouldn’t now be creating the $100 billion Asian Infrastructure Investment Bank, which threatens to undermine the existing global financial system.

It’s worth extending Bernanke’s point to the yuan debate. Japan’s yen is down 30% since late 2012 (hitting a 12-year low this week) while the yuan has risen during the same period. So the IMF has good reason to contradict America’s assessment and bolster China’s case for reserve currency status. But there are two further reasons why the IMF must stand firm, no matter what U.S. officials and lawmakers say. First, China might go it alone. As Bernanke points out, the West is playing hardball with Beijing at its own risk. The AIIB is already diminishing the relevance of the World Bank and Asian Development Bank. What’s to keep Beijing, flush with $3.7 trillion of reserves, from now opening its own bailout fund for governments facing balance-of-payments shortfalls? China proposed a similar idea during the region’s 1997 economic crisis.

Although the idea died a quick death at that time amid fears the IMF and U.S. Treasury would lose influence, it might attract more interest now – especially if China promises to demand less austerity from needy countries like Greece. “If the IMF were to sidestep the explicitly stated desire of China’s government,” says Eswar Prasad of Cornell University in Ithaca, New York, “it would create more bad blood in an already contentious relationship regarding currency matters.” He worries it would “crystallize emerging market policymakers’ concerns that the IMF remains an institution run by and for the benefit of advanced economies.” That would encourage nations to rally around Beijing’s alternative lending institutions, and could deal a fatal blow to the post-World War II global financial architecture.

Second, Chinese economic reform is accelerating. Bernanke is right that the yuan has a ways to go before it can become a major reserve player. But a new Swift study shows the yuan is Asia’s most-active currency for payments to China and Hong Kong and number five globally. Convertible or not, the yuan is too big to ignore. In that sense, its inclusion in the IMF’s special drawing rights system – along with the dollar, euro, yen and pound – is a matter of when, not if.

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France steps out, it’s over.

French Far-Right Calls For In/Out EU Referendum (EUObserver)

France’s far-right National Front party has called for an in/out referendum on the EU at the same time as the UK holds its vote. Florian Philippot, an MEP and the party’s deputy head, wrote on Thursday (28 May) that president Francois Hollande should “follow the British example” and “follow the calendar outlined by our neighbours across The Channel”. “The time has come to ask everybody in Europe Yes or No – if they want sovereignty to decide on their own future”. He added that British PM David Cameron, who is currently on a tour of European capitals to sound out feeling on a renegotiation of EU powers, “with this referendum … has put himself in a powerful position to demand real reforms”.

He also said that if Hollande declines to do it, the National Front will put an in/out EU vote “at the heart” of its 2017 presidential election campaign. Speaking on BFM-TV earlier in the week, Philippot noted that his party wants a “referendum republic”, in which average people can trigger a popular vote on any subject if they file more than 500,000 signatures. He cited Switzerland as a model and listed French membership in Nato, in the Schengen passport-free area, and the EU-US free trade treaty as other potential votes. For its part, French daily Le Figaro, in an Ifop poll published on Friday, said 62% of French people would vote No to the EU constitution again if they were asked the same question as 10 years ago.

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“It represents an almost 30-fold increase on the same period last year..” How dare Europe still not have a comprehensive answer to this?

Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)

Italy helped rescue a total of more than 3,300 migrants trying to cross the Mediterranean on Friday, the country’s coastguard has said. In one operation, 17 bodies were found on three boats. Another 217 people who were on board were rescued.
The coastguard said distress calls were made from 17 different boats on Friday. The International Organization for Migration (IOM) says at least 1,826 people have died trying to cross the Mediterranean so far in 2015. It represents an almost 30-fold increase on the same period last year, the IOM says. The Corriere della Serra newspaper said (in Italian) that most of the rescues on Friday took place close to the Libyan coast.

Irish, German and Belgian ships took part in the rescue, the newspaper said. The UN estimates that at least 40,000 people tried to cross the Mediterranean between the start of the year and late April. The rise has been attributed to chaos in Libya – the staging post for most crossings – as well as milder weather. Many migrants are trying to escape conflict or poverty in countries such as Syria, Eritrea, Nigeria and Somalia. On Thursday, the charity Medecins sans Frontieres reported that a 98-year-old Syrian man had been rescued from a boat, having travelled by sea from Egypt for 13 days. He was taken to Augusta in Sicily.

Read more …

Fear? Fear of what?

Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)

A study says Germany’s birth rate has slumped to the lowest in the world, prompting fears labour market shortages will damage the economy. Germany has dropped below Japan to have not just the lowest birth rate across Europe but also globally, according to the report by Germany-based analysts. Its authors warned of the effects of a shrinking working-age population. They said women’s participation in the workforce would be key to the country’s economic future. In Germany, an average of 8.2 children were born per 1,000 inhabitants over the past five years, according to the study by German auditing firm BDO with the Hamburg Institute of International Economics (HWWI). It said Japan saw 8.4 children born per 1,000 inhabitants over the same time period.

In Europe, Portugal and Italy came in second and third with an average of 9.0 and 9.3 children, respectively. France and the UK both had an average of 12.7 births per 1,000 inhabitants. Meanwhile, the highest birth rates were in Africa, with Niger at the top of the list with 50 births per 1,000 people. Germany’s falling birth rate means the percentage of people of working age in the country – between 20 and 65 – would drop from 61% to 54% by 2030, Henning Voepel, director of the HWWI, said in a statement (in German). Arno Probst, a BDO board member, said employers in Germany faced higher wage costs as a result. “Without strong labour markets, Germany cannot maintain its economic edge in the long run,” he added. Experts disagree over the reasons for Germany’s low birth rate, as well as the ways to tackle the situation.

Read more …

Just the first round.

More Charges Expected In FIFA Case (NY Times)

Chuck Blazer was a powerful figure in international soccer, and he enjoyed the trappings that came with the role: two apartments at Trump Tower in Manhattan, expensive cars, luxury properties in Miami and the Bahamas. But for all of Mr. Blazer’s lavish living, he did not file personal income tax returns. And in August 2011, Steve Berryman, an IRS agent in Los Angeles, opened a criminal investigation. Thousands of miles away in New York, two FBI agents, Jared Randall and John Penza, were working on an investigation of their own, one that had spun off an unrelated Russian organized-crime case in December 2010. The agents on opposite sides of the country were looking at some of the same people.

In December 2011, news reports revealed that the FBI was asking questions about FIFA, global soccer’s governing body, and the California investigators called New York. The two agencies joined forces, setting in motion the sprawling international case that led to the arrests of top soccer officials this week. The investigation, which involved coordination with police agencies and diplomats in 33 countries, was described by law enforcement officials as one of the most complicated international white-collar cases in recent memory. Fourteen people have been indicted in bribery and kickback schemes linked to corruption in the highest echelons of FIFA. And United States authorities say more charges are all but certain.

“I’m fairly confident that we will have another round of indictments,” said Richard Weber, the chief of the I.R.S. unit in charge of criminal investigations. The American government’s aggressive move shocked the soccer world and led to questions about whether the United States had set out on a mission to topple the leadership of FIFA, which has long been troubled by allegations of corruption. But officials at the Justice Department, the F.B.I. and the I.R.S. said the impetus was criminal activity and organized crime that just happened to occur in the soccer world. “I don’t think there was ever a decision or a declaration that we would go after soccer,” Mr. Weber said. “We were going after corruption.” He added, “One thing led to another, led to another and another.”

Still, investigators quickly realized the potential scope of their case. By the time the F.B.I. and the I.R.S. teamed up, an undercover sting operation by the British newspaper The Sunday Times had revealed corruption in FIFA’s highest ranks. Reporters around the globe followed with articles about whether soccer’s top officials could be bought. “We always knew it was going to be a very large case,” Attorney General Loretta E. Lynch said.

Read more …

May 032015
 
 May 3, 2015  Posted by at 1:21 pm Finance Tagged with: , , , , ,  


Jack Delano Near Shawboro, North Carolina, Florida migrants on way to Cranberry, NJ 1940

With US GDP growth ‘officially’ back where it belongs, in the Arctic zone close to freezing on the surface but much worse in real life, for reasons both Albert Edwards and Ambrose Evans-Pritchard (not exactly a pair of Siamese twins) remarked this week; that is, excluding the “biggest inventory build in history, the economy contracted sharply”, it’s time for everyone to at long last change the angle from which they view the world, if not the color of their glasses.

But ‘everyone’ will resist, refuse and refute that change, leaving precious few people with an accurate picture of the – economic – world. Still, for you it’s beneficial to acknowledge that very little of what you read holds much, if any, truth or value. This is true when it comes to politics, geopolitics and economics. That is, the US is not a democracy, it is not the supreme leader of the world, and the American economy is not in recovery.

Declining business investment, a record inventory build and extreme borrowing to hold share prices above water through buybacks, it all together paints a picture of a very unhealthy if not outright dying economy, and certainly not one in which anything at all is recovering. But how are you supposed to know?

The entire financial media should change its angle of view, away from the recovery meme (or myth), but the media won’t because the absurd one-dimensional focus on that perpetuated myth is the only thing that makes the present mess somewhat bearable, palatable and, more importantly, marketable, to the general public.

This has the added simultaneous benefit of keeping that same general public from understanding how sinister the myth really is; it can only be upheld by greatly increasing the debt levels which burden their shoulders, in hidden ways. If the media can no longer keep the consequences of the debt increases hidden, the game is up.

And there are undoubtedly many people who find it more important right now to profit from the whole scale distortion by central banks of what were once the financial markets, than they find it to know the truth and understand the system they owe their gains to. But that may no be all that smart; they risk losing their gains again overnight. You can’t rely on what you don’t understand. So here are a notes:

1 – There are no markets anymore (and therefore no investors either).

There are ways to make money, but that’s not the same thing. Markets must of necessity reflect – the performance of – underlying economies, and to even pretend today’s markets do that is preposterous. Financial markets these days exclusively reflect central banks’ pumping money into their respective bankrupt banking systems, a practice poetically known as QE. Markets need to be functional in order to be called markets and if they don’t we should find another term to label them with.

Or, in other words, present day western economies – and their former markets – are being artificially propped up by either making already poor people poorer today, making them poorer tomorrow, or both. It’s the only way left to make things look passable. And those who still desire in these non-markets to call themselves ‘investors’ are merely little piglets sucking spoilt milk oozing from the teats of their mother sow’s long-dead bloated corpse.

2 – You have no idea what anything is truly worth.

Central bank stimulus across the globe has fully demolished price discovery. And whether you like it or not, financial markets can not and do not function without it. Lots of people try to make us believe that central bank announcements have momentarily taken the place of price discovery, but that is nonsense. And if you don’t know what any asset is really worth, how can you be sure you want to own it other than for myopic short-term reasons?

3- There is no recovery now, and there’s not one around the corner.

The weight of our debt, just to name one thing, has kept us from turning that corner for 7-8 years now, and the weight is getting more forbidding, not less. Publishing falling unemployment numbers while out-of-labor-force data rise (to a record 93 million working age Americans today) is an insult to everyone’s intelligence, not a sign of economic health. Whatever is seen as recovery or expansion is a testament to the power of illusion and propaganda, not the power of the economy. If you choose to look at the world from a point of view that focuses only on recovery, you’re not going to understand what is happening, because there is no recovery anywhere in sight.

4- You can’t trust anything your government and media say.

The entire apparatus is geared towards selling you a doctored image of the world you live in, instead of presenting you with reality. Not because as Jack Nicholson said “You can’t handle the truth”, but because you knowing the truth is not in the interest of those who run governments, nations and supranational organizations. You’re caught in a trap somewhere between Goebbels and Orwell, and it takes a lot of energy to escape it, energy you will be inclined and tempted to instead use to improve your position inside the trap. Just like everyone else does. We are social animals, we are disposed to do as those around us do.

As I said above, you can’t trust anything you hear or read about politics, geopolitics and economics:

• The US is not a democracy. You can’t have a democracy and SuperPacs at the same moment. For the hundredth time: if you allow money into your political system, it will end up buying the entire system. And if you allow endless amounts of money to enter it, that process is greatly accelerated.

• The US is not the supreme leader of the world. Today’s world doesn’t allow for a supreme leader. Neither does it need one. Countries like Russia and China will not tolerate American supremacy to dictate what they do. Not economically, and not militarily. This is very hard to stomach for parts of American society, but they’re going to have to get used to it. Going to war over these issues is pointless. Unfortunately, it increasingly looks like the entire globe will have to find that out the hard way. The very hard way.

• The American economy is not in recovery. I already mentioned the creative jobs numbers accounting. Also, without Fed intervention, asset prices (bonds, stocks, real estate..) would be much lower. This would have been a lot healthier for everyone, except for banks and their shareholders. But once QE is unleashed, there is no smooth exit possible. It will need to continue until it self-implodes.

At present, Japan is leading the way to economic self-immolation, but the US and Europe must inevitably follow. The only thing that helps is what the banks most resist: restructuring, cutting the leverage from the debt. But all we get is fantasy stories about how the crisis was left behind. Stories that of course all 42 million or so Americans on foodstamps and tens of millions of otherwise underpaid can confirm. Why am I even trying to show that, and why, there is no recovery?

We need to start thinking from the perspective of what we can and must do if and when that elusive and illusionary recovery is not going to happen. Decisions made from that point of view will substantially differ from those taken in order to ‘produce’ the recovery, which is the only perspective that exists in politics, media and indeed the minds of 99% of the population today.

We need to think about how we’re going to lay a foundation, as solid as we can, under our societies now, with the means we still possess to achieve that, knowing there will be times when those means will be increasingly less available. We’re not doing that, because we focus only on a world that does manage to attain a recovery. We truly think the world is one-dimensional.

Which is why, among other things, we strive to make individuals richer, and fail to see that this makes communities and societies poorer. Everything seems fine as long as we deny the bigger picture, and because we like things to look fine, we stick to that one dimension of our world that is ourself. And ignore each other.

Mar 302015
 
 March 30, 2015  Posted by at 1:38 am Finance Tagged with: , , , , , , , ,  


Gottscho-Schleisner Fulton Market pier, view to Manhattan over East River, NY 1934

Increasingly over the past year or so, when people ask me what I do, and that happens a lot on a trip like the one I’m currently on in the world of down under, I find myself not just stating the usual ‘I write about finance and energy’, but adding: ‘it seems to become more and more about geopolitics too’. And it’s by no means just me: a large part of the ‘alternative finance blogosphere’, or whatever you wish to call it, is shifting towards that same orientation.

Not that no-one ever wrote about geopolitics before, but it used to be far less prevalent. Much of that, I think, has to do with a growing feeling of discontent with the manner in which a number of topics are handled by the major media and the political world. Moreover, as would seem obvious, certain topics lay bare in very transparent ways how finance and geopolitics are intertwined.

In the past year, we’ve seen the crash of the oil price, which will have – financial and political – effects in the future that dwarf what we’ve seen thus far. We’ve seen Europe and its banks stepping up their efforts to wrestle Greece into – financial and political – submission. And then there’s the nigh unparalleled propaganda machine that envelops the Ukraine-Crimea-Russia issue, which has bankrupted the economy of the first and imposed heavy economic sanctions on the latter, for political reasons.

And while there are plenty people out there all across the west who may feel convinced that Greece had it coming, that waging wars in far away lands is the only way to keep the west safe, and that Putin is the biggest and meanest bogeyman this side of Stalin, if not worse, many also have come to question the official version(s) of events. Something that, if you ask me, is always good, even if it doesn’t mean the conclusions arrived at are always top notch.

For that matter, even Société Générale does geopolitical commentary, as evidenced in a note published by Tyler Durden:

Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…

Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties.

Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…

While in my opinion the conclusions in the note leave to be desired, which may be an indication that the boys are somewhat new to the topic, the very fact that SocGen issues notes about geopolitics, and uses the term itself, is interesting and – to an extent – solidifies the link about finance and geopolitics I noted before.

Still, I’, inclined to think that when it comes to Greece, the bank’s analysts are capable of leaving their narrow finance perch behind for a broader vista that allows for a view that makes Greece a political instead of a financial issue. Because that’s what is has become, whether the parties involved wish to acknowledge it or not.

Greece, like Ukraine, is about power politics, executed at about the same level of intelligence and sophistication that you and I had when we are still playing in a sandbox. And finance, economics, is one of the very favorite weapons to try and get the side perceived as weaker to say Uncle.

And that in and of itself is still far from the worst thing. The worst is that what reaches the general public about these power games – which are far from innocent, they kill, maim, hurt real people – is a distorted and simplified precooked storyline, so hardly anyone can make up their own mind about what happens. That is why the ‘alternative finance blogosphere’ feels increasingly compelled to cover that part of the story as well.

This is also a major problem in the more domestic issue of economic recovery. Unless we would agree, which we really shouldn’t, that making a small group of the population richer while the much larger rest is made poorer, is how we define ‘recovery’, we have no recovery. But it is still accepted and proclaimed like a gospel: our economies are in recovery.

If you take a step back and watch things from a distance, it’s truly too silly to be true, but endless repetition of the same lines, be they true or not, has them accepted as being cast in stone. It’s like selling detergent. It’s exactly like that: say something often enough and people start to believe it, connect to it. Of course it doesn’t hurt that people very much want to believe a recovery is here. Just as they want to believe product X will turn them into shiny happy people dressed in ultra white shirts.

And of the best pieces I’ve seen in a while on the illusionary recovery topic comes from Scott Minerd at Guggenheim Partners, writing in the FT:

QE Will Lower Living Standards Long Term

New monetary orthodoxy is likely to permanently impair living standards for generations to come, while creating a false perception of reviving prosperity. As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal US dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.

In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policy makers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency. [..]

What I decidedly do not like about Minerd’s piece is the suggestion that if only policy makers had made more progress on ‘structural reforms necessary to increase global productive capacity’, things would have been fine, or better at least. Like if someone came up with a better way towards growth, that would solve our problems.

In my view, this is not about failing to find the right way towards more growth, it’s that more growth itself is not the right way to solve the issues. When he says policy makers and central bankers are ‘lacking the political will necessary to address the issues’, I can only hope he means the will needed to restructure the entire financial system, force bankrupt banks into bankruptcy and break up what’s left into pieces too small to ever again threaten an economy, let alone the entire financial system. But I don’t see him say it, so I’m left doubting that’s what he means.

Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.

The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.

Despite ultra-loose monetary policies over the past several years, incomes adjusted for inflation have fallen for the median U.S. family. With the benefits of monetary expansion going to a small share of the population and wage growth stagnating, incomes have been essentially flat over the past 20 years.

That last bit is the same as saying there is no recovery. Which is a tad curious, because Minerd started out saying, in his first paragraph: ‘As economic growth returns again to Europe and Japan’. Pick one, I’d say.

In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time.

In fact, although U.S. equity prices are setting record highs, real median household incomes are 9% lower than 1999 highs. The report from BoA Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output. The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.

It’s by no means the first time I bring this up, but I’ll do it again until there’s no more need. The stories we are bombarded with 24/7 under the quite hilarious misnomer ‘News’ have been prepared, pre-cooked and pre-chewed for our smooth and painless digestion, and as such they contain only tiny little flakes of reality. They are designed to make us feel good, not understand the world around us.

It’s up to sites like the Automatic Earth – and there’s quite a few others – to expose these storylines and narratives for what they really are: tools to sell detergents. Their purpose is not to inform people, but to manipulate them into forming opinions about their world that serve the intentions of one or more groups of people hungry enough for power to occupy themselves with this sort of scheming.

Somewhere on the not so sharp edge between money and power, there are lots of people who devote their entire lives towards devising ways to make up your mind for you. And if you’re like most people, you like that, because it absolves you from having to think for yourself. But the price to pay doesn’t come with the commercials: if you let others think for you, you or your children may be called into war at any time of somebody else’s choosing.

And, as Scott Minerd says, the economic future for your entire families will look utterly bleak. Because that recovery they talk about? It’s not for you.

Mar 142015
 
 March 14, 2015  Posted by at 2:58 am Finance Tagged with: , , , , , , , ,  


DPC Launch of freighter Howard L. Shaw, Wyandotte, Michigan 1900

I think I should accept that I will never in my life cease to be amazed at the capacity of the human being to spin a story to his/her own preferences, rather than take it simply for what it is. Your run of the mill journalist is even better at this than the average person – which may be why (s)he became a journalist in the first place -, and financial journalists are by far the best spinners among their peers. That’s what I was thinking when I saw another Bloomberg headline that appealed to my more base instincts, which I blame on the fact that it shows a blatant lack of any and all brain activity (well, other than spin, that is).

Here’s what Bloomberg’s Craig Torres and Michelle Jamrisko write: “American Mystery Story: Consumers Aren’t Spending Even In a Booming Job Market”. Yes, it is a great mystery to 95% of journalists and economists. Because they have never learned to even contemplate that perhaps people can be so deep in debt that they have nothing left to spend. Instead, their knowledge base states that if people don’t spend, they must be saving. Those are the sole two options. And so if the US government reports that 863,000 underpaid new waiters have been hired, these waiters have to go out and spend all that underpayment, they must consume. And if they don’t, that becomes The American Mystery Story.

For me, the mystery lies elsewhere. I’m wondering how it ever got to this. How did the capacity for critical thinking disappear from the field of economics? And from journalism?

American Mystery Story: Consumers Aren’t Spending Even In a Booming Job Market

It’s an American mystery story: More people have jobs and extra pocket money from lower gas prices, but they aren’t buying as much as economists expected. The government’s count of how much people shelled out at retailers fell in February for a third consecutive month. Payrolls are up 863,000 over the same period. The chart below shows retail sales and payrolls generally move in the same direction, until now. The divergence could portend lower levels of economic growth if Americans’ usually reliable penchant to spend is less than what it once was.


YoY growth in U.S. retail and food services sales (red) against year-over-year change in non-farm payrolls (blue).
Sources: Bureau of Economic Analysis, Bureau of Labor Statistics

Inevitably, when faced with such a mystery, Bloomberg’s scribblers dig up a household savings graph. Et voilà, problem solved:

“The expenditures that add up to gross domestic product are coming in a lot softer than employment,” said Neil Dutta at Renaissance Macro Research. “Why would retailers be hiring if sales are falling? Why would they be boosting hours if sales are falling and why would they be paying more?” Also, take a look at the household saving rate. It’s gone up as gas prices fell:

And why are all those crazy American waiters hoarding all that cash they, as per economists, just got to have lying around somewhere? You knew it before I said it: it was cold! Crazy cold!

Ben Herzon at Macroeconomic Advisers isn’t that worried yet. As usual, the data is quirky. First, he notes, “it was crazy cold in February.” Aside from stocking up on milk in the snowstorm, staying indoors was probably a more attractive option for most shoppers.

And it gets better. How about this for a whopper?

Herzon notes that lower gas prices also depressed the count in prior months. The government is adding up dollars spent, so fewer dollars to fill a gas tank results in lower sales.

Let’s see. Gas was cheaper, so people spent less on that. And that drove down retail sales. But wasn’t it supposed to drive them up? Wasn’t that the boost the economy was predicted to get? You mean to tell me that lower gas prices actually function to drive spending down? That our newfound platoon of waiters took all that newfound money and spent it on .. nothing at all? Not to worry. March will be much better or “Our story would be wrong…” And how likely is that, right?

That even bleeds into narrower measures of retail sales because grocery stores such as Safeway, Wal-Mart and Sam’s Club also sell gasoline. Herzon is counting on a March rebound. There won’t be the weather to blame anymore, and gas prices have rebounded off their lows of late January and early February. “Payroll employment has been great, and it is generating a lot of labor income that you think would be spent,” Herzon said. “March should be a rebound. Our story would be wrong if it doesn’t happen.”

Halle-bleeping-lujah. Is this creativity on the part of the writer and interviewee, or is it just a knee-jerk reaction? Don’t they understand because they don’t have the appropriate grey matter, or don’t they simply want to?

And Bloomberg takes us from mystery to surprise (I’m guessing that’s one level lower on the What? scale), The surprise is that the US has not lived up to what Bloomberg and its economists had dreamt up all by themselves.

Surprise: US Economic Data Have Been the World’s Most Disappointing

It’s not only the just-released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news. Overall, U.S. economic data have been falling short of prognosticators’ expectations by the most in six years. The Bloomberg ECO U.S. Surprise Index, which measures whether data beat or miss forecasts, fell to the lowest since 2009, when the nation was in the deepest recession since the Great Depression. There’s been one notable exception to the gloom, and it’s a big one: payrolls. The economy added 295,000 jobs in February and 1.3 million over four months, a reflection of a healthier labor market in which the unemployment rate has fallen to the lowest in almost seven years.

Most everything else? Blah. This month alone, personal income and spending, manufacturing as measured by the Institute for Supply Management, auto sales, factory orders, and retail sales have all come in a bit weak. Citigroup keeps economic surprise indexes for the world, and its scoreboard shows the U.S. is most disappointing relative to consensus forecasts, with Latin America and Canada next, as of March 12. Emerging markets were supposed to be hurt by falling oil prices but are now delivering positive surprises. U.S. policymakers frequently talk about weakness in Europe and China, though both are exceeding expectations.

In short, Bloomberg and its economists were once again embarrassingly off target. Though they prefer to use different terminology:

And there’s one rub. The surprise shortfall in the U.S. doesn’t necessarily mean the world’s largest economy is in dire straights. It’s just falling short of some perhaps overly elevated expectations.

Perhaps? What do you mean perhaps? US data are the biggest disappointment of all of your numbers. There’s no perhaps about it. Just admit you get it wrong all the time.

Maybe they are mystified because of data like the following, coming from the Fed, no less.

Fed: US Household Net Worth Hits Record $83 Trillion In Q4 2014

Household net worth rose by $1.5 trillion in the fourth quarter of last year to a record $83 trillion, the Federal Reserve said on Thursday. The gains were driven by a surging real estate market. Household real estate holdings rose to their highest level since 2007. Real estate equity levels also hit a 2007 high. Household stock holdings also rose with the broader markets.

Since those 683,000 waiters would only qualify for subprime loans, you can bet that only a few of them profited from this ‘surging real estate market’. Household net worth may have hit a record, but that has nothing to do with the lower rungs of society. Which we can prove by looking at the second part of the piece:

But at the same time, the central bank reported debt was on the rise. Total debt – including households, governments and corporations – rose 4.7% , the most since 2012.

No doubt that this additional debt can be made to show up somewhere as a positive thing. How about: look, consumers feel confident enough to take on more debt again.

Nomura’s Richard Koo elegantly lays bare the global – and American – economic conundrum in just a few words: “When no one is borrowing money, monetary policy is largely useless..”

Why We’re At Risk Of A QE Trap: Koo (CNBC)

The problem with central banks’ massive bond-buying programs is that if consumers and businesses fail to borrow money to stimulate economic growth, the policy is rendered mostly “useless,” one Nomura economist said Friday. The U.S. and U.K. embarked on asset-purchase, or QE programs, following the 2007-2008 global financial crisis. Japan joined the QE club in 2013 and the ECB began its €1 trillion bond-buying stimulus this week. “Both the U.S. and Europe are facing the same problem– which is that we are in a situation where the private sector in any of these economies is not borrowing money at zero interest rates or repairing balance sheets following what happened in the crisis,” Richard Koo, Chief Economist at Nomura, told CNBC on the side lines of the Ambrosetti Spring Workshop in Italy.

“When no one is borrowing money, monetary policy is largely useless,” he added. In the run-up to the launch of QE in the euro zone, loans to the private sector, which are a gauge of economic health, contracted. Data published late last month showed that the volume of loans to private firms and households fell by 0.1% on year in January, compared with a 0.5% drop in December. According to Koo, major central banks are holding reserves far in excess of levels they need because of the monetary stimulus. This has not led to a rise in private sector spending because big economies are struggling with a balance sheet recession – a situation where companies are focused on paying down debt rather than spending or investing – increasing the risk of QE trap.

“In a national economy if someone is saving money, you need someone to borrow money and this is the part that is missing. They [central banks] are pumping money but no one is borrowing, so you get negative interest rates and all sorts of distortions,” Koo said. He added that instead of looking to raise interest rates, the U.S. Federal Reserve should first focus on reducing its balance sheet which stands at over $4 trillion. The Fed, which meets next week, is widely expected to raise rates this year against a backdrop of improving economic data. “They [Fed policy makers] should not rush into a rate rise; they should reduce the balance sheet when people are not worried about inflation,” Koo said.

That’s all you need to know, really. Americans don’t spend, and they don’t borrow. That makes all QE measures useless for the larger economy, and a huge windfall for the upper echelons of society.

You could also say QE is a criminal racket, but I’m pretty sure journalists, economists, central bankers and politicians alike will only admit to stupidity, not to being accomplices in such a racket. Or perhaps not even stupidity; they’ll just claim nobody could have foreseen this, like they always do when they run into room size elephants.

Still, you have to love a piece like the following by Thad Beversdorf:

The Fed Gives A Giant F##k You to Working Class Americans

I was shocked today by the absolute gaul of the Fed releasing a statement about Net Worth in America reaching record levels. Now I get that they are under extreme pressure to sell the story that everything is rainbows and butterflies. But surely they understand that working class Americans are going along with the story because they really don’t have any say in our nation’s policies anymore. That doesn’t mean they want it thrown in their faces that the Fed has spent 6 years now inflating the wealth of the top 10% so much that it actually lifts the total wealth of the nation’s citizens to record highs. The ugly reality is that the bottom 80% of Americans experienced none of that gain. That’s right: a big ole goose egg.

And so when the Fed via its ass pamper boy, Steve Liesman, start banging on about the fact that some sliver of society is being handed extraordinary wealth while the working class has lost 40% of their net worth since 2007, well a big fuck you right back at ya bub! The Fed is very aware that the bottom 80% of Americans own less than 5% of US equity markets. And so the Fed is very aware that its manipulation of stock prices such that it creates immense unearned wealth to those in the markets doesn’t reach the bottom 80%. So why celebrate the results of the stock market price manipulation?? It is embarrassing that our policymakers are either that inconsiderate or that stupid to celebrate such a brutal dislocation between the haves and have nots.

I don’t know what one can even say about the Fed making a celebratory statement like that today. It is somewhat beyond words. And really paints the picture as to how little thought goes into the lives and well being of the bottom 80%. Just to give you something to compare and contrast the situation of the bottom 80% here in the US to counter the Fed’s celebration today. I want you to think about how lucky we are not being in one of the PIIGS nations of Europe. These are the nations that are essentially bankrupt and just hanging on by the kindness of the Troika.

So there it is. While the average net worth of Americans is 4th in the world pulled up by the top 10%, the median net worth of Americans comes in the 19th spot. Yep, behind Spain, Italy and Ireland so 3 of the 5 PIIGS nations. Meaning the bottom 80% in these broke ass barely hanging on nations have more wealth than the bottom 80% of us here in America. So I’d like to ask the Fed, is it that you just hate the working class here in America and thus like to torment them or are you truly that stuck up your own asses that you just cannot see the light?

Rest assured, Thad, the Fed has seen the light. And they don’t actually hate working class America, they just don’t give a flying f#ck about them.

Imagine the founding fathers looking down on all of this. Hell imagine those who fought on the beaches of Normandy looking down at what America has become. Knowing that they sacrificed everything just to hand the nation over to a group of foreign sociopaths. Imagine those men having to see that Americans no longer have any sense of dignity other than to yell loudly that “we are still great”[..]. How incredibly disheartening it would be for those WWII soldiers to see us now.

Plenty of those guys are still alive. So we could ask them. But the gist is clear, and all those who died on those beaches can no longer speak for themselves, so we need to do it for them. Is this the world they died for? Is this the freedom they gave their lives for, the freedom to turn America into a nation of debt slaves?

There is no mystery anywhere to be found in the fact that US retail sales don’t follow the jobs trend. Not if you look at what kind of jobs they are, let alone at all the other made up and manipulated numbers that are being thrown around about the US economy.

The only mystery is why everyone persists in talking about a recovery. That recovery will never come, simply because all 90% of Americans do is pay for the other 10% to get richer. There are many other factors, but that all by itself makes a recovery a mathematical mirage.

Nov 252014
 
 November 25, 2014  Posted by at 9:49 pm Finance Tagged with: , , , , , , , ,  


John Vachon Rain. Pittsburgh, Pennsylvania Jun 1941

US Q3 GDP was revised up by the BEA to 3.89%, but that’s no longer what financial markets react to. They sit and wait for more QE somewhere on the planet to be doled out. Will Americans, if they see this at all, take those numbers, add them to the sweet drop in prices at the pump and spend what they save on more holiday purchases? I’m not saying I know, but I do see that US consumer confidence is down, as is global business confidence – the latter at a five year low.

The Case/Shiller index reports a “broad-based slowdown” for US home prices, and that in the rear view mirror that looks at Q3. So that’s not where those 3.89% came from, it wasn’t housing (wonder what it was). The Gallup Christmas survey lost 8% of exuberance in one month. What this adds up to is that Americans may not spend all of that saved gas money, and that means there’s a real danger of deflation coming to America too – as if Japanese and European attempts to export their own were not enough yet.

While the media continue to just about exclusively paint a picture of recovery and an improving economy, certainly in the US – Europe and Japan it’s harder to get away with that rosy image -, in ordinary people’s reality a completely different picture is being painted in sweat, blood, agony and despair. Whatever part of the recovery mirage may have a grain of reality in it, it is paid for by something being taken away from people leading real lives. US unemployment numbers are being massages three ways to Sunday, as is common knowledge, or should be; the amounts of working age people not working, and not being counted as unemployed either, is staggering.

But there’s a very large, and growing, number of people who do work, but find it impossible to sustain either themselves or their families on their wages. That’s how the recovery, fake as it even is, is paid for. And this will have grave consequences for many years, if not decades, to come.

If a government would come clean with its citizens, explain the overwhelming debt situation a nation is in, that everyone will have to do with less at least for a while, and then openly start restructuring the debts, those consequences would be much less damaging. But all governments choose to talk about only recovery and growth, and to let their people suffer the consequences of the policies enacted to achieve these goals, even if after 6-7 years of crisis and dozens of trillions in stimulus, we’re no closer to either. Quite the contrary. We’re not in ‘drive’, we’re stuck in ‘reverse’. We’re backing up. We’re moving backwards.

Lance Roberts at StreetTalkLive provides stats on how many Americans have been made dependent on some sort of handout:

The Dismal Economy: 148 Million Government Beneficiaries

.. the Federal Reserve has stopped their latest rounds of bond buying and are now starting to discuss the immediacy of increasing interest rates. This, of course, is based on the “hopes” that the economy has started to grow organically as headline unemployment rates have fallen to just 5.9%. If such activity were real then both inflation and wage pressures should be rising – they are not. According to the Congressional Budget Office study that was just released, approximately 60% of all U.S. households get more in transfer payments from the government than they pay in taxes.

Roughly 70% of all government spending now goes toward dependence-creating programs. From 2009 through 2013, the U.S. government spent an astounding 3.7 trillion dollars on welfare programs. In fact, today, the percentage of the U.S. population that gets money from the federal government grew by an astounding 62% between 1988 and 2011. Recent analysis of U.S. government numbers conducted by Terrence P. Jeffrey, shows that there are 86 million full-time private sector workers in the United States paying taxes to support the government, and nearly 148 million Americans that are receiving benefits from the government each month.

Yet Janet Yellen, and most other mainstream economists suggests that employment is booming in the U.S. Okay, if we assume that this is indeed the case then why, according to the Survey of Income and Program Participation conducted by the U.S. Census, are well over 100 million Americans are enrolled in at least one welfare program run by the federal government. Importantly, that figure does not even include Social Security or Medicare. (Here are the numbers for Social Security, Medicaid and Medicare: More than 64 million are receiving Social Security benefits, more than 54 million Americans are enrolled in Medicare and more than 70 million Americans are enrolled in Medicaid.) Furthermore, how do you explain the chart below? With roughly 45% of the working age population sitting outside the labor force, it should not be surprising that the ratio of social welfare as a percentage of real, inflation-adjusted, disposable personal income is at the highest level EVER on record.

Tyler Durden addresses deteriorating wages in America with a great metaphor:

The Mystery Of America’s “Schrodinger” Middle Class, Which Is Either Thriving Or About To Go Extinct

On one hand, the US middle class has rarely if ever had it worse. At least, if one actually dares to venture into this thing called the real world, and/or believes the NYT’s report: “Falling Wages at Factories Squeeze the Middle Class.” Some excerpts:

For nearly 20 years, Darrell Eberhardt worked in an Ohio factory putting together wheelchairs, earning $18.50 an hour, enough to gain a toehold in the middle class and feel respected at work. He is still working with his hands, assembling seats for Chevrolet Cruze cars at the Camaco auto parts factory in Lorain, Ohio, but now he makes $10.50 an hour and is barely hanging on. “I’d like to earn more,” said Mr. Eberhardt, who is 49 and went back to school a few years ago to earn an associate’s degree. “But the chances of finding something like I used to have are slim to none.” Even as the White House and leaders on Capitol Hill and in Fortune 500 boardrooms all agree that expanding the country’s manufacturing base is a key to prosperity, evidence is growing that the pay of many blue-collar jobs is shrinking to the point where they can no longer support a middle-class life.

In short: America’s manufacturing sector is being obliterated: “A new study by the National Employment Law Project, to be released on Friday, reveals that many factory jobs nowadays pay far less than what workers in almost identical positions earned in the past.

Perhaps even more significant, while the typical production job in the manufacturing sector paid more than the private sector average in the 1980s, 1990s and early 2000s, that relationship flipped in 2007, and line work in factories now pays less than the typical private sector job. That gap has been widening — in 2013, production jobs paid an average of $19.29 an hour, compared with $20.13 for all private sector positions. Pressured by temporary hiring practices and a sharp decrease in salaries in the auto parts sector, real wages for manufacturing workers fell by 4.4% from 2003 to 2013, NELP researchers found, nearly three times the decline for workers as a whole.

How is this possible: aren’t post-bankruptcy GM, and Ford, now widely touted as a symbol of the New Normal American manufacturing renaissance? Well yes. But there is a problem: recall what we wrote in December 2010: ‘Charting America’s Transformation To A Part-Time Worker Society:”

.. one of the most important reasons for lower pay is the increased use of temporary workers. Some manufacturers have turned to staffing agencies for hiring rather than employing workers directly on their own payroll. For the first half of 2014, these agencies supplied one out of seven workers employed by auto parts manufacturers. The increased use of these lower-paid workers, particularly on the assembly line, not only eats into the number of industry jobs available, but also has a ripple effect on full-time, regular workers. Even veteran full-time auto parts workers who have managed to work their way up the assembly-line chain of command have eked out only modest gains.

And that’s not some isolated incident, as the Guardian makes clear, it’s the same thing in Britain.:

Record Numbers Of UK Working Families In Poverty Due To Low-Paid Jobs

Insecure, low-paid jobs are leaving record numbers of working families in poverty, with two-thirds of people who found work in the past year taking jobs for less than the living wage, according to the latest annual report from the Joseph Rowntree Foundation. The research shows that over the last decade, increasing numbers of pensioners have become comfortable, but at the same time incomes among the worst-off have dropped almost 10% in real terms. Painting a picture of huge numbers trapped on low wages, the foundation said during the decade only a fifth of low-paid workers managed to move to better paid jobs. The living wage is calculated at £7.85 an hour nationally, or £9.15 in London – much higher than the legally enforceable £6.50 minimum wage.

As many people from working families are now in poverty as from workless ones, partly due to a vast increase in insecure work on zero-hours contracts, or in part-time or low-paid self-employment. Nearly 1.4 million people are on the controversial contracts that do not guarantee minimum hours, most of them in catering, accommodation, retail and administrative jobs. Meanwhile, the self-employed earn on average 13% less than they did five years ago, the foundation said. Average wages for men working full time have dropped from £13.90 to £12.90 an hour in real terms between 2008 and 2013 and for women from £10.80 to £10.30.

Poverty wages have been exacerbated by the number of people reliant on private rented accommodation and unable to get social housing, the report said. Evictions of tenants by private landlords outstrip mortgage repossessions and are the most common cause of homelessness. The report noted that price rises for food, energy and transport have far outstripped the accepted CPI inflation of 30% in the last decade. Julia Unwin, chief executive of the foundation, said the report showed a real change in UK society over a relatively short period of time. “We are concerned that the economic recovery we face will still have so many people living in poverty. It is a risk, waste and cost we cannot afford: we will never reach our full economic potential with so many people struggling to make ends meet.

And it’s even worse in Greece and Spain and Italy, all so northern Europe and the Brussels politicos can keep alive the idea that Germany and Holland are doing well, and overall growth is almost at hand. That southern Europe must suffer for that idea has been justified away for years now, and it’s not even an issue deemed worth discussing anymore.

And that attitude will blow up in their faces, it’s inevitable that it will. Very few people understand how dangerous the games are that our governments and central banks play. And when the effects do play out, they will be blamed on other causes. Debt and propaganda rule our world supreme.

Excellent writer and great friend Jim Kunstler shows how simple the entire facade is to fathom, and how the next step away from the mess we’re in is so painfully obvious: downscale.

Buy the All Time High

Wall Street is only one of several financial roach motels in what has become a giant slum of a global economy. Notional “money” scuttles in for safety and nourishment, but may never get out alive. Tom Friedman of The New York Times really put one over on the soft-headed American public when he declared in a string of books that the global economy was a permanent installation in the human condition. What we’re seeing “out there” these days is the basic operating system of that economy trying to shake itself to pieces. The reason it has to try so hard is that the various players in the global economy game have constructed an armature of falsehood to hold it in place — for instance the pipeline of central bank “liquidity” creation that pretends to be capital propping up markets.

It would be most accurate to call it fake wealth. It is not liquid at all but rather gaseous, and that is why it tends to blow “bubbles” in the places to which it flows. When the bubbles pop, the gas will tend to escape quickly and dramatically, and the ground will be littered with the pathetic broken balloons of so many hopes and dreams. All of this mighty, tragic effort to prop up a matrix of lies might have gone into a set of activities aimed at preserving the project of remaining civilized. But that would have required the dismantling of rackets such as agri-business, big-box commerce, the medical-hostage game, the Happy Motoring channel-stuffing scam, the suburban sprawl “industry,” and the higher ed loan swindle.

All of these evil systems have to go and must be replaced by more straightforward and honest endeavors aimed at growing food, doing trade, healing people, traveling, building places worth living in, and learning useful things.

All of those endeavors have to become smaller, less complex, more local, and reality-based rather than based, as now, on overgrown and sinister intermediaries creaming off layers of value, leaving nothing behind but a thin entropic gruel of waste. All of this inescapable reform is being held up by the intransigence of a banking system that can’t admit that it has entered the stage of criticality. It sustains itself on its sheer faith in perpetual levitation. It is reasonable to believe that upsetting that faith might lead to war.

But that’s not yet where we are, though Ferguson sure looks close to that war Jim talks about. Our leading classes will not let us downscale, no matter how much sense that makes for the ‘lower’ 95% of the population, because that would risk their leading positions. And so we’ll have to deal with a lot more misery before the whole edifice finally blows up, and we’ll end up with huge swaths of traumatized people. In a great article, Lynn Stuart Parramore describes how that works:

So Many People Are Badly Traumatized by Life in America: It’s Time We Admit It

Recently Don Hazen, the executive editor of AlterNet, asked me to think about trauma in the context of America’s political system. As I sifted through my thoughts on this topic, I began to sense an enormous weight in my body and a paralysis in my brain. What could I say? What could I possibly offer to my fellow citizens? Or to myself? After six years writing about the financial crisis and its gruesome aftermath, I feel weariness and fear. When I close my eyes, I see a great ogre with gold coins spilling from his pockets and pollution spewing from his maw lurching toward me with increasing speed. I don’t know how to stop him. Do you feel this way, too?

All along the watchtower, America’s alarms are sounding loudly. Voter turnout this last go-round was the worst in 72 years, as if we needed another sign that faith in democracy is waning. Is it really any wonder? When your choices range from the corrupt to the demented, how can you not feel that citizenship is a sham? Research by Martin Gilens and Benjamin I. Page clearly shows that our lawmakers create policy based on the desires of monied elites while “mass-based interest groups and average citizens have little or no independent influence.” Our voices are not heard.

When our government does pay attention to us, the focus seems to be more on intimidation and control than addressing our needs. We are surveilled through our phones and laptops. As the New York Times recently reported, a surge in undercover operations from a bewildering array of agencies has unleashed an army of unsupervised rogues poised to spy upon and victimize ordinary people rather than challenge the real predators who pillage at will. Aggressive and militarized police seem more likely to harm us than to protect us, even to mow us down if necessary.

Our policies amplify the harm. The mentally ill are locked away in solitary confinement, and even left there to die. Pregnant women in need of medical treatment are arrested and criminalized. Young people simply trying to get an education are crippled with debt. The elderly are left to wander the country in RVs in search of temporary jobs. If you’ve seen yourself as part of the middle class, you may have noticed cries of agony ripping through your ranks in ways that once seemed to belong to worlds far away.

[..] A 2012 study of hospital patients in Atlanta’s inner-city communities showed that rates of post-traumatic stress are now on par with those of veterans returning from war zones. At least 1 out of 3 surveyed said they had experienced stress responses like flashbacks, persistent fear, a sense of alienation, and aggressive behavior. All across the country, in Detroit, New Orleans, and in what historian Louis Ferleger describes as economic “dead zones” — places where people have simply given up and sunk into “involuntary idleness” — the pain is written on slumped bodies and faces that have become masks of despair. We are starting to break down.

When our alarm systems are set off too often, they start to malfunction, and we can end up in a state of hyper-vigilance, unable to properly assess the threats. It’s easy for the powerful to manipulate this tense condition and present an array of bogeymen to distract our attention, from immigrants to the unemployed, so that we focus our energy on the wrong enemy. Guns give a false sense of control, and hatred of those who do not look like us channels our impotent rage. Meanwhile, dietary supplements and prescription painkillers lure us into thinking that if we just find the right pill, we can shut off the sound of the sirens. Popular culture brings us movies with loud explosions that deafen us to what’s crashing all around us.

The 21st century, forged in the images of flames and bodies falling from the Twin Towers, has sputtered on with wars, financial ruin and crushing public policies that have left us ever more shaken, angry and afraid. At each crisis, people at the top have seized the opportunity to secure their positions and push the rest of us further down. They are not finished, not by a long shot.

Trauma is not just about experiencing wars and sexual violence, though there is plenty of that. Psychology researchers have discussed trauma as something intense that happens in your life that you can’t adequately respond to, and which causes you long-lasting negative effects. [..] trauma comes with a very high rate of interest. The children of traumatized people carry the legacy of pain forward in their brains and bodies, becoming more vulnerable to disease, mental breakdown, addiction, and violence. Psychiatrist Bessel van der Kolk, an expert on trauma, emphasizes that it’s not just personal.

Trauma occupies a space much bigger than our individual neurons: it’s political. If your parents lost their jobs, their home or their sense of security in the wake of the financial crisis, you will carry those wounds with you, even if conditions improve. Budget cuts to education and the social safety net produce trauma. Falling income produces trauma. Job insecurity produces trauma.

There’s much more at the link, and every word is worth reading. The mental consequences of the gutting of our societies by governments and the financial industry does not get nearly enough scrutiny. We act, or politicians and media do, as if millions of people losing their jobs, and over half of young people in certain nations never having had a chance of a job, is just a matter of numbers, of mere statistics.

And then all sorts of ‘experts’ claim it’s all just the price to pay for technological progress, that will make everything so much better for everyone some sunny day soon. But that sunny say will never come, the techno happy ideal version of the future has already died with the debt incurred to facilitate it. We need to take a step backwards, or we’ll continue to drive backwards. Or be driven, to be more precise, since we’ve handed over the steering wheel to people who have no intention of taking us where we want to, and should, go. They are only intent on taking us where they can squeeze us most.

Thing is, there’s precious little left to squeeze. And they know that much better than most of us do. That’s why it’s imperative that we should get rid of these clowns, or there’ll be a whole lot more trauma. We can organize our societies, and we can even organize ways to downscale them peacefully . But not with those at the helm who see us only as mere entities to draw blood from.

We need to be a whole lot more assertive about this; we shouldn’t want to be surrounded by traumatized friends and family members and neighbors There’s nothing good for us in that. It’ll be used against us in increased surveillance and clampdowns and all that comes with it.

We can have good jobs for everyone, all it takes is to have what we need, produced in our own communities and societies, instead of having it shipped over from China. It’s not rocket science. It’s just that there’s a certain segment in society, which unfortunately happens to be the most powerful one, that doesn’t want us to do that. They want more and bigger, not smaller and better.

Until we solve that issue, things will keep getting worse. And not just a little bit. We need to find leaders that actually represent us, our needs and desires and ideas, and we need to find ways to elect them. If we don’t, we face a very bleak future in which there won’t be much left for us to choose. Or enjoy. We live in a pivotal moment in time, but we don’t recognize it for what it is. We seem to think it’s all some minor hiccup. We are dead wrong.

Jul 282014
 
 July 28, 2014  Posted by at 7:07 pm Finance Tagged with: , , , ,  


Arthur Rothstein Cow at Wabash Farms cooperative, Indiana May 1938

At this point, you may want to consider making it personal. Your government, wherever you are in the west, but especially in the US, takes you for a bunch of fools they can feed anything at all and fully expect you to believe all of it. As for the media who convey government messages, it’s up in the air whether they too take you for a flock of dimwits, or are just plain fools themselves. As for your families, friends and neighbors, you decide.

After failing to present a single shred of evidence in 10 days to substantiate their claims that either the rebels, Russia or all of the above were involved in the downing of MH17, they still haven’t. They did, however, come with something that is as devoid of shame as it is full of disgrace. And the media, surprise, present it as the real deal once again. Which goes to prove that nothing has to be real or true, Washington only has to claim it is.

The latest ‘release’ allegedly proves that Russia is firing missiles into Ukraine across the border. But the country with by far the best satellites and other spy equipment (or should we from now on just say the most expensive?), with which it, on a daily basis, traces every move of millions of people worldwide, in particular its own citizens both home and abroad, hasn’t been able so far to locate one single incriminating piece of ‘evidence’ on its own multi-multi-billion dollar spy networks.

For its first ‘real’ proof it turns to a company called Digital Globe, which apparently has produced a number of satellite pics that the US now uses to show the world that the Russians indeed fire those missiles. Remember the precision bombing footage on CNN in the Gulf War? Think 50 years before that in technology. Think grainy pics you couldn’t make out anything on without the help of ‘useful’ US provided arrows and descriptions of what you see.

If you were a religious person, and one of those helpful arrows and partial blow-ups said “that’s Jesus walking on water there”, you’d probably believe it too. And if you’re of the anti-Putin conviction, you’ll be inclined to take these pics for gospel. But that still does not come anywhere near to constituting evidence.

Now if the US would really want to present these things as evidence to the whole world, in a serious way, they would do one of two things: either have Colin Powell take them to the UN and do a show and tell for the General Assembly (worked like a charm before), or at the least do a multi-hour State Dept. and/or Pentagon press-op, simulcast across all major networks, in which various experts can point long sticks at large blowups of the pics and tell us what we see (Thar walketh the Lord … ).

But that’s not what happened. Instead, the Digital Globe pics were released through, of all places, the Twitter account of Geoffrey Pyatt, the infamous US ambassador in Kiev who rose to fame when word got out that he and Assistant Secretary of State Victoria Nuland had handpicked the next Ukraine government even before the last – and elected – one had gone, after spending $5 billion to make sure the change happened.

Look, I don’t want to keep getting wound up about all this. What use is it? Suffice it to say that if Washington had solid proof of any of the accusations it has made against any of the parties it has made such accusations against, the ‘evidence’ wouldn’t be presented this way. That’s not the MO, and no, the government hasn’t all of a sudden gone all modern; things presented this way are simply much easier to dismiss when push comes to shove. That’s why they are.

Most accusations against Russia, Putin and the east Ukraine rebels since MH17 crashed 10 days ago have been made – and then easily refuted -through social media accounts located somewhere in Kiev, many through Kiev government accounts, and now Geoffrey Pyatt. This whole set-up stinks five ways into Tuesday.

One more thing: there is another implication of the release of the Digital Globe pics, namely that they make it even less probable that we’ll ever see any evidence that the rebels downed the plane. Unless Digital Globe has pictures of that too. The US government does not, or it would have already made it public. Then again, it has no need to: whatever it says is swallowed up whole by the faithful regardless of how likely its ‘reports’ are to be true.

The Dutch, Australian and Malaysian forensic experts who have been sent in to work on the crash site to save what is left of the bodies and dignity of the victims whose remains haven’t yet been found, cannot enter the area, because the Ukraine army happened to have elected the past weekend to start a new offensive against the rebels. Ostensibly to clear the crash site for the experts, but they would have had full access already without the offensive.

Rebel leader Borodai says the army went in to ‘evade exposure’ (i.e. hide evidence) of its culpability in the crash, and I’m wondering how far off he could possibly be.

And that brings up yet another question: who commands the Ukraine army? The latest offensive began after former PM Yatsenyuk resigned, and just yesterday Ukraine president Poroshenko told journalists – again – that he had ordered to stop combat operations in a 40-kilometer zone around the crash site (the latest attacks take place much closer than that). If it’s not the government or the president ordering the latest attacks, the ones that make truth finding impossible, then who is it?

Does Poroshenko lie through his teeth or is something else going on? The country’s bankrupt. It has used large swaths of its IMF loans to fund its army, it has proposed conscription for all men under 50 years old, soldiers are fleeing to Russia because they don‘t want to shoot their own countrymen, but attacks with bombers and tanks on cities filled with civilians are intensified.

I still haven’t seen one single western leader call for an immediate cessation of all attacks on both sides, so the dead can be properly and respectfully buried. Not one. Not even the Dutch PM. And I think that should tell you all you need to know about what the true priorities are that ‘we’ have. Respect is a fleeting term.

Not that it’s only in matters related to Ukraine that Washington fully and arrogantly expects you to take for granted anything it says. Libya is going down the drain as we speak, and weren’t we just there recently? Israel is once again shooting fish in a barrel in the Gaza strip (and I know it’s not black and white), and “we” are not just outside observers there either. The blood-smeared ISIS campaign in Iraq can’t even make the headlines anymore, but “we” obviously have something to explain about our recent involvement there too.

“America” and “peace initiative” are two terms that are getting ever harder to fit into one sentence. And somehow, no matter how naive it may sound, that still feels like a giant betrayal of what the nation once stood for.

America doesn’t want peace, because peace doesn’t rhyme with power.

Meanwhile, at home, whenever you see someone anyone talk about ‘recovery’, you now know they’re full of it. The Russell Sage Foundation issued a 2-page report that makes clear ‘recovery’ is about the worst possible and least applicable term to use to describe what is happening in the US economy.

Households at the “median point in the wealth distribution – the level at which there are an equal number of households whose worth is higher and lower”, saw their wealth plummet -36% from 2003 to 2013. From the highest point, in 2007, to 2013 the number is -43%.

Five years after 2008 and Lehman, five years into the alleged recovery, which raised US federal, Federal Reserve, and hence taxpayer, obligations by $10-$15 trillion or more, US median household wealth was down -36% from 2003. And that’s by no means the worst of it:

If you look at the 5th and 25th percentile ‘wealth’ numbers (much of it negative), you see that they went down from 2003 to 2007, while the median was still rising. For both, wealth in the 2003-2013 timeframe deteriorated by some -200% (or two-thirds, if you will). -$9,479 to -$27,416 for the poorest 5%, $10.219 to $3,2000 for the lowest 25%.

This is how Washington defines recovery. Just in case you were wondering.

But they’re going to talk about it again, you just wait for it, just like they’re going to continue to blame Putin and the rebels for everything that goes wrong in Ukraine. They’re not going to stop until they have control over Russia’s resources, no matter what the body count, and they’re not going to stop until most Americans are de facto debt slaves.

And Uncle Sam counts on you! To swallow it all hook line and sinker. It works like a charm to date.

Hussman is solid.

This Equity Bubble Has Already Surpassed 1929 And 2007 (Hussman)

Make no mistake – this is an equity bubble, and a highly advanced one. On the most historically reliable measures, it is easily beyond 1972 and 1987, beyond 1929 and 2007, and is now within about 15% of the 2000 extreme. The main difference between the current episode and that of 2000 is that the 2000 bubble was strikingly obvious in technology, whereas the present one is diffused across all sectors in a way that makes valuations for most stocks actually worse than in 2000. The median price/revenue ratio of S&P 500 components is already far above the 2000 level, and the average across S&P 500 components is nearly the same as in 2000. The extent of this bubble is also partially obscured by record high profit margins that make P/E ratios on single-year measures seem less extreme (though the forward operating P/E of the S&P 500 is already beyond its 2007 peak even without accounting for margins).

Recall also that the ratio of nonfinancial market capitalization to GDP is presently about 1.35, versus a pre-bubble historical norm of about 0.55 and an extreme at the 2000 peak of 1.54. This measure is better correlated with actual subsequent market returns than nearly any alternative, as Warren Buffett also observed in a 2001 Fortune interview. So if one wishes to use the 2000 bubble peak as an objective, we suggest that it would take another 15% market advance to match that highest valuation extreme in history – a point that was predictably followed by a decade of negative returns for the S&P 500, averaging a nominal total return, including dividends, of just 3.7% annually in the more than 14 years since that peak, and even then only because valuations have again approached those previous bubble extremes. The blue line on the chart below shows market cap/GDP on an inverted left (log) scale, the red line shows the actual subsequent 10-year annual nominal total return of the S&P 500.

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20% only?

Stock Trader Who Called Three Crashes Sees 20% Collapse (MarketWatch)

Mark Cook, a veteran investor included in Jack Schwager’s best-selling book, “Stock Market Wizards,” and the winner of the 1992 U.S. Investing Championship with a 563% return, believes the U.S. market is in trouble. The primary indicator that Cook uses is the “Cook Cumulative Tick,” a proprietary measure he created in 1986 that uses the NYSE Tick in conjunction with stock prices. His indicator alerted him to the 1987, 2000, and 2007 crashes. The indicator also helped to identify the beginning of a bull market in the first quarter of April 2009, when the CCT unexpectedly went up, turning Cook into a bull. What does Cook see now? “There have been only two instances when the NYSE Tick and stock prices diverged radically, and that was in the first quarter of 2000 and the third quarter of 2007. The third time was April of 2014,” Cook says. In simple terms, as stock prices have gone higher, the NYSE Tick has moved lower.

This divergence is an extremely negative signal, which is why Cook believes the market is losing energy. In fact, the Tick is showing a bear market, which seems impossible considering how high the market is rising. “The Tick readings I am seeing (-1100 and -1200) is like an accelerator on the floor that is pressed for an indefinite amount of time,” Cook says. “Eventually the motor will run out of gas. Now, anything that comes out of left field will create a strain on the market.” Since the CCT is a leading indicator, prices have to catch up with the negative Tick readings. “Think of a dam that has small cracks that are imperceptible to the eye,” he says. “Finally, the dam gives way. Eventually, prices will go south, and the Tick numbers will be horrific.” Cook is also concerned that the market is acting abnormally. “It’s like being in the Twilight Zone, he says. “Imagine going outside when it’s raining and getting sunburned. That’s the environment we’re in right now.”

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Not sure I like the use of the word ‘intelligence’ in this context.

US Releases Satellite Images ‘Proving’ Russia Is Firing Into Ukraine (RT)

The US State Department has released satellite images via email which it says act as “evidence” that Russia is firing rockets at Ukrainian troops across the border. The images were posted on Twitter by the US ambassador to Ukraine, Geoffrey Pyatt. The four-page emailed document, titled ‘Evidence of Russian Shelling into Ukraine,’ contains four satellite images, all dating between July 21 and July 25/26. Monochrome images taken by civilian satellites are said to be indicating fire from multiple rocket launchers “on the Russian side of the border” and “artillery strikes within Ukraine.” The slides were prepared by the US Office of the Director of National Intelligence (DNI), and came supplied with a short description. Thus, a slide dated July 25/26 shows what US officials claim to be “ground scarring at a multiple rocket launch site on the Russian side of the border oriented in the direction of Ukrainian military units within Ukraine.” [..]

Paul Craig Roberts, columnist and head of the Institute for Political Economy, told RT that he doubts the credibility of the photographs released by the State Department. “I can state with complete confidence that information this important would not be released in this way,” Roberts said. “If this was released by the State Department, which I doubt, it is so unprofessional; it would mean that the State Department is trying to spread propaganda about Russia on social media. Now the way this type of information would be released would be at a press conference with a high level of government officials addressing the bureau chiefs of the major news organizations.”

He added that experts would explain the meaning of the photographs and their validity. “The US government has been desperate to produce information to back up its claims. It would not release information in this way,” he said, adding that anyone can spread information on social media. Russia has been repeatedly criticizing the US for accusations made by the State Department without any sustainable evidence. Washington directly blamed Moscow for building up troops close to the border, as well as for the “firing of Russian heavy weapons from the Russian side of the border at Ukrainian military personnel.”

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Not what we want to hear.

Intl. Inspectors Find ‘No Violations’ By Russia Along Ukraine Border (RT)

Inspectors who came to check the state of Russian troops along the Ukrainian borders have found no violations, Russia’s Ministry of Defense said. This came as a response to the US alleging 15,000 Russian troops have amassed in the area. “It has come to our attention that new allegations by top US officials as to the alleged amassing of Russian troops along the Ukrainian border have been voiced,” the statement by the Defense Ministry read, following allegations by the US Permanent Representative to NATO, Douglas Lute, and State Department spokeswoman, Marie Harf. The last four months have witnessed 18 separate inspections along the Ukrainian border with the Russian Federation, all in line with the Vienna Open Skies Treaty and the Vienna agreement of 2011.”

The statement goes on to list the international makeup of those inspections, which included representatives from the US, as well as NATO and Ukraine. The inspections also included flybys and visits to any military units that might have aroused suspicion. “No instances of violations by Russia along the Ukrainian border had been registered by the inspectors,” adding that in spite of the above, “frequent action by the Ukrainian military taking place on the Russian border has hindered our own ability to perform similar inspections and flybys along our border.” While no evidence of a Russian military buildup at Ukrainian border regions was registered, similar inspections in other regions, were they to be carried out, would undoubtedly find that the opposite is true for Ukrainian forces, who’ve had heavy equipment stationed there, firing regularly onto Russian settlements, the ministry states. “Their actions have already led to casualties on our side,” the statement concludes.

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How prepared is Putin? He must have seen this coming years ago.

The West Risks Collateral Damage By Punishing Russia (FT)

The sanctions to be decided this week are known in EU jargon as “tier three”; the red-alert stage. As reported by Peter Spiegel, the Financial Times Brussels bureau chief, the European Commission wants a ban on purchases by EU citizens and companies of equity and debt issued by state-controlled Russian banks that has a maturity of more than 90 days. The ban would also include investment services. No EU bank would be allowed to help Russians banks raise funds on a regulated market. The rule would extend to development finance institutions. Last week, the EU and the US used their majority vote on the board of the European Bank for Reconstruction and Development to stop the bank’s investments in Russia, which accounts for almost 20% of its invested assets.

With the US sanctions, this is an impressive list. Even the tier one and tier two measures introduced after the annexation of Crimea appear to have had an impact. German industrial production started to fall soon after those sanctions took effect, by a combined 2% in April and May. It has also gone down elsewhere in the eurozone. The Committee on eastern European Economic Relations, a German business lobby with political power similar to that of the National Rifle Association in the US, says existing sanctions threaten 25,000 German jobs. An estimated 350,000 German jobs directly depend on German-Russian trade; many would be at risk if sanctions were stepped up. Total German trade with Russia was close to €80bn in 2013.

In particular, there are 6,200 Russian companies benefiting from German capital. Robert Kahn from the Council on Foreign Relations in the US wrote in May that the impact of Russian sanctions on the global economy would depend on the financial channels that link Russia to the west. He notes that much of the public discussion has focused on critical trade ties. The implication is that, if you want to know how sanctions filter through to the global economy, it is probably best to follow the money not the flow of gas, oil or, indeed, helicopter carriers. Just as finance acted as a growth accelerator before the economic crisis, financial sanctions could act as decelerator.

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Borodai: Kiev Intensifies Crash Zone Attacks To Evade Exposure (Itar-Tass)

Kiev is seeking to evade exposure of truth over a Malaysian MH17 crash near Donetsk in eastern Ukraine by intensifying combat operations around the crash site, the press centre of the self-proclaimed Donetsk People’s Republic (DNR) said on Sunday, citing DPR Prime Minister Alexander Borodai. Earlier, the mass media reported that the Ukrainian military planned to take control over the Malaysian jet crash area, for which ends they were shelling Gorlovka and other settlements controlled by the DPR forces. Intensified combat operations “are irrefutable evidence proving that Kiev is seeking to destroy all evidence of the crime committed by its military,” Borodai was quoted as saying.

“The junta is in panic, the only thing that matters for them today is to evade exposure. Kiev’s actions run counter to [President Pyotr] Poroshenko’s decision to declare a 40-kilometre zone around the crash site a ceasefire territory.” Earlier on Sunday after visiting the Malaysian embassy in Ukraine, President Poroshenko told journalists he had ordered to stop combat operations in a 40-kilometre zone around the Malaysian Boeing crash.

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Courts and politics. Lovely combination.

Yukos Owners Win $50 Billion in 10-Year Fight With Russia (Bloomberg)

Former majority owners of Yukos Oil said they won a landmark $50 billion award against Russia for the confiscation of what was once the nation’s largest oil company. The Permanent Court of Arbitration in The Hague ruled that Russia is liable to pay almost half of the $103 billion plus interest sought by the company’s former owners, Tim Osborne, head of GML, former holding company of Yukos, told reporters in London today. The ruling found that the campaign against Yukos was “politically motivated,” Osborne said. The multi-billion-dollar award against Russia marks a fresh headache for President Vladimir Putin, who’s facing intensifying U.S. and European sanctions aimed at forcing him to resolve the deadly conflict in neighboring Ukraine. Mikhail Khodorkovsky, once Russia’s richest man with a fortune of $15 billion when he was CEO and the main owner of Yukos, was freed in December under an amnesty after serving a decade in Russian prison camps.

He says the charges against him were revenge for his financing of opposition parties, which the Kremlin denies. Collecting the damages is likely to involve years of legal wrangling, according to Yukos’ former chief legal counselor, Dmitry Gololobov. Russia will refuse to pay and seizing Russian state assets abroad will be a difficult task, he said. “Russia has the money to hire the best international lawyers, who won’t give up without a fight,” Gololobov said by e-mail before the ruling was announced. “So the Yukos affair could easily go on for another 10 years.” Putin’s government dismantled Yukos from 2004-2007 after imposing $27 billion in tax charges. Most of its former assets were acquired in a series of forced auctions by state-run OAO Rosneft, which is the world’s largest publicly traded oil company by output. Russia will have the opportunity to appeal the ruling, Foreign Minister Sergei Lavrov said. “Russia will use all available legal means to defend its position,” Lavrov said today at a televised news briefing in Moscow.

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Real numbers are much higher.

Ukraine Civil War Death Toll At Least 1,100, Over 3,500 Wounded – UN (RT)

Some 1,129 people have been killed and nearly 3,500 wounded in eastern Ukraine since the start of the Kiev’s military operation in April, according to UN estimates. The report also states that these are the minimum casualty toll estimates by the UN monitoring mission and WHO. The report says that the cause of the rising death toll is intensified artillery shelling of the civilian residential areas and the so-called “collateral damage” of the armed actions in the heavily-populated areas. Also, 100,000 people were forcibly displaced in eastern Ukraine. The Kiev authorities are using heavy weaponry and artillery in strikes on residential areas, while the armed rebels are firing back, the report states. “Both sides must take great care to prevent more civilians from being killed or injured,” she added.

“Already increasing numbers of people are being killed, with serious damage to civilian infrastructure, which – depending on circumstances – could amount to violations of international humanitarian law. The fighting must stop,” the report stated. On Friday, Human Rights Watch alleged that Kiev is using indiscriminate Grad missiles to attack densely populated areas in Donetsk, which violates international humanitarian law, and also blames the militia for taking cover in the same areas. “Although Ukrainian government officials and the press service of the National Guard have denied using Grad rockets in Donetsk, a Human Rights Watch investigation on the ground strongly indicates that Ukrainian government forces were responsible for the attacks that occurred between July 12 and 21,” HRW stated.

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Oh, get real!

New York Federal Reserve Steps Up Pressure On Bank Ethics (FT)

The Federal Reserve Bank of New York is stepping up pressure on the biggest banks to improve their ethics and culture, after investigations into the alleged rigging of benchmark rates led officials to conclude bankers had not learnt lessons from the financial crisis. The investigations into the alleged manipulation of Libor and foreign exchange rates produced emails and other evidence that NY Fed officials believe reflected risky and lawless behaviour, people familiar with the situation said. Fed officials were surprised that some of that reported behaviour occurred after the 2008 crisis, leading them to believe bankers had not curbed their poor conduct. To make sure the biggest banks are paying enough attention to ethics and culture, NY Fed bank evaluations have begun incorporating new questions emphasising such issues. Topics include whether the right performance structure is in place to punish bad behaviour, especially when it comes to compensation.

The NY Fed does not have the authority to write regulations, but it plays a crucial role in the regulatory landscape, overseeing banks in its jurisdiction that include Goldman Sachs, JPMorgan, Citigroup, Barclays and Deutsche Bank. It assesses banks through evaluations, which often do not contain specific criteria but which provide guidance for standards. NY Fed general counsel Thomas Baxter has also been meeting bank executives to emphasise that when it comes to ethics and culture the tone needs to be set at the top, people familiar with the efforts said. The agency will also hold a workshop on bank ethics and culture in the autumn Banks have already been working to overhaul their risk management and have hired thousands of additional compliance staff. But they are worried about how regulators will measure how well they are doing in terms of ethics and culture. “Banks are taking the Fed’s message very seriously,” a banking industry source said. “We just want to make sure we know what the rules are.”

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Why We’re Still Waiting For A Banking ‘Culture Shock’ (CNBC)

Banks may have repaired their balance sheets following the global financial crash of 2008 but we’re still waiting for any notable shift in their culture, according to a market commentator. Alex Brummer, a journalist who concentrates on the U.K.’s financial hub for the Daily Mail, told CNBC Monday that “reckless banking” persists in the industry nearly six years after one of the greatest financial upheavals in the last two centuries. “The cultural change that we hoped for never actually happened,” he said. “(Regulators are) beginning to slam the door but it’s taking a hell of a long time to do so,” he said. Brummer added that any penalties that have been dished out to U.K. banks following a string of trading and market manipulation scandals are just being seen as a new cost of doing business.

“It’s really curious that the smallest countries involved in the crisis, Iceland and Ireland, where perhaps it had the most severe impact on ordinary people in some respects and on the future of their economies, are the only ones that bothered to try these people and put them in prison,” Brummer said. Brummer also rounded on bonus payments for bankers saying that the incentive schemes are all wrong, and added that any upheavals that policymakers or the public want to see would be a “really long term process.” Allegations of rate fixing and foreign exchange manipulation have provided setbacks for many banks across the globe as they try to reinforce capital buffers to provide better foundations in the event of another crisis. In the City of London, some bankers have been suspended from their roles, organizations have been fined and investigations have begun into the alleged wrongdoing. However, critics remain skeptical following the small number of prosecutions that have ended in a prison sentence.

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Who owns this country?

Private Equity’s Free Pass (NY Times)

For thousands of hobbyists, the local Michaels Stores outlet is a must-stop shop for scrapbooks, dried flowers, crochet hooks, sewing notions and dozens of other do-it-yourself paraphernalia. In these essentials, Michaels, the nation’s largest arts-and-crafts retailer, has remained unchanged for years. But behind the scenes, the company has been refashioned by two financial giants — Bain Capital and the Blackstone Group — which have effectively controlled Michaels since 2006, when they took the chain private in a $6 billion leveraged buyout. Since then, Bain and Blackstone have profited from scrapbookers and needlepoint artists in part through an array of sophisticated financial techniques, most recently by selling shares in Michaels in an initial public offering in June.

In some ways, the practices used at Michaels by Bain and Blackstone — and by other private equity firms at other companies — closely resemble those employed by investment banks like Goldman Sachs and Morgan Stanley. For example, all of these financial firms advise corporations on mergers and acquisitions, on issuing debt and on how to rejigger their financial structures. And they are exceedingly well paid for these services. But there is a crucial difference. The investment bankers are generally designated as broker-dealers — entities that perform crucial functions in financial markets. This lucrative status comes at a cost: Broker-dealers are subject to Securities and Exchange Commission regulations aimed at reining in excesses and requiring that the advice they provide is appropriate. When this so-called suitability standard is violated, brokers face regulatory and legal penalties.

But while private equity firms often operate like Goldman and Morgan Stanley, they are not uniformly subject to the same broker-dealer regulatory regime. Blackstone, for example, registered as a broker-dealer in 2007, a year after it participated in the Michaels buyout. But to this day, Bain has not done so, and the S.E.C. has not required it or many other private equity firms to comply with broker-dealer requirements. Nor has the S.E.C. clamped down on buyout firms for marketing private equity funds to endowments, pension funds and wealthy investors. These activities, too, are usually the purview of broker-dealers. This inconsistent treatment reflects an internal debate in the S.E.C., several people close to the agency said. And it has caused consternation in the private equity industry.

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Empire building in the face of economic collapse. America does it, Europe does it, Japan. So why not China too?

China’s Perilous Tangle Of Military And Economic Fortunes (FT)

Two debates are under way over China. The first, about Beijing’s aggression in the South and East China seas, is between naval strategists and diplomats who know little about economics. The second, about the fragility of the Chinese economy, is between economists who know little about naval strategy and diplomacy These debates should intersect but they rarely do. In one, China appears invincible; in the other, it seems to be on the brink of implosion. The background to the first debate is China’s seemingly inexorable military expansion, especially in sea, air, ballistic missiles and cyber warfare. As regards sea forces, this includes not only warships but also coastguard vessels, merchant shipping and strategic deployment of oil rigs. Beijing’s ability to co-ordinate all these attributes of power has resulted in a subtly shifting military balance in maritime Asia. [..]

The background to the second debate is China’s overheated economy. For 30 years, double-digit growth has been the norm, but this could not go on for ever. The official growth rate of 7.5 per cent probably errs on the high side – and, even if not, growth on the more populous and developed Pacific coast is surely below that, since the poorer interior has tended to grow at a faster rate. Then there are the credit and housing bubbles; house prices fell by more than 10 per cent in the first five months of 2014. The economy has, especially since 2008, been on a nonstop stimulus. To think that such a situation can continue, with China eventually surpassing the US as the world’s biggest economy, constitutes linear thinking in the extreme.

This second debate pits those who believe China’s economy will muddle through against those who think it could collapse. The muddle-through scenario assumes that China’s very capable and collegial autocrats are not in denial about any of these problems, and can act nimbly – in ways democracies cannot – to make a successful course correction. The culture of discipline, and $4tn in foreign exchange reserves, will help. Others believe China is subject to the same economic laws as everyone else, and that the leadership, as capable as it may be, is still in over its head. It is China’s very authoritarianism that undermines economic reform, they say.

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Eurozone Efforts To Boost Inflation Are Full Of Hot Air (Das)

Announcing the June initiatives, Draghi told reporters: “Are we finished? The answer is no.” It would be reasonable, based on established practice, to expect the ECB resident to repeat this formulation in the coming months, until circumstances dictate a new message. But the utterances are increasingly reminiscent of the Wizard of Oz: “Make no mistake, I have powers, powers beyond your understanding! Powers to make you quake!” It is unlikely that the policies in place will result in an immediate return to the required levels of growth. Inflation is likely to remain low. The ECB believes that inflation will rise from current rates (0.5%) to 1.4% in 2016, despite downward revisions of its inflation forecast for the next three years. The pace of structural reforms in individual nations will remain slow, particularly in the face of electoral disquiet and with low borrowing costs reducing pressures for change.

The ECB package of low-cost funding is unlikely to have the intended effect on the real economy, though it may assist in keeping bond yields low and stock markets buoyant. Draghi has acknowledged that almost all of policymakers’ conventional tools have been exhausted. Indeed, the ECB has only one more card left to play — a large-scale program of asset purchases. But it is not clear that monetary expansion will be effective in stimulating demand. The ECB’s own simulations show that the impact of full-scale quantitative easing on growth and inflation will be limited. The simulations indicated that a QE program of €1 trillion per year, roughly €80 billion per month, would increase inflation by only 0.2% to 0.8%.

European policymakers and investors have ignored real economy weaknesses, choosing to concentrate on the effect of massive central bank liquidity injections. The strategy has generated spectacular returns. But the balance of risk and return is shifting. Should growth and inflation not increase significantly and the present policies prove ineffective, Draghi’s bluff is likely to be called. And as Ambrose Bierce knew: “The hardest tumble a man can take is to fall over his own bluff.”

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Let’s hope they bring it down.

Europe’s Banking Union Faces Legal Challenge In Germany (FT)

Europe’s banking union is set to face a challenge in Germany’s constitutional court, a development that threatens to generate renewed uncertainty over one of the main responses to the eurozone’s financial crisis. Five German academics have filed a case claiming that the EU’s banking union is illegal under German law because it was created without the necessary treaty changes. The constitutional court, which this year rejected a complaint against the European Stability Mechanism, the eurozone bailout fund, has a record of broadly supporting EU and eurozone integration. However, the new case, which could spend months winding its way through court hearings, will almost certainly force officials from the European Commission and the European Central Bank to defend the newly-created structure just as it begins to be implemented.

The suit highlights the determination of a group of eurosceptic German economics, finance and law experts to challenge the institutions underpinning the eurozone’s growing financial and economic integration. While the group has limited party political support, its position plays on deep-rooted German convictions that important political decisions should be legally ‘unassailable’ and fears that some EU decisions relating to the monetary union might not be. The banking union has no basis in law in the European treaties, said Markus Kerber, a finance professor at TUB, the Berlin Technical University, who also heads Europolis, a eurosceptic think-tank. Mr Kerber told the Financial Times that the banking union was illegal and contrary to the German constitution. He said the case specifically concerned the new single supervisory mechanism, granting the ECB the power to monitor the eurozone’s largest banks.

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China and Japan, too, will keep the taps open.

Buyers Dream of Draghi as Fed-ECB Divide Bolsters Treasuries (Bloomberg)

As the Federal Reserve moves to end its debt purchases, U.S. bond-market bulls are discovering a new ally: European Central Bank President Mario Draghi. For the first time since 2007, Treasuries offer higher yields than government debt in Europe. That’s largely due to Draghi, who pushed the region’s borrowing costs to record lows after announcing an unprecedented set of stimulus measures last month including negative interest rates to prevent deflation.

With Fed Chair Janet Yellen trying to extricate the central bank from more than five years of its own extraordinary monetary policies to support the world’s largest economy, the relative advantage may help attract more overseas investors to Treasuries and prolong their biggest advance in four years. At 2.48%, 10-year notes yield more than twice as much as German bunds, the biggest premium since 1999. “It certainly does give the Fed some cover to pursue its agenda,” Tim Palmer, the Minneapolis-based head of global bonds at Nuveen Asset Management, which oversees $120 billion, said in a July 24 telephone interview. “It’s likely to be less disruptive to the extent that other countries are engaging in policies that add some liquidity.”

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But they’re too big to fail anyway. Empty threats.

ECB Opaque-Asset Review Seen Targeting Deutsche Bank, BNP (Bloomberg)

Deutsche Bank and BNP Paribas, which hold almost half of the hard-to-value assets on the books of the euro area’s 10 biggest banks, are facing a reality check that could impose losses. As part of its review of 128 lenders, the European Central Bank is studying less-actively traded loans and securitized products that banks value with minimal external data. The unprecedented scope of the exercise gives the ECB, which is taking on a supervisory role this year, insight that has eluded investors: comparing how the biggest investment banks value complex assets. The findings, to be released in October, could require Deutsche Bank, BNP Paribas and other firms to restate the value of assets, driving down equity and slowing efforts to boost capital levels to meet demands set by regulators, according to Martin Hellmich, a professor of risk management and regulation at the Frankfurt School of Finance & Management.

ECB President Mario Draghi, seeking to show the assessment will be credible, has said some lenders need to fail its stress test. “Banks with a lot of level-three assets that still have a viable business model and funds to spare make for good candidates for the ECB to discipline,” Hellmich said. “That’s a political approach, but it makes sense.” Banks split assets into three categories: one for those with transparent prices, such as stocks; a second for assets where some external data is available, including many over-the-counter derivatives, such as interest-rate swaps; and a third for those they assign their own values to because there isn’t an active market. The last group, known as level three, contains the most illiquid asset-backed securities, collateralized debt obligations, repurchase agreements and derivatives. Banks value these assets using their own models based on historical data and risk assumptions. The models aren’t made available to investors.

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It doesn’t matter who’s guilty. What matters is who pays: the poor.

Argentina Braces For Sovereign Debt Default (FT)

Santiago Medina frowns as he recalls Argentina’s economic crisis at the time of its 2001 sovereign debt default, when he lost his job and took part in street protests. “Those were tough times,” says Mr Medina, who sells newspapers at a small kiosk beside a traffic-clogged avenue in Buenos Aires. “I don’t understand why the government wants to risk default again. It’s irresponsible: people are going to suffer.” Despite such painful memories, Argentines are poised for a default on Wednesday – their third in just over three decades. The trigger would be a missed $539m interest payment after mediated talks between the government and a group of “holdout” creditors made no apparent progress last week.

The growing prospect of default has begun to focus minds on what would come next. Economists broadly expect a recession in the country would deepen, inflation to rise and capital flight – possibly triggering a second devaluation of the peso this year. Still, few believe the consequences of a default would be as dire as 13 years ago, when unemployment reached nearly 25% and forced tens of thousands of Argentines on to the streets to scavenge for cardboard to sell to recycling plants. The economy is not in as deep a crisis as in 2001, when Argentina had suffered from a four-year recession before defaulting. The size of the forgone debt would also be smaller – a maximum of $30bn compared with $80bn.

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” … homeowners owing their creditors 370% of disposable incomes”. What else do you need to know?

Swedes Engage in Household Debt Binge (Bloomberg)

Three weeks after Sweden’s central bank delivered a surprise half-point rate cut, a fresh set of credit data showed that households are borrowing at the fastest pace in almost three years. The Swedish Financial Supervisory Authority and the government “have concluded that the higher credit growth and the high household indebtedness is problematic,” Mats Hyden, an economist at Nordea Bank, said by phone. Last week’s credit report “increases the pressure on them to act.” While the Riksbank fights back criticism from Nobel laureates and former members of its own board that it was too slow to tackle disinflation with rate cuts, households are piling on more debt. Consumer borrowing is at a record high with homeowners owing their creditors 370% of disposable incomes, the central bank estimates.

“Credit growth has changed course and is now on an upwards trend,” Hyden said. “And the fact that it increased already in June, before the Riksbank’s rate cut, indicates that there is more momentum in credit growth than previously thought.” Credit grew at an annual rate of 5.4% in June, the quickest pace since November 2011, Statistics Sweden said on Friday. The news sent the krona 0.4% higher against the euro to its strongest since July 3, the day the Riksbank said it was cutting its repo rate to 0.25% from 0.75% to try to drive inflation closer to its 2% target. Prices rose at one tenth that pace in June. Total private debt in Sweden, including households with no loans, stood at about 173% of disposable incomes in the second quarter of this year, according to the Riksbank, which forecasts that that ratio will rise to 185% in 2017.

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Wait till it reaches America.

Two Americans Infected With Ebola In Liberia (UPI)

Two U.S. aid workers in Liberia have tested positive for the Ebola virus in what health officials in west Africa are calling the deadliest outbreak of the disease ever. Both Nancy Writebol and Dr. Kent Brantly were working in Liberia with Samaritan’s Purse to treat Ebola victims when they were diagnosed with the virus last week, the organization said in a statement. Writebol is an aid worker with the Serving in Mission group, which was partnered with Samaritan’s Purse. Brantly worked directly with Samaritan’s Purse Ebola Consolidated Case Management Center in Monrovia.

Writebol and her husband, David Writebol, had been living in Liberia since August 2013 and are originally from Charlotte, N.C. Brantly, 33, of Fort Worth, Texas, began feeling ill last week and quarantined himself when he recognized the symptoms. He had been living in Liberia since October. As of June 30, the World Health Organization says some 1,093 people in Guinea, Sierra Leone and Liberia are believed to have been infected with Ebola with 660 deaths. Testing has confirmed 786 cases with 442 deaths.

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Baseload issues. We’ve talked about those 1000 times. They force Germany to pay as much as 400 times wholesale electricity prices to coal plants just to keep the grid going. No surprise for Automatic Earth readers.

German Utilities Bail Out Electric Grid at Wind’s Mercy (Bloomberg)

Germany’s push toward renewable energy is causing so many drops and surges from wind and solar power that the government is paying more utilities than ever to help stabilize the country’s electricity grid. Twenty power companies including Germany’s biggest utilities, EON SE and RWE AG, now get fees for pledging to add or cut electricity within seconds to keep the power system stable, double the number in September, according to data from the nation’s four grid operators. Utilities that sign up to the €800 million ($1.1 billion) balancing market can be paid as much as 400 times wholesale electricity prices, the data show.

Germany’s drive to almost double power output from renewables by 2035 has seen one operator reporting five times as many potential disruptions as four years ago, raising the risk of blackouts in Europe’s biggest electricity market while pushing wholesale prices to a nine-year low. More utilities are joining the balancing market as weak prices have cut operating margins to 5% on average from 15% in 2004, with RWE reporting its first annual loss since 1949. “At the beginning, this market counted for only a small portion of our earnings,” said Hartmuth Fenn, the head of intraday, market access and dispatch at Vattenfall AB, Sweden’s biggest utility. “Today, we earn 10% of our plant profits in the balancing market” in Germany, he said by phone from Hamburg July 22.

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