Sep 242019
 
 September 24, 2019  Posted by at 9:12 am Finance Tagged with: , , , , , , , , ,  19 Responses »


Paul Gauguin Clovis Gauguin asleep 1884

 

Why Repo Is Such a Big Deal, and Its $400 Billion Bailout So Unnerving (Fort.)
Interest Rate Business Model is Dead (Welt)
Discord At The Top Is Bad For The ECB (MW)
Boris Johnson Refuses To Rule Out Suspending Parliament Again (G.)
UK Labour Party Remains Split Over EU (CNBC)
The Odor of Desperation (Kunstler)
Why Is The Media Circling The Wagons To Protect Hunter Biden? (NYPost Ed.)
Democrats Were First To Enlist Ukraine In US Elections (Solomon)
Democrats Announce Tighter Criteria For Fifth Presidential Debate (R.)
Google Wins Landmark Right-To-Be-Forgotten Case In Europe (BBC)
US Government Moves To Block Alleged Drone Whistleblower’s Defense (SProof)

 

 

2 things:

1) the UK Supreme Court ruling on prorogation will come too late to include here.

2) I’m sorry that Greta Thunberg made me feel queasy yesterday. I know she means well, but it all came out very strangely in her speech. Could hardly bear to watch it. Who’s pushing her? To Davos first, and now the UN?

 

 

“..any counter-party in need of cash, and only holding collateral like Treasuries, agreed to pay the much higher going repo rates. That’s supply and demand..”

Why Repo Is Such a Big Deal, and Its $400 Billion Bailout So Unnerving (Fort.)

Repos (short for repurchase agreements) are short-term borrowing transactions, often made overnight. Think of them as trades of cash for some kind of collateral. In a repo transaction, the borrower will sell certain securities in their possession with the agreement to buy them back the next day. If the transaction is not rolled over, then the trade has to be settled the following day, with the borrower repurchasing the collateral from the lender for slightly more than it had previously sold it for, compensating the lender with interest for taking on the risk. Large corporations and banks typically hold vast quantities of highly liquid financial assets, and so they like using these markets as a means of quick and easy financing.

In fact, there are more than $1 trillion worth of overnight repo transactions collateralized with US government debt occurring every day. Banks frequently go to these markets to fund the loans they issue, and to finance the trades they execute. That’s when it’s working smoothly. The repo market seized up last week, with median repurchase rates skyrocketing from their usual band of 2.00-2.25% to 2.46% on Monday, and 5.25% on Tuesday. Keep in mind, that’s the median rate. Some repo rates were as high as 9%, more than quadruple the Federal Reserve’s own target rate, which usually puts a cap on how high Treasury repo rates could climb.

An unlucky confluence of events, including an exceptionally large demand for cash from U.S. companies that needed to pay their corporate tax bills, sucked a lot of the available cash out of the financial markets. What happened last week was any counter-party in need of cash, and only holding collateral like Treasuries, agreed to pay the much higher going repo rates. That’s supply and demand, plain and simple, and it mirrors what happened in certain repo markets in 2007 before the housing crash and the Great Recession that followed.

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This is from an article by Anne Kunz and Holger Zschäpitz for Die Welt. Mish ran a Google translate which he corrected later.

I must say, the impression is too strong that Deutsche Bank and Commerzbank are in trouble only because of Draghi. That is simply not true.

And banks are not the main victims of low rates, savers and pensioners are.

Interest Rate Business Model is Dead (Welt)

The cash cow bank lending model is dead, buried by the European Central Bank (ECB). The coup de grace came at the recent meeting. As ECB President Mario Draghi squeezed the negative interest rate for banks even deeper. The ECB will restart its bond purchase program in November. This time, without a time limit. Thus, the monetary authorities have permanently chained the long-term interest rate at a low level and cut the profit opportunities of the financial sector to a level that isn’t sustainable. For a long time, institutions have made good money from the difference between long-term and short-term interest rates.That time is now over.

In 2016, Commerzbank employed more than 50,000 people. CEO Martin Zielke wants to close one-fifth of the 1,000 branches and even wants to part with an important source of income including his Polish subsidiary MBank. The workforce should be reduced to around 38,000 by the end of 2020. The sale of Mbank is a desperate attempt at salvation. In terms of stock market value, Deutsche Bank and Commerzbank are now loosely hanged even by more regionally active institutions from Norway and Sweden. [That is a direct translation that reads wrong but I do not know how to fix it]. Even the once proud Landesbanken is a restructuring case. This is a dangerous development.

“With the allowance, the ECB has relieved the German banks in the short term by around 500 million euros. At the same time, banks will be burdened considerably by the continuation of the low interest rates for an indefinite period, “says Peter Barkow, financial expert at Barkow Consulting. “Especially the German banks are very much dependent on income from the long-term investment of customer deposits at higher interest rates, called maturity transformation. This strategy only works very limited, “warns the expert. [The allowance refers to the ECB not charging banks a portion of the negative interest on excess reserves]

However, the corresponding earnings impact on the banks will only be delayed. “Many German banks have to find new sources of income in the medium term. In the short term, a further reduction in costs will probably be necessary, “says Barkow. For more than a hundred years, banks lived on long-term lending or investing in securities their clients entrusted to them in the short term. Historically, banks made money out of time. If time no longer has a price, because there is no more interest, nothing can be earned. Ten-year Bunds yielded around 1.5 percentage points more than two-year issues in historical terms. Currently, the difference is just under 0.2 percentage points.

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Depends on Lagarde.

Discord At The Top Is Bad For The ECB (MW)

The ECB on September 12 launched a new round of monetary easing, arguing that the decline of inflation expectations in the eurozone, triggered by the current economic slowdown, is throwing further doubt on its ability to reach its official target of “below but close to 2%”. The central bank not only resumed its asset purchases while lowering its key interest rate to minus 0.5%: It also, for the first time, declined to set a date for the end of the program, indicating only that it would be phased out once inflation is “robustly” back on the 2% track. The decision came after a heated debate on the governing council, which includes the 19 central bankers from the monetary union’s member countries and the ECB’s six-strong executive board. Even traditional doves, such as the council’s two French members, argued against the resumption of the bond-buying program.

As soon as the decision was announced, the fiercest opponents to the package went public with their frustration. German central bank President Jens Weidmann told the newspaper Bild that the package was “unnecessary.” The day before, the same newspaper had accused Draghi, dubbed “Count Draghila,” of “sucking dry” the accounts of German savers. Austrian central bank head Robert Holzmann told Bloomberg the package “may have been a mistake.” And Klaas Knot, the Dutch central bank chief, added that the package was “disproportionate.” The loose monetary policies initiated by ECB President Mario Draghi in the summer of 2012, less than a year after he took office, were always reluctantly accepted by eurozone central’s most hawkish members, even when they occasionally voted for some of the measures — such as the first round of bond-buying, back in 2014.

But it is the first time that the relative confidentiality of the governing council’s deliberations has turned into such a public airing of dirty monetary laundry.

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“..Johnson also categorically ruled out any sort of deal with Nigel Farage’s Brexit party..”

Boris Johnson Refuses To Rule Out Suspending Parliament Again (G.)

Boris Johnson has refused to rule out suspending parliament again if the supreme court rules on Tuesday that he abused his powers as prime minister in doing so earlier this month. The British prime minister, who is in New York for a UN summit, also indicated he would not feel obliged to resign if the justices rule he misled the Queen in his reasons for suspending parliament. Asked if he felt a verdict going against him would make his position untenable, Johnson said: “No. I think the reasons for wanting a Queen’s speech are extremely good.” Speaking to reporters, Johnson also categorically ruled out any sort of deal with Nigel Farage’s Brexit party in the likely imminent election, saying the Conservatives would contest every seat.


The supreme court judgment, which could have a huge impact not just on Johnson’s future but also the wider ability of the courts to take a view in political decisions made by government, is due to be announced at 10.30am, following last week’s hearing. The panel of 11 judges were tasked with hearing appeals from two separate legal challenges to Johnson’s decision to prorogue parliament – the technical term for gaps in parliamentary sessions which do not involve dissolution before an election – for five weeks from 9 September.

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Corbyn’s attempts to not lose the Leave voters divide the party. Damned if you do…

UK Labour Party Remains Split Over EU (CNBC)

Britain’s main opposition party has narrowly voted to maintain a neutral stance on the country’s most divisive topic, Brexit, after chaotic scenes at the party’s conference Monday evening prompted fresh criticism from both internal party activists and senior political opponents. Much of the party’s ordinary membership are in favor of the U.K.’s continued membership in the European Union, but Labour chief Jeremy Corbyn has long remained publicly ambivalent on the subject in a bid to hold his party and its supporters together ahead of an expected national election. But those efforts were severely tested as the party’s ruling body put forward a series of proposals on Brexit, many of which had been crafted by dozens of the local Labour constituencies over the course of several days.


Corbyn’s team had insisted that the party remain agnostic for now on whether the U.K. should leave or remain in Europe, and demanded that a final decision be made at another future meeting; at an undetermined time and after a putative election victory. [..] Those Labour activists and party officials who are concerned about those departing voters, and who also advocate remaining in the EU, had put forward a separate proposal Monday. It would have forced the party to adopt a clear policy in favor of continued EU membership, but it was marginally defeated in a vote of raised hands that even the meeting’s chairwoman acknowledged had been hard to judge with total certainty.

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And every second headline says impeachment again. Am I the only one getting tired of that?

The Odor of Desperation (Kunstler)

The swamp abides. The latest news media dumpster fire over President Trump’s phone conversation with Ukrainian president Volodymyr Zelensky is a three-way ruse. Ruse 1: deflect attention from the main issue, which is Joe Biden’s trolling for payoffs on his missions to foreign lands as vice-president, first Ukraine, where son Hunter was gifted a board of director’s chair and $50K-a-month salary with Ukrainian gas company Burisma, and then a $1.5 billion “private equity investment” to Hunter Biden’s wealth management fund from the state-owned Bank of China. Ruse 2: to deflect attention from the damage soon to be inflicted on the Deep State by the forthcoming DOJ Inspector General’s report on FISA court abuses. Ruse 3. To set in motion yet another obstruction of justice trap for Mr. Trump on the basis of false charges.

This comes at the instigation of Intelligence Community Inspector General Michael Atkinson, who was formerly senior legal counsel to John Carlin head of the National Security Division of the Department of Justice, deeply implicated in the FISA court matters of 2016 under investigation by federal prosecutor John Durham. Mr. Atkinson cited a complaint by an unnamed whistleblower who claims to have heard from a source that the President offered a quid pro quo to Ukrainian President Zelensky for reopening the Burisma case. The “whistleblower” may be Mr. Atkinson himself. Of course, gaffe-prone Joe Biden spilled the beans on video earlier this year, when he bragged about shaking down Ukraine’s then-president Petro Poroshenko over a billion-dollar loan guarantee unless he fired the prosecutor investigating Burisma, which he did. Is there any ambiguity here?

The coordination between the news media and the Deep State is impressively blatant in this new gambit, with former acting FBI director Andrew McCabe (dismissed for cause in 2018), in his new position as a CNN “contributor” (while awaiting prosecution) teeing up a new “Trump collusion” narrative with The New York Times, WashPost, and NBC marching in step. In this new age of disinformation, narratives are the political weapon of choice in the campaign to harass and disable the winner of the 2016 election. The big play of RussiaGate failed, the play of “racism” is failing, so UkraineGate is next up.

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“Imagine the son was Eric Trump, and the politician Donald Trump. Would the media be dismissing it as nothing worth looking at, a “debunked” issue?”

Why Is The Media Circling The Wagons To Protect Hunter Biden? (NYPost Ed.)

A foreign natural gas company brings a top US politician’s son onto its board, even though he has no relevant expertise, for $50,000 a month. The politician travels to that country and demands the removal of a prosecutor who’s investigating the company. That prosecutor then gets axed, and the investigation shut down. Imagine the son was Eric Trump, and the politician Donald Trump. Would the media be dismissing it as nothing worth looking at, a “debunked” issue? Yes, Ukraine’s chief prosecutor declared in May that he’d seen no evidence of wrongdoing by Joe or Hunter Biden. Of course not: Again, the investigation got closed years ago.

Yet Yuriy Lutsenko also basically told Bloomberg News he didn’t want to see any such evidence: “I do not want Ukraine to again be the subject of US presidential elections.” And Volodymyr Zelensky took over as Ukraine’s new president after that Lutsenko interview — having won on a vow to end Ukraine’s endemic corruption. Was it really so strange that President Trump pushed the reformer to reopen the probe? No, Trump hasn’t bathed himself in glory with his ham-handed pressure on Ukraine. Then again, Joe Biden’s boasts about getting that prosecutor axed also look clumsy. Then there’s Lutsenko’s claim that the Obama administration handed him a “do not prosecute” list in mid-2016, even as it was pushing Ukraine for dirt on Paul Manafort, Trump’s campaign manager.

That evidence eventually helped send Manafort to prison. What might come of a full-on Hunter Biden probe?

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“..the pressure began at least as early as January 2016, when the Obama White House unexpectedly invited Ukraine’s top prosecutors to Washington..”

“..What wasn’t known at the time, Shokin told me recently, was that Ukrainian prosecutors were preparing a request to interview Hunter Biden about his activities and the monies he was receiving from Ukraine.”

Democrats Were First To Enlist Ukraine In US Elections (Solomon)

Earlier this month, during a bipartisan meeting in Kiev, Sen. Chris Murphy (D-Conn.) delivered a pointed message to Ukraine’s new president, Volodymyr Zelensky. While choosing his words carefully, Murphy made clear — by his own account — that Ukraine currently enjoyed bipartisan support for its U.S. aid but that could be jeopardized if the new president acquiesced to requests by President Trump’s lawyer, Rudy Giuliani, to investigate past corruption allegations involving Americans, including former Vice President Joe Biden’s family. Murphy boasted after the meeting that he told the new Ukrainian leader that U.S. aid was his country’s “most important asset” and it would be viewed as election-meddling and “disastrous for long-term U.S.-Ukraine relations” to bend to the wishes of Trump and Giuliani.

“I told Zelensky that he should not insert himself or his government into American politics. I cautioned him that complying with the demands of the President’s campaign representatives to investigate a political rival of the President would gravely damage the U.S.-Ukraine relationship. There are few things that Republicans and Democrats agree on in Washington these days, and support for Ukraine is one of them,” Murphy told me today, confirming what he told Ukraine’s leader. The implied message did not require an interpreter for Zelensky to understand: Investigate the Ukraine dealings of Joe Biden and his son, Hunter, and you jeopardize Democrats’ support for future U.S. aid to Kiev.

The Murphy anecdote is a powerful reminder that, since at least 2016, Democrats repeatedly have exerted pressure on Ukraine, a key U.S. ally for buffering Russia, to meddle in U.S. politics and elections. [..] As I have reported, the pressure began at least as early as January 2016, when the Obama White House unexpectedly invited Ukraine’s top prosecutors to Washington to discuss fighting corruption in the country. The meeting, promised as training, turned out to be more of a pretext for the Obama administration to pressure Ukraine’s prosecutors to drop an investigation into the Burisma Holdings gas company that employed Hunter Biden and to look for new evidence in a then-dormant criminal case against eventual Trump campaign chairman Paul Manafort, a GOP lobbyist.

[..] Biden threatened to withhold $1 billion in crucial U.S. aid to Kiev if Poroshenko did not fire the country’s chief prosecutor. Ukraine would have been bankrupted without the aid, so Poroshenko obliged on March 29, 2016, and fired Prosecutor General Viktor Shokin.At the time, Biden was aware that Shokin’s office was investigating Burisma, the firm employing Hunter Biden, after a December 2015 New York Times article. What wasn’t known at the time, Shokin told me recently, was that Ukrainian prosecutors were preparing a request to interview Hunter Biden about his activities and the monies he was receiving from Ukraine. If such an interview became public during the middle of the 2016 election, it could have had enormous negative implications for Democrats.

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Tulsi Gabbard is on the verge of making the October debate. They don’t want a repeat in November.

Democrats Announce Tighter Criteria For Fifth Presidential Debate (R.)

The Democratic National Committee on Monday announced new criteria for the fifth presidential debate in November, requiring candidates to meet one of two polling requirements and have 165,000 unique donors. Candidates must either receive 3 percent or more support in four national or early state polls or 5 percent or more support in two polls of the states that hold early presidential nominating contests: Iowa, New Hampshire, South Carolina or Nevada. They must show a minimum of 600 unique donors per state in at least 20 U.S. states, territories or the District of Columbia, the DNC said.


The new requirements promise to further cull the large Democratic field of 19 candidates seeking to challenge Republican President Donald Trump in the November 2020 election. Former Vice President Joe Biden has led most opinion polls so far, followed by U.S. Senators Elizabeth Warren and Bernie Sanders. The sprawling field has made it difficult for lesser-known candidates to register in the minds of Democratic voters, with several polling at 1 percent or less nationally. [..] Criteria for the September and October debates required donations from at least 130,000 people and support of at least 2% in four DNC-approved polls.

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Local bans on global networks?!

Google Wins Landmark Right-To-Be-Forgotten Case In Europe (BBC)

Europe’s top court has ruled that Google does not have to apply the right to be forgotten globally. It means that firm only needs to remove references to articles and other material from its search results in Europe – and not elsewhere – after receiving an appropriate request. The ruling stems from a dispute between Google and a French privacy regulator. In 2015, CNIL ordered the firm to globally remove links to pages containing damaging or false information about a person. The following year, Google introduced a geoblocking feature that prevents European users from being able to see delisted links. But it resisted censoring search results for people in other parts of the world.


And the firm challenged a 100,000 euro fine that CNIL had tried to impose. Google had argued that the obligation could be abused by authoritarian governments trying to cover up human rights abuses were it to be applied outside of Europe. The tech firm had been supported by Microsoft, Wikipedia’s owner the Wikimedia Foundation, the non-profit Reporters Committee for Freedom of the Press, and the UK freedom of expression campaign group Article 19, among others. ECJ adviser Maciej Szpunar had also concluded that the right to be forgotten be limited to Europe in a non-binding recommendation to the court earlier this year.

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An all-out attack on the Espionage Act.

US Government Moves To Block Alleged Drone Whistleblower’s Defense (SProof)

The United States government has moved to block Daniel Hale, a former U.S. Air Force language analyst, from presenting any evidence that he had “good motives” when he allegedly disclosed documents to a reporter that exposed a targeted assassination program involving armed drones. Yet, while the U.S. government hopes to ensure Hale cannot put on a whistleblower defense during his trial, Hale’s defense attorneys have directly challenged the constitutionality of the Espionage Act, arguing it violates the First Amendment. They also assert that the government is selectively and vindictively prosecuting Hale for his alleged act of dissent.

Hale was indicted on five counts on May 9. Three of the charges allege he violated the Espionage Act. One charge alleges he disclosed “communications intelligence” without authorization. The fifth charge alleges he stole “government property.” In October 2015, The Intercept published a “cache of secret documents detailing the inner workings of the U.S. military’s assassination program in Afghanistan, Yemen, and Somalia.” The media organization said the documents were provided by a whistleblower and offered “unprecedented glimpse into [President Barack] Obama’s drone wars.” They were called “The Drone Papers.” These are the documents that the government accuses Hale of disclosing without proper authorization to the public.

[..] There were only three prosecutions under the Espionage Act for the first 75 years that were “premised” on “leaks.” However, since 2009, there have been 18 prosecutions of media sources, according to Hale’s attorneys. President Barack Obama’s administration set the record for more leak prosecutions under the Espionage Act than all previous U.S. presidents combined, and the Obama Justice Department’s novel interpretations of the Espionage Act set the stage for President Donald Trump to launch a prosecution against Hale, as well as WikiLeaks founder Julian Assange, who is the first journalist to be charged with violating this particular law.

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Sep 192019
 
 September 19, 2019  Posted by at 9:33 am Finance Tagged with: , , , , , , , , , , , ,  11 Responses »


Pablo Picasso Cafe Royan [The Coffee] 1940

 

Foreign Exchange Trading Soars to $6.6 Trillion a Day, US Dollar is King (WS)
Repo Chaos Tests Wall Street Confidence In NY Fed’s Williams (R.)
Prosecutors, Regulators Broaden JPMorgan Precious Metals Desk Probe (CNBC)
Rothschild Emerges From Shadows For Centenary Of London Gold Fixing (Manly)
Debt-Wracked Chinese Companies Dump US & Other Foreign Assets (WS)
UK Has 12 Days To Set Out Brexit Plans – Finnish PM (BBC)
Purdue Pharma Seeks To Halt Opioid Suits Against Company, Sacklers (R.)
NYT’s 14,000 Words That Whitewash Boeing Of 737 MAX Failure (MoA)
Japan Court Acquits TEPCO Bosses Over Fukushima Disaster (AFP)
Scientists Set Out How To Halve Greenhouse Gas Emissions By 2030 (G.)
Why Can’t We Agree On What’s True Anymore? (G.)

 

 

How much of this has any use to society?

Foreign Exchange Trading Soars to $6.6 Trillion a Day, US Dollar is King (WS)

It happens every three years: The Bank for International Settlements released its Triennial Central Bank Survey about the global foreign exchange (FX) and over-the-counter (OTC) derivatives markets, as it occurred in April. The numbers are ginormous, and get more ginormous with every survey, with trading volume measured in trillions of dollars per day. This is a huge data trove, and I will focus here on global FX trading. To start with, there are the amounts. Currencies are traded in pairs, such as the US dollar against the euro. In April 2019, trading in FX markets reached $6.59 trillion per day, up 30% from the prior survey period, April 2016. Trades with the USD on one side of the trade averaged $5.82 trillion per day in April 2019. This was up 31% from the daily average in April 2016 and was over five times the daily average in April 2001:

The sudden appearance of the euro in 2001 as the second largest currency out of nowhere indicates that at that time, it had just replaced five currencies, including the biggie, the Deutsche Mark. The chart above shows the top 16 most traded currencies. Four have a significant share – USD, EUR, Japanese yen (JPY), and British Pound (GBP). The remaining 12 of the top 16 currencies are the limp spaghetti at the bottom of the chart, including the Chinese renminbi (CNY). In terms of the share that a currency is on one side of a trade, the US dollar remains total King, at 88.3%.

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Ohm get real: “..Williams has the unique task of overseeing regulation of Wall Street and execution of monetary policy.”

Repo Chaos Tests Wall Street Confidence In NY Fed’s Williams (R.)

Wild swings this week in U.S. money markets have raised fresh concerns about whether the New York Federal Reserve under John Williams has lost its deft touch with markets. The New York Fed had to intervene in cash markets this week when the repo rate, a key measure of liquidity in the global banking system, sky-rocketed, forcing the Fed to make an emergency injection of more than $125 billion on Tuesday and Wednesday. A key interest rate the Fed aims to influence also broke above the central bank’s target range on Tuesday for the first time since the financial crisis. “What has happened in the repo market is far from a minor problem,” said Ward McCarthy, chief financial economist for Jefferies. “That’s a financial crisis waiting to happen if they don’t get that under control.”


As the head of the New York Fed, Williams has the unique task of overseeing regulation of Wall Street and execution of monetary policy. [..] Fed Chair Jerome Powell defended the central bank’s response to the liquidity crunch on Wednesday, saying officials saw the cash shortage coming and “took appropriate actions” to address the issue. “We don’t see this as having any implications for the broader economy,” Powell told reporters after the Fed announced at the close of a two-day policy meeting that it would reduce its benchmark overnight lending rate to a range of 1.75% to 2.00%. “We took appropriate actions to address those pressures and those measures were successful. If we experience another episode in money markets we have the tools to address those pressures.”

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Is this one of those things that will continue into 2050?

Prosecutors, Regulators Broaden JPMorgan Precious Metals Desk Probe (CNBC)

Federal prosecutors and regulators are expanding their already aggressive investigations of allegedly fraudulent precious metals trades at J.P. Morgan Chase to other U.S. markets and financial firms, CNBC has learned. The broader inquiry into market manipulation of all kinds comes amid a spike in criminal prosecutions and civil actions in the past year involving so-called “spoofing” in the precious metals markets. Prosecutors have broadened their investigation in part due to information received from traders questioned for spoofing-related charges. Information from those traders has led to criminal charges against other individuals, according to people familiar with the probes who spoke with CNBC on the condition of anonymity due to the nature of the ongoing investigations.


The widening inquiry is being led by the Justice Department and the U.S. Commodity Futures Trading Commission as they continue their pursuit of individuals and firms for manipulating U.S. markets. The scope of the investigations has grown to the point where the criminal fraud division of the Justice Department expects to add personnel to the existing team to assist with the investigations and prosecutions of cases.Spoofing is the practice of a trader placing a buy or sell order for a commodity or stock with the intent to cancel the order before it can be executed. The goal of the tactic is to affect the price of the futures contract or share to benefit a preexisting trading position.

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At least JPMorgan isn’t doing anything new…

Rothschild Emerges From Shadows For Centenary Of London Gold Fixing (Manly)

This month in London marks the 100th anniversary of the first “London Gold Fixing”, the infamous daily meeting of a secretive cartel of bullion banks which has met since 1919 to set benchmark gold prices used throughout the international gold market, a meeting which continues to this day through its thinly disguised successor, the LBMA Gold Price auction. London gold price benchmarks are critically important to the global gold market because they are used as a valuation source for everything from ISDA gold interest rate swap contracts to gold-backed Exchange Traded Funds (ETFs), and everything from OTC gold contracts to transaction reference prices used by physical bullion dealers when purchasing gold bars and gold coins from refineries and suppliers.

Since 2015, the London Gold Fixing has been known as the LBMA Gold Price following a rush by the London Bullion Market Association (LBMA) bullion banks to patch over the then scandalized ‘Fixing’ in a smoke and mirrors and circle the wagons relaunch and renaming exercise. The collusive Gold Fixing first formally came into existence on 12 September 1919 when the Bank of England tapped its favorite bankers N.M. Rothschild & Sons to be the daily Fixing’s permanent chairman. Rothschild and the Bank of England had been joined at the hip since the early 1800s and would continue to be so in the Gold Fixing throughout the next century.

[..] For the next 85 years from its inception in September 1919, the Gold Fixing occurred daily at Rothschild’s headquarters in New Court, St. Swithins Lane, across the road from the Bank of England, with five men from five bullion banks religiously meeting at 10:30 am each morning. After the collapse of the London Gold Pool in 1968, the Gold Fixing moved to a twice per day pricing with an extra 3:00 pm meeting added by the fixers to ‘watch over’ the US morning hours gold market.

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Beijinng needs dollars, guys.

Debt-Wracked Chinese Companies Dump US & Other Foreign Assets (WS)

Chinese conglomerates that had gone on a debt-fueled buying binge over the past decade but have come under heavy pressure from the government to sell their overseas holdings in order to reduce their astronomical debts – well, they’re doing it. In the US, Chinese conglomerates have dumped $26 billion in assets so far in 2019, up from $8 billion in the full year of 2018. Globally, Chinese companies have agreed to sell about $40 billion in overseas assets so far this year. This now exceeds the already heavy pace of selling for the full year of 2018, which totaled $32 billion, according to data from Dealogic cited by the Financial Times. But the buying hasn’t totally stopped: So far this year, Chinese companies have acquired $35 billion in assets globally.


This made Chinese companies a net seller of overseas assets for the first time in the data going back to 2009. In 2015, Chinese conglomerates sold only $10 billion of overseas assets but acquired $100 billion of assets, for a net increase of $90 billion. In 2016, the peak of China’s debt-fueled, haphazard, glory-driven acquisition binge, these conglomerates acquired over $200 billion in assets overseas, as observers scratched their heads, while sellers laughed all the way to the bank.

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Johnson says he wants to keep plans secret, EU says that’s because he has no plans. They haven’t seen any.

UK Has 12 Days To Set Out Brexit Plans – Finnish PM (BBC)

Boris Johnson has 12 days to set out his Brexit plans to the EU, according to Finland’s prime minister. Antti Rinne said he and French President Emmanuel Macron agreed the UK needed to produce the proposals in writing by the end of September, adding if not, “then it’s over”. Finland currently holds the EU’s rotating presidency. A Downing Street source said: “We will continue negotiating and put forward proposals at the appropriate time.” Mr Johnson has said a deal is possible at a crucial summit of EU leaders on 17 October, but he has insisted Brexit will happen by the 31 October deadline, even if a deal is not agreed.


The UK government said talks with the EU have been making progress since Mr Johnson came into No 10 in July. It said it had put forward “a number of proposals” as alternatives to the Irish border backstop – the policy aimed at preventing the return of a hard border on the island of Ireland and a key sticking point in former PM Theresa May’s Brexit deal. But Mr Johnson has repeatedly refused to reveal details of the proposals in interviews, saying he did not want to negotiate in public. The EU has continued to criticise the UK for not putting any plans in writing.

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From CBS: “Sixteen states have sued family members by name, alleging they steered Purdue while draining more than $4 billion from the company since 2007.”

Purdue Pharma Seeks To Halt Opioid Suits Against Company, Sacklers (R.)

OxyContin maker Purdue Pharma LP on Wednesday asked a U.S. bankruptcy judge to halt for roughly nine months more than 2,600 lawsuits alleging the company and its controlling Sackler family helped fuel the U.S. opioid crisis, according to court documents. In addition to seeking a pause in widespread litigation against it, Purdue also asked U.S. Bankruptcy Judge Robert Drain to shield the wealthy Sacklers from related opioid lawsuits they face. Purdue filed for Chapter 11 bankruptcy protection on Sunday after reaching an outline of a deal it estimated to be valued at more than $10 billion with states and local governments that brought the bulk of the cases. They allege the company deceptively marketed opioids by overstating benefits and downplaying risks.


Purdue has been accused of contributing to a public health crisis that has been marked by nearly 400,000 overdose deaths between 1999 and 2017, according to the latest U.S. data. Purdue and the Sacklers have denied they are liable for the opioid epidemic. Purdue said in Wednesday’s court filing that an injunction halting litigation would preserve money that would otherwise be drained through prolonged legal battles. Purdue is spending more than $5 million a week in legal and professional fees, and other related expenses, the company said in court papers. [..] In Wednesday’s court filing, Purdue said allowing litigation against the Sacklers to continue would threaten billions of dollars they have pledged toward settling lawsuits and increase expenses for the company as it is drawn into the cases.

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Picked apart.

NYT’s 14,000 Words That Whitewash Boeing Of 737 MAX Failure (MoA)

The New York Times Magazine just published a 14,000 words piece about the Boeing 737 MAX accidents. It is headlined: “What Really Brought Down the Boeing 737 Max?” But the piece does not really say what brought the Boeing 737 MAX down. It does not explain the basic engineering errors Boeing made. It does not explain its lack of safety analysis. It does not mention the irresponsible delegation of certification authority from the Federal Aviation Administration to Boeing. There is no mention of the corporate greed that is the root cause of those failures. Instead the piece is full of slandering accusations against the foreign pilots of the two 737 MAX planes that crashed. It bashes the airlines and the safety authorities of Indonesia and Ethiopia.

It only mildly criticizes Boeing for designing the MCAS system that brought the planes down. The author of the piece, William Langewiesche, was a professional pilot before he turned to journalism. But there is so much slander in the text that it might as well have been written by Boeing’s public relations department. The piece is also riddled with technical mistakes. We will pick on the most obvious ones below. The following is thus a bit technical and maybe too boring for our regular readers. Langewiesche describes the 737 MAX trim system and its failure mode:

“That’s a runaway trim. Such failures are easily countered by the pilot — first by using the control column to give opposing elevator, then by flipping a couple of switches to shut off the electrics before reverting to a perfectly capable parallel system of manual trim. But it seemed that for some reason, the Lion Air crew might not have resorted to the simple solution.” Wrong: The manual trim system does not work at all when the stabilizer is widely out of trim (i.e. after MCAS intervened) and/or if the plane is flying faster than usual. That is why the European regulator EASA sees it as a major concern and wants it fixed.

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They blame the government.

Japan Court Acquits TEPCO Bosses Over Fukushima Disaster (AFP)

A Japanese court on Thursday cleared three energy firm bosses of professional negligence in the only criminal trial stemming from the 2011 Fukushima nuclear meltdown. The three men were senior officials at the TEPCO firm operating the Fukushima Daiichi plant and had faced up to five years in prison if convicted. “All defendants are not guilty,” the presiding judge said, ruling that the executives could not have predicted the scale of the tsunami that overwhelmed the plant and triggered the accident. The decision is likely to be appealed, extending the legal wrangling over responsibility for the worst nuclear accident since Chernobyl, more than eight years after the disaster. Outside the courtroom, dozens of people staged a rally, including some who had travelled from the Fukushima region to hear the verdict.


“It is absolutely an unjust ruling. We absolutely cannot accept this,” one woman said angrily, addressing the crowd. “We will appeal this and continue our fight,” shouted a man nearby. The three former executives were accused of professional negligence resulting in death and injury for failing to act on information about the risks from a major tsunami, but they argued the data available to them at the time was unreliable. Judge Kenichi Nagafuchi said the verdict turned on the “predictability” of the massive tsunami that swamped the nuclear plant in March 2011 after a 9.0-magnitude undersea earthquake. He pointed out there had been no proposal from the government’s nuclear watchdog “that TEPCO should suspend operations until (safety) measures are taken.”

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Any and all of such proposals that doesn’t focus on using much less energy, but instead on ‘transition’, is not worth reading.

Scientists Set Out How To Halve Greenhouse Gas Emissions By 2030 (G.)

Greenhouse gas emissions could be halved in the next decade if a small number of current technologies and behavioural trends are ramped up and adopted more widely, researchers have found, saying strong civil society movements are needed to drive such change. Solar and wind power, now cheaper than fossil fuels in many regions, must be scaled up rapidly to replace coal-fired generation, and this alone could halve emissions from electricity generation by 2030, according to the Exponential Roadmap report from an international group of experts. If the rapid uptake of electric vehicles in some parts of the world could be sustained, the vehicles could make up 90% of the market by 2030, vastly reducing emissions from transport, it said.

Avoiding deforestation and improving land management could reduce emissions by the equivalent of about 9bn tonnes of carbon dioxide a year by 2030, according to the report, but contradictory subsidies, poor planning and vested interests could stop this from happening. Key to any transition will be the growing social movements that are pressing for urgent action on climate breakdown. By driving behavioural change, such as moving away from the overconsumption of meat and putting pressure on governments and companies, civil movements have the power to drive the transformation needed in the next decade, say the report’s authors.

Christiana Figueres, a former top climate official at the UN, said: “I see all evidence that social and economic tipping points are aligning. We can now say the next decade has the potential to see the fastest economic transition in history.” The experts identified 36 developments that would produce the emission cuts needed, from renewable energy to changes in food production, the design of cities, and international transport, such as shipping. All of them are judged possible to achieve by 2030.

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A wild guess: because the Guardian, which published this piece, has published so many things that are not true?

Why Can’t We Agree On What’s True Anymore? (G.)

We live in a time of political fury and hardening cultural divides. But if there is one thing on which virtually everyone is agreed, it is that the news and information we receive is biased. Every second of every day, someone is complaining about bias, in everything from the latest movie reviews to sports commentary to the BBC’s coverage of Brexit. These complaints and controversies take up a growing share of public discussion. Much of the outrage that floods social media, occasionally leaking into opinion columns and broadcast interviews, is not simply a reaction to events themselves, but to the way in which they are reported and framed. The “mainstream media” is the principle focal point for this anger. Journalists and broadcasters who purport to be neutral are a constant object of scrutiny and derision, whenever they appear to let their personal views slip.


The work of journalists involves an increasing amount of unscripted, real-time discussion, which provides an occasionally troubling window into their thinking. But this is not simply an anti-journalist sentiment. A similar fury can just as easily descend on a civil servant or independent expert whenever their veneer of neutrality seems to crack, apparently revealing prejudices underneath. Sometimes a report or claim is dismissed as biased or inaccurate for the simple reason that it is unwelcome: to a Brexiter, every bad economic forecast is just another case of the so-called project fear. A sense that the game is rigged now fuels public debate.

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An orphaned baby reticulated giraffe embraces wildlife keeper. Photo: Amy Vitale

 

 

 

 

 

Sep 182019
 
 September 18, 2019  Posted by at 9:40 am Finance Tagged with: , , , , , , , , , ,  10 Responses »


Henri Matisse Antibes 1908

 

Fed Concludes First Repo In A Decade Amid Liquidity Panic (ZH)
Big Banks Score Win As FDIC Proposes Easing Post-Crisis Derivatives Rules (R.)
Oil Steadies After Saudi Pledges To Restore Output Lost In Attacks (R.)
Without Accountability, There Can Never Be Trust in Our Government (Cates)
House Panel Asks Boeing CEO To Testify October 30 on 737 MAX (R.)
Ethiopian Crash Victims Want 737 MAX Documents From Boeing, FAA (R.)
Editorial Mistake My Ass (Mish)
Democrats Urge New Probe Of Kavanaugh, Impeachment Inquiry (R.)
Trudeau Reassures Allies Amid Alleged Spying Case (BBC)
Catastrophic Effects Of Working As A Facebook Moderator (G.)
US Government Is Suing Edward Snowden For His Book Profits (Verge)

 

 

Oh yeah, let’s save the bankers again….

Fed Concludes First Repo In A Decade Amid Liquidity Panic (ZH)

Update 4: It’s over: after a torrid 30 minutes in which the NY Fed first announced a repo operation, then announced the repo was canceled due to technical difficulties, then mysterious the difficulties went away just minutes later, at precisely 10:10am, the Fed concluded its first repo operation in a decade, which while not topping out at the $75 billion max, was nonetheless a significant $53.15 billion, split as follows: • $40.85BN with TSYs as collateral at a 2.1% stop out rate • $0.6BN with Agencies as collateral at a 3.0% stop out rate • $11.7BN with Mortgage-backed securities as collateral at a 2.1% stop out rate. While the Fed did not disclose how many banks participated in the operation, it is safe to say it was a sizable number.


Worse, the result from today’s unexpected repo operation, we can now conclude that in addition to $1.3 trillion in ‘excess reserves’, a Fed which is now cutting rates and will cut rates by 25bps tomorrow, the US financial system somehow found itself with a liquidity shortfall of $53 billion that almost paralyzed the interbank funding market. Oh, and for those wondering why the Fed did a repo, the answer is simple: it did not want to launch QE just yet. But make no mistake, once repo is insufficient, the Fed will have no choice but to escalate to the next step which is open market purchases. Which brings us to the bigger question of how long such overnight repos will satisfy the market, and how long before the next repo rate spike prompts the Fed to do the inevitable, and restart QE. At least president Trump will be delighted.

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And while we’re saving their multi-million bonuses, let’s throw them some more bones,..

Big Banks Score Win As FDIC Proposes Easing Post-Crisis Derivatives Rules (R.)

A U.S. banking regulator on Tuesday proposed easing a rule requiring banks to set aside cash to safeguard derivatives trades between affiliates, marking one of the biggest wins for Wall Street lenders under the business-friendly Trump administration. The proposal, by the Federal Deposit Insurance Corporation, could potentially free $40 billion across the nation’s largest banks, according to a 2018 survey by the International Swaps and Derivatives Association (ISDA), the global trade group that has been lobbying for the rule change for years.


The proposal is subject to public comment and will likely face resistance from Democratic lawmakers and consumer groups, who have warned that chipping away at regulations put in place following the 2007-2009 financial crisis could sew the seeds of the next one. Countries across the globe introduced a slew of rules to rein in the global over-the-counter derivatives market after big bets on credit swaps brought firms including Lehman Brothers and AIG to their knees.

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Was there any damage at all? Didn’t I read that they hit a bunch of empty tanks?

Oil Steadies After Saudi Pledges To Restore Output Lost In Attacks (R.)

Oil prices were little changed on Wednesday, steadying after Saudi Arabia said it will restore by the end of the month production lost in weekend attacks on its facilities. Prices plummeted 6% on Tuesday after Saudi Arabia’s energy minister said the country had managed to restore oil supplies to customers to where they stood before the attacks on its facilities that shut 5% of global oil output by drawing from its huge inventories. But tension in the region remained elevated after the United States said it believed the attacks on the world’s top oil exporter originated in southwestern Iran. Iran has denied involvement in the strikes.


Brent crude oil futures were flat at $64.55 a barrel by 0732 GMT. U.S. West Texas Intermediate (WTI) crude CLc1 futures were down 15 cents, or 0.1%, to $59.19 a barrel, after sinking 5.7% on Tuesday. “Considering limited spare (production) capacity outside Saudi Arabia and risks of renewed attacks on Saudi energy infrastructure, a risk premium is likely to stay on oil prices in the foreseeable future,” UBS analysts said in a note. Energy Minister Prince Abdulaziz bin Salman said on Tuesday that average oil production in September and October would be 9.89 million barrels per day and that the world’s top oil exporter would ensure full oil supply commitments to its customers this month.

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Not sure Bill Barr is your man.

Without Accountability, There Can Never Be Trust in Our Government (Cates)

The Watergate scandal, at its heart, was about political operatives working on behalf of the Nixon administration (informally known as “The Plumbers”) attempting to plant bugs in the phones of the Democratic National Committee (DNC) headquarters at the Watergate Hotel, so they could spy on key Democratic campaign communications. A little-remembered fact is that bugs had been successfully planted earlier; the burglars were returning to plant a new set in the phones because the first set never worked properly. It was during this second foray into DNC headquarters in the middle of the night that they were caught by an observant security guard.

So the Watergate scandal was based on an attempt to spy on political opponents, but no evidence ever surfaced that any successful spying was actually done. The first set of listening devices never functioned, and the operatives were caught while trying to replace them. That won’t be the case in the Spygate scandal, because this wasn’t an off-the-books dirty tricks group like The Plumbers running an operation against the Trump campaign. This was the federal government itself, making use of the official engines of its intelligence and law enforcement agencies and surveillance courts to spy on a political campaign and, then, a presidency. And it’s because this scandal is so much worse than Watergate that the persons responsible for it must be held accountable for their actions.

[..] The crimes here amount to a deliberate attempt to subvert the federal intelligence and law enforcement agencies and turn them into political engines of partisan policy to shield political friends and destroy political enemies. After covering up serious crimes committed by their political friends, these key government officials used their offices to manufacture crimes to use as a pretext to investigate and punish their political enemies. Unless this behavior is punished with the utmost severity, no one will ever be able to place trust in the federal government. The ball of accountability will soon end up in the court of U.S. Attorney General William Barr.

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I for one have little faith in Congress in this case. Not that I have much faith in Congress in general.

House Panel Asks Boeing CEO To Testify October 30 on 737 MAX (R.)

The U.S. House Transportation and Infrastructure Committee formally asked Boeing CEO Dennis Muilenburg on Tuesday to testify on the now grounded 737 MAX that has been involved in two deadly crashes since October 2018 that killed 346 people. The panel’s chair, Representative Peter DeFazio, also asked John Hamilton, the chief engineer of Boeing’s Commercial Airplanes division, to appear. Both executives have been asked to testify on Oct. 30. Last week, DeFazio asked Muilenburg to make several employees available for interviews as part of a congressional probe into the design, development and certification of 737 MAX aircraft. “Boeing has received the Committee’s invitation and is reviewing it now. We will continue to cooperate with Congress and regulatory authorities as we focus on safely returning the MAX to service,” a Boeing representative said in a statement.

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But will they get them? Boeing will just claim they would reveal company secrets.

Ethiopian Crash Victims Want 737 MAX Documents From Boeing, FAA (R.)

A lawyer for victims of Ethiopian Airlines Flight 302 said on Tuesday he wants Boeing Co and the U.S. Federal Aviation Administration to hand over documents about the decision to keep the Boeing 737 MAX in the air after a deadly Lion Air crash last October. A week after Lion Air Flight 610 nose-dived into the Java Sea, killing all 189 aboard, the FAA warned airlines that erroneous inputs from an automated flight control system’s sensors could lead the jet to automatically pitch its nose down, but the agency allowed the jets to continue flying. Five months later, the same system was blamed for playing a role when ET302 crashed on March 10, killing all 157 passengers and crew and prompting a worldwide grounding of the 737 MAX that remains in place.


“The decisions to keep those planes in service are key,” Robert Clifford of Clifford Law Offices, which represents families of the Ethiopian crash victims, said at a status hearing before U.S. Judge Jorge Alonso in Chicago. Nearly 100 lawsuits have been filed against Boeing by at least a dozen law firms representing families of the Ethiopian Airlines crash victims, who came from 35 different countries, including nine U.S. citizens and 19 Canadians. Families of about 60 victims have yet to file lawsuits but plaintiffs’ lawyers said they anticipate more to come. Most of the lawsuits do not make a specific dollar claim, though Ribbeck Law Chartered has said its clients are seeking more than $1 billion.

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The entire Kavanaugh thing is empty, just two women trying to sell a book. Trump said he should sue them. But as a Supreme Court judge, perhaps he shouldn’t.

Editorial Mistake My Ass (Mish)

As details emerge in the New York Times Kavanaugh scandal, it’s very clear the NYT repeatedly made serious errors On September 14, the New York Times resurrected unsubstantiated and graphic rumors about Supreme Court Justice Brett Kavanaugh in a purposeful smear article Brett Kavanaugh Fit In With the Privileged Kids. She Did Not. The article was by disgraced NYT authors Robin Pogrebin and Kate Kelly to promote their upcoming book “The Education of Brett Kavanaugh: An Investigation.” I do not normally report on sleaze but to understand what the NYT did, I have to. Here is one controversial paragraph: “We also uncovered a previously unreported story about Mr. Kavanaugh in his freshman year that echoes Ms. Ramirez’s allegation. A classmate, Max Stier, saw Mr. Kavanaugh with his pants down at a different drunken dorm party, where friends pushed his penis into the hand of a female student.”


The NYT later added this correction. “The book reports that the female student declined to be interviewed and friends say that she does not recall the incident. That information has been added to the article.” Making matters worse for itself, the NYT came out and blamed it all on an “editing error”. Reporters Robin Pogrebin and Kate Kelly said in an interview on MSNBC that they wrote in the draft of their Sunday Review piece that a woman who Kavanaugh was said to have exposed himself to while a student at Yale had told others she had no recollection of the alleged incident. Their editors, they say, removed the reference. “It was just sort of. . . in the haste of the editing process,” said Pogrebin.

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But this is where the non-story leads to. Kamala seeks a way to reinvent her campaign, the rest just follows.

Democrats Urge New Probe Of Kavanaugh, Impeachment Inquiry (R.)

U.S. Senator Kamala Harris on Tuesday urged a House of Representatives panel to investigate Supreme Court Justice Brett Kavanaugh, while a Democratic lawmaker filed an impeachment resolution in the wake of new allegations of sexual misconduct by the conservative judge when he was in college in the 1980s. The moves by Harris, one of 20 Democratic presidential candidates, and Representative Ayanna Pressley, a progressive on the left of the party, signaled impatience among some Democrats with congressional leaders unenthusiastic about pursuing Kavanaugh’s impeachment, though their efforts appeared unlikely to spur action.

Harris said in a letter to House Judiciary Committee Chairman Jerrold Nadler that the panel should “hold Mr. Kavanaugh accountable for his prior conduct and testimony.” Nadler on Monday faulted the FBI’s probe of prior sexual misconduct allegations against Kavanaugh ahead of his narrow confirmation by the Senate in October 2018, saying in a radio interview it “apparently was a sham.” But Nadler also said his panel had its “hands full” with investigating Republican President Donald Trump. In her letter to Nadler, Harris suggested the House Judiciary Committee could create a task force and retain outside counsel if it did not have the time or resources to pursue an inquiry of Kavanaugh now.

Harris and several other Democratic presidential candidates called for Kavanaugh’s impeachment after the New York Times published an essay over the weekend detailing what it described as a previously unreported incident of sexual misconduct by Kavanaugh. Others include former U.S. Housing and Urban Development Secretary Julian Castro; U.S. Senators Elizabeth Warren and Cory Booker; South Bend, Indiana Mayor Pete Buttigieg; and former U.S. Representative Beto O’Rourke.

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Only a Five Eyes spy chief. And whaddaya know, there’s Bill Browder again. See from yesteday: The Magnitskiy Myth Exploded.

Trudeau Reassures Allies Amid Alleged Spying Case (BBC)

Canadian Prime Minister Justin Trudeau has moved to reassure allies in the wake of an alleged spying case with possible international implications. A senior intelligence official was charged last week with violating national security laws. Cameron Ortis had access to information coming from Canada’s global allies, the RCMP national police force said. Canada is in close contact with its intelligence partners over the case, Mr Trudeau says. “We are in direct communications with our allies on security,” the prime minister said while campaigning in Newfoundland on Tuesday. “We are also working with them to reassure them, but we want to ensure that everyone understands that we are taking this situation very seriously.” Canada is a member of the Five Eyes – the intelligence alliance that also includes the US, UK, Australia and New Zealand.


Mr Ortis, who was a director general with the police force’s intelligence unit, is accused of breaching the Security of Information Act and the Criminal Code. The charges filed against him include the “unauthorised communication of special operational information”, possessing a device or software “useful for concealing the content of information or for surreptitiously communicating, obtaining or retaining information”, and breach of trust by a public officer. [..] Mr Ortis was looking into allegations that Russian tax fraudsters had laundered millions of dollars through Canada, a US financier told Reuters. Bill Browder, a high-profile critic of Russian President Vladimir Putin, said he had met Mr Ortis twice in Canada in 2017 after alerting the RCMP to the matter.

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What exactly would you say is Facebook’s role in our society? How about in your life?

Catastrophic Effects Of Working As A Facebook Moderator (G.)

They describe being ground down by the volume of the work, numbed by the graphic violence, nudity and bullying they have to view for eight hours a day, working nights and weekends, for “practically minimum pay”. A little-discussed aspect of Facebook’s moderation was particularly distressing to the contractors: vetting private conversations between adults and minors that have been flagged by algorithms as likely sexual exploitation. Such private chats, of which “90% are sexual”, were “violating and creepy”, one moderator said. “You understand something more about this sort of dystopic society we are building every day,” he added. “We have rich white men from Europe, from the US, writing to children from the Philippines … they try to get sexual photos in exchange for $10 or $20.”


Gina, a contractor, said: “I think it’s a breach of human rights. You cannot ask someone to work fast, to work well and to see graphic content. The things that we saw are just not right.” The workers, whose names have been changed, were speaking on condition of anonymity because they had signed non-disclosure agreements with Facebook. Daniel, a former moderator, said: “We are a sort of vanguard in this field … It’s a completely new job, and everything about it is basically an experiment.” John, his former colleague, said: “I’m here today because I would like to avoid other people falling into this hole. As a contemporary society, we are running into this new thing – the internet – and we have to find some rules to deal with it.

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Pay him in Bitcoin.

US Government Is Suing Edward Snowden For His Book Profits (Verge)

The Justice Department has filed a civil lawsuit against Edward Snowden that would recover all proceeds of his recently released memoir, the department announced on Tuesday. The charges coincide with the official publication of the book, which is titled Permanent Record. Snowden’s memoir was allegedly not submitted to the CIA or NSA for pre-publication review, a required practice among former employees of intelligence agencies. As such, the department considers the book a breach of Snowden’s fiduciary obligations, and names the publishers as co-defendants in the suit.


Given the still-classified programs and materials discussed in the memoir, it is unlikely that the book would have been approved for publication by the agencies. Snowden remains a de facto fugitive from the US government, and would likely face charges under the Espionage Act if he returned to the country. But the new civil case could nonetheless cause problems for Snowden, potentially enjoining his publishers from releasing any of the proceeds from the book. Crucially, the suit does not seek to block the release of Snowden’s memoir, as doing so would be illegal under the First Amendment.

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From Notes on the Next War, 1935

 

 

 

 

 

May 192018
 


Vincent van Gogh Landscape with Couple Walking and Crescent Moon 1890

 

Train Crash Preview (Mauldin)
Bear Market Repo’s (Roberts)
Mushrooming Matrix of Scandals (Jim Kunstler)
Italy’s New Parallel Currency Plan (ZH)
Italy’s Populist Coalition Government Poses New Threat To Eurozone (Ind.)
Trump Drives Wedge Between Germany and France (Spiegel)
Putin Seeks Common Cause With Merkel Over Trump (R.)
EU Considers Iran Central Bank Transfers To Beat US Sanctions (R.)
Common Fungal Infections Becoming Incurable (Ind.)

 

 

Mauldin sees a Jubilee in your future.

Train Crash Preview (Mauldin)

Unemployment may approach the high teens by the end of the decade and GDP growth will be minimal at best. What do you call that condition? Certainly not business as usual. Long before that happens, the Federal Reserve will have engaged in massive quantitative easing. There’s a lot of misunderstanding about QE, so let me clarify something important. Quantitative easing is not about “printing money.” It is buying debt with excess bank reserves and keeping that debt on the Fed’s balance sheet as an asset. The Bank of Japan is an example. They did not put currency (yen) into the market. That’s how Japan still flirts with deflation and its currency has gotten stronger. QE is the opposite of printing money, though there is a relationship. That’s one reason central bankers like it.

As this recession unfolds, we will see the Fed and other developed world central banks abandon their plans to reverse QE programs. I think the Federal Reserve’s balance sheet assets could approach $20 trillion later in the next decade. Not a typo—I really mean $20 trillion, roughly quintuple what they did after 2008. They won’t need to worry about the deflation that usually accompanies such deep recessions (dare we say depression?) because the Treasury will be injecting lots of high-powered money into the economy via deficit spending. But since we have never been in this territory before, I must say this is only my guess.

If that’s what they do, will it work? No. The world simply has too much debt, much of it (perhaps most) unpayable. At some point, the major central banks of the world and their governments will do the unthinkable and agree to “reset” the debt. How? It doesn’t matter how, they just will. They’ll make the debt disappear via something like an Old Testament Jubilee. I know that’s stunning, but it’s really the only possible solution to the global debt problem. Pundits and economists will insist “it can’t be done” right up to the moment it happens—probably planned in secret and announced suddenly. Jaws will drop, and net lenders will lose.

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“A 50% decline wipes out 100% of the previous gain. ”

Bear Market Repo’s (Roberts)

An interesting email hit my desk this morning: “The stock market goes up 80% of the time, so why worry about the declines?” Like a “bull” – rising markets tend to be steady, strong and durable. Conversely, “bear” markets are fast “mauling”events that leave you deeply wounded at best and dead at worst. Yes, the majority of the time the markets are “bullish.” It’s the “math” that ultimately gets you during a “bear” market. The real devastation caused by “bear market” declines are generally misunderstood because they tend to be related in terms of percentages. For example: “Over the last 36-months, the market rose by 100%, but has recently dropped by 50%.”

See, nothing to worry as an investor would still be ahead by 50%, right? Nope. A 50% decline wipes out 100% of the previous gain. This is why looking at things in terms of percentages is so misleading. A better way to examine bull and bear markets is in terms of points gained or lost. Notice that in many cases going back to 1900, a large chunk of the previous gains were wiped out by the subsequent decline. (A function of valuations and mean reversions.) Recently Upfina posted a great chart on “Bear Market Repo’s” which illustrates this point very well. To wit:

“Many confuse bear markets with being black swan events that cannot be predicted, however, this is a faulty approach to investing. The economy, market, and nature itself move in cycles. Neither a bear market nor a bull market last forever and are actually the result of one another. That is to say, a bear market is the author of a bull market and a bull market is an author of a bear market. Low valuations lead to increased demand, and high valuations lead to less demand.”

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“I won’t be completely satisfied until the editors of The New York Times have to answer to charges of sedition in a court of law.”

Mushrooming Matrix of Scandals (Jim Kunstler)

[..] a great deal is already known about the misdeeds surrounding Hillary and her supporters, including Mr. Obama and his inner circle, and some of those incriminating particulars have been officially certified — for example, the firing of FBI Deputy Director Andrew McCabe on recommendations of the Agency’s own ethics committee, with overtones of criminal culpability. There is also little ambiguity left about the origin of the infamous Steele Dossier. It’s an established fact that it was bought-and-paid-for by the Democratic National Committee, which is to say the Hillary campaign, and that many of the dramatis personae involved lied about it under oath.

Many other suspicious loose ends remain to be tied. Those not driven insane by Trumpophobia are probably unsatisfied with the story of what Attorney General Loretta Lynch was doing, exactly, with former President Bill Clinton during that Phoenix airport tête-à-tête a few days before FBI Director Jim Comey exonerated Mr. Clinton’s wife in the email server “matter.” One can see where this tangled tale is tending: to the sacred chamber known as the grand jury. Probably several grand juries. That will lead to years of entertaining courtroom antics at the same time that the USA’s financial condition fatefully unravels.

That event might finally produce the effect that all the exertions of the so-called Deep State have failed to achieve so far: the discrediting of Donald Trump. Alas, the literal discrediting of the USA and its hallowed institutions — including the US dollar — may be a much more momentous thing than the fall of Trump. Personally, I won’t be completely satisfied until the editors of The New York Times have to answer to charges of sedition in a court of law.

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The EU will not like this.

Italy’s New Parallel Currency Plan (ZH)

In 2009/10, squeezed by insolvency, a lack of liquidity, and Federal limitations, the California government began to issue a ‘parallel currency’ in IOUs in lieu of payment on everything from supplies to contracted services and health-care costs, so it can actually preserve cash to make payments to its generous debtors. Now, eight years later, despite all the talk of ‘recovery’ and ‘global synchronous growth’ and ‘normalization’, Italy’s newly-formed coalition of The League and Five Star (which some have likened to Trumpian ‘nationalist’ Republicans merging with Bernie leftists) have put forward a plan that, among other things, includes the introduction of a parallel currency for Italy – ‘mini-BOTs’. The chart below, created by analysts at Nomura, shows where both stand on key policy issues, highlighting both their similarities and their differences as they prepare to govern together.

It is the Italian euroskepticism that dominates market concerns. Investors were initially spooked by a section where the nascent coalition floated plans to ask for €250 billion in debt forgiveness for the country. But, as Credit Suisse argued, “A markedly Eurosceptic prime minister… as well as concrete support for the introduction of a parallel currency (so-called Mini-BOTs’), would be major negatives, in our view.” So what are ‘Mini-BOTs’? In order to settle bills with suppliers or creditors the state might consider “instruments such as mini-government notes” which may also be used in turn to repay tax arrears, says the government program agreed by the two parties’ representatives and leaders. Earlier this year, outgoing Economy Minister Pier Carlo Padoan described the proposal as “a plan to circulate a disguised parallel currency”.

It is this section of the Five Star-League Accord that raised eyebrows… “Something must be done to resolve the problem of the public administration debts to taxpayers.” Claudio Borghi, the League’s economic chief who helped write the government plan, told la Verita newspaper that the new securities “could be spent anywhere, to buy anything”. Mike Shedlock previously noted that ‘Mini-Bots’ are a parallel currency based on future tax receipts, similar to the plans proposed by Yanis Varoufakis in Greece. The minibot was in the Lega’s election manifesto. Five Star is far less radical on the eurozone, having dropped the idea of a referendum, but also seeks changes that are incompatible with the the EU fiscal rules. A parallel currency stands a much greater chance of success in Italy, and it would go some way to solving the government’s fiscal dilemmas. The open question is whether it would constitute a slippery slope towards euro exit.

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Hard to find a headline on this, let alone an article, that does not mention ‘populist’.

Italy’s Populist Coalition Government Poses New Threat To Eurozone (Ind.)

Two Italian, populist, eurosceptic parties have reached an agreement to form a government of the eurozone’s third largest economy, setting up the single currency bloc for a possible new crisis. March’s national elections in Italy delivered a hung parliament, but also left the virulently anti-immigrant Lega Nord and the radical anti-establishment Five Star Movement as the two parties with the most seats. After a week of intense wrangling, the leaders of the two parties – which have sharply divergent outlooks in a host of areas – announced on Friday that they had agreed upon a common programme.

“This government contract binds two political forces that are and remain alternative, to respect and achieve what they promised to citizens,” said the Five Star leader Luigi Di Maio. Both parties ran on electoral platforms that threatened conflict with the eurozone and the EU, in areas ranging from busting national budget deficit rules, to clamping down on immigration to lifting sanctions on Russia. The two parties will stage informal ballots of their supporters on the programme over the next three days, meaning the coalition could take office early next week. Italian 10-year borrowing costs spiked above 7% in 2011 and 2012, threatening a fiscal crisis for Rome, as traders panicked that the the single currency could be on the verge of splitting apart.

They have since come down dramatically as the European Central Bank has been heavily buying up the country’s sovereign bonds as part of its money printing programme, with the country’s borrowing costs hitting a low of 1.051% in 2016. On Friday 10-year bond yields, which move in the opposite direction to prices, on Friday rose to 2.2%, the highest since October 2017, although the markets still seem generally unperturbed by the prospect of a Five Star-Lega Nord coalition. The common programme, published online on Friday, promises a universal basic income of €780 per person per month, which it says should be part funded by the EU. It wants “limited deficit spending” to boost GDP growth and a review of the EU’s fiscal rules. Sanctions on Russia should be lifted immediately, its says.

Read more …

Macron as Napoleon.

Trump Drives Wedge Between Germany and France (Spiegel)

The French president has recognized the opportunity that opposition to the U.S. sanctions presents. It provides him with a perfect chance to prove to the French people why they really need Europe. He believes that only Europe can stand up to the deal-breaking Americans. In Berlin, meanwhile, the focus is on “realpolitik” — the notion that there isn’t much Europe can do to oppose Trump. Officials in the German capital believe that the U.S. president will play hardball when it comes to Iran. What really appears to be the problem, however, is a lack of political will. When push comes to shove, the Iran deal is likely less important to Altmaier than the dispute over the Trump administration’s threat of punitive tariffs on steel and aluminum imports from Europe.

He wants to prevent the dispute from boiling into a full-fledged trade war that would spread to the heart of the German economy — the automobile industry. As a major exporter, America’s punitive tariffs would hit Germany much harder than they would France. “The U.S. can’t be the world’s economic police,” French Economy Minister Bruno Le Maire said earlier this month. Le Maire and French Foreign Minister Jean-Yves Le Drian called a demonstrative joint press conference inside the monumental Finance and Economics Ministry in Paris looking like they were ready go toe-to-toe with Washington. Le Drian spoke of “our determination to fight to ensure that the decisions taken by the United States don’t have any repercussions on French businesses.” Le Maire added: “All of Europe is faced with the challenge of asserting its economic sovereignty.”

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My guess is the pipeline will be built.

Putin Seeks Common Cause With Merkel Over Trump (R.)

Russian President Vladimir Putin said at a meeting with German Chancellor Angela Merkel on Friday that he would stand up to any attempts by U.S. President Donald Trump to block a Russian-German gas pipeline project. Berlin and Moscow have been at loggerheads since Russia’s annexation of Crimea four years ago, but they share a common interest in the Nordstream 2 pipeline project, which will allow Russia to export more natural gas to northern Europe. A U.S. government official this week said Washington had concerns about the project, and that companies involved in Russian pipeline projects faced a higher risk of being hit with U.S. sanctions.

“Donald is not just the U.S. president, he’s also a good, tough entrepreneur,” Putin said at a news conference, alongside Merkel, after the two leaders had talks in the Russian Black Sea resort of Sochi. “He’s promoting the interests of his business, to ensure the sales of liquefied natural gas on the European market,” Putin said. “I understand the U.S. president. He’s defending the interests of his business, he wants to push his product on the European market. But it depends on us, how we build our relations with our partners, it will depend on our partners in Europe.” “We believe it (the pipeline) is beneficial for us, we will fight for it.”

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A bridge too far for Juncker?

EU Considers Iran Central Bank Transfers To Beat US Sanctions (R.)

The European Commission is proposing that EU governments make direct money transfers to Iran’s central bank to avoid U.S. penalties, an EU official said, in what would be the most forthright challenge to Washington’s newly reimposed sanctions. The step, which would seek to bypass the U.S. financial system, would allow European companies to repay Iran for oil exports and repatriate Iranian funds in Europe, a senior EU official said, although the details were still to be worked out. The European Union, once Iran’s biggest oil importer, is determined to save the nuclear accord, that U.S. President Donald Trump abandoned on May 8, by keeping money flowing to Tehran as long as the Islamic Republic complies with the 2015 deal to prevent it from developing an atomic weapon.

“Commission President Jean-Claude Juncker has proposed this to member states. We now need to work out how we can facilitate oil payments and repatriate Iranian funds in the European Union to Iran’s central bank,” said the EU official, who is directly involved in the discussions. The U.S. Treasury announced on Tuesday more sanctions on officials of the Iranian central bank, including Governor Valiollah Seif. But the EU official said the bloc believes that does not sanction the central bank itself.

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We use so many chemicals so much, we’ll end up eradicating ourselves. No caution, no precautionary principle.

Common Fungal Infections Becoming Incurable (Ind.)

Common fungal infections are “becoming incurable” with global mortality exceeding that for malaria or breast cancer because of drug-resistant strains which “terrify” doctors and threaten the food chain, a new report has warned. Writing in a special “resistance” edition of the journal Science, researchers from Imperial College London and Exeter University have shown how crops, animals and people are all threatened by nearly omnipresent fungi. “Fungal infections on human health are currently spiralling, and the global mortality for fungal diseases now exceeds that for malaria or breast cancer,” the report notes.

While the problem of bacteria becoming resistant to commonly used antibiotics has been widely reported on, and likened to the “apocalypse” by medical leaders, the risks of disease-causing fungi have received far less recognition. Fungicides share a problem with antibiotics in that the organisms they aim to kill are becoming resistant to treatments faster than they can be developed, and there are growing numbers of people vulnerable to infection. “We’ve got increasing numbers of immunosuppressed patients, that’s what fungi love to parasitise,” Matthew Fisher, professor of fungal disease epidemiology at Imperial, told The Independent.

“Half a million people a year probably die from fungal meningitis in Africa, which wouldn’t affect them if they didn’t have Aids. “Similarly in the UK we have transplant patients as well, as soon as you whack them on immunosuppressants they start coming down with fungal infections.” “Transplant doctors are absolutely terrified of these fungal infections,” he added, and the same issues arise in cancer patients, or people whose immune systems are destroyed by disease or age – leaving them unable to fight off infection on their own.

Read more …

Jun 062017
 
 June 6, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , , ,  1 Response »


Pablo Picasso Les femmes d’Alger 1955

 

Trump Set To Make First Moves At Completely Revamping The Fed (CNBC)
Trump’s ‘Been Clear To Me’ To Try To Rebuild Russia Ties: Tillerson (R.)
Contractor Charged With Leaking Document About US Election Hacking (R.)
How The Intercept Outed Reality Winner (ErrataS)
China’s Biggest Bank Is Wall Street’s Go-To Shadow Lender (BBG)
One Belt, One Road, and One Debt Hangover (Rickards)
Qatar Stocks Tumble 7% As Six Arab Nations Cut Diplomatic Ties (CNBC)
Qatar’s Real Power Is As The World’s Largest LNG Exporter (BBG)
Britain’s Economic Model Is Broken: This Is Our First Post-Crash Election (G>)
Simple Numbers Tell Story Of Police Cuts Under Theresa May (G.)
Earnings vs. Profits & The Bull Market (Roberts)
US M&A: One Of The Scariest Charts To Look At – Citi (BI)
IMF’s Lagarde Offers Eurozone Greek Debt Compromise, Handelsblatt Says (R.)
The Euro’s Future Demands Trust (K.)
An Occupied Hotel In Greece Models How To Welcome Refugees (WNV)

 

 

Well, it’ll be different alright. Given the Fed’s actions over the past decade, it can hardly get wrose.

Trump Set To Make First Moves At Completely Revamping The Fed (CNBC)

President Donald Trump appears ready to remake the Federal Reserve in an image that will be considerably different than what investors have known for many years. The president is prepared to nominate Randal Quarles and Marvin Goodfriend to two of three vacancies at the central bank, according to multiple press accounts that have not been disputed by the administration. Quarles likely would assume the role vacated by Daniel Tarullo to oversee the nation’s banking system. White House officials did not respond to a CNBC request for comment. Should Trump nominate the two men and they receive confirmation, it will represent the first steps in a possible substantial remaking of a Fed that has practiced ultra-loose monetary policy for the past decade but has been tight on banking regulations.

Trump will have the opportunity to name one more person now, then can fill two even more critical vacancies in 2018 — that of Chair Janet Yellen and Vice Chair Stanley Fischer. If the Quarles and Goodfriend moves are indicators of what’s to come, things could start getting less comfortable for Yellen. Both are considered solidly conservative, in line with the Republican president and Congress but perhaps not with Yellen. “Clearly, these appointees are a significant departure from the crowd that we’ve had on the board,” said Christopher Whalen, head of Whalen Global Advisors and a former investment banker and long-time financial analyst. “Yellen is probably the most left-wing Fed chair we’ve ever had. I also think both Quarles and Goodfriend have much better grounding in the financial markets. That would be refreshing.”

Yellen, however, may not think so, particularly if the coalition she has carefully crafted since taking the chair’s seat in 2014 starts to unravel. “I welcome these additions,” Whalen said. “Hopefully they put a banker in the third slot. Then eventually Yellen’s going to leave because she’s going to start losing votes.”

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Kiwis flipping birds.

Trump’s ‘Been Clear To Me’ To Try To Rebuild Russia Ties: Tillerson (R.)

U.S. President Donald Trump told his top diplomat that the dispute over probes into links between his inner circle and Russia should not undermine U.S. efforts to rebuild relations with Moscow, Secretary of State Rex Tillerson said on Tuesday. Speaking in New Zealand after a trip to Australia, Tillerson reiterated the U.S. commitment to the Asia-Pacific region as global leaders have expressed growing mistrust over the Trump administration, which has withdrawn from key international agreements since taking office. At home, Trump’s administration has been plagued by questions over links to the Russian government. Tillerson said Trump told him to try to improve ties with Russia regardless of the U.S. political backdrop.

“I can’t really comment on any of that because I don’t have any direct knowledge,” Tillerson told a news conference in Wellington, when asked how worried he was that the U.S. political crisis could take down the Trump administration. “The president’s been clear to me: do not let what’s happened over here in the political realm prevent you from the work that you need to do on this relationship and he’s been quite clear with me… that we might make progress. I’m really not involved in any of these other issues,” he said after a meeting with New Zealand Prime Minister Bill English.

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This is another very curious story, and it’s not just the girl’s name, Reality Leigh Winner. Still, even The Intercept jumps to conclusions:

“Russian military intelligence executed a cyberattack on at least one U.S. voting software supplier and sent spear-phishing emails to more than 100 local election officials just days before last November’s presidential election, according to a highly classified intelligence report obtained by The Intercept.”

Even though they know that when signs point to Russia, it’s probably not Russial, the caveat only come later:

“While the document provides a rare window into the NSA’s understanding of the mechanics of Russian hacking, it does not show the underlying “raw” intelligence on which the analysis is based. A U.S. intelligence officer who declined to be identified cautioned against drawing too big a conclusion from the document because a single analysis is not necessarily definitive.”

If the raw intelligence is not available, how can one draw the Russia conclusions? The Intercept now blindly trusts US intelligence agents? And that’s not all, see next article…

Contractor Charged With Leaking Document About US Election Hacking (R.)

The U.S. Department of Justice on Monday charged a federal contractor with sending classified material to a news organization that sources identified to Reuters as The Intercept, marking one of the first concrete efforts by the Trump administration to crack down on leaks to the media. Reality Leigh Winner, 25, was charged with removing classified material from a government facility located in Georgia. She was arrested on June 3, the Justice Department said. The charges were announced less than an hour after The Intercept published a top-secret document from the U.S. National Security Agency that described Russian efforts to launch cyber attacks on at least one U.S. voting software supplier and send “spear-phishing” emails, or targeted emails that try to trick a recipient into clicking on a malicious link to steal data, to more than 100 local election officials days before the presidential election last November.

While the charges do not name the publication, a U.S. official with knowledge of the case said Winner was charged with leaking the NSA report to The Intercept. A second official confirmed The Intercept document was authentic and did not dispute that the charges against Winner were directly tied to it. The Intercept’s reporting reveals new details behind the conclusion of U.S. intelligence agencies that Russian intelligence services were seeking to infiltrate state voter registration systems as part of a broader effort to interfere in the election, discredit Democratic presidential candidate Hillary Clinton and help then Republican candidate Donald Trump win the election. The new material does not, however, suggest that actual votes were manipulated.

Read more …

… but it gets weirder. Soon after the Intercept published the story and docs, the leaker was arrested. How? She could easily be traced back to these docs. Was the Intercept not aware of this? That’s hard to believe, leaked documents is what they do. Was someone careless? We haven’t seen any excuses made. Did they knowingly give her up? Is this then the end of the Intercept?

How The Intercept Outed Reality Winner (ErrataS)

Today, The Intercept released documents on election tampering from an NSA leaker. Later, the arrest warrant request for an NSA contractor named “Reality Winner” was published, showing how they tracked her down because she had printed out the documents and sent them to The Intercept. The document posted by the Intercept isn’t the original PDF file, but a PDF containing the pictures of the printed version that was then later scanned in. The problem is that most new printers print nearly invisibly yellow dots that track down exactly when and where documents, any document, is printed. Because the NSA logs all printing jobs on its printers, it can use this to match up precisely who printed the document. In this post, I show how.

You can download the document from the original article here. You can then open it in a PDF viewer, such as the normal “Preview” app on macOS. Zoom into some whitespace on the document, and take a screenshot of this. On macOS, hit [Command-Shift-3] to take a screenshot of a window. There are yellow dots in this image, but you can barely see them, especially if your screen is dirty.

We need to highlight the yellow dots. Open the screenshot in an image editor, such as the “Paintbrush” program built into macOS. Now use the option to “Invert Colors” in the image, to get something like this. You should see a roughly rectangular pattern checkerboard in the whitespace.

It’s upside down, so we need to rotate it 180 degrees, or flip-horizontal and flip-vertical:

Now we go to the EFF page and manually click on the pattern so that their tool can decode the meaning:

This produces the following result:

The document leaked by the Intercept was from a printer with model number 54, serial number 29535218. The document was printed on May 9, 2017 at 6:20. The NSA almost certainly has a record of who used the printer at that time.

Read more …

“With 260-to-1 Leverage A Chinese Giant Takes On Goldman In US Repo”

China’s Biggest Bank Is Wall Street’s Go-To Shadow Lender (BBG)

High up in a New York City skyscraper, China’s biggest bank is playing in the shadows of American finance. The prize for Industrial & Commercial Bank of China isn’t stocks, bonds or currencies. It’s the grease in the wheels of all those markets: repurchase agreements. By exploiting a loophole in rules intended to keep U.S. banks from getting “too big to fail,” the state-owned ICBC has become a go-to dealer in repos in just a few short years, alongside longtime powerhouses like Goldman Sachs Group Inc. The short-term loans allow investors to borrow money by lending securities, serving a vital role in day-to-day trading on Wall Street. ICBC’s rise reflects not only China’s global ambitions in high finance, but also how post-crisis rules have let a whole host of new players profit from the murky world of shadow banking, largely beyond the reach of bank regulators.

As big banks face tougher standards, they’re being replaced by brokers, asset managers and foreign firms like ICBC, which can use more leverage and take greater risks. That has some regulators worried non-bank lenders are once again emerging as a threat to financial stability, less than a decade after panic in the repo market wiped out Lehman Brothers. “The concern is that non-bank dealers are becoming a larger part of the repo market,” said Benjamin Munyan, who specializes in shadow banking and regulation at Vanderbilt University’s Owen Graduate School of Management. “These intermediaries are outside the scope of our traditional Federal Reserve safety net.” In some ways, the development is emblematic of how steps taken to stamp out financial risk-taking in one area have created unforeseen risks in another. But it also highlights the willingness and ability of firms to jump through whatever holes regulators leave or create.

In a repo, firms borrow money by putting up securities like Treasuries as collateral. The cash can then be used to buy higher-yielding assets, something hedge funds often do. When the agreement expires, the borrower “repurchases” the collateral, paying interest to the lender. The process can be repeated over and over, boosting a firm’s leverage, as long as the assets backing the repo maintain their value. During the credit crisis, reliance on such short-term funding helped bankrupt Lehman and imperiled the financial system. Bailouts put the biggest securities firms under Fed supervision as banks, and Dodd-Frank regulations forced them to shrink their assets. A key provision has been the enhanced capital requirements, which made it prohibitively expensive for large U.S. banks to warehouse low-yielding Treasuries and finance repos.

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China runs out of collateral.

One Belt, One Road, and One Debt Hangover (Rickards)

China is not only one of the world’s largest debtors, it is one of the world’s largest creditors. China uses debt not in the customary financial manner, but as a political tool to generate employment and maintain social stability. Likewise China uses loans and investment as a tool to advance its strategic interests. This may be good geopolitics in the short run, but it will be a disaster economically in the long run. Just as Chinese state owned enterprises (SOEs) can’t repay debts to Chinese banks, China’s foreign partners will not be able to repay debts to China itself. These twin disasters-in-the-making may converge in such a way that China’s assets disappear or become illiquid at exactly the time they are most needed to bail-out its own banking system.

China has launched four major overseas investment initiatives in the past ten years. The oldest is their sovereign wealth fund, China Investment Corporation, or CIC, established in 2007. Sovereign wealth funds are a way for countries to invest their reserves in securities other than safe instruments such as U.S. Treasury notes. CIC today has assets of over $800 billion, spread among stocks, corporate bonds, hedge funds, private equity, commodities, and commercial real estate. Some of CIC’s investments are directly-owned enterprises, including gold mines in Zimbabwe. While these assets may outperform Treasury notes over time, they are also illiquid, and would tend to decline in value during a financial panic. This means that about 20%, of China’s reserves are unavailable for critical tasks such as bailing out the banking system or defending the currency.

[..] The problem with One Belt, One Road is that many of the potential recipients of development loans are not highly creditworthy or have a track record of defaulting on debts or requiring substantial debt restructuring in order to stay current. As with Chinese bank loans to SOEs, the NDB, AIIB, and One Belt, One Road efforts are not primarily economic but political. China is seeking to use its economic clout to create jobs and control critical infrastructure. [..] As with its other policies, China will turn liquid assets into illiquid assets in order to pursue its ambitions. This could make sense if nothing goes wrong. But, things will go wrong. China will face a monumental liquidity crisis sooner than later and find that its liquid assets have been turned into bridges to nowhere.

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This thing has been developing over decades.

Qatar Stocks Tumble 7% As Six Arab Nations Cut Diplomatic Ties (CNBC)

Qatar’s stock market tumbled more than 7% on Monday as six of the Middle Eastern country’s neighbors reportedly severed diplomatic relations with Doha for allegedly supporting terrorism. The key stock index in Doha slipped shortly after Monday’s open – the benchmark’s sharpest fall in more than seven years – before paring some its losses to trade down 7.2% at around 3:00 p.m. local time. Six countries, including Saudi Arabia and Egypt, had all coordinated on Monday to accuse the wealthy Gulf state of supporting terrorism, which Qatar has denied. Investors viewed the diplomatic withdrawal as a major breakdown between powerful Gulf nations, who are also close U.S. allies. While Saudi Arabia – the world’s leading crude oil exporter – said Qatar had supported “Iranian-backed terrorist groups,” Qatar described the joint decision as having “no basis in fact” and was therefore “unjustified”.

Political tensions in the region had been building in recent weeks as Egypt, Saudi Arabia, Bahrain and the United Arab Emirates – all countries to have cut relations with Doha on Monday – had blocked Qatari-based news sites in May. However, Monday’s decision was reported to be based on Qatar’s alleged role in supporting Islamist groups and its stance concerning Iran – a regional rival to Saudi Arabia. Qatar, a member of the U.S. coalition against the so-called Islamic State, has frequently and consistently rejected accusations from Iraq’s Shia leaders that it has provided financial backing to ISIS. “Whilst Qatar is the member of the U.S. coalition against IS, wealthy individuals have reportedly made donations to extremist groups and the government is also accused of supporting extremists – allegations that Qatar vehemently deny,” Tamas Varga, oil associates analyst at PVM, said in an email on Monday.

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If I remember, the UK gets 90% of its LNG from Qatar.

Qatar’s Real Power Is As The World’s Largest LNG Exporter (BBG)

Oil markets seem impervious to geopolitical risk. As four Arab neighbors imposed an unprecedented embargo on Qatar on Monday, oil prices briefly jumped 1.6 percent before falling back. The fuel to watch, though, is not oil, but gas. If this dispute is not resolved quickly, it may mean a hot summer in the Gulf. The problem has been simmering for a long time, with three of Qatar’s Gulf Cooperation Council colleagues blaming it for backing Islamist groups including the Muslim Brotherhood, and being too friendly with Iran. But in a dramatic escalation shortly after U.S. President Donald Trump’s visit to Saudi Arabia, the United Arab Emirates and Bahrain, along with Egypt, the shaky official government of Yemen and Libya’s contested eastern government broke relations with Doha and imposed a ban on air, land and sea travel.

Much of Qatar’s food and key equipment comes by land from Saudi Arabia, or reshipments through Dubai’s Jebel Ali port. Qatar is one of the smallest oil producers in OPEC, at 618,000 barrels per day, but condensate (light oil) and natural gas liquids – byproducts of its giant North Field – add about another 1.3 million barrels per day. It will stay in the OPEC production cuts deal, and even if it does not, its contribution is small. Its real power comes from being the world’s largest liquefied natural gas exporter. Qatar’s liquefied natural gas and oil exports should not be affected, even if Saudi and Emirati waters are barred to its ships. They can sail via Iranian waters and then pass the Strait of Hormuz via the usual shipping lane in Omani territory, or stay in the Iranian sector if Oman joins its GCC colleagues in the blockade. Any attempt to stop Qatari exports would be a major crisis, and would invite a serious response from major LNG customers Japan, South Korea, China and India.

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So is Britain’s political model.

Britain’s Economic Model Is Broken: This Is Our First Post-Crash Election (G>)

Mayism could mean Brexit Britain renaming itself Poundland – cheap goods and cheap workers – or it might mean a reversion to some kind of one-nation Toryism. Her party just doesn’t know. Were it not for the Tories’ slim majority, their crisis would be far more exposed. The sofa class don’t do political economy, more’s the pity, but if they did they’d see the contradictions of Conservatism in 2017. The party of capital is now pursuing a policy – hard Brexit – hated by capital. The political arm of the City is about to rip a hole through the City. All these paradoxes are given almost physical representation on our tellies every night by May herself – a populist who doesn’t actually like people.

As a non-believer in New Labour, Corbyn has no such ideological awkwardness, while John McDonnell is one of the few people in the Labour party who didn’t subcontract out their economic thinking to Brown and Ed Balls. But still, their team admit they have a way to go in rethinking Britain’s economy – and they are having to do so against a famously hostile parliamentary party. The result is Corbyn’s manifesto, which is chiefly remarkable for its unabashed defence of basic social democratic values. It’s the programme you imagine Brown would like to have delivered – if only he hadn’t been so busy triangulating.

But behind the scenes, the party is doing much deeper thinking. I have seen an internal Labour report commissioned by McDonnell. It forms one part of what could be a far more radical programme after Thursday night. Some of the lines in it will give the Daily Mail stories for days – such as calling for a overhaul of the BBC trust (which is “dominated by appointees from the corporate and financial sectors”) and hundreds of millions in public money to be spent on establishing workers co-ops. For the sympathetic reader, however, it contains some of the most imaginative thinking around economic democracy to come out of the party in decades (not saying much, sadly). In that, it sits alongside the speeches made by Corbyn’s team last week about the need for “industrial patriotism”, and to give public backing to new sectors.

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More cuts are being prepared.

Simple Numbers Tell Story Of Police Cuts Under Theresa May (G.)

Police numbers, including the number of armed police officers, have fallen sharply under Theresa May’s watch first as home secretary between 2010 and 2016 and then as prime minister. The simple numbers tell the story. In 2010 May as home secretary made the mistake that Margaret Thatcher never made in the 1980s and agreed to a Treasury demand to cut police budgets by 18%. Over the next five years the number of police officers in England and Wales fell from a peak of 144,353 in 2009 to 122,859 in 2016. At the same time the number of specialist armed police officers has fallen from a peak of 6,796 in 2010 to 5,639 in 2016. As the graph shows it would appear to be an open and shut case that cuts in police officer numbers have had an impact on the capacity of the police to respond.

May was told in 2010 that in cutting police funding she was making a mistake that Thatcher never made when she instinctively realised that there would come a crucial moment when the country, and her premiership, would depend entirely on the resilience of the thin blue line. May took a different approach as home secretary that was not without foundation. She argued that with the big continuing falls in crime that had been seen since the mid-1990s it was not necessary to maintain such a large police force. Anyway, it was argued, there was no direct link between the number of officers and the level of crime.

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What you get after years of having zero price discovery. It gets worse as we go along.

Earnings vs. Profits & The Bull Market (Roberts)

As I have discussed previously, the operating and reported earnings per share are heavily manipulated by accounting gimmicks, share buybacks, and cost suppression. To wit: “The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big ‘restructuring charge’ that would otherwise stand out like a sore thumb. What is more surprising though is CFOs’ belief that these practices leave a significant mark on companies’ reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study’s respondents said it was around 10% of earnings per share.“ However, if we analyze corporate profits (adjusted for taxes and inventory valuations) we find a very different story. Since the lows following the financial crisis, the S&P 500 has grown by 266% versus corporate profit growth of just 98%.

Important Note: The profits generated by the Federal Reserve’s balance sheet are included in the corporate profits discussed here. As shown below, actual corporate profitability is weaker if you extract the Fed’s profits from the analysis. As a comparison, in the first quarter of 2017, Apple reported a net income of just over $17 billion for the quarter. The Fed reported a $109 billion profit.

With corporate profits still at the same level as they were in 2011, there is little argument the market has gotten a bit ahead of itself. Sure, this time could be different, but it usually isn’t. The detachment of the stock market from underlying profitability suggests the reward for investors is grossly outweighed by the risk. But, as has always been the case, the markets can certainly seem to “remain irrational longer than logic would predict.” This was something Jeremy Grantham once noted: “Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system, and it is not functioning properly.” Grantham is correct. As shown, when we look at inflation-adjusted profit margins as a percentage of inflation-adjusted GDP we see a clear process of mean reverting activity over time. Of course, those mean reverting events are always coupled with a recession, crisis, or stock market crash.

More importantly, corporate profit margins have physical constraints. Out of each dollar of revenue created there are costs such as infrastructure, R&D, wages, etc. Currently, one of the biggest beneficiaries to expanding profit margins has been the suppression of employment, wage growth, and artificially suppressed interest rates which have significantly lowered borrowing costs. Should either of the issues change in the future, the impact to profit margins will likely be significant. The chart below shows the ratio overlaid against the S&P 500 index.

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Well, if you don’t know what something’s worth, how are you going to justify purchasing it? At some point that stops.

US M&A: One Of The Scariest Charts To Look At – Citi (BI)

The slowdown in US dealmaking since 2015 is cause for concern, Citi’s equity strategists say. “In some respects, one of the scariest charts to look at currently is the number of announced mergers & acquisition deals over the past year or two,” Tobias Levkovich, the chief US equity strategist at Citi, said in a note on Friday. “M&A lawyers argue the ‘uncertainty’ factor, which has come about recently, given some unpredictable aspects of the new Trump administration, has been the issue. It only may explain the last six months, but the trend has been poor for about two years or more. In the past, there has been some correlation with the S&P 500 and thus it could generate more legitimate fears than some of the other excuses that are put forth for not wanting to buy American equities.”

This year through June 5, 7,561 deals were announced, the lowest count since 2013, according to S&P Global Market Intelligence. M&A volume reached a record $2.055 trillion that year, the firm’s data show, slipping in 2016 to $1.7 trillion. More dealmaking signals, in part, that companies are placing big bets on the long-term growth of certain pockets of the market. Levkovich said tough antitrust measures from European authorities and the Department of Justice antitrust division may be slowing dealmaking.

Read more …

Please let it stop.

IMF’s Lagarde Offers Eurozone Greek Debt Compromise, Handelsblatt Says (R.)

IMF Managing Director Christine Lagarde has offered Greece’s European creditors a way out of their impasse over Athens’s debts that would allow the eurozone to release a tranche of aid later this month. The IMF believes Greece needs a debt haircut, which Germany rejects. Lagarde suggested agreeing a deal whereby the IMF would stay on board in the bailout, as Berlin wants, but not pay out further aid until debt relief measures are clarified. “There can therefore be a program in which the disbursement only takes place when the debt measures have been clearly outlined by the creditors,” she told Handelsblatt in pre-released comments to run in its Tuesday edition. The compromise could allow eurozone finance ministers to give the go-ahead for their next payment of their tranche of aid at their meeting on June 15, Handelsblatt said.

“It is a possibility for an agreement,” Lagarde said. Greece has about €7 billion of debt maturing in July, a sum it will not be able to repay unless it gets new loans out of its current bailout worth up to 86 billion euros, the third aid program since its debt crisis began. Eurozone finance ministers failed to agree with the IMF last month on debt relief terms for Greece. They did not release new loans to Athens but recognized it had made significant progress with reforms. Greece hopes that eurozone finance ministers will offer enough clarity in June on debt relief measures that could be carried out after its bailout ends in 2018, to show investors that its debt – now at 197% of GDP – will be sustainable and help it return to bond markets as early as this summer.

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Trust in the Troika has proven to be a very expensive mistake.

The Euro’s Future Demands Trust (K.)

The European Commission presented its proposal for possible ways to deepen Europe’s Economic and Monetary Union a few days ago, as part of the public debate on the EU’s future. It went unnoticed in Greece, which is a pity, because if all that is proposed is adopted, the Greek problem will be overcome; also, if the mechanisms and procedures now in place had existed from the start, our country would not have hit a dead end. The question now is how Greece will be part of a system that was established because of the Greek crisis but from which our country is still excluded.

For the Greeks – sinking in recession, insecurity and isolation – the ironies are many. Presenting the proposals in Brussels on Wednesday, Commission Vice President Valdis Dombrovskis said: “The euro is one of Europe’s most significant achievements. It is much more than just a currency. It was conceived as a promise of prosperity. To keep that promise for future generations, we need the political courage to work on strengthening and completing Europe’s Economic and Monetary Union now.” Pierre Moscovici, commissioner for economic and financial affairs, added: “The euro is already a symbol of unity and a guarantee of stability for Europeans. We now need to make it a vehicle for shared prosperity. Only by reversing economic and social divergence in the euro area will we be able to defeat the dangerous populism that this fuels.”

The indirect references to Greece are clear. This is where the euro’s weaknesses first appeared, this is where the political center was torn apart and fringe groups gained power, this is where confidence in the common currency and in solidarity is being tested. The Commission’s proposals focus on completing a genuine financial union, achieving a more integrated economic and fiscal union, on greater democratic accountability and strengthening euro-area institutions (including a full-time Eurogroup chair and a European Monetary Fund). The Commission noted the euro’s successes, adding, “And yet it is only 25 years since the Treaty of Maastricht paved the way for the single currency and only 15 years since the first coin was used.” So we ask: As the currency is so new, and as the necessary mechanisms and procedures are only now being instituted, why is Greece continually an outcast? How can we pretend all is well with the euro? .

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Nice thing is the City Plaza is not really occupied, nor a squat. The former employees own everyhting inside the building.

An Occupied Hotel In Greece Models How To Welcome Refugees (WNV)

It is almost summer in Europe. Temperatures are rising, and many are preparing for vacations somewhere in the Mediterranean, which means searching for accommodation online. “No pool, no minibar, no room service, and nonetheless: the best hotel in Europe” reads the City Plaza Hotel’s homepage. A joke? Yes. A lie? Not at all. While this hotel in Athens, Greece might not offer those conventional services, it provides something far better: Free housing, medical care and meals for hundreds of people who have had to flee their countries. [..] Over the course of the year, the hotel has provided decent housing for over 1,500 refugees — 400 at any one time — in times of undignified detention camps. It is a model of self-organization and solidarity with refugees — who share living quarters with locals — in times of rising racism and nationalism.

[..] Thousands of homeless refugees are living in the streets of Athens, including families with small children. In response to this crisis, the Greek state set up more than 49 detention centers and camps. Activists and refugees had another idea of how to respond. On April 22, 2016 they took over the City Plaza — which, like many businesses since the economic collapse, had been abandoned for six years. Along with eight other self-organized shelters occupied by refugees and activists around the city, the hotel offers displaced people a safe and dignified alternative to the miserable, unhygienic and cruel conditions of the detention facilities. When the City Plaza went bankrupt in 2010, the management failed to pay the employees their final salaries. According to a court ruling, since they were unable to pay the workers monetarily, everything that is inside the building belongs to the workers.

However, the owner prevented auctioning the hotel for years. When the seven-story building was finally occupied last year, the former hotel employees declared that they were happy to offer and share everything. And the activists running City Plaza now support the workers and are planning common efforts to meet the demands of both the former workers and the refugees. The refugees’ demands include access to housing, education and employment. By providing everything that is needed themselves, the project proves that decent living conditions for everyone is possible, even in a country as burdened by crisis as Greece. And the warm reception that the refugees have received by those living near the hotel demonstrate that poverty is not an obstacle to welcoming people with open arms. “The neighbors bring some clothes, some food — you know, they are warm. Although their lives are also ruined, they see in the ruins of their lives, the ruins of the lives of other people,” said Maria, one of the Greek activists running the hotel.

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Dec 282016
 
 December 28, 2016  Posted by at 10:23 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle December 28 2016


Albert Kahn Paris, Autochrome Lumière color photo 1914

Turkey and Russia Agree on Syria Ceasefire, Into Effect by Midnight (R.)
Erdogan Says He Has Evidence US-Led Coalition Has Given Support To ISIS (Ind.)
Turkey Says Saudis, Qatar Should Attend Syria Peace Talks (AP)
‘US Raised Middle East Terrorists & Wants Them To Stay’ – Iran Def Min (RT)
Toshiba Shares Fall 20%, Hit Limit, As US Nuclear Writedown Sinks In (AFP)
China To Rein In Outward Investment As Domestic Growth Stalls (G.)
Chinese Interbank Funding Freezes Again As Overnight Repo Hits 33% (ZH)
No Happy New Year in China as Currency, Liquidity Fears Loom (BBG)
Greek Taxpayers Face €4 Billion Tax Bill By New Year’s Eve (Xinhua)
Clash Over New Government Sends Romania Spiraling Toward Crisis (BBG)
Inequality and Skin in the Game (Taleb)
The New Normal ‘Safety Net’: Surging Disability Benefits Claims (ZH)
The Battle Against The ‘Superbugs’: Transplants, Chemotherapy At Risk (CNBC)

 

 

Obama’s PR fiasco widens.

Turkey and Russia Agree on Syria Ceasefire, Into Effect by Midnight (R.)

Turkey and Russia have agreed on a proposal toward a general ceasefire in Syria, Turkey’s state-run Anadolu Agency said on Wednesday, and will aim to put it into effect by midnight. Anadolu, citing sources, said the two countries have reached a consensus that will be presented to participants in the conflict on expanding the ceasefire that was established in Aleppo earlier this month. Russia, Iran and Turkey said last week they were ready to help broker a peace deal after holding talks in Moscow where they adopted a declaration setting out the principles any agreement should adhere to. Arrangements for the talks, which would not include the United States and be distinct from separate intermittent U.N.-brokered negotiations, remain hazy, but Moscow has said they would take place in Kazakhstan, a close ally. Russia’s foreign minister on Tuesday said the Syrian government was consulting with the opposition ahead of possible peace talks, while a Saudi-backed opposition group said it knew nothing of the negotiations but supported a ceasefire.

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Accuse the accuser.

Erdogan Says He Has Evidence US-Led Coalition Has Given Support To ISIS (Ind.)

The Turkish President Recep Tayyip Erdogan says he has uncovered evidence that US-led coalition forces have helped support terrorists in Syria – including Isis. American-led forces have been working alongside Syrian rebels fighting President Bashar al-Assad but have attempted to avoid helping Isis and other Islamist militant groups. However, speaking on Tuesday in the Turkish capital, Ankara, he said he believed they had given support to a variety of militant groups, including Isis Kurdish outfits YPG and PYD. “They were accusing us of supporting Daesh [Islamic State],” he told a press conference, according to Reuters. “Now they give support to terrorist groups including Daesh, YPG, PYD. It’s very clear. We have confirmed evidence, with pictures, photos and videos.”

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So Turkey is accused of aiding ISIS, now accuses the US of doing just that, and wants known ISIS backers to join peace talks. Enter Putin stage left.

Turkey Says Saudis, Qatar Should Attend Syria Peace Talks (AP)

Turkish President Recep Tayyip Erdogan says Saudi Arabia and Qatar should join its meeting with Russia and Iran to discuss Syrian peace efforts. Russia, Turkey and Iran, which helped broker the withdrawal of civilians and militants from the Syrian city of Aleppo, have agreed to hold talks on Syria in Kazakhstan next month. Erdogan said Tuesday the meeting of foreign ministers should include Saudi Arabia and Qatar, saying they had “shown goodwill and given support” to Syria. Turkey, Saudi Arabia and Qatar are the main backers of rebels seeking to topple Syrian President Bashar Assad, who is closely allied with Moscow and Tehran. Erdogan added, however, that Turkey would not take part if any “terror organizations” are also invited, referring to Syrian Kurdish groups affiliated with Kurdish insurgents in Turkey.

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All the US has ever bet on is chaos.

‘US Raised Middle East Terrorists & Wants Them To Stay’ – Iran Def Min (RT)

Washington appears unready to play a serious role in fighting Islamic State (IS, formerly ISIS/ISIL), as it has fostered terrorists itself and now wants them to remain in the Middle East, Iranian Defense Minister Hossein Dehghan told RT. “The Western coalition is of a formal nature, they have no real intention to fight neither in Syria nor in Iraq. We don’t see any readiness on their part to play a truly useful and meaningful role in fighting IS, because it’s them who have raised terrorists and they are interested in keeping them there,” Dehghan said. According to the Iranian defense minister, Tehran has never coordinated its operations with the Americans and “will never collaborate with them.”

“Maybe the coalition forces would like to see terrorists weakened, but certainly not destroyed, because those terrorists are their tool for destabilizing this region and some other parts of the world.” He also mentioned Al-Nusra Front (also known as Jabhat Fateh al-Sham) and said that terrorists in Syria receive support from the US, Saudi Arabia and Qatar. He also accused Turkey of supporting terrorists on the ground. “If Iran, Russia and Syria were to reach an agreement with Turkey to end Turkish support for those terrorist groups, particularly IS and Jabhat al-Nusra, and start fighting them, then I think we would see the situation in Syria improve,” he added. According to the minister, any ceasefire in Syria demands guarantees and all parties should agree to fulfill the conditions for a truce.

“We shouldn’t let Islamic State or Al-Nusra groups take part in the ceasefire. All other groups should start a political process and negotiations with the Syrian government.” He added that after the truce comes into force, it is important to separate terrorists and opposition groups ready to negotiate with the Syrian government. All sides should fight IS and Al-Nusra Front, Dehghan stated, adding that everyone should stop supporting terrorists in political, financial and military areas.

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That’s a big company to have this happen to.

Toshiba Shares Fall 20%, Hit Limit, As US Nuclear Writedown Sinks In (AFP)

Toshiba shares dived more than 20% on Wednesday in their second straight double-digit plunge as the company said it may book a one-time loss of several billion dollars over its US nuclear business. Toshiba’s stock price dropped by 20.42% to 311.60 yen, the largest fall allowed for a single day, about 30 minutes after the opening bell, as the company failed to remove investor worries over the potential risk. On Tuesday the Tokyo-based conglomerate said costs linked to the acquisition in 2015 by its US subsidiary of a nuclear service company would possibly come to “several billion US dollars, resulting in a negative impact on Toshiba’s financial results”. The exact figure of the potential writedown was still being worked out, Toshiba president Satoshi Tsunakawa said after the announcement, apologising for “causing concern”.

The company statement suggested the figure would be released soon, citing an end-of-year deadline. Toshiba shares had closed nearly 12% lower on Tuesday on media reports about the potential loss. Analysts said uncertainty was fuelling investor anxiety. “Concerns have yet to be cleared away as they said they didn’t know the figure,” Yukihiko Shimada, senior analyst at SMBC Nikko Securities, told AFP. SMBC Nikko credit analysts Yutaka Ban and Kentaro Harada said in a report that investors “can’t be optimistic about the situation” even though the total writedown may not end up as big as the 500 billion yen (US$4.3bn) reported by local media. Nomura Securities analyst Masaya Yamasaki said in a report issued late on Tuesday that the expected loss “is negative for the company as its financial standing is fragile”.

Tsunakawa answered in the affirmative when asked if Toshiba was considering boosting capital. Its chief financial officer, Masayoshi Hirata, said that after the figure was confirmed the company would “explain and seek support” from financial institutions. Toshiba said the possible loss was related to the valuation of the purchase by subsidiary Westinghouse Electric of the nuclear construction and services business of Chicago Bridge and Iron.

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Something’s not right.

China To Rein In Outward Investment As Domestic Growth Stalls (G.)

Beijing has signalled plans to curb Chinese firms’ investment in foreign assets, after revealing that companies from China are on course to spend 1.12 trillion yuan (£130bn) on everything from British football clubs to a Hollywood film producer in 2016. Companies from China ramped up their spending on overseas assets during the year, as a weakening domestic economy saw investors turn their attention overseas. A diverse array of targets included the maker of Godzilla, Aston Villa Football Club and the pub in which former prime minister David Cameron and Chinese premier Xi Jinping once shared a pint. The spending spree boosted non-financial overseas investment 55% in the first 11 months of 2016, putting Chinese companies on course to spend £130bn this year, compared with £86bn in 2015, said commerce minister Gao Hucheng.

While foreign investment has soared, the amount of money flowing into the country is set to remain broadly flat at £92bn. This means the difference between investments abroad and those coming into China has reached an unprecedented £39bn. The widening gap has triggered concerns about capital flight, where investors send their money out of the country rather than investing it to spur domestic growth. Gao signalled that Beijing would move to address the investment gap by reining in Chinese firms’ overseas spending and making it easier for firms from abroad to access the Chinese economy.

He said the government would “promote the healthy and orderly development of outbound investment and cooperation in 2017”, in remarks at a conference that were published on the commerce ministry’s website. In November it was reported that China was preparing a clampdown on non-Chinese mergers and acquisitions. Separately, the ministry said on its blog that China would sharply reduce restrictions on foreign investment access in 2017 to make it easier for overseas firms to spend their cash in the People’s Republic. No details were given on what restrictions would be changed.

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Even worse than in other years, and there’s a reason for that.

Chinese Interbank Funding Freezes Again As Overnight Repo Hits 33% (ZH)

… when it comes to more traditional unsecured short-term funding markets, like the simple overnight repo, these reflect overall levels of liquidity in the interbank market, or as the case may be, complete absence thereof. And while China is notorious for suffering major liquidity shortages heading into a new year (including the non-lunar variety), what happened overnight in China is worth pointing out because according to Bloomberg data, the overnight repo rate traded on Shanghai Stock Exchange soared as much as 30.87% to 33%, the highest since September 29, before closing at 18.55%.

And while some of the liquidity squeeze was certainly calendar driven, what is more concerning for Chinese markets, where as we reported recently the local authorities, regulators and even press are confirming that the government crackdown on the credit and housing bubble may be serious for once due to fears about “rising social tensions”, much of the overnight repo rate spike was driven by the PBOC which pulled a net 150 billion yuan of funds in open-market operations today, the most since December 7. The result was another brief, but painful, freeze of the interbank lending market. Should the PBOC continue to not only not inject liquidity among banks, but aggressively withdraw it, it is possible that a repeat of the 2013 bank crisis when as a result of the government’s eagerness to delever the economy it almost crushed its financial sector (it ultimately gave up, with Chinese debt/GDP subsequently rising to 300% according to the IIF), should be one of the more notable risk factors for 2017.

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How can Beijing NOT devalue?

No Happy New Year in China as Currency, Liquidity Fears Loom (BBG)

China bulls could be facing a grim New Year’s eve. The first day of 2017 is when an annual $50,000 quota to convert the yuan into foreign exchange resets, stoking concern there will be a rush to sell the local currency. With tax payments and a regulatory assessment also tightening liquidity in the money market toward year-end, January may bring scant relief as lenders prepare for stronger cash demand before Lunar New Year holidays, which are only a month away. China’s markets are seeing renewed pressure this month as the Federal Reserve projects a faster pace of rate increases for 2017 and its Chinese counterpart tightens monetary conditions to spur deleveraging and defend the exchange rate. The declines are capping off a tough year for investors during which bonds, shares and currency all slumped.

“You have Chinese New Year quite early, and because of that one-month window, most of the banks will try to lock the money in a three-month cycle,” said Arthur Lau, Hong Kong-based head of Asia ex-Japan fixed income at PineBridge Investments. “The current situation in the bond market is partly because of year-end and because of Chinese New Year.” The week-long Lunar New Year holidays are traditionally a time when people give out cash gifts and companies pay employee bonuses. China’s 10-year government bond yield has surged 21 basis points in December, poised for its biggest monthly increase since August 2013, and its first annual gain since that same year. The yuan’s 6.6% decline in 2016 puts it on course for its worst year since 1994, while the Shanghai Composite Index is headed for its largest drop in five years.

The three-month interbank rate known as Shibor rose for a 50th day, its longest streak since 2010, to an 18-month high on Wednesday. The overnight repurchase rate on the Shanghai Stock Exchange jumped to as high as 33% the day before, the highest since Sept. 29. As banks become more reluctant to offer cash to other types of institutions, the latter have to turn to the exchange for money, said Xu Hanfei at Guotai Junan Securities in Shanghai. Bond and money markets may stabilize after Lunar New Year holidays – which start Jan. 27 and end Feb. 2 – though they’re unlikely to return to levels before the latest rout owing to yuan weakness and tighter monetary policy, said Lau. The People Bank of China’s yuan position – a gauge of capital flows – dropped the most in 10 months in November amid expectations for faster U.S. rate increases.

The onshore yuan’s surging trading volume suggests outflows are quickening, according to Harrison Hu, chief greater China economist at RBS. The daily average value of transactions in Shanghai climbed to $34 billion in December as of Monday, the highest since at least April 2014, according to data from China Foreign Exchange Trade System. “In the new year, the new foreign-exchange purchase quota starts, so we expect yuan positions in January to drop significantly,” Liu Dongliang at China Merchants Bank wrote in a note this month. “Within the foreseeable future, the market will be pessimistic about funding conditions. It happens to be near year-end now, where money markets are tight, and after New Year’s Day it’s almost Chinese New Year.”

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“Happy New Year with fewer taxes!”

Greek Taxpayers Face €4 Billion Tax Bill By New Year’s Eve (Xinhua)

Greek taxpayers are obliged to pay some €4 billion in taxes by New Year Eve, as outstanding debts to the state have soared to more than €94 billion by November, according to Finance Ministry data. However, some recession-hit taxpayers seem unable to pay the full taxes within deadlines and apply for settlements to pay their debts in more installments. To collect as much as possible to reach bailout targets, the Greek state has launched confiscation procedures for debtors. According to official data, in the first 10 months of 2016, the procedures had been applied onto 108,729 debtors. And another 1.6 million debtors are facing confiscation in early 2017 should they do not immediately settle their debts to the Tax office.

However, some debtors complained about the levies, saying they can not afford any more as they have been struggling to make ends meet amid seven-year austerity. Many financial analysts also warned that Greek society has reached a breaking point due to over-taxation combined with salary, pension cuts and high unemployment rates. Despite the levies, the country’s tax evasion still exists. According to a recent study conducted by the independent Greek research organization diaNEOsis, tax evasion in Greece is estimated range between 6% and 9% of the country’s GDP, which means a loss of some €16 billion in taxes a year. Experts as well as ordinary citizens urge the government to do more to address widespread tax evasion instead of adding more burdens on those who are trying to pay their share.

While mentioning the tax obligations due by Friday, the Hellenic Confederation of Commerce and Entrepreneurship (ESEE), which represents small and medium-sized companies in Greece, wishes in an e-mailed card to its members on Tuesday “Happy New Year with fewer taxes!”

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is this just a stunt to get rid of the president, proposing a female Muslim for PM?

Clash Over New Government Sends Romania Spiraling Toward Crisis (BBG)

Romania tumbled toward a new political crisis after President Klaus Iohannis rejected a prime minister nominee from the Social Democratic Party, which threatened to suspend him after winning a landslide election victory this month. Iohannis called on the party to pick someone else to lead a government after Sevil Shhaideh, a former development minister with little previous political influence, was picked by Social Democrat leader Liviu Dragnea last week. Dragnea, who can’t take the post himself because he was previously convicted of rigging a referendum, called the decision unjustified. He said he’ll consider his options, including potentially starting the procedure to suspend Iohannis, and will announce a decision by Dec. 29.

“It seems the president clearly wants to be suspended,” Dragnea said in a speech in Bucharest on Tuesday. “We’ll weigh our options very carefully, because we don’t want to take emotional decisions. We don’t want to trigger a political crisis for nothing, but if we come to the conclusion that the president must be suspended, I won’t hesitate.” The standoff in the European Union’s second-poorest country raises the risk of returning to the type of crisis that led to months of bickering between top leaders and culminated in Traian Basescu’s suspension from the presidency in 2012. It may also undermine one of the fastest paces of growth in the EU by delaying investment and the tapping of development funds, an area where Romania has ranked last in the 28-member club.

Iohannis has the constitutional right to reject any premier candidate that he doesn’t consider fit for the job. He didn’t give a reason for his decision. The choice of Shhaideh, a member of the mainly Orthodox country’s tiny Muslim minority, had fueled speculation that Dragnea may try to run the government himself from the sidelines.

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“..the detractors of Donald Trump, when he was a candidate, failed to realize that [..] there is something respectable in losing a billion dollars, provided it is your own money.

Inequality and Skin in the Game (Taleb)

There is inequality and inequality. The first is the inequality people tolerate, such as one’s understanding compared to that of people deemed heroes, say Einstein, Michelangelo, or the recluse mathematician Grisha Perelman, in comparison to whom one has no difficulty acknowledging a large surplus. This applies to entrepreneurs, artists, soldiers, heroes, the singer Bob Dylan, Socrates, the current local celebrity chef, some Roman Emperor of good repute, say Marcus Aurelius; in short those for whom one can naturally be a “fan”. You may like to imitate them, you may aspire to be like them; but you don’t resent them.

The second is the inequality people find intolerable because the subject appears to be just a person like you, except that he has been playing the system, and getting himself into rent seeking, acquiring privileges that are not warranted –and although he has something you would not mind having (which may include his Russian girlfriend), he is exactly the type of whom you cannot possibly become a fan. The latter category includes bankers, bureaucrats who get rich, former senators shilling for the evil firm Monsanto, clean-shaven chief executives who wear ties, and talking heads on television making outsized bonuses. You don’t just envy them; you take umbrage at their fame, and the sight of their expensive or even semi-expensive car trigger some feeling of bitterness. They make you feel smaller.

There may be something dissonant in the spectacle of a rich slave. The author Joan Williams, in an insightful article, explains that the working class is impressed by the rich, as role models. Michèle Lamont, the author of The Dignity of Working Men, whom she cites, did a systematic interview of blue collar Americans and found present a resentment of professionals but, unexpectedly, not of the rich. It is safe to accept that the American public –actually all public –despise people who make a lot of money on a salary, or, rather, salarymen who make a lot of money. This is indeed generalized to other countries: a few years ago the Swiss, of all people almost voted a law capping salaries of managers . But the same Swiss hold rich entrepreneurs, and people who have derived their celebrity by other means, in some respect.

In this chapter I will propose that effectively what people resent –or should resent –is the person at the top who has no skin in the game, that is, because he doesn’t bear his allotted risk, is immune to the possibility of falling from his pedestal, exiting the income or wealth bracket, and getting to the soup kitchen. Again, on that account, the detractors of Donald Trump, when he was a candidate, failed to realize that, by advertising his episode of bankruptcy and his personal losses of close to a billion dollars, they removed the resentment (the second type of inequality) one may have towards him. There is something respectable in losing a billion dollars, provided it is your own money.

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Many countries use these ‘outlets’, pushing people into programs not intended for them.

The New Normal ‘Safety Net’: Surging Disability Benefits Claims (ZH)

If you’ve paid into Social Security, become injured or sick, and can no longer earn more than $1,130 a month, you can get a monthly subsidy from the Disability Insurance Trust Fund. As Bloomberg notes, in 1990 fewer than 2.5% of working-age Americans were “on the check;” by 2015 the number stood at 5.2%, with geographical “disability belts” appearing across America. That growth has left the fund in periodic need of rescues by Congress – most recently in 2015, when the Bipartisan Budget Act shifted money from Social Security’s old-age survivors’ fund to extend the solvency of the disability fund to 2023. Something changed in 2000…

“None of us should be surprised that the cost of the program was rising,” says Stephen Goss, Social Security’s chief actuary. He says the program’s growth is mostly a consequence of demographic change. Older workers are more likely to get sick, and as women have entered the workforce, they too have become eligible for benefits.”

In 1956, when the disability insurance fund was created, qualification was based on a list of accepted medical conditions. In 1984, Congress broadened the criteria, giving more weight to chronic pain and mental disorders. The qualification process also became more subjective. Now, rather than check diagnostic conditions against a list, the process determines whether applicants are able to perform work that’s available. It’s not as if you go to the doctor, the doctor says, “I’m sorry, son, you’ve got disability, Autor says. “It’s a social construct, because it’s about whether you can work.”

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I’m prety sure it’s worse than this: “..more than 70% of the antibiotics considered medically important for human health sold in the U.S. are actually used in livestock.”

But also: “..half of antibiotic use in humans is unnecessary.”

The Battle Against The ‘Superbugs’: Transplants, Chemotherapy At Risk (CNBC)

Headlines about antibiotic resistance – the increase in so-called “superbugs” – have been persistent in 2016. The issue of infection-causing bacteria becoming increasingly resistant to the drugs used to fight them poses a pressing risk to public health worldwide, and according to a 2014 report from the World Health Organization, “threatens the achievements of modern medicine.” The Review on Antimicrobial Resistance, commissioned by the U.K. government, estimated that “by 2050, 10 million lives a year and a cumulative $100 trillion of economic output are at risk due to the rise of drug resistant infections.” For perspective, cancer currently kills 8.2 million people annually. In September of this year, the United Nations agreed on a declaration to fight antibiotic resistance.

This was only the fourth time in the organisation’s 71-year history that a health issue has been treated with such gravity, putting antibiotic resistance on par with HIV and ebola. “It’s hard to be too dramatic,” Prof. Michael Gardam, associate professor of medicine at the University of Toronto, told CNBC via telephone. Echoing this severity, Prof. Toby Jenkins, a biophysical chemist at the University of Bath, said that “a Doomsday scenario is that transplant surgery will be impossible, chemotherapy likewise.” “Even a dental abscess could become deadly, or at least very painful,” he added. The overprescription of antibiotics is one cause of the problem, with Gardam saying that it is “becoming the norm to use last line drugs” in treating bacterial infections, and that “just in case” prescriptions should be handled with care. The U.S.-based Centers for Disease Control and Prevention estimates that half of antibiotic use in humans is unnecessary.

But, other contributing factors well integrated into daily life are also to blame. Gardam also criticized antibacterial soap and toothpaste, particularly prevalent in North America. Deeming such products unnecessary, Gardam warned that “your mouth is not meant to be a sterile zone.” He also stressed the importance of “not messing around with the natural flora of the body,” as such consumer products are wont to do. The food industry also plays a significant part in the antibiotic resistance dilemma, with healthy food-producing animals fed drugs to both prevent disease and promote growth. According to 2012 data from the U.S. Food and Drug Administration and research firm IMS Health, more than 70% of the antibiotics considered medically important for human health sold in the U.S. are actually used in livestock.

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Nov 032015
 
 November 3, 2015  Posted by at 9:45 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


Jovcho Savov Guernica 2015

The Market May Have Had Enough of Share Buybacks (Bloomberg)
Debt Traders Send Warning On Corporate America’s Balance Sheet Fiesta (BBG)
Money Is Flooding Out Of Canada At The Fastest Pace In The Developed World (BBG)
The Self-Defeating, ‘Grand Delusion’ of Monetary Policy (WSJ)
Foreign Banks Use US Repo Deals To ‘Window-Dress’ Risk (FT)
China State Owned Enterprise Debt Explodes By $1 Trillion In September (Chiecon)
Six Ways to Gauge How Fast China’s Economy Is Actually Growing (Bloomberg)
China Financial Crackdown Intensifies as Funds, Banks Targeted (Bloomberg)
VW Emissions Scandal Widens To Include Porsche, Audi Claims (Guardian)
ECB Officials Met Regularly With Financial Institutions on Key Moments (WSJ)
Standard Chartered Cuts 15,000 Jobs And Raises $5.1 Billion (BBC)
TransCanada Requests Suspension of US Permit for Keystone XL Pipeline (WSJ)
Coywolf: Greater Than The Sum Of Its Parts (Economist)
Melting Ice In West Antarctica Could Raise Seas By 3 Meters (Guardian)
Abrupt Changes In Food Chains Predicted As Southern Ocean Acidifies Fast (SMH)
October’s Migrant, Refugee Flow To Europe Matched Whole Of 2014 (Reuters)
Merkel Rejects Shutting Border Amid Standoff With Party Critics (Bloomberg)
Erdogan’s Election Win Means He Can Dictate Terms To EU On Refugees (Guardian)
Winter Is Coming: The New Crisis For Refugees In Europe (Guardian)
No Place Left On Lesvos To Bury Dead Refugees (AP)
Powerful Gestures: America and Refugees (New Yorker)

What will Apple do now?

The Market May Have Had Enough of Share Buybacks (Bloomberg)

It’s no secret that companies have been borrowing in the bond market to pay their shareholders through generous buybacks. But Citigroup credit analysts, led by Stephen Antczak, suggest that the robbing Peter to pay Paul dynamic that has dominated the investment landscape in recent years may be coming to an end as the credit cycle begins to turn and a meaningful pickup looms in the corporate default rate. In fact, they say, there is evidence this is already happening.

“The three-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging. In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general … Companies that spent more on shareholder handouts and less on investments have tended to get higher price/earnings ratios in the market. But there are signs that this may be changing. Recent conversations that we’ve had with equity [portfolio managers] suggest that they have become far more focused on revenue growth, and are placing far less of a premium on any financially engineered EPS growth. The fact that a basket of stocks that [has] been reducing shares outstanding is meaningfully underperforming the S&P 500 on a beta-adjusted basis suggests that this view may not be that of just the investors we talk to, but far more broadbased (Figure 1).”

The theory here is that as the credit cycle turns and the prospect of an increase in the corporate default rate becomes a reality for the first time in many years, shareholders who have a claim on the future cash flows of companies will stop rewarding behavior that might meaningfully jeopardize those cash flows. Corporate leverage, or company indebtedness, has already been rising, much to the detriment of bond investors.

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If the Fed doesn’t raise rates, the markets will.

Debt Traders Send Warning On Corporate America’s Balance Sheet Fiesta (BBG)

Credit traders are sending an ominous message to U.S. companies: Either stop borrowing so much money or prepare to face some serious consequences. Investors are now demanding a 61% bigger premium over benchmark rates to own top-rated bonds of industrial companies compared with June 2014. Such debt has lost 4.2% in the period when stripping out gains from benchmark government rates, with relative yields rising to 1.8 percentage points from 1.1 percentage points 16 months ago, BoAML index data show. Part of this is just saturation in the face of yet another year of record-breaking bond sales. Investment-grade companies have issued more than a trillion dollars of bonds so far in 2015 on top of the $5 trillion in the previous five years, data compiled by Bloomberg show.

But this year’s weakness in credit markets isn’t just a technical blip; it highlights a significant deterioration in corporate balance sheets. After all, what have these companies done with the money they’ve raised? They’ve bought back their own shares and paid dividends to their shareholders. What they haven’t done is use the money to improve their businesses. It’s getting to the point where even stockholders are tiring of their companies’ repurchasing shares and borrowing money simply because it’s cheap. [..] equity investors are essentially asking corporations to be more conservative with their balance sheets. Here’s why: Top-rated non-financial companies have increased their median leverage to 2.2 times debt relative to income, compared with 1.6 times in 2011, according to JPMorgan Chase.

Bond investors, meanwhile, are still buying top-rated issues, because what else are they going to buy? Central banks from China to Europe are injecting more stimulus into their economies, driving yields lower even as the Federal Reserve debates raising benchmark rates in the U.S. All-in yields of 3.4% on U.S. investment-grade company bonds look pretty generous when compared with the 0.5% yields on 10-year German government bonds. “There are some fundamental problems here,” said Lisa Coleman, head of global investment-grade credit at JPMorgan Asset Management. “This is representative of late-cycle growth. We’re more cautious on credit.” Cracks are starting to form, and they’re getting deeper. This is the first year since 2009 that credit-rating downgrades are significantly outpacing upgrades. Also, the more debt these companies pile on, the more vulnerable they become to a bad blowup that will leave them with extremely bloated balance sheets relative to revenues.

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Where will the loonie go?

Money Is Flooding Out Of Canada At The Fastest Pace In The Developed World (BBG)

Money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver. Canada’s basic balance — a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June, according to analysis from Kamal Sharma at Bank of America Merrill Lynch. That’s the fastest one-year deterioration among 10 major developed nations. More recent data on where companies and mutual-fund investors are putting their money show the trend extended into the second half of the year, suggesting demand for the Canadian dollar and the country’s assets is still ebbing.

The currency is already down 11% this year, after touching an 11-year low against the U.S. dollar in September. “This is Canadian investors that are pushing money abroad,” said Alvise Marino at Credit Suisse in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.” Crude oil, among the nation’s biggest exports, has collapsed to about half its 2014 peak. The slump has derailed projects this year in Canada’s oil sands — one of the world’s most expensive crude-producing regions. Shell’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial.

Canadian companies, meanwhile, have been looking abroad for acquisitions. Royal Bank of Canada is expected to close its US$5.4 billion purchase of Los Angeles-based City National Corp. Monday, its biggest-ever takeover. It’s part of a net outflow of $73 billion this year for mergers and acquisitions, both completed and announced, according to Credit Suisse data. Nine of the 10 best-performing companies on the country’s benchmark stock index in the past two years have favored buying growth abroad rather than expanding at home. Individuals are following suit. While international appetite for Canadian financial securities has held steady this year, domestic mutual-fund investors have pulled money from Canada-focused funds and plowed it into global choices for six straight months, the longest streak in two years, according to data compiled by Bank of Montreal.

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Central banks need to have their powers cut.

The Self-Defeating, ‘Grand Delusion’ of Monetary Policy (WSJ)

Signs persist that the global economy isn’t well. In China, the official manufacturing PMI remained at 49.8, under the 50-line that delineates expansion and contraction. In the U.S., the ISM’s October manufacturing survey fell to 50.1, its lowest rate in two years. Both reports are just the latest in what has largely been a string of disappointing data. Six years after the market bottomed, the data also highlights the struggles the world’s central banks have had lighting a fire under the global economy. The Fed alone has pumped more than $3.5 trillion into the economy since the financial crisis. Yet economic growth has continually fallen short of expectations. Now a growing chorus is arguing that these central-bank policies appears to be self-defeating.

The zero-rate environment is hampering the economy, J.P. Morgan’s David Kelly argued in a paper last week, by short-circuiting the kinds of fundamental trends that usually attend to healthy economies – savings, for example, and the wealth that comes from investment income when rates are higher. It also sends a distinctive signal about the Fed’s own expectations for the economy. Why should anybody feel confident, invest in their future, if the Fed itself isn’t confident enough to take rates off the floor? Through a series of granular arguments, he arrives at the conclusion that the Fed needs to start raising rates. Not aggressively, but modestly. It will encourage savings, which will improve wealth growth, since higher rates will lead to higher interest income for savers. It will encourage borrowing, as borrowers will want to lock in lower rates while they can.

It will also send a strong message that the Fed is confident in the economy. All this will ultimately boost demand, Mr. Kelly says, not sap it. “The most urgent point is simply that, right now, the economy could do with a little more demand,” he said. “We believe that the positive impacts of income, wealth, confidence and expectations effects are only slightly offset by negative price effects and thus the first few rate increases would actually boost demand.” He isn’t holding his breath, however. He doesn’t expect the Fed will at all be swayed by his arguments.

“After almost seven years full years of a zero-interest rate policy, this seems like wishful thinking,” he said. “Sadly, it is probably more likely that we get stuck in a ‘stagnation equilibrium’ where a zero interest rate policy actually reduces demand in the economy, prompting the Federal Reserve to prescribe even further doses of a medicine that, for a longtime, has been impeding rather than promoting economic recovery.” Ultimately, he says the Fed is operating from a false premise: that raising rates will hurt demand. Or he could have stated it more bluntly, as Ed Yardeni of Yardeni Research did in his Monday note: the Fed’s notion that it can control the business cycle, he said, is a “grand delusion.”

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“..routinely cutting about $170bn of balances at the end of each quarter to appear safer and more profitable..”

Foreign Banks Use US Repo Deals To ‘Window-Dress’ Risk (FT)

Foreign banks operating in the US short-term debt markets are “window-dressing” their accounts, routinely cutting about $170bn of balances at the end of each quarter to appear safer and more profitable, says a new study. The study from the Office of Financial Research describes a pattern of behaviour that has prevailed since July 2008, and suggests that the banks are carrying more risk than their investors or customers can easily see. The study examines the vast market for repurchase agreements, or repos, where banks lend out assets in return for short-term financing. It finds that dealers sell heavily to customers in the last days of the quarter, and immediately buy assets back once the new quarter starts. By trimming their balance-sheets over that brief period, the foreign banks can report better quarter-end ratios of capital to total assets.

US banks, which have to report average daily balances over the quarter, do not make similar adjustments, the study found. This abrupt, seasonal rhythm .. is consistent with a pattern of ‘window-dressing’, wrote Greg Feldberg at the OFR, in a blog post. Analysts said the behaviour outlined in the study has shades of the notorious “Repo 105” trades that Lehman Brothers used to bring down its reported leverage in the quarters leading up to its collapse. In that programme, the broker accepted a relatively high 5% fee in order to count its repo transactions as true sales, even though it remained under a contractual obligation to buy the assets back. Joshua Ronen at New York Stern School of Business said the OFR’s study – which did not cite individual banks by name – showed that lenders with the lowest capital ratios were making the biggest quarter-end reductions.

One bank pointed out that foreign banks will have to adopt US-style daily leverage reporting requirements by January 2018, and that many had already begun to adjust their repo activities to comply with daily averaging — including reducing the absolute amounts and quarter-end adjustments. For now, though, outsiders should take the banks’ reported ratios with a pinch of salt, said Mayra Rodriguez Valladares of MRV Associates, a former official at the Federal Reserve Bank of New York. “If they’re moving assets around to look better it is a big problem for us, as we don’t get to see the day-to-day information,” she said.

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China is a Ponzi.

China State Owned Enterprise Debt Explodes By $1 Trillion In September (Chiecon)

China’s state owned enterprises added almost 6 trillion yuan (around 1 trillion dollars) of debt in September, described by Luo Yunfeng, an analyst at Essence Securities, as “an unprecedented increase in leverage”. This means that not only is the government abandoning its deleverage policy, it is actually increasing leverage. Latest Ministry of Finance data shows that by the end of September total SOE debt had reached 77.68 trillion yuan, representing a increase of 5.93 trillion yuan on August, and an increase of over 11 trillion yuan in 2015. According to Luo “it’s possible that debt that was originally classified as government debt, has been reallocated as SOE debt”. This might be a reflection of how the government plans to tackle its massive debt.

Luo mentions that one of the obstacles to managing government debt is that it remains difficult to draw a line between government and SOE debt. The crux of current reform plans to increase the role of market forces is aimed at resolving this issue. If it really is the case of shifting government debt to SOEs, then it represents a step forward for this reform, and the prospect of revaluing credit risk. Another implication, it seems unlikely there will be a pause in government debt increase over the fourth quarter. This raises the more important question of what will be the impact of this enormous debt? Over the past few years credit expansion has surpassed economic growth, and with the governments aggressive leverage, will this lead to a greater waste of resources?

In order to protect economic growth, the Chinese government has increased leverage since 2008. According to calculations by The Economist, the proportion of total debt to GDP has risen sharply, already standing at more than 240%, with total debt reaching 161 trillion yuan ($25 trillion). In the past four years, this debt to GDP ratio increased by nearly 50%. The Economist points out this is a double-edged sword, as the incremental growth effects diminish with increasing leverage. Whereas in the six years prior to the financial crisis an increase in debt of 1 yuan resulted in Chinese economic output increasing by 5 yuan, these days it only results in an increase of 3 yuan.

Even if this is the case, with China experiencing slowing economic growth, and no turnaround on the horizon, its seems likely the Chinese government will continue to increase leverage. In September, China Merchants Securities stated that since Chinese government debt leverage ratio is still low, lower than the US, Europe and Japan, there is still more room for leverage. Haitong Securities said at the start of the year that in order to prevent systemic risk the focus over the next few years will be on government leverage. Based on the experience of other countries, monetary easing almost certainly follows an increase in government leverage, with interest rates in the long term trending to zero.

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No, I will not apologize for picking the lowest two estimates. I’m too inclined to think the likes of Bloomberg will be reluctant to publish really bad numbers, lest Beijing will restrict their access.

Six Ways to Gauge How Fast China’s Economy Is Actually Growing (Bloomberg)

Statistics with Chinese characteristics make it difficult to get a handle on how well the world’s second-largest economy is doing. In particular, questions surrounding the way China adjusts its growth figures into real terms often leave investors searching for a better way to judge its economic momentum. Thankfully, Wall Street economists have developed a number of proxies, using an array of indicators, to gauge Chinese growth better. Recently, Bloomberg Intelligence Chief Asia Economist Tom Orlik compiled six of these metrics in a report for Bloomberg Briefs. “All of the proxies suggest growth in 2015 has been lower than the 6.9% reported by the National Bureau of Statistics for the third quarter,” he wrote.

“Most show an increasing divergence with the last year or two, suggesting the official numbers may be upward biased during downturns.” One common problem for economists in constructing these proxy indexes: the dearth of data on the Chinese services sector. Orlik notes that this may serve as a partial explanation for the difference between the proxy gauges and the official data, as the tertiary sector has been gaining ground on the industrial segments of the economy.

Capital Economics draws on five indicators to build its proxy for Chinese activity: freight volume, passenger numbers, electricity output, seaport cargo volume, and the area of floor space currently under construction. “The China Activity Proxy suggested that the official figures were broadly accurate until around 2012,” wrote chief Asia economist Mark Williams. “Since then, it has added weight to the view that the official GDP data overstate the true rate of economic growth—most recently by a couple of percentage points or more.” According to this metric, Chinese GDP growth came in at 4.4% in the third quarter, the slowest pace of expansion implied by all the proxies featured in the brief.

Lombard Street employs a novel approach in putting together its estimate for Chinese growth. The official statistics for real GDP growth have been too smooth over the years, economist Michelle Lam and head of research Diana Choyleva believe, suggesting that the manner in which the data are adjusted might be faulty. As such, the pair uses nominal GDP (not adjusted for price changes) as its starting point, then uses a range of price indexes to deflate the figures into “real” terms. “Our preliminary estimates show growth at an annual rate of just 2.9% in the third quarter of 2015, way lower than the official 7.4%,” they wrote.

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A typical newsline: “Agricultural Bank of China President Zhang Yun was taken away to assist authorities with an investigation..”

China Financial Crackdown Intensifies as Funds, Banks Targeted (Bloomberg)

China’s crackdown on its financial industry is intensifying as authorities investigate strategies blamed for exacerbating a $5 trillion stock-market rout. Shanghai police raided hedge fund Zexi Investment on Sunday, taking away computers and other materials, according to a person familiar with the matter. General manager Xu Xiang was detained, the official Xinhua news agency reported. Executives at Yishidun International Trading and Huaxin Futures were arrested, Xinhua said in a separate report. Adding to evidence that a clampdown on the financial industry is spreading, Agricultural Bank of China President Zhang Yun was taken away to assist authorities with an investigation, people familiar with the matter said on Monday, without giving details.

The Communist Party’s Central Commission for Discipline Inspection is carrying out its first broad checks on the finance industry since President Xi Jinping became the party’s head in November 2012. The summer’s stock-market rout in China has triggered investigations that have snared executives from the country’s biggest securities firm as well as a fund managers and a top regulatory official. “The biggest-ever storm is brewing for China’s financial industry and more heads will roll,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. Xu, who founded the top-performing hedge fund firm Zexi, was detained on charges including insider trading and stock manipulation, the Xinhua reported.

Two executives at Jiangsu-based Yishidun International Trading and the technical director at Shanghai-based Huaxin Futures were arrested after a police investigation showed they made 2 billion yuan ($316 million) in “illegal profit,” Xinhua reported separately, citing the Ministry of Public Security. Sina.com reported earlier on Monday that Agricultural Bank’s Zhang had been taken away and didn’t attend a disciplinary committee meeting. Assisting with an investigation doesn’t mean Zhang is accused of wrongdoing.

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The lies keep coming. A sign that things are set to get much worse, that there’s lots more in the closet?

VW Emissions Scandal Widens To Include Porsche, Audi Claims (Guardian)

The Volkswagen diesel emissions scandal has deepened after US authorities accused the carmaker of installing defeat devices into luxury sports cars including Porsches. The Environmental Protection Agency (EPA), which uncovered the initial emissions rigging at VW, claims the carmaker installed defeat devices in VW, Audi and Porsche vehicles with three-litre engines in models with dates ranging from 2014 to 2016 This marks the first time that Porsche, which is owned by VW, has been dragged into the scandal. It is troubling for the new chief executive of VW, Matthias Müller, because he ran Porsche before becoming boss of the group.

The EPA has made the allegations after conducting further tests on diesel vehicles in the US since VW admitted in September it had used defeat devices to cheat emissions tests. The new allegations include the 2015 Porsche Cayenne as well as the 2014 VW Touareg and the 2016 Audi A6 Quattro, A7 Quattro, A8, A8L, and Q5. In total, it involves 10,000 vehicles in the US. In a statement VW denied it had fitted any devices on the vehicles. The statement said: “Volkswagen AG wishes to emphasise that no software has been installed in the 3-liter V6 diesel power units to alter emissions characteristics in a forbidden manner. Volkswagen will cooperate fully with the EPA clarify this matter in its entirety.”

VW has already admitted fitting a defeat device to 11m vehicles worldwide, but this related to cars with smaller engines and did not include any Porsche cars or SUVs. Cynthia Giles, assistant administrator for the office for EPA’s enforcement and compliance assurance, said: “VW has once again failed its obligation to comply with the law that protects clean air for all Americans. All companies should be playing by the same rules. EPA, with our state, and federal partners, will continue to investigate these serious matters, to secure the benefits of the Clean Air Act, ensure a level playing field for responsible businesses, and to ensure consumers get the environmental performance they expect.”

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Almost normal.

ECB Officials Met Regularly With Financial Institutions on Key Moments (WSJ)

Top officials from the European Central Bank met regularly with representatives from financial institutions over the past 15 months, including one meeting that occurred on the same day as a key gathering of the ECB’s governing board, according to documents released Monday by the ECB. The disclosure of the appointment calendar of the ECB’s six-member executive board, as part of a public-access request, came amid changes to the ECB’s communications policies following the release of market-sensitive information in May to a closed-door conference that included hedge-fund managers. Such meetings aren’t unusual, but the calendar points to the delicate balance for officials who benefit from the market intelligence provided by private-sector economists and investors but must also avoid the perception that individual banks are benefiting from this access.

According to the calendars, ECB executive board member Benoît Coeuré met with representatives of BNP Paribas on the morning of Sept. 4, 2014, hours before the ECB announced a reduction in its interest rates and the creation of a new four-year lending program for banks. The day before that two-day meeting began, Mr. Coeuré met with UBS on Sept. 2, as did another executive board member, Yves Mersch, according to the meeting calendars. Mr. Mersch also met with BNP Paribas on Sept. 4 last year, although that was after the ECB meeting concluded. “The ECB does not operate in a vacuum. Regular contacts with different groups, including representatives from the financial sector help us understand the dynamics of the economy and financial markets. We make sure that at such meetings no financial market-sensitive information is disclosed,” an ECB spokeswoman said.

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Banks no longer need bankers.

Standard Chartered Cuts 15,000 Jobs And Raises $5.1 Billion (BBC)

Standard Chartered, the Asia-focused UK bank, is to cut 15,000 jobs and raise $5.1bn to create a “lean, focused and well-capitalised” group. About $3bn being raised in the rights issue will cover restructuring costs. The strategic review was announced as Standard Chartered reported a “disappointing” third-quarter operating loss of $139m for the three months to September. That figure compared with a profit of $1.5bn a year earlier. Bill Winters, who replaced Peter Sands as Standard Chartered’s chief executive in June this year, announced a strategic review of the bank’s organisational structure when he took over. He put a new management team in place in July and analysts have been expecting the bank to seek additional capital to shore up its balance sheet for some time.

Standard Chartered shares fell 4% on the Hang Seng stock exchange in Hong Kong. Mr Winters acknowledged the challenging business environment within which the lender was operating. Growing regulatory costs and controls in the wake of the financial crisis have weighed on big lenders in the UK, US and Australia. Standard Chartered has already shed some businesses, in Hong Kong, China and Korea, to help improve its capital position. Among its various plans outlined on Tuesday, Standard Chartered said a “step-up in cash investment” by more than $1bn would be used to help reposition its retail banking, private banking and wealth management businesses, as well as upgrade its Africa franchise and yuan services.

“This comprehensive programme of actions will result in a lean, focused and well capitalised international bank, poised for growth across our dynamic and growing markets in Asia, Africa and the Middle East,” Mr Winters said. Temasek, Singapore’s state investor and Standard Chartered’s largest shareholder, supported the share sale, the bank said. Standard Chartered employs 86,000 people and makes about 90% of its profits from operations across Asia, the Middle East and Africa.

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It’s dead.

TransCanada Requests Suspension of US Permit for Keystone XL Pipeline (WSJ)

The company behind the Keystone XL pipeline on Monday asked the U.S. government to suspend its permit application, throwing the politically fraught project into an indefinite state of limbo, beyond the 2016 U.S. elections. In a letter, TransCanada asked the State Department, which reviews cross-border pipelines, to suspend its application while the company goes through a state review process in Nebraska it had previously resisted. The move comes in the face of an expected rejection by the Obama administration and low oil prices that are sapping business interest in Canada’s oil reserves. “In order to allow time for certainty regarding the Nebraska route, TransCanada requests that the State Department pause in its review of the presidential permit application,” the Calgary, Alberta, company said in the letter.

TransCanada’s move comes as the State Department was in the final stages of review, with a decision to reject the permit expected as soon as this week, according to people familiar with the matter. It must now decide whether to accept the company’s request or proceed with a final decision. TransCanada in September signaled it was shifting its strategy when it dropped state legal challenges and efforts to seize land in Nebraska for the pipeline. Company officials hoped those moves would extend the review process in Washington—perhaps until a potential Republican administration in 2017 would approve the project—while details on the Nebraska portion of the route were worked out.

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“As well as having small territories, coywolves have adjusted to city life by becoming nocturnal. They have also learned the Highway Code, looking both ways before they cross a road.”

Coywolf: Greater Than The Sum Of Its Parts (Economist)

Like some people who might rather not admit it, wolves faced with a scarcity of potential sexual partners are not beneath lowering their standards. It was desperation of this sort, biologists reckon, that led dwindling wolf populations in southern Ontario to begin, a century or two ago, breeding widely with dogs and coyotes. The clearance of forests for farming, together with the deliberate persecution which wolves often suffer at the hand of man, had made life tough for the species. That same forest clearance, though, both permitted coyotes to spread from their prairie homeland into areas hitherto exclusively lupine, and brought the dogs that accompanied the farmers into the mix Interbreeding between animal species usually leads to offspring less vigorous than either parent—if they survive at all.

But the combination of wolf, coyote and dog DNA that resulted from this reproductive necessity generated an exception. The consequence has been booming numbers of an extraordinarily fit new animal spreading through the eastern part of North America. Some call this creature the eastern coyote. Others, though, have dubbed it the “coywolf”. Whatever name it goes by, Roland Kays of North Carolina State University, in Raleigh, reckons it now numbers in the millions. The mixing of genes that has created the coywolf has been more rapid, pervasive and transformational than many once thought. Javier Monzón, who worked until recently at Stony Brook University in New York state (he is now at Pepperdine University, in California) studied the genetic make-up of 437 of the animals, in ten north-eastern states plus Ontario. He worked out that, though coyote DNA dominates, a tenth of the average coywolf’s genetic material is dog and a quarter is wolf.

The DNA from both wolves and dogs (the latter mostly large breeds, like Doberman Pinschers and German Shepherds), brings big advantages, says Dr Kays. At 25kg or more, many coywolves have twice the heft of purebred coyotes. With larger jaws, more muscle and faster legs, individual coywolves can take down small deer. A pack of them can even kill a moose. Coyotes dislike hunting in forests. Wolves prefer it. Interbreeding has produced an animal skilled at catching prey in both open terrain and densely wooded areas, says Dr Kays. And even their cries blend those of their ancestors. The first part of a howl resembles a wolf’s (with a deep pitch), but this then turns into a higher-pitched, coyote-like yipping.

The animal’s range has encompassed America’s entire north-east, urban areas included, for at least a decade, and is continuing to expand in the south-east following coywolves’ arrival there half a century ago. This is astonishing. Purebred coyotes never managed to establish themselves east of the prairies. Wolves were killed off in eastern forests long ago. But by combining their DNA, the two have given rise to an animal that is able to spread into a vast and otherwise uninhabitable territory. Indeed, coywolves are now living even in large cities, like Boston, Washington and New York. According to Chris Nagy of the Gotham Coyote Project, which studies them in New York, the Big Apple already has about 20, and numbers are rising.

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Interesting seemingly contradictory reports.

Melting Ice In West Antarctica Could Raise Seas By 3 Meters (Guardian)

A key area of ice in west Antarctica may already be unstable enough to cause global sea levels to rise by 3m, scientists said on Monday. The study follows research published last year, led by Nasa glaciologist Eric Rignot, warning that ice in the Antarctic had gone into a state of irreversible retreat, that the melting was considered “unstoppable” and could raise sea level by 1.2m. This time, researchers at Germany’s Potsdam Institute for Climate Impact Research pointed to the long-term impacts of the crucial Amundsen Sea sector of west Antarctica, which they said “has most likely been destabilised.” While previous studies “examined the short-term future evolution of this region, here we take the next step and simulate the long-term evolution of the whole west Antarctic ice sheet,” the authors said in the Proceedings of the National Academy of Sciences.

They used computer models to project the effects of 60 more years of melting at the current rate. This “would drive the west Antarctic ice sheet past a critical threshold beyond which a complete, long-term disintegration would occur.” In other words, “the entire marine ice sheet will discharge into the ocean, causing a global sea level rise of about 3m,” the authors wrote. “If the destabilisation has begun, a 3m increase in sea level over the next several centuries to millennia may be unavoidable.” Even just a few decades of ocean warming can unleash a melting spree that lasts for hundreds to thousands of years. “Once the ice masses get perturbed, which is what is happening today, they respond in a non-linear way: there is a relatively sudden breakdown of stability after a long period during which little change can be found,” said lead author Johannes Feldmann.

The authors noted that Antarctica’s situation presents the largest uncertainty in sea level projections for the coming centuries, and that studying the vast region poses many challenges. And indeed, just days before the PNAS study was released, another scientific paper used Nasa satellite data form 2003 to 2008 to show that Antarctic ice had gained mass, and had packed on enough to exceed the amount lost in other areas. “We’re essentially in agreement with other studies that show an increase in ice discharge in the Antarctic peninsula and the Thwaites and Pine Island region of west Antarctica,” said a statement by Jay Zwally, a glaciologist with Nasa Goddard Space Flight centre whose study was published on 30 October in the Journal of Glaciology.

“Our main disagreement is for east Antarctica and the interior of west Antarctica – there, we see an ice gain that exceeds the losses in the other areas.” According to climatologist Michael Mann, who was not involved in either study, the use of older satellite data could be the cause for the disconnect. “It sounds to me as if the key issue here is that the claims are based on seven-year-old data, and so cannot address the finding that Antarctic ice loss has accelerated in more recent years,” he told AFP.

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We would do well to get a lot more material on acidification.

Abrupt Changes In Food Chains Predicted As Southern Ocean Acidifies Fast (SMH)

The Southern Ocean is acidifying at such a rate because of rising carbon dioxide emissions that large regions may be inhospitable for key organisms in the food chain to survive as soon as 2030, new US research has found. Tiny pteropods, snail-like creatures that play an important role in the food web, will lose their ability to form shells as oceans absorb more of the CO2 from the atmosphere, a process already observed over short periods in areas close to the Antarctic coast. Ocean acidification is often dubbed the “evil twin” of climate change. As CO2 levels rise, more of it is absorbed by seawater, resulting in a lower pH level and reduced carbonate ion concentration. Marine organisms with skeletons and shells then struggle to develop and maintain their structures.

Using 10 Earth system models and applying a high-emissions scenario, the researchers found the relatively acidic Southern Ocean quickly becomes unsuited for shell-forming creatures such as pteropods, according to a paper published Tuesday in Nature Climate Change. “What surprised us was really the abruptness at which this under-saturation [of calcium carbonate-based aragonite] occurs in large areas of the Southern Ocean,” Axel Timmermann , a co-author of the study and oceanography professor at the University of Hawaii told Fairfax Media. “It’s actually quite scary.” Since the Southern Ocean is already close to the threshold for shell-formation, relatively small changes in acidity levels will likely show up there first, Professor Timmermann said: “The background state is already very close to corrosiveness.”

Below a certain pH level, shells of such creatures become more brittle, with implications for fisheries that feed off them since pteropods appear unable to evolve fast enough to cope with the rapidly changing conditions. “For pteropods it may be very difficult because they can’t run around without a shell,” Professor Timmermann said. “It’s not they dissolve immediately but there’s a much higher energy requirement for them to form the shells.” Given the sheer scale of the marine creatures involved, “take away this biomass, [and] you have avalanche effects for the rest of the food web”, he said.

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“Certainly in 2016, we have to expect this level of arrivals to continue, and that’s because the facts that are causing people to move aren’t going away..”

October’s Migrant, Refugee Flow To Europe Matched Whole Of 2014 (Reuters)

The number of migrants and refugees entering Europe by sea last month was roughly the same as that for the whole of 2014, United Nations refugee agency UNHCR said on Monday. The monthly record of 218,394 also outstripped September’s 172,843, UNHCR spokesman Adrian Edwards said. “That makes it the highest total for any month to date and roughly the same as the entire total for 2014,” he said. The UNHCR puts 2014 arrivals by sea at about 219,000. At the peak, 10,006 arrived in Greece’s shores on a single day, Oct. 20. The vast majority of refugees and migrants to Europe have traveled via Turkey to Greece, a switch from the previously more popular African route via Libya to Italy. The largest group by nationality are Syrians, accounting for 53% of arrivals, as a result of the civil war that has driven hundreds of thousands from their homes.

Afghans come second, making up 18% of the total. The flow of refugees into Europe, however, is still dwarfed by the numbers in Syria’s neighbors. Turkey, Lebanon and Jordan have Syrian refugee numbers exceeding 2 million, 1 million and 600,000 respectively. Globally, 60 million people are refugees or displaced within their own country, not counting economic migrants. UNHCR said in October that it was planning for up to 700,000 refugees in Europe this year and a similar or greater number in 2016. But that plan has already been eclipsed, with 744,000 arriving so far. Some 3,440 are estimated to have died or gone missing in the attempt to escape to Europe. “Certainly in 2016, we have to expect this level of arrivals to continue, and that’s because the facts that are causing people to move aren’t going away,” said Edwards. “It is the new reality that we all have to deal with.”

Read more …

Merkel needs to call a ‘heavy’, highest-level UN emergency summit. Obama needs to be there, and Putin, Xi Jinping. Assad perhaps, Erdogan. Tsipras. Tens of billions of dollars must be assigned.

Merkel Rejects Shutting Border Amid Standoff With Party Critics (Bloomberg)

Angela Merkel refused to bow to pressure to shut borders even as the German leader struggles to fix a rift in her governing coalition over how to tackle the country’s biggest influx of migrants since World War II. Facing unrest from within her Christian Democratic Union, the chancellor fielded questions from party members at an event Monday in the western city of Darmstadt. “I’m working, just as you expect, to ensure that the number of refugees goes down,” Merkel told CDU members. “But to all those who say we should shut the German border to Austria, I don’t think that will solve the problem.”

As Germany braces for as many as a million people seeking shelter from war and poverty this year, Merkel said the country can’t afford to turn inward, but has to instead embrace geopolitical challenges “much more actively.” The refugee crisis shows that Germany can’t resist the globalizing forces around it. “We’re experiencing something we’ve never experienced before, that conflicts that appear to be far away suddenly are here on our doorstep,” Merkel said. With public concern mounting and party support on the slide, the political veteran is navigating yet another stormy week as lawmakers return to Berlin for a parliamentary session that will again be dominated by the crisis. A Tuesday caucus meeting will provide a baromoter of anti-Merkel sentiment even if she’s in no immediate political danger.

After meeting for some 10 hours over the weekend with Bavarian Prime Minister Horst Seehofer, her biggest internal critic, Merkel offered qualified support for so-called transit zones to weed out economic migrants. Sending back migrants from safe-origin countries wouldn’t end the turmoil because “there are so many” making their way to Germany, she said. With Bavaria the main gateway to Germany for those pouring over the border from Austria, Seehofer has said the state government would take unspecified action if Merkel didn’t meet his demands. In the last two months, 344,000 refugees entered Bavaria, according to the state’s interior ministry. “The number of refugees has to be urgently limited or reduced,” Seehofer said.

Read more …

The EU is prepared to sell European souls and refugees’ lives to the devil.

Erdogan’s Election Win Means He Can Dictate Terms To EU On Refugees (Guardian)

Europe is praying that the return of Turkey s ruling Justice and Development party (AKP) to a solid parliamentary majority will help it cope with the mass movement of people northwards and westwards from the Middle East. There is a strong chance the prayers will end in tears. On Monday the European commission had only good things to say about the triumph of Recep Tayyip Erdogan, Turkey s irascible leader. Sunday’s election ‘reaffirmed the strong commitment of the Turkish people to democratic processes’, Brussels said. The EU will work with the future government to enhance the EU-Turkey partnership and cooperation across all areas.

The main area is immigration since Turkey is the pivotal country between Europe and Syria and is the main source of the hundreds of thousands trekking up the Balkans to the gates of the EU. Brussels and Berlin are desperate to get Erdogan onside to stem the flow. At home, he is walking tall again. Thirteen years after leading his party into power, he has secured another parliamentary majority despite suffering a major setback to his ambitions in a stalemated poll in June. The power equation in the troubled Ankara-Brussels relationship has also just tilted decisively in his favour. The three weeks preceding Sunday s election saw an unseemly rush to Turkey by European politicians, the busiest bout of diplomacy between the two sides in years, solely driven by the migration crisis.

The German chancellor, Angela Merkel, cleared her diary to get to Istanbul. Erdogan came to Brussels. The commission watered down and delayed publication of a critical report on Turkey s authoritarian drift under Erdogan, while drafting in record time an ‘action plan for immigration control with Turkey’. Jean-Claude Juncker, the commission president, brushed aside concerns about human rights abuses and media crackdowns. He tried to get Turkey added to an EU list of third countries deemed to be safe for refugees. Merkel, too, is known to believe that when it comes to the immigration emergency and Turkey, European interests may have to hold sway over European values. It is arguable whether the sudden EU wooing of Erdogan helped him to his surprise majority.

The photo opportunities with Merkel, at the very least, did no harm. But while there was no proper government sitting in Ankara (which had been the case since June), it was clear there could be no quick deal on refugees. That has now changed. Erdogan rules the roost at home and he is a strong exponent of the winner-takes-all school of politics. He will also be dictating the terms for the Europeans. The price for any pact to contain the flow will be extortionate.

Read more …

How can Europe survive this?

Winter Is Coming: The New Crisis For Refugees In Europe (Guardian)

Record numbers of migrants and refugees crossed the Mediterranean to Europe in October – just in time for the advent of winter, which is already threatening to expose thousands to harsh conditions. The latest UN figures, which showed 218,000 made the perilous Mediterranean crossing last month, confirm fears that the end of summer has not stemmed the flow of refugees as has been the pattern in previous years, partly because of the sheer desperation of those fleeing an escalating war in Syria and other conflicts. The huge numbers of people arriving at the same time as winter is raising fears of a new humanitarian crisis within Europe’s borders. Cold weather is coming to Europe at greater speed than its leadership’s ability to make critical decisions.

A summit of EU and Balkan states last week agreed some measures for extra policing and shelter for 100,000 people. But an estimated 700,000 refugees and migrants, have arrived in Europe this year along unofficial and dangerous land and sea routes, from Syria, Eritrea, Afghanistan, Iraq, north Africa and beyond. Tens of thousands, including the very young and the very old, find themselves trapped in the open as the skies darken and the first night frosts take hold. Hypothermia, pneumonia and opportunistic diseases are the main threats now, along with the growing desperation of refugees trying to save the lives of their families. Fights have broken out over blankets, and on occasion between different national groups. Now sex traffickers are following the columns of refugees, picking off young unaccompanied stragglers.

The United Nations refugee agency, UNHCR, is distributing outdoor survival packages, including sleeping bags, blankets, raincoats, socks, clothes and shoes, but the number of people it can reach is limited by its funding, which has so far been severely inadequate. Volunteer agencies have tried to fill the gaping hole in humanitarian provisions in Europe. Peter Bouckaert, the director of emergencies for Human Rights Watch, said that all the way along the route into Europe through the Balkans “there is virtually no humanitarian response from European institutions, and those in need rely on the good will of volunteers for shelter, food, clothes, and medical assistance”.

Europe has found itself ill-prepared to deal with its biggest influx of refugees since the second world war. It is hurriedly improvising new mechanisms so that it can respond collectively as a continent rather than individual nations, but it is a race against time and the elements – a race Europe is not guaranteed to win. “There is a risk of collapse”, said Federica Mogherini, the EU foreign policy chief. “Because when you’re facing a challenge and you don’t have the instruments to do it, you risk failing. So it could be that if we don’t manage to create common instruments to deal with this on a European level, we fall back on the illusion that we can face it through national instruments, which we see very clearly doesn’t work. Mogherini added: “Either we take this big step and adapt or yes, we do have a major crisis. I would say even an identity crisis”.

Read more …

Can it get any sadder?

No Place Left On Lesvos To Bury Dead Refugees (AP)

The mayor of the Greek island of Lesvos says theres no more room to bury the increasing number of asylum-seekers killed in shipwrecks of smuggling boats coming in from nearby Turkey. Mayor Spyros Galinos told Greece’s Vima FM radio Monday there were more than 50 bodies in the morgue on his eastern Aegean island that he was still trying to find a burial location for. Galinos said he was trying to fast-track procedures so a field next to the main cemetery could be taken over for burials. Hundreds of thousands of people have made the short but dangerous crossing from Turkey to Greek islands this year. With rougher fall weather coming on, the bodies of 19 people were recovered from the Aegean in three separate incidents on Sunday alone.

Read more …

“In the end, the U.S. admitted more than a million Southeast Asian refugees.”

Powerful Gestures: America and Refugees (New Yorker)

President Jimmy Carter championed human rights, but his Administration had been reluctant to open America’s doors to Cambodians fleeing starvation and fighting between Vietnam’s army of occupation and the guerrillas of the Khmer Rouge. In late 1979, as the crisis turned catastrophic, Carter came under pressure from his Democratic rival, Senator Edward Kennedy, and he sent his wife to the chaotic border camps. Rosalynn Carter walked among the hungry and the dying, trailed by a hundred and fifty reporters. She held a starving baby in her arms while speaking to the infant’s mother, who lay on the ground. “Give me a smile,” she told another woman, kissing her forehead. Afterward, Mrs. Carter said that she wanted to hurry home “and tell my husband.” The spotlight that her trip shone on the camps helped to mobilize international aid and resettlement efforts.

In the end, the U.S. admitted more than a million Southeast Asian refugees. Most of them proved adaptable to American values. It’s easy to forget that every act of American generosity toward refugees has had to overcome stiff resistance based in ignorance. Historically, Presidential action has made the difference. After the Second World War, Congress passed legislation that made resettlement in the U.S. harder for Jewish victims of Nazism than for Germans uprooted by the war Hitler started. The chairman of the Senate’s immigration subcommittee, Chapman Revercomb, of West Virginia, wrote, “Many of those who seek entrance into this country have little concept of our form of government. Many of them come from lands where Communism had its first growth and dominates the political thought and philosophy of the people.”

It took the angry persistence of President Harry Truman to get Congress to expand the numbers and remove the discriminatory provisions. There are four million refugees from the Syrian civil war, surpassing the staggering Indochinese numbers, and making this one of the biggest humanitarian crises since the end of the Second World War. Last month, as many as nine thousand people a day were crossing the Mediterranean to Europe. But the U.S. has accepted fewer than two thousand Syrians. In September, President Obama announced an increase in the quota for the coming year to ten thousand. That figure represents just half the monthly total of Indochinese refugees brought here in 1980. One refugee advocate called it “an embarrassingly low number.” And yet even this humble goal is unlikely to be reached.

Read more …

Oct 122015
 
 October 12, 2015  Posted by at 7:27 pm Finance Tagged with: , , , , , ,  4 Responses »


Jack Delano Gallup, New Mexico. Train on the Atchison, Topeka & Santa Fe 1943

Some things you CAN see coming, in life and certainly in finance. Quite a few things, actually. Once you understand we’re on a long term downward path, also both in life and in finance, and you’re not exclusively looking at short term gains, it all sort of falls into place. The only remaining issue then is that so many of you DO look at short term gains only. Thing is, there’s no way out of this thing but down, way down.

Yeah, stock markets went up quite a bit last week. Did that surprise you? If so, maybe you’re not in the right kind of game. You might be better off in Vegas. Better odds and all that. From where we’re sitting, amongst the entire crowd of its peers, this was a major flashing red alarm late last week, from Investment Research Dynamics:

September Liquidity Crisis Forced Fed Into Massive Reverse Repo Operation

Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate. However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008. You can also see from this graph that the size of the “spike” occurrences in reverse repo operations has significantly increased since 2014 relative to the spike up in 2008. In fact, the latest two-week spike is by far the largest reverse repo operation on record.

Besides using repos to manage term banking reserves in order to target the Fed funds rate, reverse repos put Treasury collateral on to bank balance sheets. We know that in 2008 there was a derivatives counter-party default melt-down. This required the Fed to “inject” Treasury collateral into the banking system which could be used as margin collateral by banks or hedge funds/financial firms holding losing derivatives positions OR to “patch up” counter-party defaults (see AIG/Goldman).

What’s eerie about the pattern in the graph above is that since 2014, the “spike” occurrences have occurred more frequently and are much larger in size than the one in 2008. This would suggest that whatever is imploding behind the scenes is far worse than what occurred in 2008. What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period. You’ll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.

The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out of sight in the general liquidity functions of the global banking system. Without a doubt, the graphs above are telling us that something “broke” in the banking system which necessitated the biggest injection of Treasury collateral in history into the global banking system by the Fed.

That should scare even the crocodile hunter, I venture, but he’s dead, and you’re not. So move one to the next sign that you’re in way over your head. How about Tyler Durden quoting Bank of America. Turns out, last week’s gains were down to one thing, and one only: short covering. In fact, the second biggest short squeeze in history. So much short covering that stock prices went up. And that’s why they did.

Stocks Soar To Best Week In A Year On “Mother Of All Short Squeezes”

With China shut and The Fed going full dovish panic-mode over growth fears, world markets went crazy…
• S&P up 7 of last 8 days +3.2% – best week since Oct 2014
• Russell 2000 +4.5% – best week since Oct 2014
• Nasdaq up 7 of last 8 (since Death Cross) closed above 50DMA
• Trannies up 8 of last 9 +4.9% – best week since Oct 2014
• Dow up 8 of last 9 +3.5% – best week since Feb 2015
• "Most Shorted" +4.7% – biggest squeeze in 8 months
• Biotechs -2.3%
• Financials +2.2% – best week in 3 months
• Asian Dollar Index +1.4% (worst week USD vs Asian FX since Oct 2011)
• Dollar Index -1.2% (worst week for USD vs Majors in 2 months)
• AUD +4% – best week since Dec 2011
• 2Y TSY Yields +6.5bps – biggest rise in 7 weeks
• 5Y TSY Yields +11bps – biggest rise in 4 months
• WTI Crude +8.9% – 2nd best week since Feb 2011
• OJ +4.8% – best day since March
• Silver +3.8% – best week since May

LOLume!!

 

The last 8 days have seen a massive short-squeeze… 2nd biggest in history

 

The last 2 times stocks were short-squeezed this much, did not end well…

 

And the following stunning chart shows the percent of S&P 500 names above their 50-day moving-average has soared from 4% to 60% in a few weeks…

h/t @ReformedBroker

Got that? The biggest injection of Treasury collateral in history combined with the 2nd biggest short squeeze in history. Still want to buy stocks? Think there’ll be an actual recovery?

And then there’s this mass selling of Treasuries by emerging markets, as per the following Economist graph.

How many trillions are we down so far? And you still want to buy ‘assets’? You sure you can spell the word please? Josh Brown at the Reformed Broker thinks maybe that’s not the smartest move around:

QE Causes Deflation, Not Inflation

In America, Japan and the Eurozone velocity has continued to decline since the financial crisis in 2008. Thus, US, Japan and Eurozone money velocity, measured as the nominal GDP to M2 ratio, has declined from 1.94x, 0.7x and 1.29x respectively in 1Q98 to 1.5x, 0.55x and 1.05x in 2Q15.

Indeed, US money velocity is now at a six-decade low. This is why those who have predicted a surge in inflation in recent years caused by the Fed printing money have so far been proven wrong. For inflation, as defined by conventional economists like Bernanke in the narrow sense of consumer prices and the like, will not pick up unless the turnover of money increases. This is the problem with the narrow form of mechanical monetarism associated with the likes of American economist Milton Friedman.

[..] QE is deflationary because it shrinks net interest margins for banks via depressing treasury bond yields. It also enriches the already wealthy via asset price inflation but they do not raise their consumption in response, because how much more shit can they possibly buy? Finally, it leads to a preference of share buybacks vs investment spending because the payback from financial engineering is so much easier and more immediate.

Now, we’re not sure that QE ’causes’ deflation, or let’s put it this way: perhaps QE doesn’t cause the deflation we see, but it certainly reinforces it. ‘Our’ deflation originates in our debt. And there’s more than plenty of that to go around.

More is still being added on a daily basis. Though we’re approaching the limits of that. Which is a good thing on the one hand, but a bad one on the other: we’re all going to feel like heroine junkies going cold turkey. Not a pleasant feeling. But still healthier in the long run.

That US money velocity is at its lowest pace in 60(!) years -do let that one sink in- is a huge component of what deflation really is: not rising or falling prices, but the interaction of falling/rising money supply vs falling/rising money velocity.

And in that sense, isn’t it interesting to note that “US money velocity is now at a six-decade low.”?! And that, accordingly, no matter how much money is injected into the economy, if it is not being spent, deflation is inevitable?!

Why is it not being spent? Because America, wherever you look, and at whatever level, the country is drowning in debt. And so is the rest of the planet. If a large enough part of your ‘gains’ goes toward paying of what you’ve already spent in the past, you’re just a hamster on a wheel. Well, hamsters rule the planet.

And, now that we’re talking about it, deflation is inevitable anyway in the aftermath of the by far biggest credit mountain in the history of not just mankind, but of the planet, if not the universe.

It may be hard to let sink in if you and/or your pension fund own large(-ish) portfolios of stocks and bonds, or if you make a living trading the stuff, but come on, how long do you think you can keep the charade going? or should that be: ‘could keep it going’?

To add insult to injury, Bloomberg tells us that margin dent is falling fast in ‘da markets’. Ergo: smarter money is paying its money down, before too much of it vanishes into the great beyond. Watch that graph and imagine it going all the way back down to 2012, and then think about where your ‘assets’ will be.

Margin Debt in Freefall Is Another Reason to Worry About S&P 500

Most people get concerned about margin debt when it’s shooting up. To Doug Ramsey, the problem now is that it’s falling too fast. The CIO of Leuthold Weeden whose pessimistic predictions came true in August’s selloff, says the tally of New York Stock Exchange brokerage loans flashed a bearish sign when it slid more than 6% in July and August. The retreat took margin debt below a seven-month moving average that suggests demand for stocks is dropping at a rate that should give investors pause. For years, bull market skeptics have warned that surging equity credit portended disaster for U.S. shares, pointing to a threefold runup between the market low in March 2009 and the middle of this year. Ramsey, who says that surge was never strong enough to form the basis of a bear case, is now worried about how fast it’s unwinding.

“Margin debt contracting is a sign of loss of investor confidence and it’s confirmation of a lot of other evidence we have that we’ve entered a cyclical bear market,” Ramsey said in a phone interview. “We got a lot of traditional warning signs leading up to the high in terms of market action, and deteriorating breadth and margin debt is important to the supply-demand analysis.” Margin debt, compiled monthly by the NYSE, represents credit extended by brokerages for clients to buy stock. It hews closely to benchmark indexes such as the S&P 500, primarily because equity is used to back the loans and as its value rises, so does the capacity to lend.

Of course, the entire global economy has been hanging together with strands of duct tape for decades now, but hey, it looks good as long as you don’t take a peek behind the facade, right? But you know, it all comes together in that money velocity graph earlier.

People have massively toned down their spending, some because they’ve grown wary of what’s going on, but most because they either have nothing left to spend or they are too deep in debt to have anything left after they pay their money down.

And there’s no cure for that. Not even a people’s QE will do it, no matter what shape it would come in. The entire world economy would need to restructure its various debt levels.

Problem with that is, A) we’ve already committed to bail out our banks at the cost of our entire societies, and B) we largely owe our debts to those same banks. So why should they let us off the hook now? They own us.

Meanwhile, even if you think that last bit is silly, how do you yourself think you can squeeze your behind out of the massive short squeeze that happened last week? By purchasing shares? Really?

Oct 092015
 
 October 9, 2015  Posted by at 9:21 am Finance Tagged with: , , , , , , , , , ,  5 Responses »


DPC H.A. Testard Bicycles & Automobiles, New Orleans 1910

September Liquidity Crisis Forced Fed Into Massive Reverse Repo Operation (IRD)
Bank Of England Warns Financial Institutions Over Commodities Exposure (Guardian)
If You Thought China’s Equity Bubble Was Scary, Check Out Bonds (Bloomberg)
CEO: Deutsche Isn’t Worth What It Once Was And Can’t Pay What It Used To (BBG)
Day After Deutsche Says Not All’s Well, Credit Suisse Also Admits Trouble (ZH)
Bruised Germany Is Canary in Coal Mine for Europe Economic Woes (Bloomberg)
Saudi Arabia Orders Deep Spending Curbs Amid Oil Price Slump (Bloomberg)
Former IMF Chief Economist Blanchard Backs ‘People’s QE’ (Reuters)
Hong Kong High Street Shop Rents Fall Up To 43% From Their Peaks (SCMP)
Bill Gross Sues Pimco For At Least $200 Million (NY Times)
Ponzi Suspect’s 17 Accounts Raise Questions Over Bank Safeguards (Bloomberg)
Why This Feels Like A Depression For Most People (Jim Quinn)
VW Exec Blames ‘A Couple Of’ Rogue Engineers For Emissions Scandal (LA Times)
VW Facilities, Worker Homes Raided in Diesel Investigation (Bloomberg)
US House Slams Regulators For Not Catching VW For Years (Reuters)
Four More Carmakers Join ‘Dieselgate’ Emissions Row (Guardian)
Merkel Slams Eastern Europeans On Migration (Politico)
542 People Rescued In 24 Hours Off Greece (AP)
Baby Dies After Migrant Boat Breaks Down Off Greek Island Lesbos (Reuters)

Behind the curtain.

September Liquidity Crisis Forced Fed Into Massive Reverse Repo Operation (IRD)

Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate. However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008. You can also see from this graph that the size of the “spike” occurrences in reverse repo operations has significantly increased since 2014 relative to the spike up in 2008. In fact, the latest two-week spike is by far the largest reverse repo operation on record.

Besides using repos to manage term banking reserves in order to target the Fed funds rate, reverse repos put Treasury collateral on to bank balance sheets. We know that in 2008 there was a derivatives counter-party default melt-down. This required the Fed to “inject” Treasury collateral into the banking system which could be used as margin collateral by banks or hedge funds/financial firms holding losing derivatives positions OR to “patch up” counter-party defaults (see AIG/Goldman).

What’s eerie about the pattern in the graph above is that since 2014, the “spike” occurrences have occurred more frequently and are much larger in size than the one in 2008. This would suggest that whatever is imploding behind the scenes is far worse than what occurred in 2008. What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period. You’ll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.

The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out of sight in the general liquidity functions of the global banking system. Without a doubt, the graphs above are telling us that something “broke” in the banking system which necessitated the biggest injection of Treasury collateral in history into the global banking system by the Fed.

Read more …

BoA says $100 billion exposure to Glencore alone, and Bernstein says 6 UK traders have only $6 billion? Hard to believe.

Bank Of England Warns Financial Institutions Over Commodities Exposure (Guardian)

The Bank of England has told major banks to check the impact of falling commodity prices on their lending positions. Threadneedle Street has been asking for information from the major players in light of the rout in the shares in Glencore, the commodity trading and mining firm. Glencore’s shares plunged by 29% a week ago on Monday to 68.62p. Although they have subsequently recovered to 120p, the shares are trading far below their 2011 flotation price of 530p. The fall in Glencore stock came amid concerns about its debt position and fears that the Chinese economy was on the cusp of a hard landing that would further reduce already softening global demand for commodities.

The demand for information by the Bank of England has emerged at a time when banking analysts have been questioning the exposure of banks to the the fallout in the commodity sector. In a research note entitled The $100bn Gorilla in the Room, Bank of America analysts said: “The banking industry may have significantly more exposure to Glencore than is generally appreciated in the market.” Analysts at Bernstein, the broking firm, have conducted a wider analysis of UK banks’ exposure to six commodity trading houses, including Glencore, and concluded about $6bn (£3.9bn) worth of loans are outstanding. Standard Chartered, the Asian-focused London-based bank, was given the highest exposure of $1.9bn.

The move by the Bank to ask financial institutions to check their exposure to commodities follows similar health checks during the Greek crisis and amid Chinese stock market volatility in the summer. The requests are made through the Prudential Regulation Authority, the Bank of England’s regulatory arm. The Bank of England is launching stress tests on the major lenders and has said China is among the factors that will be included in the financial health check. The results are expected to be published in December.

Read more …

Bubble after bubble, until there’s none left.

If You Thought China’s Equity Bubble Was Scary, Check Out Bonds (Bloomberg)

As a rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another. So says Commerzbank, which puts the chance of a crash by year-end at 20%, up from almost zero in June. Industrial Securities and Huachuang Securities are warning of an unsustainable rally after bond prices climbed to six-year highs and issuance jumped to a record. The boom contrasts with caution elsewhere. A selloff in global corporate notes has pushed yields to a 21-month high, and credit-derivatives traders are demanding near the most in two years to insure against losses on Chinese government securities.

While an imminent collapse isn’t yet the base-case scenario for most forecasters, China’s 42.1 trillion yuan ($6.6 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago: stretched valuations, a surge in investor leverage and shrinking corporate profits. A reversal would add to challenges facing China’s ruling Communist Party, which has struggled to contain volatility in financial markets amid the deepest economic slowdown since 1990. “The Chinese government is caught between a rock and hard place,” said Zhou Hao, a senior economist in Singapore at Commerzbank, Germany’s second-largest lender. “If it doesn’t intervene, the bond market will actually become a bubble. And if it does, the market could crash the way the equity market did due to fast de-leveraging.”

Read more …

Deutsche equals tens of trillions in derivatives exposure. Why is it getting scared, and why now?

CEO: Deutsche Isn’t Worth What It Once Was And Can’t Pay What It Used To (BBG)

Deutsche Bank’s new boss delivered a harsh message to shareholders and employees: Europe’s biggest investment bank isn’t worth what it once was and can’t pay them what they’re used to. Co-CEO John Cryan decided to mark down the value of the securities unit because of rules that will force the company to hold more capital, Deutsche Bank said in a statement late Wednesday. Higher equity requirements have hurt profitability. Cryan is preparing to shrink the trading empire built by his predecessor, Anshu Jain, to lower costs, lift capital levels and raise Deutsche Bank from its position as the worst-valued stock among global banks. That could mean giving up the aspiration to remain a top global investment bank and rolling back parts of the expansion it pursued over the last two-and-a-half decades.

“This perhaps is the beginning of the new chief executive taking a close look and saying, ‘actually, are we better off being the German champion bank, or do we want to maintain this ambition of being a global player?”’ Robert Smithson at THS Partners said. Deutsche Bank said it wrote down goodwill, a measure of the value a company expects to extract from acquisitions, to zero at both its investment- and consumer-banking units. The charge at the securities business relates in part to the $9 billion purchase of Bankers Trust in 1998, Cryan said in a memo to staff. That deal was a major step in the company’s transformation into a global investment bank because it expanded access to the U.S., home to the world’s biggest capital markets. Paul Achleitner, Deutsche Bank’s supervisory board chairman, advised the bank on the purchase while at Goldman Sachs.

The writedown at the securities unit, as well as charges at the company’s retail-banking division and legal costs, will probably cause a third-quarter net loss of €6.2 billion, Deutsche Bank said. The bank may cut or eliminate this year’s dividend, and employees, by way of compensation, will have to share the pain with investors, Cryan said. The stock fell 1.8% to €25.03. Cryan isn’t alone in writing down the value of acquisitions that failed to deliver anticipated returns. UniCredit, Italy’s biggest bank, posted a record loss for the fourth-quarter of 2013 after taking more than 9 billion euros of impairments, including those on the goodwill of units in Italy, central and eastern Europe and Austria. Investors were already valuing Deutsche Bank at less than it says its assets are worth. The company trades at about 0.6 times book value, the lowest ratio among its global peers.

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Deutsche, Credit Suisse and UniCredit. Dominoes starting to drop.

Day After Deutsche Says Not All’s Well, Credit Suisse Also Admits Trouble (ZH)

Not everything is “fine” in the land of European banks, in fact quite the opposite. One day after Deutsche Bank warned of a massive $7 billion loss and the potential elimination of the bank’s dividend which had been a German staple since reunification, a move which many said was a “kitchen sinking” of the bank’s problems (but not Goldman, which said it was “not a kitchen sinking, but a sign of the magnitude of the challenge” adding that “this development confirms our view that the task facing new management is very demanding. Litigation issues do not end with this mark down – we expect them to persist for a multi-year period. We do not see this as a “clean up” but rather an indication of what the “fixing” of Deutsche Bank will entail over the 2015-18 period), it was the turn of Switzerland’s second biggest bank after UBS, Credit Suisse, to admit it too needs more cash when moments ago the FT reported that the bank is “preparing to launch a substantial capital raising” when the new CEO Thiam unveils his strategic plan for the bank in two weeks’ time.

FT adds that “while not specifying an amount, they pointed to a poll published last week by analysts at Goldman Sachs concluding that 91% of investors expect the Swiss bank to raise more than SFr5bn in new equity.” The stock price did not like it, although just like with DB, we expect the “story” to quickly become that the Swiss bank is putting all its dirty laundry to rest, so an equity dilution is actually quite positive. Incidentally, with DB stock green on the day following a dividend cut, perhaps it would go limit up if Deutsche Bank had announced a negative dividend? The official narrative is well-known: the bank does not need the funds, it is simply a precaution ahead of new, more stringent capital requirements:

The capital is likely to be used to absorb losses triggered by a faster restructuring of the Swiss group, the people said. But Credit Suisse will also need higher capital ratios to comply with toughening demands from regulators. The Swiss authorities are expected to announce an increase of minimum capital ratios over the coming months, which could prove more challenging for the bank than its better capitalised local rival, UBS. Credit Suisse’s common equity tier one capital ratio of 10.3% compares with UBS’s 13.5%..

The real reason, of course, has nothing to do with this, and everything to do with the collapse of manipulation cartels involving Liebor, FX, commodities, bonds, equities, gold, and so on, because when banks can no longer collude with each other to push markets in any given direction, that’s when they start losing money. That and, of course, the fact that central bank intervention in capital markets has made it virtually impossible to trade any more. Or as they call it, “miss capital ratios.” Expect many more such announcements in the coming weeks.

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While Brussels insists there is a cyclical recovery…

Bruised Germany Is Canary in Coal Mine for Europe Economic Woes (Bloomberg)

The euro area’s pillar of economic strength is starting to show cracks. Germany’s manufacturing industry is taking a hit from cooling demand in emerging markets. Two of its icons – Deutsche Bank and Volkswagen – are in turmoil. And refugees are flooding across its borders at a rate of 10,000 a week. The strains are putting the resilience of Europe’s economic powerhouse to the test after exports in August fell the most since the height of the 2009 recession, and factory orders and industrial output unexpectedly declined. The flood of bad news is all the more troubling as the 19-nation euro area strives to sustain an economic revival that remains fragile. “Germany is the canary in the mine for Europe,” said Pau Morilla-Giner at London & Capital Asset Management in London.

“It is the most exposed country to what happens outside of the continent.” German exports slumped 5.2% in August from the previous month, the Federal Statistics Office in Wiesbaden said on Thursday. That’s the most since the recession of 2009. Imports slid 3.1%, shrinking the trade surplus to €15.3 billion from €25 billion. Weakening trade with China and Russia prompted Hamburger Hafen und Logistik, which handles about three in four containers at the city port, to cut its 2015 earnings forecast on declining container volume. Germany’s gateway to Asia serves as a major transfer hub for containers carried by deep-sea ships from the Pacific region and then reloaded onto smaller feeder vessels destined for Baltic Sea ports, including the Russian harbor of St. Petersburg.

BASF, whose dominance in the global chemical industry makes it a barometer for the German economy, is curbing spending and scrapped its 2020 profit and sales target on Sept. 28 after becoming more pessimistic on economic growth and chemical production. The risks for Germany’s steel producers “have increased significantly, especially in the area of foreign trade, in recent weeks and months,” the Wirtschaftsvereinigung Stahl industry group said on Thursday in a report showing crude steel production fell almost 4% in September. “One of the biggest pressure points for the euro zone’s fragile economic recovery is German export orders,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “News that they fell sharply throws the China-driven weakness in the global economy into sharp relief.”

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Problems mount for the House of Saud. Only option left is to increase pumping.

Saudi Arabia Orders Deep Spending Curbs Amid Oil Price Slump (Bloomberg)

Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people with knowledge of the matter. The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned the buying of vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said. With oil accounting for about 90% of revenue in the Arab world’s largest economy, a drop of more than 40% in crude prices in the past 12 months has combined with wars in Yemen and Syria to pressure Saudi Arabia’s finances.

While public debt is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2% in 2014, that may rise to 33% in 2020, according to estimates from the IMF. “In order to demonstrate a bit of fiscal discipline the government needed to take some measures in 4Q to moderate spending,” John Sfakianakis, Middle East director at Ashmore Group, said. “Going forward Saudi Arabia will have to implement spending cuts and efficiencies in order to avoid a runaway fiscal deficit in 2016.” To help shore up its finances, authorities plan to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year, people with knowledge of the matter said in August. The kingdom’s net foreign assets fell for a seventh month to $654.5 billion in August, the lowest level in more than two years.

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Maybe someone should define PQE. Would seem handy for future discussion.

Former IMF Chief Economist Blanchard Backs ‘People’s QE’ (Reuters)

“People’s QE” could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the IMF, said on Wednesday. Quantitative easing, where central banks buy assets such as government bonds from banks in exchange for newly created money, has been used in the euro zone, the United States and Britain to increase financial market liquidity and stimulate growth. But the verdict is still out on whether central banks should be buying assets, as they do now, or instead tie up with governments to spend it on ‘real’ goods, known as “people’s QE”, as a way of stimulating the economy, Blanchard said during a lecture at the Cass Business School.

“There is clearly something else you can do if you get to zero (inflation) and still want to increase spending. You can buy goods.” “Which one should you choose? We haven’t asked the question in the crisis but we should,” he said. Blanchard said that this does not mean central banks would buy goods directly. Rather, governments can increase their fiscal deficits by spending on infrastructure projects. Central banks can then buy this debt with newly created money. He also stressed that these fiscal deficits should be “a certain size and not more”. People’s QE was a prominent part of the leadership election campaign for British Labour Party leader Jeremy Corbyn.

QE has come under popular criticism because banks, which were supposed to lend out the new money into the wider economy to stimulate growth, have not necessarily done so. Blanchard argues that buying goods rather than assets can get the money out into the economy another way. People’s QE has also been criticised because it may compromise central bank independence. Bank of England chief economist Andy Haldane said in September people should be “very cautious” about encroaching on the separation between fiscal and monetary policy.

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Any questions?

Hong Kong High Street Shop Rents Fall Up To 43% From Their Peaks (SCMP)

Hong Kong’s high street shop rents have fallen as much as 43% when compared with the peak levels in the fourth quarter of 2013, according to international property consultant DTZ/Cushman & Wakefield. Plagued by smaller growth in tourist arrivals and a decrease in sales of luxury products, retailers have been facing a challenging business environment and find the rents they are paying in prime street shops as too expensive. Some retailers requested landlords to cut rents while others opted to relocate. As a result, the retail high street rents in Causeway Bay, Tsim Sha Tsui, Central and Mongkok had gone down by 26-43% as of the third quarter from their respective peak levels in the fourth quarter of 2013, or during lease renewal compared to the last rent a few years ago, said Kevin Lam, DTZ/Cushman & Wakefield’s Head of Business Space, Hong Kong.

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It was all El-Erian after all.

Bill Gross Sues Pimco For At Least $200 Million (NY Times)

The man known as the bond king, William H. Gross, is suing the company that he built into one of the largest asset managers in the world, providing his own colorful version of an ugly feud that led to his departure last year. The lawsuit, filed on Thursday, represents a bold effort by Mr. Gross to repair the damage that was done to his reputation in the year before and after he was fired from Pimco. News media reports have portrayed Mr. Gross’s departure as a product of his erratic and domineering behavior at the firm he helped found in 1971. Mr. Gross is seeking “in no event less than $200 million” from Pimco for breach of covenant of good faith and fair dealing, among other causes of action.

But to underscore the degree to which the suit is motivated by Mr. Gross’s desire to correct the public record, he has promised to donate any money he recovers to charity, his lawyer, Patricia L. Glaser, said. The lawsuit presents a picture of Pimco — an asset manager based in California that is responsible for billions of dollars in retirement savings — as a den of intrigue riven by back stabbing and competing egos. The first sentence of the suit says that Mr. Gross was pushed out by a “cabal” of Pimco managing directors who were “driven by a lust for power, greed, and a desire to improve their own financial position.” “Their improper, dishonest, and unethical behavior must now be exposed,” the opening paragraph concludes.

The suit takes aim at the man who was once in line to succeed Mr. Gross, Mohamed El-Erian, and at the man who has succeeded Mr. Gross as Pimco’s group chief investment officer, Daniel J. Ivascyn. Mr. El-Erian is now the chief economic advisor at Allianz, Pimco’s parent company. Both men, the suit says, were eager to take Pimco away from its traditional focus on bond funds and into riskier investment strategies that would earn it higher fees and lead to bigger bonuses for top executives. Mr. Gross, on the other hand, is said in the suit to have consistently advocated for keeping the firm focused on lower-fee investment products.

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“If the banks had just Googled this guy, they would have known enough to stay away..”

Ponzi Suspect’s 17 Accounts Raise Questions Over Bank Safeguards (Bloomberg)

The U.S. requires banks to know their customers. Looks like several big ones, including Citigroup, JPMorgan and Wells Fargo, may have missed getting acquainted with Daniel Fernandes Rojo Filho. Filho, a 48-year-old Brazilian self-proclaimed billionaire living in Orlando, Florida, came under U.S. investigation in 2009 related to an alleged conspiracy involving drug trafficking, money laundering and a Ponzi scheme. Around then, he and others under the federal probe forfeited tens of millions of dollars worth of Lamborghinis, gold bars and other assets, according to court documents. He agreed in 2013 to forfeit another $25 million in accounts registered to his children and businesses. That was all a matter of public record in mid-2014, when Filho started opening new bank accounts.

He set up at least 17 of them in the name of his company – DFRF Enterprises, derived from his initials – and signed his own name. Filho’s banking flurry is detailed in several fresh cases against him, including an August criminal indictment alleging he used some of these accounts in a scheme that promised investors income from nonexistent gold-mining operations. Filho faces similar allegations in separate lawsuits filed this year by the Securities and Exchange Commission and by a group of investors. “If the banks had just Googled this guy, they would have known enough to stay away,” said Evans Carter, a Framingham, Massachusetts-based attorney who brought the investors’ class-action suit early this year. Filho, who was arrested in July, awaits a hearing today in Boston connected to the criminal charges against him.

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“Today, there are 46 million Americans in an electronic soup kitchen line..”

Why This Feels Like A Depression For Most People (Jim Quinn)

Everyone has seen the pictures of the unemployed waiting in soup lines during the Great Depression. When you try to tell a propaganda believing, willfully ignorant, mainstream media watching, math challenged consumer we are in the midst of a Greater Depression, they act as if you’ve lost your mind. They will immediately bluster about the 5.1% unemployment rate, record corporate profits, and stock market near all-time highs. The cognitive dissonance of these people is only exceeded by their inability to understand basic mathematical concepts. The reason you don’t see huge lines of people waiting in soup lines during this Greater Depression is because the government has figured out how to disguise suffering through modern technology. During the height of the Great Depression in 1933, there were 12.8 million Americans unemployed.

These were the men pictured in the soup lines. Today, there are 46 million Americans in an electronic soup kitchen line, as their food is distributed through EBT cards (with that angel of mercy JP Morgan reaping billions in profits by processing the transactions). These 46 million people represent 14% of the U.S. population. There are 23 million households on food stamps in a nation of 123 million households. Therefore, 19% of all households in the U.S. are so poor, they require food assistance to survive. In 1933 there were approximately 126 million Americans living in 30 million households. The government didn’t keep official unemployment records until 1940, but the Department of Labor estimated 12.8 million people were unemployed during the worst year of the Great Depression or 24.9% of the labor force.

By 1937 it had fallen to 14.3% or approximately 8 million people. The number of people unemployed during the 1930’s is an excellent representation of the number of households on government assistance during the Great Depression because 79% of all households were occupied by married couples with 4 people per household versus 48% married couple households today with 2.5 people per household. The unemployment rate averaged 19% during the heart of the Great Depression. Therefore, approximately 19% of all the households in the U.S. needed government assistance to feed themselves. That happens to be the exact %age of households currently needing food stamps to feed themselves.

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Do they really think this’ll fly? “..it sure does cause you to scratch your head that we have this software that just happens to be in 11 million cars and no one in the whole company noticed it.”

VW Exec Blames ‘A Couple Of’ Rogue Engineers For Emissions Scandal (LA Times)

A top Volkswagen executive on Thursday blamed a handful of rogue software engineers for the company’s emissions-test cheating scandal and told outraged lawmakers that it would take years to fix most of the nearly half million vehicles affected in the U.S. “This was a couple of software engineers who put this in for whatever reason,” Michael Horn, VW’s U.S. chief executive, told a House subcommittee hearing. “To my understanding, this was not a corporate decision. This was something individuals did.” Horn, chief executive of Volkswagen Group of America, revealed that three VW employees had been suspended in connection with software that detects and fools emissions testing equipment in the company’s diesel vehicles. The automaker said that the so-called defeat device is loaded onto as many as 11 million vehicles worldwide.

Horn’s testimony before the House Energy and Commerce Committee’s oversight and investigations panel coincided with a raid Thursday by German investigators at Volkswagen’s Wolfsburg headquarters. The exact number of engineers the company blames remained unclear. Horn said both “couple” and three, then said under questioning that he did not yet know the exact number. Regardless, the claim that such a small number of people could have pulled off such a massive fraud brought immediate skepticism from lawmakers and industry experts. “I cannot accept VW’s portrayal of this as something by a couple of rogue software engineers,” said Rep. Chris Collins (R-N.Y.). “Suspending three folks — it goes way, way higher than that.”

Auto industry veterans agreed. “There are not rogue engineers who unilaterally decide to initiate the greatest vehicle emission fraud in history. They don’t act unilaterally,” said Joan Claybrook, former administrator of the National Highway Traffic Safety Administration. “They have teams that put these vehicles together. They have a review process for the design, testing and development of the vehicles.” James Womack, an expert on the international auto industry, also expressed doubts. “It might not be reviewed and discussed leaving an email or voicemail trail,” Womack said, “but it sure does cause you to scratch your head that we have this software that just happens to be in 11 million cars and no one in the whole company noticed it.”

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The bosses knew. But will that come out?

VW Facilities, Worker Homes Raided in Diesel Investigation (Bloomberg)

Police and prosecutors swooped in on Volkswagen facilities and private homes on Thursday in a dawn raid to gather evidence about who was behind the carmaker’s decision to cheat on diesel emissions tests. Three prosecutors and some 50 state criminal investigators searched the carmaker’s factories and employees’ homes starting in the early morning and continuing through the afternoon in Wolfsburg, its headquarters city, and elsewhere, said Birgit Seel, a senior prosecutor in the German state of Lower Saxony. Investigators took documents and electronic media, and it may take several weeks to review the material, Seel said. She didn’t identify employees whose homes were searched.

“We will fully support the prosecutor’s office with its investigation into the facts of the case and into the people responsible to swiftly and completely get to the bottom of the matter,” Volkswagen said in an e-mailed statement. The company filed its own criminal complaint on Sept. 23. The raids come as pressure on Volkswagen intensifies. The company’s U.S. chief, Michael Horn, will face U.S. lawmakers Thursday in the first public hearing on the scandal. In Europe alone, Volkswagen will probably need to exchange or rebuild parts for about 3.6 million engines equipped with illegal software that turned on full pollution controls only during tests, German Transport Minister Alexander Dobrindt said. Volkswagen told German regulators the parts for 1.6-liter engines that need the fix won’t be available until September 2016, Dobrindt said.

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“.. I think the American people ought to ask that we fire you and hire West Virginia University to do our work.”

US House Slams Regulators For Not Catching VW For Years (Reuters)

Volkswagen US chief executive blamed “individuals” for using software to cheat on diesel emissions at a House hearing on Thursday as lawmakers attacked federal environmental regulators for failing to catch the fraud for years. Michael Horn, head of Volkswagen Americas, testified before a House of Representatives oversight and investigations panel about the emissions scandal that has chopped more than a third of the company’s market value and sent tremors through the global auto industry. Volkswagen’s use of defeat devices, software that evaded U.S. tests for emissions harmful to human health, was not a corporate decision, but something a few employees engineered, Horn said under oath. “This was a couple of software engineers who put this in for whatever reason,” Horn said about the software code inserted into diesel cars since 2009.

Volkswagen used different defeat devices in Europe and the United States, Horn said, as emissions standards are different in the two regions. “Some people have made the wrong decisions in order to get away with something,” Horn said when asked by lawmakers if Volkswagen cheated with defeat devices because it was cheaper than using special injection systems to cut emissions. Lawmakers slammed an Environmental Protection Agency official who testified after Horn for not catching Volkswagen. Representative Michael Burgess, a Texas Republican, questioned the size of EPA’s annual budget, noting that the cheating was uncovered by a West Virginia University study that had a budget of less than $70,000.

“I’m not going to blame our budget for the fact that we missed this cheating,” replied the EPA’s Christopher Grundler, who said his transportation and air quality office has an annual budget of roughly $100 million. “I do think we do a very good job of setting priorities.” Burgess replied: “With all due respect, just looking at the situation, I think the American people ought to ask that we fire you and hire West Virginia University to do our work.”

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“What we are seeing here is a dieselgate that covers many brands and many different car models..”

Four More Carmakers Join ‘Dieselgate’ Emissions Row (Guardian)

Mercedes-Benz, Honda, Mazda and Mitsubishi have joined the growing list of manufacturers whose diesel cars are known to emit significantly more pollution on the road than in regulatory tests, according to data obtained by the Guardian. In more realistic on-road tests, some Honda models emitted six times the regulatory limit of NOx pollution while some unnamed 4×4 models had 20 times the NOx limit coming out of their exhaust pipes. “The issue is a systemic one” across the industry, said Nick Molden, whose company Emissions Analytics tested the cars. The Guardian revealed last week that diesel cars from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and Jeep all pumped out significantly more NOx in more realistic driving conditions.

NOx pollution is at illegal levels in many parts of the UK and is believed to have caused many thousands of premature deaths and billions of pounds in health costs. All the diesel cars passed the EU’s official lab-based regulatory test (called NEDC), but the test has failed to cut air pollution as governments intended because carmakers designed vehicles that perform better in the lab than on the road. There is no evidence of illegal activity, such as the “defeat devices” used by Volkswagen. The new data is from Emissions Analytics’ on-the-road testing programme, which is carefully controlled and closely matches the real-world test the European commission wants to introduce. The company tested both Euro 6 models, the newest and strictest standard, and earlier Euro 5 models.

[..] “These new test results [from Emissions Analytics] prove that the Volkswagen scandal is just the tip of the iceberg. What we are seeing here is a dieselgate that covers many brands and many different car models,” said Greg Archer, an emissions expert at Transport & Environment. “The only solution is a strict new test that takes place on the road and verified by an authority not paid by the car industry.”

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“The eastern Europeans — and I’m counting myself as an eastern European — we have experienced that isolation doesn’t help..”

Merkel Slams Eastern Europeans On Migration (Politico)

German Chancellor Angela Merkel harshly criticized eastern European governments for not having learned from their own history in their responses to the migration crisis. “The eastern Europeans — and I’m counting myself as an eastern European — we have experienced that isolation doesn’t help,” she told members of the center-right European People’s Party Wednesday in a closed-door meeting, according to a recording of the session obtained by POLITICO. “It makes me a bit sad that precisely those who can consider themselves lucky that they have lived to see the end of the Cold War, now think that one can completely stay out of certain developments of globalization,” Merkel said, referring to the reluctance of some EU countries to accept refugees.

“It just strikes me as somehow very weird. And that’s why we have to keep talking about that, as friends,” Merkel said, speaking German, as she responded to a question from a Czech MEP on the refugee crisis. “A rejection [of taking refugees in] as a matter of principle, that is — excuse me for being that blunt — that’s a danger for Europe,” Merkel said.

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This just keeps going on as the EU discusses ‘fighting’ the smugglers.

542 People Rescued In 24 Hours Off Greece (AP)

The latest developments as hundreds of thousands of people seeking safety make an epic trek through Europe. All times local.

9:40 a.m. – Greece’s coast guard says it has rescued 542 people in 12 search and rescue incidents from Thursday morning to Friday morning. The rescues occurred off the coasts of the eastern Aegean islands of Lesbos, Chios, Samos, Agathonissi and Farmakonissi, the coast guard said. Hundreds of thousands of people fleeing war and poverty in their homelands have reached Greece so far this year, the vast majority on rickety boats or cheap inflatable dinghies from the nearby Turkish coast. Although a short sea journey, it can be fatal as the unseaworthy and overloaded boats sometimes sink.

9:30 a.m. – Greece’s coast guard says a wooden boat carrying a large number of refugees or other migrants has run aground on the small eastern Aegean island of Leros, while an infant died after the inflatable dinghy he was in partially sank off the coast of Lesbos island. The wooden boat, carrying about 100 people, ran aground Friday on the northeast coast of Leros, the coast guard said. Those on board were being taken to shore by coast guard and private vessels that arrived to help. In the Lesbos incident, the coast guard rescued 56 people from the sea Thursday night after the rear part of their dinghy burst, partially sinking the boat. A 1-year-old boy was recovered unconscious and transported to a hospital, but rescuers were unable to revive him.

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And so does this. No humanity, no shame, no decency.

Baby Dies After Migrant Boat Breaks Down Off Greek Island Lesbos (Reuters)

A baby died after the rubber boat carrying him and another 56 migrants broke down and was left adrift off the Greek island of Lesbos, the Greek coastguard said on Friday. The 1-year-old boy, whose nationality was not made known, was found unconscious on a rubber dinghy which had broken down and went adrift late on Thursday. The boy was taken to a hospital where he was pronounced dead. The coastguard rescued the rest of the migrants, some of whom were in the sea. The baby was one of thousands of refugees – mostly fleeing war-torn Syria, Afghanistan and Iraq – who attempt the short but perilous crossing from the Turkish coast to Greek islands by boat, often in rough seas.

Almost 400,000 people have arrived in Greece this year, the U.N. refugee agency UNHCR has said, overwhelming the crisis-stricken government’s ability to cope. Most have rapidly headed north towards Germany. The coastguard has rescued a total of 542 migrants and refugees off the Aegean islands of Lesbos, Chios, Samos, Farmakonisi and Agathonisi since early on Thursday. Europe’s migration commissioner, Dimitris Avramopoulos, and Luxembourg Foreign Affairs Minister Jean Asselborn are expected in Athens on Friday and will give a joint news conference on the refugee crisis on Saturday.

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