retail Archives - The Automatic Earth

COVID, Hong Kong, Russiagate, they’re all familiar subjects. Now come ICU shortages and what can only be called a collapse in US -and international- retail, hospitality and travel industries.

We’re just getting started but everyone wants to think we’re almost done.

The US set a record for new cases, and the world missed it by a hair.

BREAKING: Coronavirus Outbreak

According to JHU data, US yesterday new high of 60,021. The sudden jump is partly due to an increase of tests turnaround time. CA reported new high of 9,897, TX reported new high of 9,845. MO, OK, MT, HI also reported new highs. pic.twitter.com/RoBy789qVC

— Yaneer Bar-Yam (@yaneerbaryam) July 8, 2020

Can someone translate what Biden is saying? pic.twitter.com/3drSILZSsU

— Ian Miles Cheong (@stillgray) July 9, 2020

Tennessee, West Virginia and Utah?!

• US COVID19 Cases Rise By Over 60,000, Setting Single-Day Record (R.)

The United States reported more than 60,000 new COVID-19 cases on Wednesday, the biggest increase ever reported by a country in a single day, according to a Reuters tally. The United States faces a bleak summer with record-breaking infections and many states forced to close parts of the economy again, leaving some workers without a paycheck. In addition to nearly 10,000 new cases in Florida, Texas reported over 9,500 cases and California reported more than 8,500 new infections. California and Texas also each reported a record one-day increase in deaths. It was the second day in a row that U.S. deaths climbed by more than 900 in a day, the highest levels seen since early June, according to the tally.

Tennessee, West Virginia and Utah all had record daily increases in new cases, and infections are rising in 42 out of 50 states, according to a Reuters analysis of cases for the past two weeks compared with the prior two weeks. The U.S. tally stood at 60,020 late on Wednesday, with a few local governments not yet reporting. The previous U.S. record for new cases in a day was 56,818 last Friday. The United States has reported over 3 million cases and 132,000 deaths from the virus, putting President Donald Trump’s pandemic strategy under scrutiny.

ICU shortages coming up in multiple locations.

• The US Surrendered To The Pandemic. Protect Yourself (MoA)

Yesterday the United States registered more than 60,000 new Covid-19 cases. As the number of new cases continues to increase unabated about two weeks from now it is likely to reach hundred thousand new cases per day. The increase of testing is not the cause of higher new case numbers. The rate of people among those who were tested and were found positive has also increased. In Florida, which yesterday had nearly 10,000 new cases, the positive test rate has reached nearly 20%. That means that the epidemic is still accelerating. This did not need to happen. Yesterday Germany, at a quarter the size of the U.S., had 279 new cases. It does 1 million tests per week and the positive rate is decreasing.

China has defeated a new local outbreak in Beijing by testing more than 10 million people. The last two days it reported zero new cases. Many of those who test positive, especially the younger ones, will not fall ill with severe symptoms. But some 10-15% are estimated to need medical support. How many of them will die depends on the quality of care that can be given to them. Some thirty hospitals in Florida have already run out of space in their intensive care units. That is the point where the real emergency begins. Six months after the disease was discovered more is known of how to care for Covid-19 cases. The death rate per cases has therefore decreased. But this only holds when there are sufficient beds, doctors and staff available.

At the current U.S. rate that will soon no longer be the case. We do know that the hospitalization curve follows the testing/symptoms curve by some 10-14 days while ICU admittance follows the above curve with some 15 to 20 days delay. The eventual recovery in an ICU bed takes up to four weeks. A bed once occupied will not be available for quite some time.

The changes will be gigantic. So will the misery. We just don’t want to know.

• 53% Of Restaurants Closed Amid Coronavirus Have Shuttered Permanently (RD)

New research from Yelp shows that as of June 15, there were nearly 140,000 total business closures on the website since March 1. When compared to similar research released in April, which showed more than 175,000 business closures, these latest numbers indicate that more than 20% of businesses closed in April have reopened. In March, restaurants had the highest numbers of business closures listed on the app compared to other industries, and the rate of closure has remained high. Of the businesses that closed, 17% are restaurants, and 53% of those restaurant closures are indicated as permanent on Yelp. Retail, however, is the hardest hit overall.

During the peak of the pandemic, the number of diners seated across Yelp Reservations and Waitlist dropped essentially to zero. In early June, numbers of diners seated are down 57% of pre-pandemic levels. Predictions about the restaurant industry’s fate in a post-pandemic world have been abundant throughout the crisis. The National Restaurant Association estimated that 15% of restaurants could close, while Barclay’s estimate is more optimistic, predicting approximately 10% of restaurants will shutter permanently. Though it’s hard to find a silver lining in Yelp’s data, some predictions have been more dire still.

In May, OpenTable said one in four restaurants were at risk for closure, for example, though those numbers focus on restaurants that use the reservations platform. Casual or fine dining sit-down restaurants and mom-and-pop concepts that are not well capitalized are expected to experience the brunt of this crisis. The Independent Restaurant Coalition, for example, forecast that as many as 85% of independent restaurants could permanently close by the end of the year. Yelp’s data does illustrate how some restaurants have been able to weather the storm, however, reporting a 10-fold increase in searches for takeout since March 10, for example. Takeout and delivery searches are up 148%, with Yelp predicting this off-premise trend could be here to stay.

Retail, travel, hospitality. Much of it will never be back.

• United Airlines Sends Furlough Warnings To 36,000 Workers (R.)

United Airlines said on Wednesday it was preparing to send notices of potential furloughs to 36,000 U.S.-based frontline employees, or about 45% of staff, as travel demand hit by the coronavirus pandemic struggles to recover. United shares lost 3.3% in midday trading. Not everyone who receives a notification will be furloughed, United said, with the final number depending on how demand evolves and how many employees accept early exit packages and temporary leaves. The furloughs would begin on Oct. 1, when a government-imposed ban on forced job cuts by airlines that accepted billions of dollars in federal payroll aid expires.

“The United Airlines projected furlough numbers are a gut punch, but they are also the most honest assessment we’ve seen on the state of the industry,” Association of Flight Attendants-CWA (AFA) President Sara Nelson said in a statement. The Chicago-based airline continues to burn through about $40 million of cash every day, with a number of efforts to cut costs and raise liquidity failing to compensate for the drastic drop-off in travel demand as COVID-19 cases continue to rise in the United States. The furlough warnings vary by work group. Flight attendants are among the hardest hit, with about 15,000 of roughly 25,000 set to receive notifications. United is working with the different unions on options to mitigate the final furlough number.

Said it a few days ago: A state holding company modeled after Roosevelt’s Reconstruction Finance Corporation.

• US Retail Apocalypse: Over 25,000 Stores Could Close By Year End (ZH)

The unprecedented implosion of U.S. commercial real estate during the coronavirus pandemic is likely to get worse as newly delinquent CMBS loans are surging as the list of retail store closures continues to rise. Trepp’s June CMBS remittance report showed CMBS delinquencies hit a high of 10.32%, not seen since 2012. It was noted that that retail CRE loans were in rough shape. Many retail shops are heavily indebted, some have already declared bankruptcy, while others are quickly shrinking their operating size, by reducing store footprint to rein in cost as the virus-induced recession, blended with a plunge in consumption, along with a shift to online, is resulting in a rapid acceleration of the retail apocalypse. Coresight Research’s latest forecast has upwards of 25,000 retail stores could close by year end.

Forbes has released an updated list of confirmed store closures. So far, it looks like 8,708 store units have or will shutter operations this year, and could quickly surpass 2019 totals of 9,302, in a matter of months. With thousands of retail stores closing and the economy contracting, the next conversation Wall Street will have is about deep economic scarring and permanent job loss. Already, 3 million jobs have been eliminated from the economy, some of which have come from the closure of retail stores. The bad news about permanent job loss is that it’s a consumption killer, resulting in less spending at retailers, suggesting an even greater amount of store closures beyond anyone’s wild guess could be seen over the next 12-24 months.

They can’t do a thing. They don’t even have the guts to let the yuan float.

• US Coronavirus Stimulus Reignites China’s Criticism Of Dollar Hegemony (SCMP)

The US economic policy response to the coronavirus crisis and the threat of financial sanctions on China have reinvigorated criticism in Beijing over the US dollar hegemony, but few analysts see a viable alternative currency emerging any time soon. Chinese officials have recently taken aim at the unprecedented coronavirus stimulus in the United States, which has seen American debt levels balloon and stoked concern in Beijing about the devaluation of the US dollar assets held by Chinese financial institutions. Threats by the US to sanction China over its imposition of a national security law on Hong Kong have also ratcheted up anxiety about being cut off from the US dollar-dominated SWIFT international payments system.

[..] Though the attitude in Beijing may be increasingly wary, few Western economists believe Washington is abusing the power of the US dollar with its coronavirus response. Others point out the impact on exchange rates has so far been relatively mild. “The Federal Reserve, like every other central bank, makes its monetary policy decisions mostly on the basis of domestic considerations,” said Eswar Prasad, the former head of the International Monetary Fund’s China division and now a trade professor at Cornell University. The fact its actions “reverberate around the world” are simply a consequence of its policy mandates, which are purely domestic in nature, Prasad added. Continued expansion of US monetary policy amid a protracted global recession is also likely to be positive for the real world economy, and particularly for economies with current account deficits and significant amounts of US dollar-denominated debt, according to analysts.

“Given the US dollar shortage that emerged with Covid, a weaker dollar is still good for the world, relieving funding pressures in both developed markets and emerging markets,” said Steve Englander, global head of North America macro strategy at Standard Chartered Bank. Reform of international monetary policy is likely to take a back seat to efforts to stabilise the global economy from the coronavirus pandemic. But even in the long-term, it is not clear what shape that would take. “In fact, the Fed’s apparent magnanimity in allowing other countries to have access to dollar financing collateralised by their holdings of US Treasuries will pull countries even deeper into the clutches of the dollar,” Prasad said.

A major obstacle is still the absence of an alternative reserve currency, Prasad said. China’s own push to internationalise the yuan has faltered over the past decade, despite its growing economic clout. The most recent figures from the SWIFT system showed that the Chinese currency accounted for just 1.66 per cent of international payment transactions in April versus 43 per cent for the US dollar. Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, said last month that China’s ability to reduce its reliance on the US dollar would be greatly enhanced if it can boost the international usage of the yuan. A debate about the merits of the US dollar as the major reserve currency is likely to re-emerge after the coronavirus, according to Englander, especially when the liquidity was no longer needed. “[But] the question is which currency do you trust to replace it and what improvement would that make.”

PBOC is still buying. A lot. Question: with what? Their dollar reserves? They don’t have a lot of those that they can use freely

• China’s Market Euphoria Trumps Political Risk In Hong Kong (R.)

The country’s blue-chip CSI300 index hit five-year-highs in recent sessions on a state-endorsed rally and a retail trading frenzy. But Chinese investors and brokerages say they are increasingly drawn by Hong Kong shares, whose gains have been more modest. “Elephants are dancing (in mainland China), but in Hong Kong, many stocks are lying on the floor,” Shen Weizheng, senior advisor at brokerage Direct Access, said during an online pitch to mainland investors on Wednesday. “Buy more Hong Kong stocks. You don’t lose money buying bargains.” Mainland-listed A-shares are on average 35% more expensive than their Hong Kong-listed peers, also called “H-shares” widening from 23% just a month ago.

Share prices of the same company often differ vastly in the two markets. A growing number of U.S-listed Chinese internet companies, including NetEase and JD.com, have chosen to float in Hong Kong through secondary listings amid heightened Sino-U.S. tensions. New York-listed Alibaba, which completed its Hong Kong listing last year, could get the greenlight to enter the benchmark Hang Seng Index .HSI next month. “Capital is flowing into the city. The more intense the rivalry between the U.S. and China, the more unique Hong Kong will be as a centre to welcome back leading Chinese companies listed in the U.S.,” said Hao Hong, managing director at BOCOM International.

With China seemingly hell-bent on conquering Hong Kong, why would they not?

• Some US Government Officials Want To Depeg Hong Kong Dollar (IBT)

Some aides to U.S. Secretary of State Michael Pompeo have suggested that Washington could punish China by compromising the Hong Kong dollar’s peg to the U.S. dollar. Tensions between the U.S. and China have been escalating for months, worsened by Beijing’s imposition of new security laws in Hong Kong that some think will eliminate the city-state’s autonomy. Bloomberg reported that one way to undermine the Hong Kong dollar peg would be by restricting the ability of Hong Kong banks to purchase U.S. dollars. The matter has been discussed with Pompeo but not yet with senior members of President Donald Trump’s White House staff.

Hong Kong has linked its currency to the U.S. dollar since 1983 and has generally performed well trading within a narrow band. The proposal would also face obstacles among other U.S. government officials who fear it would just hurt Hong Kong banks and not mainland China itself. Last month, Hong Kong’s financial secretary, Paul Chan said that if the US slapped sanctions on the city-state, then China’s central bank could supply it with American dollars. Eddie Yue, chief executive of the Hong Kong Monetary Authority, Hong Kong’s de facto central bank, said that the 36-year old dollar peg predates the 1992 U.S-China Policy Act which features a provision permitting the U.S. dollar “to be freely exchanged” with the Hong Kong dollar.

Yue suggested that the unlikely event of Trump blocking Hong Kong’s access to U.S. dollars would amount to an “apocalyptic” scenario that could backfire on Washington. “With Hong Kong’s financial system closely integrated with the global economic and financial systems, any move that hits our financial system would also send shockwaves across the global financial markets, including the U.S.,” he said. “Confidence of international investors in using the [U.S. dollar] and holding U.S. financial assets could also be undermined.”

Again, the PBOC is buying.

• Surging Demand for Hong Kong Dollars Underscores Beijing Support (BBG)

Demand for Hong Kong dollars is intensifying in the face of an increasingly politicized environment, with mainland buying helping to buoy both the pegged currency and local stock market. The city’s de facto central bank sold a combined HK$15.8 billion ($2 billion) to purchase the greenback on Wednesday, the biggest intervention since it started defending the peg on the strong end of the trading band in late April. The Hong Kong Monetary Authority has now spent almost $12 billion this year to keep the currency from strengthening further. Wednesday’s intervention came shortly after news that some Trump aides are considering plans to undermine the peg mechanism in retribution for Beijing’s crackdown on civil liberties in the former British colony.

Mainland-based investors showed their support for the city through buying more than $1 billion worth of Hong Kong shares on the day. The events show how the city’s financial system is increasingly being caught up in the rivalry between Washington and Beijing. For now, Hong Kong’s markets seem immune to the tensions. Red-hot Chinese equities, a stronger yuan and low valuations have helped push Hong Kong stocks into a bull market. Mainland purchases of local equities since Beijing first announced plans for Hong Kong’s controversial security law are now nearing $9 billion. “Bullish sentiment is pushing short-term funds and liquidity into Hong Kong,” said Banny Lam, managing director at CEB International Capital Corp. “China’s stock market is very hot and you see a lot of people using the stock connect to buy these shares. All these factors are attracting liquidity.”

Shouldn’t this be big on CNN?

• UK Judge Orders Christopher Steele To Pay Damages To Russian Bankers (RT)

A London judge has ordered former British spy Christopher Steele to pay thousands of pounds in damages for not verifying the claims he included in his scandalous Russian dossier, which alleged Donald Trump’s ties with Moscow. Steele was taken to court by Mikhail Fridman and Petr Aven, Russian bankers from Alfa Group, who contested one of the key allegations in the paper – that they were responsible for delivering “large amounts of illicit cash” to President Vladimir Putin in the 1990s. Justice Mark Warby of the High Court of England and Wales ruled on Wednesday that Steele’s claim against Fridman and Aven was “inaccurate and misleading.”

Steele’s firm, Orbis Business Intelligence, violated British data privacy law as it “failed to take reasonable steps to verify the allegation,” and will now pay £18,000 pounds (around $22,600) in damages to each of the bankers, Warby said. Fridman said in a statement that he was “delighted” with the outcome of the trial. He has insisted that the dossier’s claims that Alfa Group was somehow a link between the Russian government and the Trump campaign during the 2016 election were absolutely groundless. “Ever since these odious allegations were first made public in January 2017, my partners and I have been resolute and unwavering in our determination to prove that they are untrue, and through this case, we have finally succeeded in doing so,” Fridman said.

The MSM will present it as a poltical ploy. All they think they need to do is lift it over the election, and then throw it out.

• John Solomon: Indictments Coming In Russia Investigation (WND)

Investigative reporter John Solomon says there’s a “lot of activity” in U.S. Attorney John Durham’s criminal investigation of the Obama administration’s probe of now-debunked claims of Trump-Russia collusion during the 2016 election. “My sources tell me there’s a lot of activity. I’m seeing, personally, activity behind the scenes [showing] the Department of Justice is trying to bring those first indictments,” Solomon said [..] “And I would look for a time around Labor Day to see the first sort of action by the Justice Department.” Solomon said he’s seeing “action consistent with building prosecutions and preparing for criminal plea bargains.”

“Until they bring it before the grand jury you never know if it’s going to happen. I’m seeing activity consistent with that.” Top former officials, including former CIA Director John Brennan, are said to be targets of the Durham investigation. But Attorney General William Barr has said he doesn’t expect Obama and former Vice President Joe Biden, the presumptive Democratic presidential nominee, to be subjects of a criminal investigation. “There is overwhelming evidence in the public record now that crimes were committed,” Solomon said. He cited “falsification of documents, false testimony, false representations before the FISA court.”

Solomon said he is hearing from defense lawyers and people “on the prosecution side” that complications with the coronavirus pandemic are “slowing down” the grand jury process. WND reported this week Sen. Charles Grassley, R-Iowa, the chairman of the Senate Finance Committee, said Durham should launch any prosecutions before the November election. [..] A report from DOJ Inspector General Michael Horowitz found at least 17 “significant” errors or omissions related to the Obama administration’s efforts to use the Foreign Intelligence Surveillance Act provisions against Trump.

How is this still a topic?

• Top US Commander Unconvinced By ‘Russian Bounty To Taliban’ Intel (RT)

Intelligence claiming Russia paid Taliban fighters to target US troops in Afghanistan lacked evidence, the top US general in the region has said. His account crushes yet another sensational media report based on anonymous sources. General Kenneth McKenzie, who oversees military operations in the Middle East and Central Asia as the head of US Central Command, told reporters on Tuesday that unverified reports about Russia having placed “bounties” on American soldiers in Afghanistan have yet to be substantiated. “The intel case wasn’t proved to me – it wasn’t proved enough that I’d take it to a court of law – and you know, that’s often true in battlefield intelligence,” the senior commander said. According to McKenzie, “there wasn’t enough there” to consider the intelligence credible.

He described the reports as “worrisome,” but stressed that there was no “causative link” to support the notion that an alleged bounty program had led to US deaths in Afghanistan. McKenzie’s remarks come a week after an assessment by the National Intelligence Council (NIC) concluded that the intelligence community has reservations about the allegations leveled against Russia. The memo said that the CIA and the National Counterterrorism Center had “medium confidence” in the reports, while the National Security Agency (NSA) and other spy agencies expressed “lower confidence.” [..] Responding to the allegations, Kremlin spokesman Dmitry Peskov didn’t mince his words, blasting the unverified US media reports as “100 percent bulls**t.”

It doesn’t matter what the top commander thinks, or even what US intelligence admits. The public has been indoctrinated. And that is the goal.

• Most Americans Believe Russia Targeted US Soldiers (R.)

A majority of Americans believe that Russia paid the Taliban to kill U.S. soldiers in Afghanistan last year amid negotiations to end the war, and more than half want to respond with new economic sanctions against Moscow, according to a Reuters/Ipsos poll released on Wednesday. The national opinion poll conducted on Monday and Tuesday shows that the American public remains deeply suspicious of Russia four years after it tried to tip the U.S. presidential election in Donald Trump’s favor, and most Americans are unhappy with how the president has handled relations with the country.

The Reuters/Ipsos poll follows a series of reports, including several by Reuters, that Russia had been rewarding Taliban-affiliated militants, possibly by offering them bounties, to attack and kill U.S. troops in the region. Moscow denies the allegations. The New York Times and Washington Post both reported that several American soldiers were believed to have died as a result of the bounties. Trump said last week he was not told about the reported Russian effort, because intelligence officials were uncertain about its veracity. The New York Times reported that the president received written briefings about the program earlier this year, and it was also included in a widely read CIA report in May.

Overall, 60% of Americans said they found reports of Russian bounties on American soldiers to be “very” or “somewhat” believable, while 21% said they were not credible and the rest were unsure. Thirty-nine percent said they thought Trump “did know” about Russia’s targeting of the U.S. military before reports surfaced in the news media last month, while 26% said the president “did not know.” Eighty-one percent of Americans said they viewed Russian President Vladimir Putin as a threat to the United States, including 24% who saw him as an “imminent threat.” Only 35% said they approved of Trump’s handling of Russia, compared with 52% who disapproved.

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“Nearly every war that has started in the past 50 years has been a result of media lies.”

Julian Assange spent his 49th birthday behind bars alone, separated from his family, all because he dared expose US war crimes to the world.pic.twitter.com/v11ltYTaJv

— Sarah Abdallah (@sahouraxo) July 7, 2020

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Debt Rattle May 9 2018

May 092018

May 9, 2018 Posted by Raúl Ilargi Meijer at 9:10 am Finance Tagged with: Airbus, Argentina, debt slaves, Greece, IMF, Iran, marijuana, palm oil, Pompeo, rainforest, retail, Single Market, Trump 5 Responses »

Edgar Degas Two laundresses 1876

• Fed Chair Powell To Emerging Markets: You Are On Your Own (ZH)

• Argentina Seeks IMF Aid ‘To Avoid Crisis’ (BBC)

• Europe On Collision Course With US Over Iran Deal (AFP)

• Mnuchin: Revoking Boeing, Airbus Licenses To Sell Jets To Iran (R.)

• Pompeo, In North Korea, To Return With Detained Americans (R.)

• Central Banks Rigged The Cost Of Money And The State Of The Markets (Prins)

• US Student Debt Just Hit $1.5 Trillion (MW)

• The State of the American Debt Slaves, Q1 2018 (WS)

• UK PM May Suffers Upper House Defeat Over Plans To Leave EU Single Market (R.)

• UK Retailers Suffer Sharpest Sales Drop For 22 Years In April (G.)

• Sharp Drop In UK Retail Job Vacancies As High Street Crisis Deepens (Ind.)

• Cynthia Nixon: Marijuana Industry Could Be ‘A Form Of Reparations’ (Hill)

• Record Drop In Greek Savings Last Year (K.)

• Debt Repayment Feasible if Greece ‘Implements Reforms’ – Regling (AMNA)

• British Diplomats: Saving The Rainforest Could Hurt Fighter Jet Sales (UE)

As the dollar keeps rising.

• Fed Chair Powell To Emerging Markets: You Are On Your Own (ZH)

Over the weekend, when commenting on the ongoing rout in emerging markets, Bloomberg published an article titled “Rattled Emerging Markets Say: It’s Over to You, Central Bankers.” Well, overnight the most important central banker of all, Fed Chair Jay Powell responded to these pleas to “do something”, and it wasn’t what EMs – or those used to being bailed out by the Fed – wanted to hear. As Powell explained, speaking at a conference sponsored by the IMF and Swiss National Bank in Zurich, the Fed’s gradual push towards higher interest rates shouldn’t be blamed for any roiling of emerging market economies – which are well placed to navigate the tightening of U.S. monetary policy. In other words, with the Fed’s monetary policy painfully transparent, Powell’s message to EM’s was simple: “you’re on your own.”

Arguing that the Fed’s decision-making isn’t the major determinant of flows of capital into developing economies (which, of course, it is especially as the Fed gradually reverses the biggest monetary experiment in history) Powell said the influence of the Fed on global financial conditions should not be overstated, despite Bernanke taking the blame five years ago for the so-called taper tantrum. “There is good reason to think that the normalization of monetary policy in advanced economies should continue to prove manageable for EMEs,” Powell said, adding that “markets should not be surprised by our actions if the economy evolves in line with expectations.”

[..] Meanwhile, as the Fed refuses to change course, other policy makers have been forced to step in to counter the sharp, sudden capital outflows, with Argentina’s central bank abruptly raising rates three times, to 40% to halt a sell-off in the peso. Russia has also put the brakes on further monetary easing. Turkey, which is a unique basket case in that Erdogan is expressly prohibiting the central bank from doing the one thing it should to ease the ongoing panic, i.e., raise rates, is seeking to bring down its current account deficit. Overnight, we learned that Indonesia was burning reserves to prop up its currency.

Meanwhile, also overnight, JPM CEO Jamie Dimon said it’s possible U.S. growth and inflation prove fast enough to prompt the Fed to raise interest rates more than many anticipate, and it would be wise to prepare for benchmark yields to climb to 4%. Such a scenario would be a disaster for EMs: “A sustained move higher would pressure local currencies and lure away foreign investors. The IMF warned last month that risks to global financial stability have increased over the past six months.” “Central banks may have to respond with interest rate hikes if the sell-off intensifies,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research in Singapore. Those most vulnerable include Ukraine, China, Argentina, South Africa and Turkey according to the Institute for International Finance.

IMF demand: austerity. Back to the hoovervilles.

• Argentina Seeks IMF Aid ‘To Avoid Crisis’ (BBC)

Argentina is to start talks about a financing deal with the International Monetary Fund (IMF) on Wednesday amid reports it is seeking $30bn (£22bn). Finance minister Nicolas Dujovne is due to fly to the IMF’s Washington offices. After recent turmoil that saw interest rates hit 40%, President Mauricio Macri said IMF aid would “strengthen growth” and help avoid crises of the past. The talks come 17 years after Argentina defaulted on its debts and 12 years since it severed ties with IMF. Mr Macri said in an address to the nation on Tuesday: “Just a few minutes ago I spoke with (IMF) director Christine Lagarde, and she confirmed we would start working on an agreement.”

“This will allow us to strengthen our program of growth and development, giving us greater support to face this new global scenario and avoid crises like the ones we have had in our history,” he said. Local media and Bloomberg reported that Argentina was seeking $30bn, although the government declined to comment. The peso has lost a quarter of its value in the past year amid President Macri’s pro-market reforms. Last week the central bank raised interest rates from 33.25% to 40%. Many people still blame IMF austerity requirements for policies that led to a financial and economic meltdown in 2001 to 2002 that left millions of middle class Argentines in poverty. Argentina eventually defaulted on its debts. And although its last IMF loan was paid down in 2006, the country severed ties with the Washington-based body.

“US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” tweeted the US ambassador in Berlin, Richard Grenell.

• Europe On Collision Course With US Over Iran Deal (AFP)

Donald Trump’s decision to pull out of the landmark 2015 deal curbing Iran’s nuclear programme is a bitter pill to swallow for European leaders and risks a creating a major transatlantic rift. French President Emmanuel Macron, who has spent the past year cultivating the closest ties with Trump among EU leaders, made saving the Iran deal one of his priorities during his state visit to Washington last month. German Chancellor Angela Merkel had also travelled to the US in late April and she worked closely with Macron and British Prime Minister Theresa May right up to the last minute.

In a joint statement issued shortly after Trump walked away from 2015 accord, they said they noted the decision with “regret and concern” but they said they would continue to uphold their commitments. “Our governments remain committed to ensuring the agreement is upheld, and will work with all the remaining parties to the deal to ensure this remains the case,” they said. They noted that this included the “economic benefits to the Iranian people that are linked to the agreement,” which means European firms would in theory continue to invest and operate there. This would appear to set the three countries, all signatories along with Russia, China and the EU, on a direct collision course with Washington.

European leaders have clashed with the White House already on issues ranging from climate change to trade and Trump’s decision to move the US embassy in Israel to Jerusalem. Trump’s hawkish National Security Advisor John Bolton said that European firms would have a “wind down” period to cancel any investments made in Iran under the terms of the accord. “US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately,” tweeted the US ambassador in Berlin, Richard Grenell. Under the 2015 deal, Iran was meant to benefit from increased trade and contracts with foreign firms in exchange for accepting curbs on its nuclear activity and stringent monitoring.

Airbus? But it’s European. Oh: “All the deals are dependent on U.S. licenses because of the heavy use of American parts in commercial planes.”

• Mnuchin: Revoking Boeing, Airbus Licenses To Sell Jets To Iran (R.)

Licenses for Boeing Co and Airbus to sell passenger jets to Iran will be revoked, U.S. Treasury Secretary Steven Mnuchin said on Tuesday after President Donald Trump pulled the United States out of the 2015 Iran nuclear agreement. Trump said he would reimpose U.S. economic sanctions on Iran, which were lifted under the agreement he had harshly criticized. The pact, worked out by the United States, five other world powers and Iran, lifted sanctions in exchange for Tehran limiting its nuclear program. It was designed to prevent Iran from obtaining a nuclear bomb. IranAir had ordered 200 passenger aircraft – 100 from Airbus SE, 80 from Boeing and 20 from Franco-Italian turboprop maker ATR.

All the deals are dependent on U.S. licenses because of the heavy use of American parts in commercial planes. Boeing agreed in December 2016 to sell 80 aircraft, worth $17 billion at list prices, to IranAir under an agreement between Tehran and major world powers to reopen trade in exchange for curbs on Iran’s nuclear activities. The U.S. Treasury Department, which controls licensing of exports, said the United States would no longer allow the export of commercial passenger aircraft, parts and services to Iran after a 90-day period. “The Boeing and (Airbus) licenses will be revoked,” Mnuchin told reporters at the Treasury. “Under the original deal, there were waivers for commercial aircraft, parts and services and the existing licenses will be revoked.”

Are they going to say they were well treated?

• Pompeo, In North Korea, To Return With Detained Americans (R.)

U.S. Secretary of State Mike Pompeo is expected to return from North Korea with three American detainees, as well as details of an upcoming summit between leader Kim Jong Un and U.S. President Donald Trump, a South Korean official said on Wednesday. Pompeo arrived in Pyongyang on Wednesday from Japan and headed to the Koryo Hotel in the North Korean capital for meetings, a U.S. media pool report said. Trump earlier broke the news of Pompeo’s second visit to North Korea in less than six weeks and said the two countries had agreed on a date and location for the summit, although he stopped short of providing details. An official at South Korea’s presidential Blue House said Pompeo was expected to finalize the date of the summit and secure the release of the three American detainees.

While Trump said it would be a “great thing” if the American detainees were freed, Pompeo told reporters en route to Pyongyang he had not received such a commitment but hoped North Korea would “do the right thing”. “We’ll talk about it again today,” he said. “I think it’d be a great gesture if they would choose to do so.” The pending U.S.-North Korea summit has sparked a flurry of diplomacy, with Japan, South Korea and China holding a high-level meeting on Wednesday. Chinese Premier Li Keqiang said concerned parties should seize the opportunity to promote denuclearization of the Korean peninsula, the official Xinhua news agency reported.

More Nomi.

• Central Banks Rigged The Cost Of Money And The State Of The Markets (Prins)

Nomi Prins: The word “collusion” has come to be associated with Russia, Trump and the US election. My book is about something entirely different, much more global: the collusion (or coordination) that the US central bank (the Federal Reserve) forged with other major countries to fabricate an abundance of money in the wake of the 2008 financial crisis to support the US financial system at first, and banks and select companies and markets worldwide, as well, since. The Fed conjured up this money to provide liquidity for Wall Street banks. The policy was then exported to the major central banks who acted as a lender and supplier of last resort to the world.

Some of the most notable central banks include the European Central Bank (ECB), the Bank of Japan and the Bank of England. Collusion is about these powerful institutions’ relationships with each other. The book dives into how central banks rigged the cost of money and the state of the markets, and ultimately created more inequality and instability as a result. They did all of this in order to subsidize private banks at the expense of people everywhere. The book reveals the people in charge of these strategies, their elite gatherings and public and private communications. It uncovers how their policies rerouted economies, geopolitics, trade wars and elections.

How do central banks relate to the world’s markets? Central banks have several functions from an official standpoint. The first is to regulate the smooth and orderly operation of private banks or public banks within a particular country or region (the ECB is responsible for many countries in Europe). The other function they are tasked with is setting interest rates (the cost of borrowing money) so that there’s adequate economic balance between full employment and a select inflation rate. The idea is that if the cost of money is cheap enough, private banks will lend to the general population and businesses. The ultimate goal is that the money can be used to expand enterprise, hire people and develop a strong economic posture.

What cannot be repaid will not be.

• US Student Debt Just Hit $1.5 Trillion (MW)

America’s student loan problem just surpassed a depressing milestone. Outstanding student debt reached $1.521 trillion in the first quarter of 2018, according to the Federal Reserve, hitting $1.5 trillion for the first time. Though the marker is somewhat arbitrary, it offers a reminder of how quickly student debt has grown—jumping from about $600 billion 10 years ago to more than $1.5 trillion today—and that the factors fueling the increase aren’t likely to disappear any time soon. “People pay attention to milestones,” said Mark Kantrowitz, a financial aid expert. When student debt surpassed $1 trillion in 2012, “it definitely caused a shift in coverage of student loans in the news media,” he said.

In theory, that helps raise awareness of the issue for student advocates, lawmakers and, in particular, borrowers when considering what college to attend. But Kantrowitz added, “What’s more important is the impact on individual borrowers.” And they are feeling it. College graduates leave school with about $37,000 in debt on average, according to Kantrowitz’s data, a sum that can be bearable for many, given that the average starting salary for a new college graduate last year hovered around $50,000. But a large share—as many as one in six college graduates, Kantrowitz estimates—will leave school with debt that exceeds their income. That will make it challenging for those borrowers to pay off their loans on a standard 10-year repayment plan, he said.

Now let’s throw in some rate hikes, see what happens.

• The State of the American Debt Slaves, Q1 2018 (WS)

Total consumer credit rose 5.1% in the first quarter, compared to a year earlier, or by $184 billion, to $3.824 trillion (not seasonally adjusted), according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. That 5.1% year-over-year increase isn’t setting any records – in 2011, year-over-year increases ran over 11%. But it does show that Americans are dealing with the economy and their joys and woes the American way: by piling on debt faster than the overall economy is growing. The chart below shows the progression of consumer debt since 2006. In line with seasonal patterns for first quarters, consumer credit (not seasonally adjusted) edged down from Q4, as the spending binge of the holiday shopping season turned into hangover, an annual American ritual:

Note how the dip after the Financial Crisis – when consumers deleveraged mostly by defaulting on those debts – didn’t last long. Over the 10 years since Q1 2008, consumer debt has now surged 47%. Over the same period, the consumer price index has increased 16.9%: Auto loans and leases for new and used vehicles rose by 3.8% from a year ago, or by $41 billion, to $1.118 trillion. It was one of the smaller increases since the Great Recession: The peak year-over-year jumps occurred at the peak of the new vehicle sales boom in the US in Q3 2015 ($87 billion or 9%). However, the still standing records were set in Q1 and Q2 2001 near the end of the recession, with each quarter adding around $93 billion, or 16%, year-over-year.

It really makes no difference; the EU will say no anyway to all plans acceptable to the UK.

• UK PM May Suffers Upper House Defeat Over Plans To Leave EU Single Market (R.)

Britain’s upper house of parliament on Tuesday inflicted another embarrassing defeat on Prime Minister Theresa May’s government on Tuesday, challenging her plan to leave the European Union’s single market after Brexit. May, who has struggled to unite the government behind her vision of Brexit, has said Britain will also leave the European Union’s single market and customs union after it quits the bloc next March. That stance has widened divisions not only within her own Conservative Party but also across both houses of parliament, which like Britons at large, remain deeply split over the best way to leave the EU after more than four decades of membership.

By a vote of 245 to 218, the unelected upper chamber, the House of Lords, supported an amendment to her Brexit blueprint, the EU withdrawal bill, requiring ministers to negotiate continued membership of the European Economic Area, meaning that it would remain in the single market. “The time has come over Brexit, really, for economic reality and common sense to prevail over political dogma and wishful thinking,” said Peter Mandelson, a member of the House of Lords from the main opposition Labour Party, who backed the amendment.

His comments drew criticism from pro-Brexit peers, including Conservative member Michael Forsyth who described the amendment as part of an attempt by “a number of people in this house who wish to reverse the decision of the British people”. Those proposing the amendment deny the charge. This is the 13th time in recent weeks that the government has been defeated in the House of Lords on the draft legislation that will formally terminate Britain’s EU membership.

Must have been the weather.

• UK Retailers Suffer Sharpest Sales Drop For 22 Years In April (G.)

Britain’s retailers suffered the sharpest drop in business in more than two decades last month as bad weather, the squeeze on household budgets and the timing of Easter led to a hefty cut in consumer spending. In the latest evidence of the slowdown in the economy since the turn of the year, the latest health check from the British Retail Consortium (BRC) and KPMG found that sales were down by 3.1% in April, the biggest decline since the survey was launched in 1995. Spending on non-food items has been particularly hard hit over the last three months, and retailers are braced for tough trading conditions to continue for the rest of the year even though wages have now started to rise more quickly than prices.

Retailers have been hit hard by a combination of problems on top of the squeeze on spending, including higher labour costs as a result of increases in the minimum wage, the shift to online shopping and rapidly changing spending patterns. Toys R Us and the electricals retailer Maplin collapsed in February and a number of retailers, including House of Fraser, New Look, Carpetright and Poundworld, are all pursuing agreements with their landlords to cut their rents and close stores. The industry had been expecting that year-on-year comparisons would look poor for April, but the BRC’s chief executive, Helen Dickinson, said the problem ran deeper.

Pickers and packers.

• Sharp Drop In UK Retail Job Vacancies As High Street Crisis Deepens (Ind.)

Wages rose in April amid strong demand for candidates, but the number of retail vacancies dropped sharply as the crisis on the high street worsened, a recruitment industry survey has found. Growth of overall job vacancies picked up to a three-month high in April, the Recruitment and Employment Confederation said. Demand for permanent staff increased in the “vast majority” of job categories during the month, with the notable exception of retail, the REC said. The study of 400 recruitment consultancies found that engineering and IT saw the steepest increases in vacancies. REC director of policy Tom Hadley said the high-profile struggles of many retailers indicated it was a good time for staff to consider how they could transfer their skills into other roles, such as in the technology sector or as pickers and packers in distribution centres. “Helping people make career transitions will become increasingly important in this fast-changing business and employment landscape,” he said.

Smart.

“..In New York in 2017, 86% of fifth-degree marijuana arrests were of people of color, while only 9% of those arrested were white..”

• Cynthia Nixon: Marijuana Industry Could Be ‘A Form Of Reparations’ (Hill)

New York gubernatorial candidate and actress Cynthia Nixon on Saturday expanded on her calls for marijuana legalization, saying that the industry could provide a form of “reparations” for communities of color. Nixon, who expressed her support for legalizing marijuana earlier this year, told Forbes that she views marijuana as a racial justice issue. “We’re incarcerating people of color in such staggering numbers,” she said. She expressed support for what is known as an “equity” program, which would prioritize giving marijuana business licenses to people who have received marijuana convictions in the past. “Now that cannabis is exploding as an industry, we have to make sure that those communities that have been harmed and devastated by marijuana arrests get the first shot at this industry,” she told Forbes.

“We [must] prioritize them in terms of licenses. It’s a form of reparations.” In New York in 2017, 86% of fifth-degree marijuana arrests were of people of color, while only 9% of those arrested were white, despite data showing that black and white people are about equally likely to use marijuana. “Arresting people — particularly people of color — for cannabis is the crown jewel in the racist war on drugs and we must pluck it down,” she said. “We must expunge people’s records; we must get people out of prison.” “The use of marijuana has been effectively legal for white people for a really long time,” she told Forbes. “It’s time that we legalize it for everybody else.”

Everything keeps going down. It’s guaranteed.

• Record Drop In Greek Savings Last Year (K.)

Household savings shrank by 32.5 billion euros in total in the period from 2011 to 2017, as families increasingly resorted to dipping into their deposits after finding that disposable incomes are no longer enough to cover their outgoings. Last year the drop in savings reached an historic high of 8.3 billion euros in current prices, according to an analysis by Eurobank. In addition, households have resorted to liquidating assets such as properties, deposits, shares and bonds, among other investments. Notably consumption shrank by almost a quarter from 2008 to 2017, falling from 163.3 billion euros to 123.3 billion last year, which was the sixth in a row with negative savings for Greek households; this means that disposable income was less than consumption.

Eurobank data showed that the wealth of the country’s households has been in constant decline since 2011, falling at an average rate of 6.6 billion euros per year, which is transformed from various forms of savings into consumption. The report by Eurobank’s analysis department highlighted that the economic recession, the stagnation in investments and the major fiscal adjustment Greece experienced from 2009 to 2017 have compressed households’ saving capacity, both in terms of incomes and their obligations to the state through taxes and social security contributions.

The figures reveal that Greek households’ net annual savings amounted to 11.4 billion euros in 2009, or 7% of their gross disposable income, while last year the balance was negative by 8.3 billion, or 6.7% of households’ gross disposable income. Shrinking private consumption has had a direct impact on investments: In 2009 investments had amounted to 18.3% of GDP and were 31.8% funded by domestic consumption and the rest from borrowing. In 2017 the investment rate slipped to 11.6% of GDP, with domestic consumption accounting for 91.1%.

Delusional or lying to our faces?

• Debt Repayment Feasible if Greece ‘Implements Reforms’ – Regling (AMNA)

“If the government in Athens implements all the remaining reforms decisively, Greece can successfully emerge from the ESM program in August 2018,” Klaus Regling, president of the European Stability Mechanism, has said. The ESM chief spoke at en event held in Aachen, Germany on the occasion of the awarding of the 60th International Charlemagne Prize to French President Emmanuel Macron. Regling expressed confidence that Greece could repay its loans, provided the maturity times are sufficiently extended and the obligations do not exceed 15-20% of the country’s economic performance. The ESM chief said that if the latest report on Greece’s bailout program is positive, there will be a final disbursement from the ESM, and then decisions will be made on possible further debt relief.

He argued that there was absolutely no alternative to the establishment of the rescue mechanism, without which, as he said, Greece, Portugal and Ireland would have probably come out of Economic and Monetary Union under “chaotic conditions,” while at the same time other countries such as Germany, would have problems. Regling also stressed that ESM interest rates are clearly below the level that countries would have to pay in the markets, and that is why they save a lot of money. In the case of Greece, “we estimate that ESM loans lead to savings of almost €10 billion [$11.8 billion] each year for the Greek budget”, he said and stressed that this is happening costing nothing to the European taxpayer.

“These savings are an expression of the solidarity shown by the member states of the euro zone,” he said, and referred to “great efforts” that Greece is making to fulfill the strict reform conditions. “Overall, Greece now has impressive adaptation efforts behind it. The budget deficit at the start of the 2009 crisis was above 15% of GDP. For two years, the country has been generating a budget surplus. Such a success is only possible with profound reforms,” Regling noted and said that if Greece implements all reforms, eurozone finance ministers would give Greece further debt relief, namely longer repayment times.

Finally, explaining the reasons why Greece remains in a program while the other countries have completed their own, referred to the country as a “special case” for three reasons: “Firstly, the Greek economy has had problems that are deeper rooted than for other countries in a program. Secondly, the country suffered from a much weaker public administration than the other eurozone member states. “And thirdly, the Greek government in the first half of 2015 went in the wrong direction with then finance minister (Yanis Varoufakis): major reforms were revoked and an effort was made to stop the agreed reform program. “As a result, the Greek economy had fallen into a recession. Grexit suddenly became a realistic scenario. The Bank of Greece estimates that this wrong move cost Greece €86 billion.”

How we think.

• British Diplomats: Saving The Rainforest Could Hurt Fighter Jet Sales (UE)

British government officials warned a proposed EU ban on palm oil in biofuels could harm UK defence sales to Malaysia, specifically Typhoon fighter jets, according to government emails obtained by Unearthed. The correspondence reveals that the British high commission in Kuala Lumpur even expected Malaysian Prime Minister Najib Razak to lobby Theresa May personally on the issue at last month’s Commonwealth Heads of Government meeting. In the event, Razak did not attend the meeting in London, a Number 10 spokeswoman told Unearthed. Correspondence between the Ministry of Defence, the Department for Environment, Food and Rural Affairs and the British high commission reveals British officials were concerned that EU moves to ban palm oil in biofuels could result in Malaysian trade reprisals against the UK.

MEPs voted in January to phase out the use of palm oil in biofuels, citing environmental concerns. The move sparked a furious response from the governments of Indonesia and Malaysia, which produce most of the world’s palm oil. The debate over palm oil is playing a significant role in the run-up to Malaysia’s general election, which will be held tomorrow. On the morning of 5 February, an official at the British high commission in Malaysia sent an email warning that the EU decision was “a big issue for Malaysia and, if not handled correctly, has the potential to impact on bilateral trade, particularly defence sales (Typhoon)”.

Debt Rattle April 2 2018

Apr 022018

April 2, 2018 Posted by Raúl Ilargi Meijer at 9:58 am Finance Tagged with: Bolton, bubble, China, crypto, Facebook, gloom, Google, Middle East, psychopaths, retail, tariffs, warming 10 Responses »

John La Farge Girls Carrying a Canoe, Vaiala in Samoa 1891

• China Announces New Tariffs On 128 US Products (CNBC)

• The Real Bubble (ZH)

• Cryptocurrencies: Nothing Goes To Heck In A Straight Line (WS)

• Easter Shoppers Desert UK High Streets, Spreading Retail Gloom (G.)

• Trouble For Big Tech As Consumers Sour On Amazon, Facebook And Co (G.)

• Google, Facebook Too Big To Be Governed, Could Be Dismantled – Macron (Ind.)

• The Middle East Is Doomed (Ehsani)

• This Is How We End Up With John Bolton (CJ)

• Two Degrees No Longer Seen As Global Warming Guardrail (AFP)

Feels like China’s just going through the motions.

• China Announces New Tariffs On 128 US Products (CNBC)

China is implementing new tariffs on meat, fruit and other products from the U.S. as retaliation for American duties, heightening fears of a potential trade war between the world’s two largest economies. Beijing’s latest move, announced by its finance ministry in a statement dated April 1, is direct retaliation against taxes approved by President Donald Trump on imported steel and aluminum. Chinese officials had been warning over the last few weeks that their country would take action against the U.S. The tariffs begin on Monday, the finance ministry statement said. China’s Customs Tariff Commission is increasing the tariff rate on pork products and aluminum scrap by 25 percent. It’s also imposing a new 15 percent tariff on 120 other imported U.S. commodities, from almonds to apples and berries.

All told, the extra tariffs will hit 128 kinds of U.S. products, multiple outlets reported. The list of new duties matches the proposed list released by the government on March 23, according to Reuters. At that time, China said the affected U.S. goods had an import value of $3 billion in 2017 and included wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol and ginseng. The decision to target $3 billion in U.S. imports is significant, but it’s widely seen as a drop in the ocean given the size of the bilateral trading relationship. U.S. goods exported to China in 2016 totaled $115.6 billion, according to official data. China’s retaliation is “a statement of intent … but it’s not an escalation in our opinion,” Steve Brice, chief investment strategist at Standard Chartered Private Bank, told CNBC on Monday.

One of many, really.

• The Real Bubble (ZH)

After a seemingly unstoppable surge higher for years, March was a tough one for tech stocks, as the curtain was lifted exposing Oz-like machinations behind the scenes that spooked investors enough to pop the bubble of delusion so many were living in. After a magnificent 2017, Cryptocurrencies also started 2018 off poorly as yet another ‘bubble’ popped. However, there was one ‘asset’ that had a tremendous 2017, and has gone on to greater and bubblier things in 2018. Spot the real bubble in financial markets… Bitcoin has bust, FANG stocks are FUBAR, but The SNB is accelerating.

As we noted previously, The SNB made 32 times more than 85 Swiss private banks… and owns a record $100 billion-plus of American stocks… $11,589.01. – That’s the US dollar amount of American stocks the Swiss National Bank owns on behalf of every man, woman and child in Switzerland. Let that sink in. A Central Bank has taken on itself to expand its balance sheet and invest in the proceeds, not in gold, nor sovereign debt – heck not even in corporate bonds. Nope, the SNB has taken it upon itself to “invest” that money in another country’s most risky part of the capital structure – equity. And don’t think it’s a small number. It’s almost $100 billion US dollars.

In a strange twist of fate, the Swiss National Bank is not only Switzerland’s Central Bank, but also a publicly traded security. And that ‘security’ has had a great year so far – up a stunning 93%…

However, as Holger Zschaepitz notes, the market cap of the Swiss National Bank remains below CHF1bn amidst a profit of CHF54.4bn. But that didn’t stop investors piling in to The SNB in March as a ‘safe haven’ as the rest of the world collapsed… As Macro Tourist’s Kevin Muir concluded previously, I worry that right now, Central Banks are being rewarded for keeping their balance sheets as big and risky as they can stomach. It appears to be a trade with no cost, and in fact, helps out by both keeping their currency weak, and in the meantime, making some money. It encourages them to be extremely slow easing off the accelerator. The idiocy of Central Banks taking this sort of risk is beyond description, but no sense arguing about it – it is what it is.

65%.

• Cryptocurrencies: Nothing Goes To Heck In A Straight Line (WS)

I don’t think there has ever been an entire sector that skyrocketed as much and collapsed as quickly as the cryptocurrency space. The skyrocketing phase culminated at the turn of the year. Then the collapse phase set in, with different cryptos choosing different points in time. It doesn’t help that regulators around the world have caught on to these schemes called initial coin offerings (ICOs), where anyone, even the government of Venezuela, can try to sell homemade digital tokens to the gullible and take their “fiat” money from them and run away with it. There are now 1,596 cryptocurrencies and tokens out there, up from a handful a few years ago. And the gullible are getting cleaned out.

And it doesn’t help that the ways to promote these schemes are being closed off, one after the other. At the end of January, Facebook announced that, suddenly, “misleading or deceptive ads have no place on Facebook,” and it prohibited ads about ICOs and cryptos. On March 14, Google announced that it will block ads with “cryptocurrencies and related content,” including ICOs, cryptocurrency exchanges, cryptocurrency wallets, and cryptocurrency trading advice. Its crackdown begins in June. On March 26, Twitter announced that it would ban ads of ICOs, cryptocurrency exchanges, and cryptocurrency wallet services, unless they are by public companies traded on major stock markets. It will roll out its policy over the next 30 days.

On March 29, MailChimp, a major email mass-distribution service, announced that it will block email promos from businesses that are “involved in any aspect of the sale, transaction, exchange, storage, marketing or production of cryptocurrencies, virtual currencies, and any digital assets related to an Initial Coin Offering.” This broadened and tightened its policy announced in February that promised to shut down any account related to promos of ICOs or blockchain activity. The overall cryptocurrency space, in terms of market capitalization, peaked on January 4, when market cap reached $707 billion, according to CoinMarketCap. Less than three months later, market cap has now plunged by 65% to $245 billion. $462 billion went up in smoke.

It’s hard to accept that your entire country is pushing up daisies. But you got to sell your paper. So you get a real heavy headline, and then quote someone saying: “..the numbers were “generally pretty good news for retailers”..

• Easter Shoppers Desert UK High Streets, Spreading Retail Gloom (G.)

The gloom on Britain’s high streets deepened over the Easter bank holiday weekend as heavy rain in many areas drove people to seek the shelter of shopping centres or simply stay at home. The number of shoppers on UK high streets on Easter Sunday morning slumped by over 12% compared with 2017, according to retail intelligence firm Springboard. That followed a disappointing Good Friday, when high street footfall fell by 9.6%. Saturday was little better, with footfall down 6.9% year-on-year. This weekend had been billed as the most anticipated weekend for retail since Christmas, but Springboard said bad weather in some parts of the country had “definitely hit high streets”, and pulled the overall result for all UK shopping destinations down into minus figures.

A week ago Springboard predicted that this Easter weekend’s UK retail footfall could end up 2.4% higher than last year’s, though it had said this assumed “normal weather”. It added that if freezing conditions similar to those caused by the “beast from the east” returned, all bets were off. In the event wet weather sent a chill through the high streets, meaning footfall across all shopping destinations was down 2.4% on Good Friday and 3% lower on Saturday. However, retail parks and shopping centres typically enjoyed better fortunes than they did last year. Diane Wehrle, Springboard’s marketing and insights director, said the rain kept many people away from their local high street shops. But “at the same time, people did go shopping” rather than staying at home and browsing the web.

She said the numbers were “generally pretty good news for retailers”, many of whom would be quite heartened by the numbers of shoppers out on Good Friday and Holy Saturday. With predictions of snow in some parts of the country for Easter Monday, many retailers will be crossing their fingers and hoping that conditions are not too challenging. Last week it emerged that high street sales had slumped at the fastest rate for early spring in at least five years, as cold and snowy weather kept people away from the shops. Wehrle said of Easter Monday: “If it starts off dry in the morning, that will shape the day. If people wake up and it’s snowing, that will be it.”

“..for shareholders and pension plans, the tarnishing of tech could have serious consequences.”

• Trouble For Big Tech As Consumers Sour On Amazon, Facebook And Co (G.)

Trump is going after Amazon; Congress is after Facebook; Google is too big, and Apple is short of new products. Is it any surprise that sentiment toward the tech industry giants is turning sour? The consequences of such a readjustment, however, may be dire. The past two weeks have been difficult for the tech sector by every measure. Tech stocks have largely driven the year’s stock market decline, the largest quarterly drop since 2015. Facebook saw more than $50bn shaved off its value after the Observer revealed that had harvested millions of people’s user data for political profiling. Now users are deleting accounts, and regulators may seek to limit how the company monetizes data, threatening Facebook’s business model.

On Monday, the Federal Trade Commission confirmed it was investigating the company’s data practices. Additionally, Facebook said it would to London to appear in front of UK lawmakers, but it would not send the chief executive, Mark Zuckerberg, who is increasingly seen as isolated and aloof. Shares of Facebook have declined more than 17% from the close on Friday 16 March to the close on Thursday before the Easter break. Amazon, meanwhile, long the target of President Trump’s ire, saw more than $30bn, or 5%, shaved off its $693bn market capitalization after it was reported that the president was “obsessed” with the company and that he “wondered aloud if there may be any way to go after Amazon with antitrust or competition law”.

Shares of Apple, and Google’s parent company Alphabet, are also down, dropping on concerns that tech firms now face tighter regulation across the board. For Apple, there’s an additional concern that following poor sales of its $1,000 iPhone X. For Google, there’s the prospect not only of tighter regulation on how it sells user date to advertisers, but also the fear of losing an important Android software patent case with Oracle. Big tech’s critics may be forgiven a moment of schadenfreude. But for shareholders and pension plans, the tarnishing of tech could have serious consequences.

More on the article in yesterday’s Debt Rattle.

• Google, Facebook Too Big To Be Governed, Could Be Dismantled – Macron (Ind.)

Emmanuel Macron, the French president, has warned that Google and Facebook are becoming too big to be governed and could face being dismantled. Internet giants could be forced to pay for the disruption they cause in society and submit to French or European privacy regulations, he suggested. In an interview with the magazine Wired, the president warned that artificial intelligence (AI) would challenge democracy and open a Pandora’s box of privacy issues. He was speaking after announcing a €1.5bn (£1.32bn) investment in artificial intelligence research to accelerate innovation and catch up with China and the US.

Mr Macron said companies such as Google and Facebook were welcome in France, brought jobs and were “part of our ecosystem”. But he warned: “They have a very classical issue in a monopoly situation; they are huge players. At a point of time – but I think it will be a US problem, not a European problem – at a point of time, your government, your people, may say, ‘Wake up. They are too big.’ “Not just too big to fail, but too big to be governed. Which is brand new. “So at this point, you may choose to dismantle. That’s what happened at the very beginning of the oil sector when you had these big giants. That’s a competition issue.”

We don’t know nearly enough on ME economies. So this is a real good find.

• The Middle East Is Doomed (Ehsani)

Authored by “Ehsani” – a Middle East expert, Syrian-American banker and financial analyst who visits the region frequently and writes for the influential geopolitical analysis blog, Syria Comment.

* * *

The Mideast is doomed. Egypt alone needs to create 700,000 jobs every single year to absorb the new job seekers out its 98 million population. A third of this population already live below the poverty line (482 Egyptian Pounds a month, which is less than $1 a day). The seeds of the vicious circle that the Mideast region finds itself in today were planted at least 5 decades ago. Excessive public spending without matching revenues were the catalyst to a faulty and dangerous incentive system that helped to balloon populations beyond control. A governance system that was ostensibly put in place to help the poor ended up being a built-in factory for poverty generation. Excessive subsidies helped misallocate resources and mask the true cost of living for households. Correlation between family size and income was lost.

Successive Mideast leaders are often referred to as evil dictators. I see them more as lousy economists and poor users of simple arithmetic and excel spreadsheets that can help demonstrate the simple, yet devastating power of compounding. Unless you are a Gulf-based monarchy enjoying the revenue stream from oil and gas that can postpone your day of reckoning, the numbers in nearly every single Arab country don’t add up. t is important to note that excessive population growth is not fundamental the issue here. Japan and many parts of Europe are suffering from too little population growth. The problem in Arab societies is lack of productivity stemming from weak private sector and overburdened bankrupt public sector. As students of Economics know, “Potential” Economic Growth of a country is derived by adding the growth rate of its labor force to the growth rate of the economy’s productivity.

High labor force growth therefore ought to be a plus for the “Potential Growth”. The Arab World’s problem is that it suffers from shockingly low levels of “productivity”. This may seem like a fancy word but the concept encapsulates everything that Arab economies and societies suffer from. Why does the Arab world have such low productivity? The answer lies in everything from excessive size of public sector, subsidies and overbearing regulatory system leading to corruption. As public sector liabilities grow, education, healthcare & infrastructure funding suffers. Why is the size of the public sector coupled with excessive subsidies the problem? Because what starts as the noble cause of helping the poor ends up masking the true costs of raising family size. Governments soon go broke. Services suffer. Anger rises. We know the drill now.

Dead on, Caitlin.

• This Is How We End Up With John Bolton (CJ)

A GoFundMe for former FBI Deputy Director Andrew McCabe, who was fired two weeks ago by Attorney General Jeff Sessions, has raised over $400,000 in less than a day. Another way to say that would be that a former officer from the US intelligence community, who is married to a successful physician and will surely receive a book deal worth millions of dollars, just had a charity drive which in less than a day raised an amount of money it would take the average American years to earn. Meanwhile, an impoverished American recently died because his GoFundMe failed to raise enough money for his insulin and an FBI whistleblower was just arrested for trying to bring transparency to the Bureau’s secret domestic surveillance practices while banks receive massive bailouts, global fossil fuel subsidies total trillions of dollars, and Amazon paid zero federal taxes last year despite earning billions.

Even leaving aside the reasons for McCabe’s firing and the shady dealings he was accused of, this is a very solid illustration of everything that is sick about the United States of America. In America you have socialism for the rich and capitalism for the poor. You have government secrecy for the powerful and surveillance for the powerless. You have charity for wealthy establishment lackeys and rugged individualism for ordinary human beings. Those at the top are uplifted even further, while those on the bottom are stomped through the floor.

Julian Assange is currently under siege in the Ecuadorian embassy, deprived of mobility, sunlight and healthcare, and now internet, phone calls and visitors, all because he dared to bring some transparency to the powerful. Meanwhile the intelligence and defense agencies who serve as the armed goon squad of the wealthy and the powerful are able to kill, destroy and pillage from behind the opaque walls of near-total government secrecy in the name of “national security”. And instead of defending the single defenseless man who speaks truth to power, mainstream media reporters around the world are spitting on him in near-unanimity because he hurts power’s feelings.

This is how we end up with John Bolton, people. This is the “kiss-up, kick-down” pathway to success that elevates bloodthirsty psychopaths like John Bolton, the worst of the worst, the ones willing to do the most killing on behalf of the powerful and the most stomping on the powerless to get to the top. This has become the unquestioned pathway in every sphere of public life. We have a situation now where the highest echelons of power are not the wisest among us, but the wiliest. The fourth estate is full of everyday people who at one point presumably believed they were there to bring truth to power, stomping on the silvery head of one who does, while sucking up to the very power that he regularly embarrasses with his leak drops.

All the stuff we should do but don’t. Should we instead ask why we don’t? All the ‘it’s not too late’ talk certainly doesn’t help.

• Two Degrees No Longer Seen As Global Warming Guardrail (AFP)

Limiting global warming to two degrees Celsius will not prevent destructive and deadly climate impacts, as once hoped, dozens of experts concluded in a score of scientific studies released Monday. A world that heats up by 2C (3.6 degrees Fahrenheit) – long regarded as the temperature ceiling for a climate-safe planet – could see mass displacement due to rising seas, a drop in per capita income, regional shortages of food and fresh water, and the loss of animal and plant species at an accelerated speed. Poor and emerging countries of Asia, Africa and Latin America will get hit hardest, according to the studies in the British Royal Society’s Philosophical Transactions A.

“We are detecting large changes in climate impacts for a 2C world, and so should take steps to avoid this,” said lead editor Dann Mitchell, an assistant professor at the University of Bristol. The 197-nation Paris climate treaty, inked in 2015, vows to halt warming at “well under” 2C compared to mid-19th century levels, and “pursue efforts” to cap the rise at 1.5C. UN Secretary-General Antonio Guterres on Thursday said climate change was “the most systemic threat to humankind”. With only one degree of warming so far, Earth has seen a crescendo of droughts, heatwaves, and storms ramped up by rising seas. Voluntary national pledges made under the Paris pact to cut CO2 emissions, if fulfilled, would yield a 3C world at best.

The treaty also requires that – by the end of the century – humanity stop adding more greenhouse gases to the atmosphere than oceans and forests can absorb, a threshold known as “net zero emissions”. “How fast we get to a 2C world” is critical, Mitchell told AFP. “If it only takes a couple of decades, we will be in trouble because we won’t have time to adapt to the climate.” [..] Researchers led by Felix Pretis, an economist at the University of Oxford, predict that two degrees of global warming will see GDP per person drop, on average, 13% by 2100, once costly climate change impacts are factored in. A 2ºC world will also “show significant negative impact on the rates of economic growth,” Pretis told AFP.

Debt Rattle October 27 2017

Oct 272017

October 27, 2017 Posted by Raúl Ilargi Meijer at 9:33 am Finance Tagged with: Ardern, Catalonia, CIA, Draghi, Gilded Age, JFK, kindness, Minsky, retail, unwind 2 Responses »

Salvator Rosa Lucrezia as poetry 1640-41

• The World’s Witnessing A New Gilded Age (G.)

• ECB Sees Option for Ending QE With Short Taper in 2018 (BBG)

• The Fed Balance Sheet Unwind Myth (Roberts)

• Alarm Sounds Over State Of UK High Street As Sales Crash (G.)

• 75% of UK MPs Don’t Know Where Money Comes From (CityAM)

• China’s Minsky Moment (Muir)

• Catalonia’s Leader Rules Out Snap Election, Crisis Deepens (R.)

• Catalan Companies Face Boycott Over Independence Push (AFP)

• New JFK Files Reveal FBI Warning On Oswald And Soviets’ Missile Fears (G.)

• Australian Court Rules Deputy PM Ineligible For Parliament (R.)

• ‘I Want The Government … To Bring Kindness Back’ (RNZ)

A hundred years ago.

• The World’s Witnessing A New Gilded Age (G.)

The world’s super-rich hold the greatest concentration of wealth since the US Gilded Age at the turn of the 20th century, when families like the Carnegies, Rockefellers and Vanderbilts controlled vast fortunes. Billionaires increased their combined global wealth by almost a fifth last year to a record $6tn – more than twice the GDP of the UK. There are now 1,542 dollar billionaires across the world, after 145 multi-millionaires saw their wealth tick over into nine-zero fortunes last year, according to the UBS/PwC Billionaires report. Josef Stadler, the lead author of the report and UBS’s head of global ultra high net worth, said his billionaire clients were concerned that growing inequality between rich and poor could lead to a “strike back”. “We’re at an inflection point,” Stadler said. “Wealth concentration is as high as in 1905, this is something billionaires are concerned about.

The problem is the power of interest on interest – that makes big money bigger and, the question is to what extent is that sustainable and at what point will society intervene and strike back?” Stadler added: “We are now two years into the peak of the second Gilded Age.” He said the “$1bn question” was how society would react to the concentration of so much money in the hands of so few. Anger at so-called robber barron families who built up vast fortunes from monopolies in US rail, oil, steel and banking in the late 19th century, an era of rapid industrialisation and growing inequality in America that became known as the Gilded Age, led to President Roosevelt breaking up companies and trusts and increasing taxes on the wealthy in the early 1900s. “Will there be similarities in the way society reacts to this gilded age?,” Stadler asked. “Will the second age end or will it proceed?”

We’re doing so well we need to keep throwing money at bankers.

• ECB Sees Option for Ending QE With Short Taper in 2018 (BBG)

European Central Bank policy makers implicitly assume their newly-extended bond-buying program will be tapered to a halt by the end of next year so long as the inflation outlook improves, according to officials with knowledge of the discussions. The Governing Council, which met on Thursday, focused on the first nine months of next year for its quantitative-easing program and didn’t formally debate options for what to do after that, said the people, asking not to be named because the talks are private. While tapering would be possible, extending the program without changing the pace of purchases is also a credible option if inflation doesn’t show sufficient progress, one of them said. Whether to set a firm end-date on the bond-buying program has been a key sticking point for some officials.

The council agreed to cut monthly purchases in half, to €30 billion ($35 billion), and President Mario Draghi said that a “large majority” backed the decision to include a pledge to extend again if needed. He added that “it’s never been our view that things should stop suddenly.” The meeting came after governors were presented with several scenarios at a seminar on Wednesday, according to the people. Those included a reduction to 40 billion euros a month through June, and a 12-month tapering through December, similar to the Federal Reserve’s exit from its own program. The latter scenario wasn’t considered a realistic policy option, one of the people said. Governors also looked at a three-month scenario that would see buying after September tapered in monthly steps to 20 billion euros, 10 billion euros and 5 billion euros, another official said.

“..In fact, just last week the Fed increased their balance sheet by over $13.5 billion dollars. No wonder the stock market shot higher.”

• The Fed Balance Sheet Unwind Myth (Roberts)

Since the beginning of the year, the Federal Reserve has been heavily discussing, warning rather, they were going to begin to “unwind” their gargantuan balance sheet. As Michael Lebowitz recently penned in his subscription-only article “Draining The Punchbowl:” “Since QE was first introduced, the S&P 500 has gained 1,546 points. All but 355 points were achieved during periods of QE. Of those remaining 355 points, over 80% occurred after Trump’s victory.” That is a pretty amazing set of stats. I have previously noted the high correlation of the financial markets relative to the ongoing liquidity operations of the Federal Reserve. I have updated that analysis to show the reduction in the balance according to the Fed’s proposed schedule.

While the market stumbled following the end of QE in the United States, global QE, as shown in the charts of the major global Central Banks picked up the slack.

But now, the ECB has already begun discussing their plans to begin cutting the amount of their QE program by half in the coming year. The hope, of course, by Central Bank officials is that global economies are now humming along at a pace strong enough to withstand the reduction of “emergency measures.” Of course, the real question is whether the Central Bank’s “measures” of economic strength are accurate. While there are certainly indicators such as GDP growth, production, and employment measures which suggests that global economies are indeed on a cyclical upswing, there are also numerous measures which suggest the opposite.

With the Fed trying to raise interest rates, and reduce the balance sheet simultaneously, the “tightening of monetary policy” is a drag on economic growth and ultimately the stock market. But as I stated above, while the Fed is currently “discussing” the reduction of their balance sheet beginning in October, they actually haven’t. In fact, just last week the Fed increased their balance sheet by over $13.5 billion dollars. No wonder the stock market shot higher.

It’s the weather. Too warm to shop.

• Alarm Sounds Over State Of UK High Street As Sales Crash (G.)

The fastest monthly fall in high street sales since the height of the recession in 2009 has raised fears for the retail sector ahead of the crucial Christmas trading period. A survey by the the CBI found that 50% of retailers suffered declining sales in October while only 15% benefited from an increase, leaving a rounded balance of -36%, the lowest since March 2009. The business lobby group said the survey showed retailers were “feeling the pinch” from rising inflation, which has eaten into consumer incomes and squeezed profit margins. Uncertainty surrounding the outcome of the UK’s Brexit negotiations has also preyed on consumer confidence, which has declined sharply over the past 18 months and depressed spending. Figures estimating GDP growth in the third quarter showed the services sector holding up despite recent declines in wages adjusted for inflation.

However, the construction sector fell into recession. Rain Newton-Smith, the CBI chief economist, said: “While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand.” The gloomy CBI survey came as Debenhams warned of an “uncertain” environment on the high street in the run up to Christmas after suffering a 44% dive in profits. [..] Warm autumn weather and low consumer confidence in the wake of the Brexit vote have also combined to deliver a “grim” October, according to the John Lewis boss, Paula Nickolds, who revealed last week that shoppers are continuing to put off expensive household purchases. That comes after the UK retail sector recorded its lowest growth rate in four years for the three months to the end of September, according to official data.

Maube the Bank of England should send them their reports?

• 75% of UK MPs Don’t Know Where Money Comes From (CityAM)

Only 15% of MPs surveyed answered correctly when asked a true/false question on whether banks create money when they make loans. Almost two-thirds of the 50 MPs surveyed by Dods for campaign group Positive Money wrongly thought banks can’t create money, while a quarter admitted they didn’t know. In a far from stellar field Conservative MPs outperformed slightly “in this regard”, with 19% answering correctly, compared to only one in 20 Labour MPs. More than three-quarters of the MPs surveyed incorrectly believed that only the government has the ability to create new money. Some 23% knew this to be false, with Labour performing better than the Conservatives. The Bank of England has previously intervened to point out that most money in the UK begins as a bank loan.

In a 2014 article the Bank pointed out that “whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” The perception of money creation has been complicated further by the unorthodox use of quantitative easing, in which the government creates money electronically, which is then used to buy financial assets. Fran Boait, executive director of Positive Money, said: “Despite their confidence in telling the public that there is ‘no magic money tree’ to pay for vital services, politicians themselves are shockingly ignorant of where money actually comes from. “There is in fact a ‘magic money tree’, but it’s in the hands of commercial banks, such as Barclays, HSBC and RBS, who create money whenever they make loans.”

The difference between short and long term.

• China’s Minsky Moment (Muir)

Sometimes you have to love the naivety of the markets. At this week’s Communist Party Congress meeting in Beijing, the governor of the PBoC (People’s Bank of China) said the following; “If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.” Yet instead of focusing on this dire warning, markets are busy trying to discount the chance of a Powell Fed or a Republican tax cut. Although both of these developments would be important, China is the tail that wags the dog. Full stop. Figure out China, and all the other financial market forecasts become that much easier. Some might argue this “Minsky moment” warning is nothing more than a Central Bank whistling in the wind.

Didn’t Greenspan caution about a similar concern with his “irrational exuberance” speech? And didn’t that end up being a complete non-event? Yet I would argue that China is not the same as other countries. Although there are market elements to their economy, to a large degree, China is still a command economy. If Chinese leadership wants a particular outcome, they can just demand it, and it will happen. So when the head of the PBoC warns about a “Minsky moment”, it’s probably not a good idea to load up on financial assets. For the longest time, China exported goods and imported developed nation debt and other financial assets. They had already started down the road of re-balancing their economy away from this export driven model, but this recent development confirms that the old playbook should be thrown out the window.

The global financial system is changing, and China is leading the way. Their moves will reverberate for years in the future. The Chinese authorities have just put up the warning flag, and you would be foolish to not believe it. This long term warning coincides with my belief that over the short term, the risks are all to the downside. I have been banging the drum on the fact that the Chinese government have done everything in their power to keep markets stabilized through their Communist Party Congress. They haven’t even hidden this fact. From the big sign above the Shenzhen Securities Exchange building that read “Use every effort to protect the stability of stock market for 20 days,” to the recent release that the Chinese government has asked firms to delay bad result during Congress, the message is clear.

Too many last minute turnarounds. But still explosive.

• Catalonia’s Leader Rules Out Snap Election, Crisis Deepens (R.)

Catalonia’s leader Carles Puigdemont on Thursday said he would not hold a new regional election to break the deadlock between Madrid and separatists wanting to split from Spain, sharpening a political crisis that could turn into direct confrontation. Puigdemont had been expected to announce an election to head off moves by Madrid to take direct control of the autonomous region in the next few days. But, speaking in the courtyard of the regional government headquarters in Barcelona, Puigdemont said the central government had not provided sufficient guarantees that holding an election would prevent the imposition of direct rule. “I was ready to call an election if guarantees were given. There is no guarantee that justifies calling an election today,” Puigdemont said.

He said it was now up to the Catalan parliament to move forward with a mandate to break from Spain following an independence referendum that took place on Oct. 1 – a vote which Madrid had declared illegal and tried to stop. Some independence supporters are pushing him to unilaterally declare independence. Late on Thursday, the regional government’s business head resigned over his opposition to a unilateral declaration, a sign of growing division in the separatist movement. Puigdemont’s stand sets the stage for the Spanish Senate on Friday to approve the take-over of Catalonia’s institutions and police, and give the government in Madrid the power to remove the Catalan president.

But this could spark confrontation on the streets as some independence supporters have promised to mount a campaign of civil disobedience. Spanish Deputy Prime Minister Soraya Saenz de Santamaria, speaking in a Senate committee, said: “The independence leaders have shown their true face – they have promised a dream but are performing tricks.” The aim of Article 155 – the constitutional trigger for direct rule – was to permit any election to take place in a normal and neutral situation, she said. The Spanish government has said it would call such a vote within six months of taking over Catalonia.

Sad.

• Catalan Companies Face Boycott Over Independence Push (AFP)

Calls for a boycott of Catalan food, cars and other goods, to punish the region for its separatist push, are worrying businesses who fear the economy will suffer. “You have to hit them where it hurts the most: the wallet,” a Twitter user wrote under the hashtag #boycottcatalanproducts. “We Spaniards who do not want Spain to be broken up… we can take action by adopting dissuasive steps of an economic nature,” reads a Facebook page calling for consumers to snub Catalan products. Appeals for a boycott have become more urgent since Catalonia’s separatist regional government held a banned independence referendum on October 1 in defiance of Spain’s central government and courts. The campaign targets Catalonia’s key agriculture and food sectors, with consumers urged to shun cava, a sparkling wine, Estrella Damm beer, as well as Vichy Catalan and Font Vella bottled water.

Medicines are also on the list to hurt Catalonia’s important pharmaceutical sector, as well as cars made by Seat, German carmaker Volkswagen’s Spanish unit in the region. Products made by foreign multinationals in Catalonia, including Nestle and Unilever, have also been swept up in the campaign. Mobile phone applications help consumers identify which products come from the rebel region. The impact of the boycott campaign is hard to measure to date. “We have had some clients who have bought less,” especially in Madrid, Rosa Rebula, a manager at cava producer Rosell i Formosa, told AFP. But she said the company will only be able to confirm the trend in November — a peak period for sales of cava ahead of the Christmas holiday season.

CIA/FBI got to Trump? They’ve had 50 years to redact docs, but need 6 months more? Best comment I read: A whole generation knows where they were when Kennedy was shot, except George HW Bush. Turns out he was in Dallas.

• New JFK Files Reveal FBI Warning On Oswald And Soviets’ Missile Fears (G.)

The US government released 2,800 documents on Thursday, but President Donald Trump delayed the release of others, saying he had “no choice” but to consider “national security, law enforcement and foreign affairs concerns” raised mostly by the FBI and CIA. One of the first interesting documents to be unearthed, as journalists, scholars and the public pored over them, was a memo written by director J Edgar Hoover that said the FBI had warning of a potential death threat to Oswald, who was then in police custody. “There is nothing further on the Oswald case except that he is dead,” Hoover wrote on 24 November 1963. “Last night we received a call in our Dallas office from a man talking in a calm voice and saying he was a member of a committee organized to kill Oswald.

[..] The files comprise almost the final 1% of records held by the federal government and their publication follows a release in July when the record-keepers, the National Archives, posted 3,801 documents online, mostly formerly released documents with previously redacted portions. An administration official told reporters on Thursday that the files that remain secret have information that “remains sensitive depending on its context”. Trump ordered the agencies to review those redactions over the course of six months, the official said, to ensure more documents reach the public. The next deadline for documents is 26 April 2018. According to the National Archives, 88% of records related to Kennedy’s murder were already fully open and another 11% released but partially redacted. In total, that makes for about 5m pages.

The newly released documents also reveal that Soviet Union leaders considered Oswald a “neurotic maniac who was disloyal to his own country and everything else”, according to an FBI memo documenting reactions in the USSR to the assassination. The Soviet officials feared a conspiracy was behind the death of Kennedy, perhaps organised by a rightwing coup or JFK’s successor Lyndon Johnson. They also feared a war in the aftermath of Kennedy’s death, according to the memo: “Our source further stated that Soviet officials were fearful that without leadership, some irresponsible general in the United States might launch a missile at the Soviet Union.”

How many more?

• Australian Court Rules Deputy PM Ineligible For Parliament (R.)

Australia’s High Court ruled on Friday that Deputy Prime Minister Barnaby Joyce is ineligible to remain in parliament, a stunning decision that cost the government its one-seat parliamentary majority and forced a by-election. The Australian dollar fell a quarter of a U.S. cent after the unexpected decision. Australian Prime Minister Malcolm Turnbull said he accepted the court’s ruling, even though it was “clearly not the outcome we were hoping for”. Turnbull did not name a new deputy leader during a short news conference in Canberra soon after the court’s ruling. The Australian leader had been scheduled to travel to Israel on Saturday for a week-long visit but a spokesman for Turnbull told Reuters his departure has now been delayed. The spokesman said the new travel arrangements are still be finalised.

Turnbull’s center-right coalition is now in a precarious position. His Liberal Party is the senior party in a coalition with the smaller National Party, which Joyce led. He must now win the support of one of three independent lawmakers to keep his minority government afloat, with two sitting weeks of parliament left until it recesses for the year. At least two independent lawmakers have promised their support. Independent MP Bob Katter told Reuters he would support the government, but he may reconsider that if the coalition tried to block renewed efforts for a sweeping investigation into the scandal-ridden financial system. “I think we have the numbers for a commission into the banks and, if the government tries to block that, then I think we will get into murky waters,” Katter said. The opposition Labor Party immediately went on the attack and threatened to launch a legal challenge to every decision made by Joyce since last year’s election.

Great intentions. But she has to talk to Trump, Xi et al.

• ‘I Want The Government … To Bring Kindness Back’ (RNZ)

Shortly before she was sworn in as the new Prime Minister, Jacinda Ardern spoke to Checkpoint with John Campbell as she was on her way to Government House in a Crown car. She said she wants the new government to “feel different”, to be empathetic and kind. There was a significant part of her that was focused on the work that needed to be done, she said. “Once you’re there, get on with it.” She said she wanted the government to feel different. “I want it to feel like we are a government that’s truly focused on everybody. Perhaps I’m more acutely aware of that sense having now led a set of negotiations in our government that brings together a range of parties.

“I know I need to transcend politics in the way that I govern for this next term of Parliament but I also want this government to feel different, I want people to feel that it’s open, that it’s listening and that it’s going to bring kindness back. “I know that will sound curious but to me if people see they have an empathetic government I think they’ll truly understand that when we’re making hard calls that we’re doing it with the right focus in mind.” She said there were tough times during the coalition negotiations. “It’s not about just preserving people’s political careers. It’s not about power. It’s about being in a position to make a difference to people who need it most. “This will be a government that works with others. “There is a lot to do.” Asked if there was a central tenet to her approach to the new role, she said it was empathy.

Debt Rattle May 29 2017

May 292017

May 29, 2017 Posted by Raúl Ilargi Meijer at 9:35 am Finance Tagged with: Assad, ATM, Aussie, chaos, compexity, Corbyn, irrelevant, Macron, Merkel, Putin, retail, Trump 1 Response »

Hokusai Views of Mount Fuji: Ejiri in Suruga Province 1831

• Europe “Must Take Its Fate Into Its Own Hands” – Angela Merkel (AFP)

• Stocks Won’t Crash Spectacularly but May Zigzag Lower (WS)

• The Great Aussie Recession-Free Run Is Looking Shaky – Again (BBG)

• Australia Retail Sector Shudders (Aus.)

• US Homeowners Are Again Pocketing Cash as They Refinance Properties (WSJ)

• The Guardian Mourns Corbyn’s Polling Surge (Cook)

• Tories Pledge New Law Over Domestic Violence Directed At Children (G.)

• US Should Focus On The Economy And Skip Irrelevant Talking Forums (CNBC)

• Camille Paglia: Democrats Are Colluding With The Media To Create Chaos (WE)

• How Team Obama Tried To Hack The Election (NYP)

• Syria’s Assad Explains How The US Really Works (ICH)

• Macron Promises Tough Talk At First Putin Meeting (R.)

• Economists Have to Embrace Complexity to Avoid Disaster (Steve Keen)

• Greek Archbishop: ‘I See a Europe of Exploitation, not Solidarity’ (GR)

I’ve seen a dozen versions of this. Few people seem to know how to properly translate Merkel’s comments, let alone interpret them. Well, let’s just say Merkel is in election mood, and stuff like this does well in Germany.

• Europe “Must Take Its Fate Into Its Own Hands” – Angela Merkel (AFP)

Europe “must take its fate into its own hands” faced with a western alliance divided by Brexit and Donald Trump’s presidency, German Chancellor Angela Merkel said Sunday. “The times in which we could completely depend on others are on the way out. I’ve experienced that in the last few days,” Merkel told a crowd at an election rally in Munich, southern Germany. “We Europeans truly have to take our fate into our own hands,” she added. While Germany and Europe would strive to remain on good terms with America and Britain, “we have to fight for our own destiny”, Merkel went on. Special emphasis was needed on warm relations between Berlin and newly-elected French President Emmanuel Macron, she said. The chancellor had just returned from a G7 summit which wound up Saturday without a deal between the US and the other six major advanced nations on upholding the 2015 Paris climate accords.

Merkel on Saturday labelled the result of the “six against one” discussion “very difficult, not to say very unsatisfactory”. Trump offered a more positive assessment on Twitter Sunday, writing: “Just returned from Europe. Trip was a great success for America. Hard work but big results!” The US president had earlier tweeted that he would reveal whether or not the US would stick to the global emissions deal – which he pledged to jettison on the campaign trail – only next week. On a previous leg of his first trip abroad as president, Trump had repeated past criticism of NATO allies for failing to meet the defensive alliance’s military spending commitment of 2% of GDP. Observers noted that he neglected to publicly endorse the pact’s Article Five, which guarantees that member countries will aid the others they are attacked.

When shorts defeat their own goals: “..the more investors prepare for this by putting large amounts of money aside to plow into a crashing market to pick up the pieces, the more likely they will be to stop the crash in its tracks. “

• Stocks Won’t Crash Spectacularly but May Zigzag Lower (WS)

The market is like a “coiled spring” after eight years of QE and interest rate repression, Singer said in the email announcing the $5-billion offering. His firm wants to have the liquidity to capitalize on a “possibly large opportunity set that could emerge when investor confidence is impaired, recent correlations and assumptions don’t work, and prices are changing rapidly.” He added: “The nature of modern markets is that rich opportunity sets seem to be ephemeral, providing surprising volatility, bargains and dislocations for only brief periods of time before governments, aware of the politically destructive effects of extreme volatility, rally to take stern actions to keep the balls up in the air.” So they’d have to act fast to front-run the Fed.

It will be an event that could produce extraordinary returns by picking up the pieces before central banks jump in and once again bail out stockholders and bondholders. That’s the theory. But here’s the thing: the more investors prepare for this by putting large amounts of money aside to plow into a crashing market to pick up the pieces, the more likely they will be to stop the crash in its tracks. As a sharp sell-off unfolds and after regular dip-buyers are crushed, the nervous crash buyers that don’t want to miss this opportunity will start buying. They’re nervous because the Fed could jump in and reverse the crash, and they want to pick up the pieces before that happens. So they’ll jump in early and the intense buying will stop the crash. This includes short-sellers who want to take profits and cover their positions during a crash.

They’re the most nervous bunch of them all. Under this buying pressure, asset prices would begin to bounce before the Fed steps in, and given the bouncing prices, it might not step in, though prices might not reach prior highs. Then, after a period of calm which the smart money will use to unload these positions and take profits, the sell-off would start all over again until crash-buyers pile in again to front-run the Fed. This can go on for many years – a brutal zigzagging lower that never quite offers the buying opportunities because too much money jumps in too soon to turn selloffs into rallies that then fail. Japanese stocks have gone through this since 1989 despite the Bank of Japan’s umpteen rounds of QE and endless interest rate repression. And they’re still going through it, with the Nikkei down nearly 50% from its peak almost three decades ago.

Given the smart money’s fervent intentions to capitalize on these crashes and given investors’ eagerness to put a lot of money behind this strategy in advance, I think a long drawn-out Japan-like downtrend in asset prices with dizzying ups and even bigger downs is a likely if terrible scenario that may well crush how investors feel about buying and holding these assets, as it did in Japan.

The foundations are crumbling.

• The Great Aussie Recession-Free Run Is Looking Shaky – Again (BBG)

Weak signals from Australia are forcing economists to revisit their Q1 growth forecasts. Some are even suggesting a contraction. Home building, net exports and household consumption could be a drag on GDP for the first three months of 2017, according to some estimates. A negative print would raise the specter of recession, especially as a cyclone that ripped through Queensland’s key coal mining region is tipped to subtract from growth in the three months through June. Sluggish data “all points to growth being only marginally positive at this stage and there’s certainly the risk of a negative quarter,” said Shane Oliver, chief economist at AMP in Sydney, who now expects first-quarter GDP growth of around 0.2% rather than the 0.5-0.6% he previously penciled in.

Australia’s enviable track-record in avoiding two straight quarters of contraction since 1991 is on shaky ground. While the economy grew a solid 1.1% in the final three months of last year, it was rebounding from a shock 0.5% decline. Australia & New Zealand Bank last week said growth could be just 0.1% in the first quarter of this year. That would be an annual rate of 1.5%, the lowest since 2009. While the Reserve Bank of Australia has said holding its benchmark interest rate at a record low 1.5% since September is appropriate for “sustainable growth” and meeting its inflation target, a soft GDP number won’t go unnoticed.

Oliver says anemic growth in the first half means the risks are still to the downside for borrowing costs, even if the market sees about a 20% chance of a cut this year. A weak number would likely cast further doubt on the government’s growth forecasts, delivered in its annual budget this month, as Prime Minister Malcolm Turnbull’s ruling coalition struggles in the polls. The Treasury is forecasting GDP growth of 1.75% in the 12 months through June, accelerating to 3% by fiscal 2019. “We’ve long held the view that sub-trend growth is likely to persist. This idea of a return back to 3%-plus growth looks a little ambitious at this stage,” said Su-Lin Ong at Royal Bank of Canada.

There’s so much money locked up in the housing bubble, spending can only go down. Bubbles are never innocent.

• Australia Retail Sector Shudders (Aus.)

“It’s no secret it’s tough in retail at the moment and the share prices of traditional retail business models are reflecting that”, said Andrew Mitchell, portfolio manager at Ophir Asset Management. “The reality is the Australian consumer just isn’t spending right now.” “Household disposable income growth is at the lowest point since the GFC (global financial crisis). Higher utility prices and higher petrol prices continue to create an impact and the out-of-cycle rate rises from banks won’t help either. When you have wage growth sitting at the lowest levels in 30 years, it s going to affect the discretionary spend.” Economic statistics point to some of the toughest times in the sector as shoppers go on strike, not even being swayed by heavily discounted sales as stores make room for winter stock.

Retail spending has slumped, according to UBS economist Scott Haslem. He noted that three of the past four months had seen month-on-month falls in national retail spending for the first time in almost six years, sending the year-on-year pace of sales to just 2.1% in March, its slowest since mid-2013. Mr Haslem admitted the weakness had been surprising, especially given the general level of consumer confidence, which seems to have stabilised of late. “This has caught us somewhat by surprise. Not least because overall consumer confidence, while modestly lower, remains around average and this (month s) wage data also show more evidence quarterly wage growth is ‘basing’ “, he said.

Mr Haslem pointed to the cashflow of the average Australian home as the culprit. “While low interest rates and falling petrol costs have softened the blow from slowing wage growth in recent years, with still low wages growth, and renewed rises across utilities, debt interest and petrol costs, household cashflow is now under significant renewed downward pressure”, he said. “Overall, the recent sharp weakening in consumer cashflow sheds much insight into the recent weakening in early 2017 retail sales. While households have broadly maintained their real consumption growth into late 2016, this has been significantly achieved by drawing on their saving. But with cashflow growth continuing to slow, and savings intentions rising, it’s likely this drawdown in saving rate will end.”

The dumbest possible comment: this time is different.

• US Homeowners Are Again Pocketing Cash as They Refinance Properties (WSJ)

Americans refinancing their mortgages are taking cash out in the process at levels not seen since the financial crisis. Nearly half of borrowers who refinanced their homes in the first quarter chose the cash-out option, according to data released this week by Freddie Mac. That is the highest level since the fourth quarter of 2008. The cash-out level is still well below the almost 90% peak hit in the run-up to the housing meltdown. But it is up sharply from the post-crisis nadir of 12% in the second quarter of 2012. In a cash-out refi, a borrower refinances an existing mortgage with a new one, typically at a lower borrowing cost, that has a higher principal balance than the existing one. This allows the homeowner to pay off the old mortgage and still have cash left over for other uses.

The growing popularity of cash-out refis has helped buoy refinance activity. After booming for several years, demand for refinance mortgages had begun to slow as the Federal Reserve began increasing short-term interest rates and longer-term bond yields moved higher. Mortgage rates remain low by historical standards, though. The average rate for a fixed, 30-year mortgage was 3.95%, Freddie Mac reported this week. Meanwhile, rising home prices have helped increase the equity homeowners have in their houses. This allows more people to refinance to capture the benefit of lower mortgage rates. And borrowers whose homes are rising in value are often more likely to be interested in refinancing for cash. For example, in Denver and Dallas, where home prices have jumped, more than half of refinancers opted for cash last year, according to Freddie Mac.

To some housing-market observers, the fact that more homeowners are tapping their homes for cash represents a healthy confidence in the economy. It comes against a backdrop of continued gains in employment. At the same time, the increasing use of cash-out refis causes some concern since, in the run-up to the financial crisis, borrowers used their homes like veritable ATMs. Len Kiefer, Freddie Mac’s deputy chief economist, says this time has been different. Borrowers now are subject to stricter standards when they get a loan or refinance a mortgage. There is also less money at stake now than a decade ago.

Corbyn is making UK media nervous: A Telegraph headline today: “Jeremy Corbyn has long hated Britain”

• The Guardian Mourns Corbyn’s Polling Surge (Cook)

It is quite extraordinary to read today’s coverage in Britain’s supposedly left-liberal newspaper the Guardian. In the “man bites dog” stakes, the day’s biggest story is the astounding turn-around in the polls two weeks before the British general election. Labour leader Jeremy Corbyn has narrowed the Conservatives’ lead from an unassailable 22 points to 5, according to the latest YouGov survey. It looks possible for the first time, if the trend continues, that Corbyn could even win the popular poll. (Securing a majority of the British parliament’s seats is a different matter, given the UK’s inherently undemocratic electoral system.) Is the news that the “unelectable” Corbyn has dramatically closed the gap with the Tories front page news for the Guardian? Well, only very tangentially. It is buried in the paper’s lead story, which is far more interested in issues other than the new poll finding.

The story – headlined “May puts Manchester bombing at heart of election with attack on Corbyn” – largely adopts Conservative leader Theresa May’s line of attack against Corbyn for his suggestion that there might be a link between long-term western violence in the Middle East (now usually referred to as “intervention”) and terror attacks like the one in Manchester last week. Labour’s dramatic rise in the polls is briefly mentioned 12 – yes, 12! – paragraphs into the story. It is almost as though the Guardian does not want you to know that Corbyn and his policies are proving far more successful in the election campaign than the Guardian predicted or ever wanted. In fact, the Guardian’s only story on the poll – buried deep on the inside pages – could not be less enamoured with the polling turn-around. The story – headlined “Labour poll rise suggests Manchester attack has not boosted Tories” – is again framed as a story about Conservative failure rather than the draw of Corbyn and his policies.

Here is as excited as the Guardian can get about the Tories’ highly diminished 5-point lead: “It was always going to be the case that the polls would narrow during the course of the campaign, as Labour’s policies received greater media exposure, but the YouGov poll implies that public opinion is more volatile.” It sounds almost as though the Guardian, which has been denigrating Corbyn since his election as Labour leader nearly two years ago (along with the rest of the British media), does not want him to win. Let’s put that another way. It’s almost as though Britain’s only supposedly left-liberal newspaper would prefer that May and the Conservatives won. This, let us remind ourselves, is the same Conservative party that has made the once-surging, far-right UKIP party largely redundant by adopting many of its ugliest policies.

Seeking publicity dead ahead of an election with plans to protect children from X,Y,Z, is a dead give away spindoctors are involved. Bill Clinton ‘launched’ a V-chip plan ahead of the 1996 election. when he was under severe pressure, which supposedly allowed parents to control what their kids could watch on TV. Great success voting wise, but never heard from again.

• Tories Pledge New Law Over Domestic Violence Directed At Children (G.)

Theresa May has pledged to create a new aggravated offence when domestic violence is directed towards a child, in order to allow perpetrators to be punished for longer. She also confirmed that a Tory government would introduce a statutory definition for domestic violence and establish a special commissioner to stand up for victims. “We will launch a relentless drive to help survivors find justice and increase the number of successful prosecutions. This hidden scandal, that takes place every day in homes across Britain, must be tackled head on,” said May. “And we must respond to the devastating and lifelong impact that domestic abuse has on children, who carry the effects into adulthood.”

She argued that the Conservative party had delivered “real steps towards tackling domestic violence” over seven years, but wanted to go further. The Tory manifesto promised to support victims to leave abusive partners and to review the funding for refuges. However, the Labour party has analysed domestic violence rates since 2009, with an increase in violence against women perpetrated by their acquaintances. There has been a levelling off of violence against women by strangers and a fall in violence against men. Sarah Champion, the shadow women’s minister, has campaigned against the loss of 17% of specialist refuges for domestic violence victims in England since 2010.

“..tweeting would have saved a lot of money and an embarrassing French and German media portrayal of a “confused and isolated America.”

• US Should Focus On The Economy And Skip Irrelevant Talking Forums (CNBC)

Seeking to cut $610 billion from health care for the poor, and $192 billion from food assistance to 43 million Americans struggling to make ends meet, while spending millions of dollars on European jamborees will probably strike most people as an example of bad and insensitive public policy. Given the vacuity of last week’s European meetings, one may question why was it necessary for the U.S. president to spend four days and all that money to repeat for the nth time to people who took $165 billion net out of their U.S. trade in 2016 what he has been telling them over the last two years. No European leader has been in any doubt for quite some time that (a) trillions of dollars in U.S. trade deficits and a soaring net foreign debt of $8.1 trillion could not continue, (b) trade policies would be reviewed with particular attention to countries running systematic and large trade surpluses with the U.S., (c) the treaty on global warming would be closely scrutinized and (d) U.S. would insist on all member countries honoring their financial obligations to the NATO alliance.

All these issues have been explained in bilateral and multilateral forums and constantly amplified by the European media. The White House should have taken a cue from Italy’s former (and most probably future) Prime Minister Matteo Renzi. Outraged by do-nothing summits in Brussels, he scolded the spendthrift Eurocrats for squandering public money and precious time on matters where a simple SMS could have taken care of their trivial agenda. Yes, tweeting would have saved a lot of money and an embarrassing French and German media portrayal of a “confused and isolated America.” That would have also spared Washington the German G-7 lecture about the virtues of free trade. Lacking no chutzpah, the German chancellor Angela Merkel told President Trump last week that the U.S. should not complain about trade deficits with Germany.

Why? Simple, she said: Germany is a big investor in the U.S. creating thousands of jobs. There was no repartee from the U.S. side because our trade experts failed to slip a note to the president to tell him that these investments were financed with the money we gave them to buy German goods. Running large trade deficits with Germany enables German companies to recycle their dollar earnings in the U.S., killing whatever is left of jobs and incomes in our manufacturing – Detroit automakers being one of the prominent cases in point. Yes, we are giving them the rope … and the German chancellor apparently wanted more of it. Thanks in large part to these kinds of trade policies we now have the stock of human and physical capital that sets the limits to potential (and noninflationary) growth rate at a miserable 1.5%.

Undeterred, our free-traders insist that we should focus on services, leave the manufacturing sector to Germans and the Chinese, keep piling on foreign debt and still think that we can make the country safe and secure, maybe even run the world on the side. A wonderful picture, isn’t it? Hospitality industries, Silicon Valley and Hollywood will be our big money spinners. Maybe. But that’s not the public policy platform that won the presidency last year. So, let’s see what the vox populi says during the all-important mid-term Congressional elections in November 2018. These elections could seal the fate of this administration and of the legislative control by the Republican Party.

“I am appalled at the behavior of the media,” she declared. “It’s the collapse of journalism.”

• Camille Paglia: Democrats Are Colluding With The Media To Create Chaos (WE)

Camille Paglia is much more worried about the media than about the steady string of Trump-related scandals they claim to be uncovering. In a Tuesday interview with the Washington Examiner, Paglia excoriated the press for its coverage of Trump’s decision to fire FBI Director James Comey and his alleged sharing of classified information with Russian officials. Fresh off a spirited panel with Christina Hoff Sommers hosted by the Independent Women’s Forum, the iconic feminist dissident, who serves as a professor of media studies at the University of the Arts, accused journalists of colluding with the Democratic Party in an effort to damage the Trump administration. “Democrats are doing this in collusion with the media obviously, because they just want to create chaos,” she said when asked to comment on the aforementioned stories.

“They want to completely obliterate any sense that the Trump administration is making any progress on anything.” The popular author, whose latest book was released in March, pointed to early struggles experienced by previous presidential administrations to illustrate the media’s bias against Trump. “Obama’s administration for the first six months was chaos,” Paglia recalled. “Bill Clinton’s was chaos for six months. Nobody holds that against a new person.” “Those two guys had actually been politicians!” she continued, noting Trump’s relative inexperience with government operations. Paglia’s assessment of media bias in the Trump era leaves little room for optimism.

“I am appalled at the behavior of the media,” she declared. “It’s the collapse of journalism.” As the Examiner reported in April, Paglia, who cast her ballot for Jill Stein last November, is predicting Trump will win re-election in 2020. “I feel like the Democrats have overplayed their hand,” she said at the time. Though the news cycle has moved through plenty of additional scandals in the past month, it appears as though Paglia’s assessment of the president’s prospects has not changed. “I’m looking forward to voting Democrat again,” the acclaimed philosopher explained. “But the point is I feel that the media has so utterly lost its credibility that I think people are going to vote against the media again.”

This fun is far from over.

• How Team Obama Tried To Hack The Election (NYP)

New revelations have surfaced that the Obama administration abused intelligence during the election by launching a massive domestic-spy campaign that included snooping on Trump officials. The irony is mind-boggling: Targeting political opposition is long a technique of police states like Russia, which Team Obama has loudly condemned for allegedly using its own intelligence agencies to hack into our election. The revelations, as well as testimony this week from former Obama intel officials, show the extent to which the Obama administration politicized and weaponized intelligence against Americans. Thanks to Circa News, we now know the NSA under President Barack Obama routinely violated privacy protections while snooping through foreign intercepts involving US citizens — and failed to disclose the breaches, prompting the Foreign Intelligence Surveillance Court a month before the election to rebuke administration officials.

The story concerns what’s known as “upstream” data collection under Section 702 of the Foreign Intelligence Surveillance Act, under which the NSA looks at the content of electronic communication. Upstream refers to intel scooped up about third parties: Person A sends Person B an e-mail mentioning Person C. Though Person C isn’t a party to the e-mail, his information will be scooped up and potentially used by the NSA. Further, the number of NSA data searches about Americans mushroomed after Obama loosened rules for protecting such identities from government officials and thus the reporters they talk to. The FISA court called it a “very serious Fourth Amendment issue” that NSA analysts — in violation of a 2011 rule change prohibiting officials from searching Americans’ information without a warrant — “had been conducting such queries in violation of that prohibition, with much greater frequency than had been previously disclosed to the Court.”

A number of those searches were made from the White House, and included private citizens working for the Trump campaign, some of whose identities were leaked to the media. The revelations earned a stern rebuke from the ACLU and from civil-liberties champion Sen. Rand Paul. We also learned this week that Obama intelligence officials really had no good reason attaching a summary of a dossier on Trump to a highly classified Russia briefing they gave to Obama just weeks before Trump took office. Under congressional questioning Tuesday, Obama’s CIA chief John Brennan said the dossier did not “in any way” factor into the agency’s assessment that Russia interfered in the election. Why not? Because as Obama intel czar James Clapper earlier testified, “We could not corroborate the sourcing.”

But that didn’t stop Brennan in January from attaching its contents to the official report for the president. He also included the unverified allegations in the briefing he gave Hill Democrats. In so doing, Brennan virtually guaranteed that it would be leaked, which it promptly was. In short, Brennan politicized raw intelligence. In fact, he politicized the entire CIA.Langley vets say Brennan was the most politicized director in the agency’s history. Former CIA field-operations officer Gene Coyle said Brennan was “known as the greatest sycophant in the history of the CIA, and a supporter of Hillary Clinton before the election. I find it hard to put any real credence in anything that the man says.”

“..it is unrealistic and a complete waste of time to make an assessment of the American President’s foreign policy..”

• Syria’s Assad Explains How The US Really Works (ICH)

While Americans endlessly battle each other over seemingly important choices like Clinton and Trump or Democrats and Republicans, it is clear that the majority of the population has little understanding of how the U.S. government operates. Yet, for those who pay the price for the apathy and confusion of the general population of the West, it often becomes stunningly obvious that neither presidents nor political parties in America represent any discernible difference in the ongoing agenda of the Deep State and the rest of the oligarchical apparatus. Indeed, that agenda always marches forward regardless of who is president or which political party is in control.

Syria’s president Bashar al-Assad has thus had the unique position of not only being on the receiving end of American imperialism by virtue of not only being a citizen of a target country but also by being the head of the country, steeped in politics in his own right and thus understanding how certain factors come into play at the national level. With that in mind, it is worth pointing out a recent statement made by Assad during the course of an interview regarding the opinion of the Syrian government on Donald Trump. Assad stated,

“The American President has no policies. There are policies drawn by the American institutions which control the American regime which are the intelligence agencies, the Pentagon, the big arms and oil companies, and financial institutions, in addition to some other lobbies which influence American decision-making. The American President merely implements these policies, and the evidence is that when Trump tried to move on a different track, during and after his election campaign, he couldn’t. He came under a ferocious attack. As we have seen in the past few week, he changed his rhetoric completely and subjected himself to the terms of the deep American state, or the deep American regime. That’s why it is unrealistic and a complete waste of time to make an assessment of the American President’s foreign policy, for he might say something; but he ultimately does what these institutions dictate to him. This is not new. This has been ongoing American policy for decades.”

Assad also addressed the Western media’s portrayal of him as a “devil” who kills and oppresses his own people. He stated,

“Yes, from a Western perspective, you are now sitting with the devil. This is how they market it in the West. But this is always the case when a state, a government, or an individual do not subjugate themselves to their interests, and do not work for their interests against the interests of their people. These have been the Western colonial demands throughout history. They say that this evil person is killing the good people. Okay, if he is killing the good people, who have been supporting him for the past six years? Neither Russia, nor Iran, nor any friendly state can support an individual at the expense of the people. This is impossible. If he is killing the people, how come the people support him? This is the contradictory Western narrative; and that’s why we shouldn’t waste our time on Western narratives because they have been full of lies throughout history, and not something new.”

Russiagate in France. Macron better not walk his talk.

• Macron Promises Tough Talk At First Putin Meeting (R.)

New French President Emmanuel Macron is promising tough talk at his first meeting with Vladimir Putin on Monday, following an election campaign when his team accused Russian media of trying to interfere in the democratic process. Macron, who took office two weeks ago, has said that dialogue with Russia is vital in tackling a number of international disputes. Nevertheless, relations have been beset by mistrust, with Paris and Moscow backing opposing sides in the Syrian civil war and at odds over the Ukraine conflict. Fresh from talks with his Western counterparts at a NATO meeting in Brussels and a G7 summit in Sicily, Macron will host the Russian president at the palace of Versailles outside Paris. Amid the baroque splendor, Macron will use an exhibition on Russian Tsar Peter the Great at the former royal palace to try to get Franco-Russian relations off to a new start.

“It’s indispensable to talk to Russia because there are a number of international subjects that will not be resolved without a tough dialogue with them,” Macron said. “I will be demanding in my exchanges with Russia,” the 39-year-old president told reporters at the end of the G7 summit on Saturday, where the Western leaders agreed to consider new measures against Moscow if the situation in Ukraine did not improve. Relations between Paris and Moscow were increasingly strained under former President Francois Hollande. Putin, 64, canceled his last planned visit in October after Hollande said he would see him only for talks on Syria. Then during the French election campaign the Macron camp alleged Russian hacking and disinformation efforts, at one point refusing accreditation to the Russian state-funded Sputnik and RT news outlets which it said were spreading Russian propaganda and fake news.

Shamelessly promoting Steve’s new book “Can we avoid another financial crisis?”, of which this is an excerpt.

• Economists Have to Embrace Complexity to Avoid Disaster (Steve Keen)

With a higher propensity to invest comes the debt-driven crisis that Minsky predicted, and which we experienced in 2008. However, something that Minsky did not predict, but which did happen in the real world, also occurs in this model: the crisis is preceded by a period of apparent economic tranquillity that superficially looks the same as the transition to equilibrium in the good outcome. Before the crisis begins, there is a period of diminishing volatility in unemployment: the cycles in employment (and wages share) diminish [..] But then the cycles start to rise again: apparent moderation gives way to increased volatility, and ultimately a complete collapse of the model, as the employment rate and wages share of output collapse to zero and the debt to GDP ratio rises to infinity.

This model, derived simply from the incontestable foundations of macroeconomic definitions, implies that the “Great Moderation”, far from being a sign of good economic management as mainstream economists interpreted it (Blanchard et al., 2010, p. 3), was actually a warning of an approaching crisis. The difference between the good and bad outcomes is the factor Minsky insisted was crucial to understanding capitalism, but which is absent from mainstream DSGE models: the level of private debt. It stabilizes at a low level in the good outcome, but reaches a high level and does not stabilize in the bad outcome. The model produces another prediction which has also become an empirical given: rising inequality. Workers’ share of GDP falls as the debt ratio rises, even though in this simple model, workers do no borrowing at all. If the debt ratio stabilises, then inequality stabilises too, as income shares reach positive equilibrium values.

But if the debt ratio continues rising—as it does with a higher propensity to invest—then inequality keeps rising as well. Rising inequality is therefore not merely a “bad thing” in this model: it is also a prelude to a crisis. The dynamics of rising inequality are more obvious in the next stage in the model’s development, which introduces prices and variable nominal interest rates. As debt rises over a number of cycles, a rising share going to bankers is offset by a smaller share going to workers, so that the capitalists share fluctuates but remains relatively constant over time. However, as wages and inflation are driven down, the compounding of debt ultimately overwhelms falling wages, and profit share collapses. Before this crisis ensues, the rising amount going to bankers in debt service is precisely offset by the declining share going to workers, so that profit share becomes effectively constant and the world appears utterly tranquil to capitalists—just before the system fails.

Figure 5: Rising inequality caused by rising debt

Mob or Salvation Army? Al Capone posed as both at the same time…

• Greek Archbishop: ‘I See a Europe of Exploitation, not Solidarity’ (GR)

Europe’s current face was not one of solidarity and support but more one of exploitation, Archbishop of Athens and All Greece Ieronymos suggested on Sunday, in an interview broadcast by the state television channel ERT1. “Today, I do not see a Europe of solidarity but I see every day, more often and more clearly, the Europe of exploitation,” he said. The foundations of this Europe had to “go back to the starting point, from where it began, with the same thoughts and the same purpose,” the head of the Orthodox Church of Greece added. The Archbishop also commented on the recent terrorist strike in Manchester, expressing his horror and condemnation and noting that “terrorism is one of the worst repercussions of war.”

It was necessary, he said, “to also look at the other side, to see who are those leading these people to become terrorists.” On Church-State relations, he said the role of the Church was to talk to everyone, including those responsible for the state, because the Church was not a political party and “cooperation is therefore necessary”. On the issue of Church property, he noted that the Church’s spiritual mission could not be carried out without economic support. “The Church must be free and financially independent,” he said. With regard to refugees, Ieronymos said the Church sees them as “people in need” and that their final destination “should be their own country.” In the future, he added, we must consider whether “refugees have also become a part of the exploitation of humanity.”

Debt Rattle May 18 2017

May 182017

May 18, 2017 Posted by Raúl Ilargi Meijer at 9:10 am Finance Tagged with: Amazon, Deutsche, F35, Greece, Mueller, refugees, retail, Saudi, terror, Troika, Trump 4 Responses »

Paul Klee Fire at Full Moon 1933

• ‘Bobby Three Sticks’ Mueller to Probe Russia-Trump imbroglio (R.)

• Trump To Announce $350bn Saudi Arabia Arms Deal – One Of Largest Ever (Ind.)

• America’s Reign of Terror: A Nation Reaps What It Sows (Whitehead)

• Investors Supercharge Bet Amazon Will Destroy US Retail (BBG)

• Fed’s Kashkari Says Don’t Use Rate Hikes To Fight Bubbles (R.)

• US Banks Tighten Auto Lending as More Borrowers Fall Into Default (BBG)

• Canadian Officials Say Housing Risks Are Contained (BBG)

• Prosecutor To Label Deutsche Bank An International Criminal Association (BBG)

• Germany Asks US For Classified Briefing On Lockheed’s F-35 Fighter (R.)

• Brazil: Explosive Recordings Implicate President Michel Temer In Bribery (G.)

• Get Ready For The Franco-German Revival (Pol.)

• Greek Parliament Committee Finds Salary, Pension Cuts Unconstitutional (GR)

• Deal On Greece Is Touch And Go (K.)

• Traffickers, Smugglers Exploit Record Rise In Unaccompanied Child Refugees (G.)

The echo chamber expands. It’s ironic to see how everyone praises Mueller’s independence, yet many are sure he will be Trump’s undoing. What flack will he get when he doesn’t do what the MSM demand?

• ‘Bobby Three Sticks’ Mueller to Probe Russia-Trump imbroglio (R.)

Former FBI director and prosecutor Robert Mueller, known for his independence in high-profile government investigations, is taking on a new challenge in the midst of a crisis that threatens the presidency of the United States. Mueller, 72, was named on Wednesday by the Justice Department to probe alleged Russian efforts to sway November’s presidential election in favor of Donald Trump and to investigate whether there was any collusion between Trump’s campaign team and Moscow. President Trump said in a statement there was no collusion between his campaign and “any foreign entity.” Mueller is known by some as “Bobby Three Sticks” because of his full name – Robert Mueller III – a moniker that belies the formal bearing and no-nonsense style of the former Marine Corps officer who was decorated during the Vietnam War.

Democrats and Republicans alike praised his appointment and hailed his integrity and reputation. Mueller was named to the post by Deputy Attorney General Rod Rosenstein. His investigation will run in parallel to those being carried out by the FBI and the U.S. Congress. It would be difficult to fire Mueller, and past special counsel appointments have shown that the job comes with independence and autonomy. Chicago federal prosecutor Patrick Fitzgerald was appointed during the George W. Bush administration in 2003 to a similar role to investigate the leak of the identity of Valerie Plame, an undercover CIA officer whose husband had criticized Bush administration policies. Fitzgerald indicted I. Lewis “Scooter” Libby, a top aide to Vice President Dick Cheney. Bush granted Libby clemency from a prison sentence before he left office.

If you want to protest Trump, protest this….

• Trump To Announce $350bn Saudi Arabia Arms Deal – One Of Largest Ever (Ind.)

Donald Trump will use his upcoming Saudi Arabia trip to announce one of the largest arms sales deals in US history – somewhere in the neighbourhood of $98bn to $128bn worth of arms. That could add up to $350bn over ten years. The deal will be what the Washington Post said is a “cornerstone” of the proposal encouraging the Gulf states to form its own alliance like the NATO military alliance, dubbed “Arab Nato.” Nato is comprised of 28 countries including the US. Mr Trump been an outspoken critic of the organisation but after a face-to-face meeting with Nato Secretary General Jens Stollenberg, he said the alliance was “no longer obsolete.” The White House said the president will propose it as a template for an alliance that will fight terrorism and keep Iran in check.

Saudi Crown Prince Mohammed bin Salman began negotiations on this deal shortly after the 2016 US election when he sent a delegation to Trump Tower to meet with the president’s son-in-law Jared Kushner, who is serving as a senior advisor of sorts to Mr Trump. The idea of an Arab Nato is not new. There was talk in 2015 of a “response force” in Egypt, comprised of approximately 40,000 troops from Egypt, Jordan, Morocco, Saudi Arabia, Sudan, and a few other Gulf nations. The “response force” would have had a Nato-like command structure, with soldiers paid for by their own countries and the Gulf Cooperation Council made up of wealthy oil economies finance operations and management of the force.

President Barack Obama’s administration brokered more arms sales than any US administration since World War II – estimated at $200bn. They sold Saudi Arabia alone $60bn in arms, which sparked criticism by Democrats concerned with Saudi Arabia’s alleged human rights violations. Mr Trump benefits by bringing about a more “fair” deal; he has claimed several times that Nato is unfair to the US because of the amount of contributions and support provided by the US compared to countries like Germany. If Arab Nato succeeds, the White House official said the US could shift the responsibility for security to those in the region and create jobs at home through the arms sales.

…because that Saudi arms deal is a further expansion of this long-term insanity. Military industrial complex.

• America’s Reign of Terror: A Nation Reaps What It Sows (Whitehead)

Who designed the malware worm that is now wreaking havoc on tens of thousands of computers internationally by hackers demanding a king’s ransom? The US government. Who is the biggest black market buyer and stockpiler of cyberweapons (weaponized malware that can be used to hack into computer systems, spy on citizens, and destabilize vast computer networks)? The US government. What country has one the deadliest arsenals of weapons of mass destruction? The US government. Who is the largest weapons manufacturer and exporter in the world, such that they are literally arming the world? The US government. Which is the only country to ever use a nuclear weapon in wartime? The United States. How did Saddam Hussein build Iraq’s massive arsenal of tanks, planes, missiles, and chemical weapons during the 1980s? With help from the US government.

Who gave Osama bin Laden and al-Qaida “access to a fortune in covert funding and top-level combat weaponry”? The US government. What country has a pattern and practice of entrapment that involves targeting vulnerable individuals, feeding them with the propaganda, know-how and weapons intended to turn them into terrorists, and then arresting them as part of an elaborately orchestrated counterterrorism sting? The US government. Where did ISIS get many of their deadliest weapons, including assault rifles and tanks to anti-missile defenses? From the US government. Which country has a history of secretly testing out dangerous weapons and technologies on its own citizens? The US government. Are you getting the picture yet? The US government isn’t protecting us from terrorism. The US government is creating the terror. It is, in fact, the source of the terror.

Just think about it for a minute: almost every tyranny being perpetrated against the citizenry—purportedly to keep us safe and the nation secure—has come about as a result of some threat manufactured in one way or another by our own government. Cyberwarfare. Terrorism. Bio-chemical attacks. The nuclear arms race. Surveillance. The drug wars. In almost every instance, the US government has in its typical Machiavellian fashion sown the seeds of terror domestically and internationally in order to expand its own totalitarian powers.

Let’s celebrate progress.

• Investors Supercharge Bet Amazon Will Destroy US Retail (BBG)

Investors who think Amazon.com Inc. is about to destroy the retail industry as we know it have figured out a way to supercharge that bet – by buying the online giant’s stock and pairing it with a short position in the SPDR S&P Retail ETF, symbol XRT, a foundering fund that primarily holds bricks-and-mortar stores. “If you are long Amazon, wouldn’t it make sense to be short the stocks Amazon will look to decimate?” said Ihor Dusaniwsky, head of research for S3 Partners. “It’s going long the ‘best of the breed’ and shorting the ‘worst of the breed.’” Traders are building up short positions in anticipation of XRT dropping to $40 or $41, Dusaniwsky said. The fund, which is down more than 5% this year, closed at $41.74 on Tuesday.

XRT’s top holdings include furniture stores, supermarkets and groceries, electronics chains and media streaming, all areas where Amazon is spending heavily, Dusaniwsky said. “If Amazon succeeds, it will be at the expense of companies like Wayfair, Sprouts Farmers Market, Whole Foods, Best Buy and Netflix,” Dusaniwsky said. These five companies make up around 7% of XRT, which also holds $3.37 million of Amazon stock, making it 1.2% to the portfolio. So far Amazon is holding up its end of the bet. The world’s largest online retailer beat profit and revenue estimates in the first quarter and said sales may top projections in second quarter, according to an April 27 statement. The stock’s up 28% this year, as the company continues to add subscribers to its $99-a-year Prime program, locking in loyalty and building a moat against competitors.

Is Kashkari denying the existence of bubbles?

• Fed’s Kashkari Says Don’t Use Rate Hikes To Fight Bubbles (R.)

Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday warned against using interest-rate hikes to address unwanted asset bubbles, saying that bubbles are hard to identify and such hikes would likely do more harm than good. Kashkari is a voting member this year on the U.S. central bank’s policy committee, and in March was the lone dissenter on a Fed vote to raise rates for the third time since the Great Recession. He has previously said he opposed the rate hike because he felt keeping rates low would result in more jobs for Americans who want to work. Some Fed officials have worried that keeping rates too low for too long could create asset bubbles that could set the U.S. economy up for another recession.

But the main reason Fed chair Janet Yellen and others have given for raising rates is not to tamp down bubbles, but to keep a now nearly fully employed economy from going into overdrive. Kashkari’s latest essay argues that keeping a sharp eye out for potential bubbles and using supervisory powers to protect banks from failures are better options than raising rates. “Given the challenges of identifying bubbles with any confidence and the costs of making a policy mistake, I believe the odds of circumstances ever making sense to use monetary policy to try to slow asset prices down are very low,” he wrote. “I won’t say never but a whole lot of evidence would have to line up just right for it to be the prudent course of action.”

Horse. Barn.

• US Banks Tighten Auto Lending as More Borrowers Fall Into Default (BBG)

Lenders are tightening the spigot on new auto loans, making it harder for U.S. consumers with weak credit to buy a car, data from the Federal Reserve Bank of New York show. New car loans for subprime borrowers fell in the first quarter to $25.9 billion, the lowest in two years, according to the New York Fed’s quarterly report on household debt and credit. Drivers with credit scores below 620 now comprise less than 20% of new loans, down from almost 30% a decade ago. Borrowers with the highest credit scores – 760 or more – made up nearly a third of new auto loan originations in the first quarter as lenders target the safer deals. Banks including Fifth Third Bank have been trimming their loan books and cutting back on riskier credit as delinquent auto loan balances surge.

The share of auto debt more than 90 days overdue rose to 3.82% in the first quarter, the highest in four years. While caution may be good for banks’ balance sheets, it doesn’t offer much relief for automakers, who relied on cheap credit to fuel a seven-year stretch of booming sales. Now they’re boosting discounts and cutting production to address swelling inventory on dealer lots. Ford said Wednesday it’s cutting 1,400 jobs in North America and Asia to improve profits as the U.S. auto industry recorded a fourth straight drop in monthly sales in April, after eking out a record year in 2016. Tighter credit “is a big impediment to future strength in auto sales,” said Yelena Shulyatyeva, senior U.S. economist for Bloomberg Intelligence. “A lot of this demand was driven by loose lending standards.”

Not helping.

• Canadian Officials Say Housing Risks Are Contained (BBG)

Canadian government officials delivered a vote of confidence in the country’s housing sector and banking system, telling lawmakers that Vancouver and Toronto’s real estate markets are supported by fundamentals that leave risks well-contained. Senior officials from Canada’s Finance Department testified Wednesday evening to the Senate finance committee, fielding questions about the stability of the housing market, risks posed by high household debt levels in Canada and the recent downgrade of banks by Moody’s Investors Service Inc. The hearing came amid questions about the future of Home Capital and any knock-on effect that a potential failure there could have on Canada’s housing sector, particularly in Vancouver and Toronto.

The core message from the officials was Canada’s market was stable and, despite some risks, policy makers’ measures are taking effect. “We don’t think there’s any systemic risk across the country,” said Phil King, a director at the economic and fiscal policy branch at Finance Canada. “There are specific pockets of concern, which seem to have ameliorated somewhat in the very-near term but we’re keeping a very close eye on those.” Vancouver and Toronto have “very, very strong fundamentals” supporting prices including immigration, strong job creation, strong income gains and high wealth, he said. King described a national housing market with distinct regions — surging Toronto and Vancouver, soft markets in energy-producing regions such as Calgary, and other cities like Montreal and Ottawa where policy makers have “no concerns whatsoever.”

As Goldman Sachs should be for its activities in Greece.

• Prosecutor To Label Deutsche Bank An International Criminal Association (BBG)

Deutsche Bank, on trial in Milan for allegedly helping Banca Monte dei Paschi di Siena conceal losses, must face accusations that it was running an international criminal organization at the time. Prosecutors used internal Deutsche Bank documents and emails to persuade a three-judge panel to consider whether there were additional, aggravating circumstances to the charges the German lender already faces related to derivatives transactions. The material included a London trader’s “well done!” message to a banker who is now on trial, evidence seen by Bloomberg shows. Allowing prosecutors to argue that the alleged market manipulation crimes were committed by an organization operating in several countries could lead to higher penalties if they win a conviction.

Giuseppe Iannaccone, a lawyer for Deutsche Bank and some of the defendants, sought to block the move at Tuesday’s hearing, saying there wasn’t a clear connection between the original charge of market manipulation and the alleged aggravating circumstances. “The trial for Deutsche Bank managers becomes more problematic after the judge’s decision,” said Giampiero Biancolella, an attorney specializing in financial crime who isn’t involved in the case. “If proven, the aggravating circumstance may increase the eventual jail sentence for the market manipulation to a maximum of nine years.” The German bank and Nomura went on trial in Milan in December, accused of colluding with Monte Paschi to cover up losses that almost toppled the Italian lender before its current battle for survival. Thirteen former managers of Deutsche Bank, Nomura and Monte Paschi were charged for alleged false accounting and market manipulation.

Deutsche Bank and Nomura are accused of using complex derivative trades to hide losses at the Italian lender, leading to a misrepresentation of its finances between 2008 and 2012. After the deals came to light in a 2013 Bloomberg News report, Monte Paschi restated its accounts and tapped shareholders twice to replenish capital. Deutsche Bank and six current and former managers were indicted in Milan Oct. 1 for allegedly helping falsify the Siena-based lender’s accounts through a deal known as Santorini. The prosecution’s request to label Deutsche Bank an international criminal association hinged on events that occurred in other parts of the globe, including the possible manipulation of an index, which isn’t the subject of charges in the Milan case.

History’s biggest ever financial boondoggle. And nobody dares stop it.

• Germany Asks US For Classified Briefing On Lockheed’s F-35 Fighter (R.)

The German Air Force this month sent the U.S. military a written request for classified data on the Lockheed Martin F-35 fighter jet as it gears up to replace its current fleet of fighter jets from 2025 to 2035. The letter, sent by the Air Force’s planning command and seen by Reuters, makes clear that the German government has not yet authorized a procurement program and is not committed to any particular aircraft to replace its current warplanes. It said the defense ministry would carry out “an in-depth evaluation of market available solutions, including the F-35, later this year,” with a formal “letter of request” to be issued in coming months.

Germany’s interest in the F-35 – the Pentagon’s most advanced warplane and its costliest procurement program – may surprise some given that it is part of the four-nation consortium that developed the fourth-generation Eurofighter Typhoon, which continues to compete for new orders. The Eurofighter is built by Airbus as well as Britain’s BAE Systems and Leonardo of Italy. Germany will need to replace its current fleet of fourth-generation warplanes – Tornadoes in use since 1981 and Eurofighters – between 2025 and 2035. The F-35 is considered a fifth-generation fighter given stealth capabilities that allow it to evade enemy radars.

Berlin’s letter also comes amid growing tensions between the West and Russia over Moscow’s support for separatists in eastern Ukraine, with NATO officials saying that Russian naval activity now exceeds levels seen even during the Cold War. Britain, the Netherlands, Norway, Turkey and Italy – key NATO allies of Germany – are already buying the F-35 fighter jet to replace their current aircraft, and other European countries such as Switzerland, Belgium and Finland are also looking at purchasing the fifth-generation warplane. Germany’s gesture may be aimed at strengthening its hand in negotiations with its European partners over the scale and timing of development of a next generation of European fighters. Any moves to buy a U.S. built warplane could run into political resistance in Germany, which has strong labor unions.

Just turn parliament into a prison building. Most effective solution.

• Brazil: Explosive Recordings Implicate President Michel Temer In Bribery (G.)

Angry crowds and outraged members of Brazil’s congress have demanded the impeachment of President Michel Temer following reports he was secretly recorded discussing hush money pay-offs to a jailed associate. The tapes were presented to prosecutors as part of a plea bargain by Joesley and Wesley Batista, brothers who run the country’s biggest meat-packing firm JBS, according to O Globo newspaper. They are said to contain conversations that incriminate several leading politicians, including the former presidential candidate Aecio Neves and the former finance minister Guido Mantega. Temer is alleged to have talked with Joesley about cash payments to Eduardo Cunha, the former speaker of the House who has been jailed for his role in the sprawling Petrobras corruption scandal.

Cunha is in the same ruling Brazilian Democratic Movement party as Temer and initiated the impeachment of Dilma Rousseff that allowed him to take over the presidency. He has alluded to the many secrets he knows about his former colleagues. In covert recordings made during two conversations in March, Joesley tells Temer he is paying Cunha to keep him quiet, to which the president allegedly replies: “You have to keep it going, OK?” According to Globo, police also have audio and video evidence that Temer’s aide Rocha Loures negotiated bribes worth 500,000 reais (US$160,000) a week for 20 years in return for helping JBS overcome a problem with the fair trade office.

No audio or transcripts were released. The supreme court has refused to comment on the validity of the alleged leak – but the news has enraged the public. Shouts and pot-banging (a traditional form of protest in Latin America) could be heard when the allegations were aired on TV. Crowds also gathered outside the presidential palace chanting “Fora Temer” (Temer out). Two congressmen submitted impeachment motions in the lower house.

Macron falls in line with what Berlin wants as much as Hollande did. Where’s the difference? Merkel and Schäuble like it, because now no-one will dare speak up anymore.

• Get Ready For The Franco-German Revival (Pol.)

With none of the previous three presidents Merkel has sat across from in the past 12 years did the cautious chancellor achieve the deep mutual understanding and political serendipity that powered European integration in the eras of Konrad Adenauer and Charles de Gaulle, Helmut Schmidt and Valéry Giscard d’Estaing, or Helmut Kohl and François Mitterrand. Macron promised to be a “frank, direct and constructive partner” for Berlin. If he can convince Merkel to revive the frequent, unscripted, plain-speaking meetings between French and German leaders of the past, it will be a crucial step toward setting a joint agenda for Europe. July’s joint cabinet session — where both defense and the economy will be on the agenda — will be a first test of the promised Franco-German revival.

Macron has made it clear he intends to use France’s major contribution to European defense and security as a lever to help secure progress in the eurozone. But his influence in Berlin, as he acknowledged, will depend on his ability to break the rigidities in the French labor market and put the country’s young people to work. He will need to overcome deep-seated resistance to eurozone intervention in national budget policies. The last Socialist government was as defiant as its Gaullist predecessors when the European Commission repeatedly criticized France’s excessive deficits, high tax burden on business and employment, and generous welfare and pension systems. But Macron is committed to the right track. Honoring commitments to EU-supervised economic reforms are part of his vision for a more integrated eurozone, he said in Berlin.

[..] When it comes to the eurozone, Germany will have to end its resistance to further risk-sharing to complete the EU’s banking union. And here progress is likely to be difficult. Macron will need Berlin to lift its blockade on common deposit insurance and a joint fiscal backstop for the European bank resolution fund. Finance Minister Wolfgang Schäuble — who has expressed support for some of Macron’s ideas — will hold both steps hostage at least until after the German general election in September. Schäuble is holding out for a very different form of eurozone governance, in which an inter-governmental (i.e. German-controlled) European Monetary Fund, built on the existing European Stability Mechanism, would impose automatic debt restructuring and an austerity program on any eurozone country that needed assistance.

Can Tsipras impose cuts when they violate his constitution? Can the Troika?

• Greek Parliament Committee Finds Salary, Pension Cuts Unconstitutional (GR)

The Parliamentary Scientific Committee in its new report that accompanies the new omnibus bill expressed concern over the constitutionality of the provisions of Law 4387/2016 that calls for new cuts to pensions and special salaries. According to Professor and former SYRIZA lawmaker Alexis Mitropoulos, the report was posted on the parliament site shortly after midnight on Tuesday. Mitropoulos spoke on Ant1 television on Wednesday saying that, “After the recent Court of Audit decision, and following a long meeting, the committee found that the cuts in special wages, pensions and taxation were found to be unconstitutional.”

The new bill includes deep cuts in pensions and slashes in salaries of army and police personnel, sectors where special salary regulations apply. “The proposed reductions disrupt the balance that must exist between, on the one hand, the pension as a personal asset, which is protected by Article 1 and, on the other, of the public interest,” the report says regarding the pension cuts. As for cuts in special salaries, the report argues that, the cuts “are part of a wider fiscal adjustment program containing a package of measures to revive the Greek economy and consolidate public finances” but their implementation “is a necessary but not sufficient condition for the constitutionality of these cuts.”

A child can tell that this is nonsense:

Growth predicted at “..2.1% this year and 2.5% in 2018, and continuing at a similar pace until 2060(!)..”. While the demanded budget surplus is 3.5% for the next 5 years. Which guarantees the growth predictions won’t be achieved.

• Deal On Greece Is Touch And Go (K.)

A senior eurozone official put on Wednesday the chances of a complete agreement on Greece being reached at this Monday’s Eurogroup meeting at 50%, while many issues remain open and the negotiation battle at this stage is mainly between Berlin and the IMF. The official also reiterated that there will be no tranche disbursement without the IMF agreeing to participate in the Greek program. There are three scenarios on the negotiating table, according to two eurozone officials who took part in last Monday’s Euro Working Group. All three provide for the primary budget surplus to remain at 3.5% of GDP until 2022, showing that this is not negotiable anymore.

The main obstacle to an agreement among Greece’s creditors is that they disagree on the rate of Greek growth in the coming years, a key parameter for the extent of Greek debt easing. The first scenario provides for growth to match the European Commission’s estimates for 2.1% this year and 2.5% in 2018, and continuing at a similar pace until 2060. If there is a primary surplus of 2-2.6% of GDP, then the measures agreed last May will suffice to make the Greek debt sustainable. According to the second scenario, growth will be below even the IMF forecast and will not exceed 1% per year in the long term. That should take the primary surplus down to 1.5% of GDP from 2023, and more measures will be needed to render the debt sustainable. The third scenario is similar to the second, but the growth forecast is slightly higher, at 1.25%.

Forget about hoping Brussels is looking for a solution NOT located in southern Libya. Just imagine what you would do if this was your child.

• Traffickers, Smugglers Exploit Record Rise In Unaccompanied Child Refugees (G.)

A record increase in the number of refugee and migrant children travelling alone has left many exposed to sexual abuse and exploitation at the hands of traffickers and opportunists. At least 300,000 unaccompanied and separated children were recorded in 80 countries in 2015-16, a rise of almost 500% on the 66,000 documented in 2010-2011, according to a Unicef report published on Wednesday. The central Mediterranean passage is one of several migration routes identified as particularly dangerous for children. More than 75% of the 1,600 14- to 17-year-olds who arrived in Italy reported being held against their will or forced to work.

“One child moving alone is one too many and yet, today, there are a staggering number of children doing just that – we as adults are failing to protect them,” said Unicef’s deputy executive director, Justin Forsyth. “Ruthless smugglers and traffickers are exploiting their vulnerability for personal gain, helping children to cross borders, only to sell them into slavery and forced prostitution. It is unconscionable that we are not adequately defending children from these predators.” The sheer number of migrant and refugee arrivals has left states struggling to cope, with children often falling through the cracks.

Border closures, aggressive pushback measures, overcrowded shelters, makeshift camps and heavy-handed authorities have only served to exacerbate the risk of child exploitation, encouraging unaccompanied minors to take highly dangerous routes in a desperate bid to reach their destinations. One 17-year-old girl from Nigeria told Unicef that she was trapped in Libya for three months and sexually assaulted by her smuggler-turned-trafficker as she attempted to travel alone to Italy. “Everything [he] said – that we would be treated well and that we would be safe – it was all wrong. It was a lie,” she said of the man who offered to help her. “He said to me if I didn’t sleep with him, he would not bring me to Europe. He raped me.”

Debt Rattle April 23 2017

Apr 232017

April 23, 2017 Posted by Raúl Ilargi Meijer at 8:30 am Finance Tagged with: bubble, China, crash, credit, Fed, France, Le Pen, pope, refugees, retail, upheaval 1 Response »

How we got here

• Disintegrating Left-Right Divide Sets Stage For French Political Upheaval (G.)

• The Main Issue in the French Presidential Election: National Sovereignty (CP)

• ECB Stands Ready to Support Banks If Needed After France Vote (BBG)

• It Is Time To Break Up The Fed (IFT)

• China’s Credit Excess Is Unlike Anything The World Has Ever Seen (Brown)

• The US Retail Bubble Has Now Burst (ZH)

• UK Retail Sales Volumes Fall At Fastest Rate In Seven Years (Ind.)

• BHS Crash Sets Trend For A Chain Of Store Closures On UK High Streets (G.)

• German Intelligence Spied On Interpol In Dozens Of Countries (R.)

• Pope Likens Refugee Holding Centers To ‘Concentration Camps’ (G.)

This is a global issue, the left has moved so far right it has no identity left. Nice detail: The Parti Socialiste of the current president could be bankrupted by its dismal campaign.

• Disintegrating Left-Right Divide Sets Stage For French Political Upheaval (G.)

Do they vote for or against? Do they choose a candidate who represents their politics or one who, opinion polls suggest, is most likely to defeat the woman whose presence as one of two candidates in the second-round runoff in a fortnight seems a given, but whose name still provokes a frisson of fear for many: the far-right Front National leader Marine Le Pen, with her anti-Europe, anti-immigration, “French-first” programme? As election day has approached, and with the added complication of the terrorist threat following the shooting of a police officer on the Champs-Elysées in Paris, the dilemma has caused particular anguish for France’s mainstream leftwing voters, whose candidate is trailing in fifth place.

There are no certainties, but barring all other candidates “dropping from a nasty virus”, as one political analyst put it, Benoît Hamon is facing a crushing defeat in the first round, ending his leadership dreams and putting the future of the country’s Socialist party (PS) in question. In a decline that mirrors that of Britain’s Labour party, the PS is facing years in a political desert, if it survives. If Hamon finishes last among the leading candidates, as polls predict, the party’s only hope of salvaging a thread of power will lie in winning enough parliamentary seats in the legislative elections that follow to form an influential group in the national assembly. Even then it will most likely be part of a coalition rather than a fully functioning opposition.

Even worse, and even more unthinkable, if leftwing voters turn en masse to Jean-Luc Mélenchon as their best hope of a place in the second round against the frontrunners – independent centrist Emmanuel Macron, Le Pen or the conservative François Fillon – and Hamon polls less than 5%, none of Hamon’s campaign expenses will be reimbursed, bankrupting the PS. “Under 5% and the situation is really catastrophic,” Marc-Olivier Padis, of the Paris-based thinktank Terra Nova, told the Observer. “And it’s possible. We are hearing many socialists wondering if they should vote Mélenchon or Macron. The only thing that can save the party in this election is if enough socialists vote for Hamon out of loyalty.”

It’s about the economy, guys. Too many people are left with too little. That’s when they choose to be their own boss -again-.

• The Main Issue in the French Presidential Election: National Sovereignty (CP)

The 2017 French Presidential election marks a profound change in European political alignments. There is an ongoing shift from the traditional left-right rivalry to opposition between globalization, in the form of the European Union (EU), and national sovereignty. Standard media treatment sticks to a simple left-right dualism: “racist” rejection of immigrants is the main issue and that what matters most is to “stop Marine Le Pen!” Going from there to here is like walking through Alice’s looking glass. Almost everything is turned around. On this side of the glass, the left has turned into the right and part of the right is turning into the left. Fifty years ago, it was “the left” whose most ardent cause was passionate support for Third World national liberation struggles.

The left’s heroes were Ahmed Ben Bella, Sukarno, Amilcar Cabral, Patrice Lumumba, and above all Ho Chi Minh. What were these leaders fighting for? They were fighting to liberate their countries from Western imperialism. They were fighting for independence, for the right to determine their own way of life, preserve their own customs, decide their own future. They were fighting for national sovereignty, and the left supported that struggle. Today, it is all turned around. “Sovereignty” has become a bad word in the mainstream left. National sovereignty is an essentially defensive concept. It is about staying home and minding one’s own business. It is the opposite of the aggressive nationalism that inspired fascist Italy and Nazi Germany to conquer other countries, depriving them of their national sovereignty.

The confusion is due to the fact that most of what calls itself “the left” in the West has been totally won over to the current form of imperialism – aka “globalization”. It is an imperialism of a new type, centered on the use of military force and “soft” power to enable transnational finance to penetrate every corner of the earth and thus to reshape all societies in the endless quest for profitable return on capital investment. The left has been won over to this new imperialism because it advances under the banner of “human rights” and “antiracism” – abstractions which a whole generation has been indoctrinated to consider the central, if not the only, political issues of our times.

The fact that “sovereignism” is growing in Europe is interpreted by mainstream globalist media as proof that “Europe is moving to the right”– no doubt because Europeans are “racist”. This interpretation is biased and dangerous. People in more and more European nations are calling for national sovereignty precisely because they have lost it. They lost it to the European Union, and they want it back. That is why the British voted to leave the European Union. Not because they are “racist”, but primarily because they cherish their historic tradition of self-rule.

French government debt could become ineligible as collateral if Le Pen and/or Melenchon do too well.

• ECB Stands Ready to Support Banks If Needed After France Vote (BBG)

ECB officials signaled that their liquidity facilities remain available to counter any market tension that may arise in the aftermath of France’s presidential election, the first round of which takes place Sunday. “The central bank should be ready for any shocks that should materialize,” Governing Council member Ignazio Visco said at a press conference during the IMF spring meetings in Washington on Saturday. “And if there were to be such a shock, the instruments are the instruments that a central bank should use, which are liquidity provision, refinancing when needed. And intervening very quickly is really very easy now given the instruments we have.” Like the U.K.’s vote on whether to continue its membership of the EU in June, central bank readiness to support the banking system has been sought given the potential for such political events to create market turmoil.

In this case, a strong showing in the first round by anti-euro candidate Marine Le Pen could cast doubt over the future of the single currency. Visco argued that the presence of central bank facilities makes it less likely they’ll actually be needed. [..] The euro area has years of experience with banking freeze-ups and has multiple instruments to address liquidity shortages that strike otherwise solvent banks. In particular, in the event a sudden credit-rating downgrade made French government debt ineligible as collateral for normal ECB refinancing operations, so-called Emergency Liquidity Assistance may be available from the Bank of France. “If there should be problems for specific French banks, liquidity-wise, then the ECB has instruments to help solvent banks with liquidity problems,” Governing Council member Ewald Nowotny said on Saturday. “This is ELA, emergency liquidity assistance. That could be given of course. But we don’t expect any special movements.”

“Donald Trump and the GOP need an easy, highly visible legislative victory. Breaking up the Fed meets this criteria.”

• It Is Time To Break Up The Fed (IFT)

Donald Trump and the GOP need an easy, highly visible legislative victory. Breaking up the Fed meets this criteria. In the aftermath of the Great Financial Crisis, policymakers rushed out the Dodd-Frank Act. This Act increased the Fed’s responsibilities. However, policymakers did this without examining the Fed’s performance in the run-up to the financial crisis. Had they done so, they would have seen the Fed failed as a bank supervisor and regulator. This failure alone mandates breaking up the Fed. After all, why should the Fed be given a second chance given how much its failure hurt the global real economy and taxpayers? Furthermore, this failure strongly suggests policymakers shouldn’t have rewarded the Fed with additional responsibilities. After all, there is no reason to believe the Fed’s failure as a bank supervisor and regulator won’t be repeated with any new responsibilities.

To the extent these new responsibilities exist in the Dodd-Frank Act, they too should be stripped away. What the Fed should be left with is responsibility for monetary policy and the payment system. All of the Fed’s bank supervision and regulatory responsibility should be transferred to the FDIC. There are many significant benefits from doing this including it reinforces market discipline on the banks. Unlike the Fed, the FDIC is responsible for protecting the taxpayers and has the authority to close a bank. The FDIC’s primary responsibility is minimizing the risk of loss by the taxpayer backed deposit insurance fund. It achieves this initially through regulation and supervision, but more importantly by a willingness to step in and close a bank that threatens to cause a loss to the fund.

Shareholders and unsecured bank creditors are keenly aware they are likely to lose their entire investment should the FDIC step up and close the bank they are invested in. As a result, they have an incentive to exert discipline on bank management to limit its risk taking so the bank is never taken over by the FDIC. For those who would argue that it is important to keep bank supervision and regulation together with monetary policy, I would point out there is no evidence showing this produces a better outcome. In the run-up to the Great Financial Crisis, the Bank of England and the ECB did not have supervision and regulation responsibility. The Fed did. Talk about a perfect controlled experiment.

China needs more than $13 to create $1 of growth.

• China’s Credit Excess Is Unlike Anything The World Has Ever Seen (Brown)

From a global macroeconomic perspective, we encourage readers to consider that the world is experiencing an extended, rolling process of deflating its credit excesses. It is now simply China’s turn. For context, Japan started deflating their credit bubble in the early 1990s, and has now experienced more than 20 years of deflation and very little growth since. The US began its process in 2008, and after eight years has only recently been showing signs of sustainable recovery. The euro zone entered this process in 2011 and is still struggling six years onward. We believe China is now entering the early stages of this process. Having said that, we believe that Chinese authorities have a viable plan for deflating their credit excess in an orderly fashion.

Please stay posted as we will review this multi-pronged, market-based approach in our next column. For now, let’s turn our attention to the size of the credit excess that China created and why we estimate it to be the largest in the world. A credit excess is created by the speed and magnitude of credit that is created – if too much is created in too short a time period, excesses inevitably occur and non-performing loans (NPLs) emerge. To illustrate the credit excess that has been created in China, let’s review several key indicators, including the: 1) flow of new credit; 2) stock of outstanding credit; 3) credit deviation ratio (i.e., excess credit); 4) incremental capital output ratio (efficiency of credit allocation).

The US created 58% of GDP between 2002-07, and the global financial crisis followed. Japan created credit equivalent to the entire size of its economy between 1985-90 and subsequently experienced more than 20 years of deflation (admittedly reflecting the lack of restructuring). Thailand created a significant real estate bubble between 1992-97 and ended up with about 45% NPL ratios. Spain created credit equivalent to 116% of GDP between 2002-07 and still is trying to address a 20% unemployment rate. China created 139% of GDP in new credit between the first quarter of 2009 and the third quarter of 2014 (when GDP growth peaked), far greater than what was created in other major credit bubbles globally.

[..] Another important measure to assess the amount of credit in the economy which is “excessive” is the credit-to-GDP gap, as reported by the Bank of International Settlements. This ratio measures the difference between the current credit-to-GDP ratio in an economy against its long-term trend of what is necessary to optimally support long-term GDP growth. It is akin to measuring the amount of credit that is productively deployed into an economy. This metric is used by the Basel III framework in determining countercyclical capital buffers for a country’s banking system when credit creation becomes too fast (i.e., high credit growth requires higher capital ratios for banks).

Finally, to show that the pace of credit creation will necessarily slow, thereby exposing misallocated credit and driving the emergence of new NPL formation, we turn to the deterioration in China’s incremental capital output ratio. This ratio is the measure of the number of units of input required to produce one unit of GDP. For the 15 years prior to the credit impulse in 2009-14, China’s incremental capital output ratio has been consistently between two and four. Meaning that two to four yuan in fixed asset investment created one yuan in GDP. But as a result of the credit-driven economic growth model, and the excessive credit that has been created (and the subsequent excess capacity in the industrial economy), China’s investment efficiency has deteriorated to the point that its incremental capital output ratio is now over 13. Said another way, every 1 yuan in new fixed asset investment is now creating only 7 fen in GDP.

Full employment, anyone?

• The US Retail Bubble Has Now Burst (ZH)

The devastation in the US retail sector is accelerating in 2017, and in addition to the surging number of brick and mortar retail bankruptcies, it is perhaps nowhere more obvious than in the soaring number of store closures. While the shuttering of retail stores has been a frequent topic on this website, most recently in the context of the next “big short”, namely the ongoing deterioration in the mall REITs and associated Commercial Mortgage-Backed Securities and CDS, here is a stunning fact from Credit Suisse:”Barely a quarter into 2017, year-to-date retail store closings have already surpassed those of 2008.”

According to the Swiss bank’s calculations, on a unit basis, approximately 2,880 store closings were announced YTD, more than twice as many closings as the 1,153 announced during the same period last year. Historically, roughly 60% of store closure announcements occur in the first five months of the year. By extrapolating the year-to-date announcements, CS estimates that there could be more than 8,640 store closings this year, which will be higher than the historical 2008 peak of approximately 6,200 store closings, which suggests that for brick-and-mortar stores stores the current transition period is far worse than the depth of the credit crisis depression.

As the WSJ calculates, at least 10 retailers, including Limited Stores, electronics chain hhgregg and sporting-goods chain Gander Mountain have filed for bankruptcy protection so far this year. That compares with nine retailers that declared bankruptcy, with at least $50 million liabilities, for all of 2016. On Friday, women’s apparel chain Bebe Stores said it would close its remaining 170 shops and sell only online, while teen retailer Rue21 Inc. announced plans to close about 400 of its 1,100 locations. Another striking fact: on a square footage basis, approximately 49 million square feet of retail space has closed YTD. Should this pace persist by the end of the year, total square footage reductions could reach 147M square feet, another all time high, and surpassing the historical peak of 115M in 2001.

There are several key drivers behind the avalanche of “liquidation” signs on store fronts. The first is the glut of residual excess retail space. As the WSJ writes, the seeds of the industry’s current turmoil date back nearly three decades, when retailers, in the throes of a consumer-buying spree and flush with easy money, rushed to open new stores. The land grab wasn’t unlike the housing boom that was also under way at that time. “Thousands of new doors opened and rents soared,” Richard Hayne, chief executive of Urban Outfitters Inc., told analysts last month. “This created a bubble, and like housing, that bubble has now burst.”

No matter how you try to explain it away, in the end it’s just people having less to spend.

• UK Retail Sales Volumes Fall At Fastest Rate In Seven Years (Ind.)

Retail sale volumes slumped in March, seeming to confirm doubts about the robustness of the consumer-led economy in the wake of last summer’s Brexit vote. According to the Office for National Statistics, sales were down 1.8% in the month, against City expectations of a 0.2% decline. The monthly data can be volatile and March’s decline follows a 1.7% spike in February, but the ONS itself highlighted the weakening trend this year and noted that over the three months to March there was the first quarterly decline in volumes since 2013. In the first quarter of 2017 sales were down 1.4%, the biggest decline since the first three months of 2010 when they fell 2%.

Retail sales performed much better than expected in the immediate wake of last June’s Brexit vote, helping to boost overall GDP growth and confounding widespread expectations that the economy would fall into recession. But economists said the latest data suggested gravity was now asserting itself as inflation, stemming from the sharp depreciation of the pound since last June, eats into incomes and wage growth remains chronically weak. “We should see these retail sales figures as the start of a period of much weaker consumer spending growth – which will act as a drag on the overall progress of the UK economy over this year and next,” said Andrew Sentance, senior economic adviser at PwC.

“This is the clearest indication yet that the expected slowdown in the UK economy has begun, and we should expect to see this confirmed in other economic data over the next few months.” James Knightley, an economist at ING described the figures as “dreadful”. “The story for the household sector isn’t great right now. Inflation is eating into household spending power with wages once again failing to keep pace with the rising cost of living. There is also a growing sense of job insecurity highlighted in some surveys, which may also be making households a little nervous,” he said. The household saving ratio, the gap between the sector’s aggregate income and spending, fell to just 3.3% in the final quarter of 2016, the weakest on record, prompting questions about the sustainability of the rate of consumer spending. Retail sales account for around 30% of household consumption, which in turn accounts for 60% of UK GDP.

“..1.5 million people work in low-paid UK retail jobs..” They can’t afford the products they sell. Henry Ford had a solution to that.

• BHS Crash Sets Trend For A Chain Of Store Closures On UK High Streets (G.)

The fact that Britain’s unemployment rate has fallen to its joint lowest level since 1975 belies the experience of thousands of BHS staff, who have struggled to find an equivalent job with a contract and regular hours. The jobless rate may be just 4.7% but official records show the number of people on zero-hours contracts hit a record high of 905,000 in the final three months of 2016. That was an increase of 101,000, or 13%, compared with the same period a year earlier. Last year, research by industry trade body the British Retail Consortium (BRC) identified a “lost generation” of predominantly female shop workers who – as thousands of BHS staff would find out – risk losing their jobs as structural change chews up the high street. It estimated there were nearly 500,000 retail workers, aged between 26 and 45, many of whom have children and need to work close to their family home, who would find it hard to find alternative jobs.

Using the benchmark of those earning less than £8.05 an hour, the BRC says 1.5 million people work in low-paid UK retail jobs. About 70% are female and one in five receive means-tested working age tax credits. Norman Pickavance, chair of the Fabian Society taskforce on the future of retail, says the majority of companies in the sector are trying to save money by moving towards less secure employment models. “There are more and more zero-hours-type contracts and self employment,” he says. “A year on from the demise of BHS, most retailers are continuing down that route of flexibility but there is a risk to them from Brexit. They have only been able to use these methods because of the abundance of labour and might have to rethink.”

[..] This trend is writ larger in the US, where analysts are talking about a “retail apocalypse”, as main street veterans like Macy’s and Sears line up to announce major store closure programmes. With American Apparel, Abercrombie & Fitch and JCPenney also axing stores, hundreds of American shopping mall outlets are closing for good. The cost in job terms has been stark, with more than 89,000 retail positions eliminated over the last six months. New York-based Global Data analyst Neil Saunders says the US and UK retail markets are not mirror images, with the American woes resulting from the fallout from a belated move by store chiefs to address the threat posed by the internet.

With more than five times more retail square footage per person than the UK, American store chiefs have also got a bigger problem on their hands than their British counterparts. “In terms of online penetration, the US is where the UK was five or so years ago,” continues Saunders. “What we are seeing is large US retailers scrabbling to adjust.” He adds: “Generally, UK retail is at a much later evolutionary stage than the US. There has already been quite a lot of adjustment in terms of the closure and adaptation of physical space.

Everyone spies on everyone. Growth industry.

• German Intelligence Spied On Interpol In Dozens Of Countries (R.)

Germany’s BND foreign intelligence agency spied on the Interpol international police agency for years and on the group’s country liaison offices in dozens of countries such as Austria, Greece and the United States, a German magazine said. Der Spiegel magazine, citing documents it had seen, said the BND had added the email addresses, phone numbers and fax numbers of the police investigators to its sector surveillance list. In addition, the German spy agency also monitored the Europol police agency Europol which is based in The Hague, the magazine said. Der Spiegel reported in February that the BND also spied on the phones, faxes and emails of several news organizations, including the New York Times and Reuters.

The BND’s activities have come under intense scrutiny during a German parliamentary investigation into allegations that the US National Security Agency conducted mass surveillance outside of the United States, including a cellphone used by Chancellor Angela Merkel. Konstantin von Notz, a Greens party member who serves on the investigative committee, described the latest report about the BND’s spying activities as “scandalous and unfathomable.” “We now know that parliaments, various companies and even journalists and publishers have been targeted, as well as allied countries,” von Notz said in a statement. He said the latest reports showed how ineffective parliamentary controls had been thus far, despite new legislation aimed at reforming the BND. “It represents a danger to our rule of law,” he said.

So what as the Pope done to alleviate the issue? How has he used the Vatican’s opulent riches to make life better for refugees?

• Pope Likens Refugee Holding Centers To ‘Concentration Camps’ (G.)

Pope Francis urged governments on Saturday to get migrants and refugees out of holding centers, saying many had become “concentration camps”. During a visit to a Rome basilica, where he met migrants, Francis told of his visit to a camp on the Greek island of Lesbos last year. There he met a Muslim refugee from the Middle East who told him how “terrorists came to our country”. Islamists had slit the throat of the man’s Christian wife because she refused to throw her crucifix the ground. “I don’t know if he managed to leave that concentration camp, because refugee camps, many of them, are of concentration (type) because of the great number of people left there inside them,” the pope said.

Francis praised countries helping refugees and thanked them for “bearing this extra burden, because it seems that international accords are more important than human rights”. He did not elaborate but appeared to be referring to agreements that keep migrants from crossing borders. In February, the European Union pledged to finance migrant camps in Libya as part of a wider European Union drive to stem immigration from Africa. Humanitarian groups have criticized efforts to stop migrants in Libya, where – according to a U.N. report last December – they suffer arbitrary detention, forced labor, rape and torture.

Debt Rattle April 11 2017

Apr 112017

April 11, 2017 Posted by Raúl Ilargi Meijer at 9:11 am Finance Tagged with: austerity, Canada, carnage, derivatives, Deutsche, Erdogan, Greece, opioids, recession, retail 6 Responses »

Carole Lombard 1934

• 54% Of Canadians Think Home Prices Will Never Fall (BNN)

• Wild Housing Speculation Drives Entire Canadian Economy (WS)

• Third of US Car Owners Can’t Afford Surprise Repairs (UT)

• The Retail Apocalypse’s Terrifying Impact On One Corner Of Wall Street (BI)

• China Is Playing a $9 Trillion Game of Chicken With Savers (BBG)

• Currency-Issuing Governments Never Have To Worry About Bond Markets (Bilbo)

• Recessions Are Never Desirable Events And Are Always Avoidable (Bilbo)

• So Many Triggers (Thomas)

• American Carnage – The New Landscape of Opioid Addiction (Caldwell)

• How Erdogan’s Referendum Gamble Might Backfire (Spiegel)

• Share of Member States in EU GDP (EC)

• Austria FinMin Calls For €1 Billion EU Investment In Greece (R.)

• JP Morgan Report Sees ‘Light At The End Of The Tunnel’ For Greece (Amna)

• Refugee Community Center Set To Open On Lesvos (K.)

Stupefying. “Of those in the younger generation who are already in the housing market, more than four of every five plan to sell..”

• 54% Of Canadians Think Home Prices Will Never Fall (BNN)

More than half of the country believes home prices will never fall, according to a new poll from CIBC. Despite lofty valuations in the Toronto and Vancouver housing markets, 54% of respondents to the CIBC poll say housing prices will rise indefinitely, while only 40% think prices will decline over the course of the next five years. David Madani, senior Canadian economist at Capital Economics, thinks the unbridled optimism is just one more sign the Toronto housing market is in bubble territory. “The fact that the majority of Canadians still think home prices can continue to shoot up is sort of testament to the fact we’re in a full-blown housing bubble,” he said in an interview with BNN. According to the poll, those high prices are keeping homeowners on the sidelines, with 62% of respondents saying they’re reluctant to sell their home, lest they become buyers again.

Home prices in Toronto are up more than 30% over the course of the last year, and prices in Vancouver have risen more than 14%. Those who are looking to sell are largely of the baby boomer cohort, with more than two-thirds of respondents older than 55 saying they plan to downsize to a smaller home or condo. CIBC says boomers are motivated to sell not just due to the ease of maintaining a smaller home, but also as a boost to their retirement savings. What’s less clear is who they’re going to sell their home to: 52% of the millennial generation either don’t believe they’ll ever own a home, or are unsure if home ownership is in their future, according to the CIBC poll. Of those in the younger generation who are already in the housing market, more than four of every five plan to sell, with 63% complaining the mortgage and housing costs are making them cash-poor.

It drives it and will make it crumble. But Justin isn’t listening.

• Wild Housing Speculation Drives Entire Canadian Economy (WS)

Here’s another data point on the Canadian housing bubble, how immense it really is, and how utterly crucial wild housing speculation has become to the Canadian economy. Housing starts surged to 253,720 units in March seasonally adjusted, the highest since September 2007, according to Canada Mortgage & Housing Corp. Of them, 161,000 were multi-family starts of condos and rental units in urban areas. In Toronto, one of the hot beds of Canada’s house price bubble, housing starts jumped by 16,600 units, all of them condos and apartments, defying any expectation of a slowdown. Housing starts are an indication of construction activity, a powerful additive to the local economy with large secondary effects. Housing construction gets fired up by the promise of ever skyrocketing housing prices, and thus big payoffs for developers, lenders, real estate agents, and the entire industry.

National home price data covers up the real drama in certain cities, particularly Vancouver (British Columbia) and Toronto (Ontario), but it does show by how much Canadian housing prices have overshot the already lofty US housing prices. The chart below by Stéfane Marion, Chief Economist at Economics and Strategy, National Bank of Canada, compares US home prices per the Case-Shiller 20-City index to Canadian home prices per the Teranet-National Bank 26-market index. Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. Note that during the housing crisis in the US, there was only a blip in Canada’s housing market:

How important is real estate and housing construction to the Canadian economy? Hugely important! It accounts for an ever larger proportion of the Canadian economy. For all of Canada, according to data by Statistics Canada, housing construction and real estate activities combined account for 15.5% of GDP, up from 14.7% in 2011. This chart shows housing construction and real estate activities in the largest four provinces as percent of the province’s GDP in 2015, and for Canada overall. StatCan data for 2016 are not yet available. Note British Columbia: 22% of its economy is based on residential construction and real estate activities – due to Canada’s number one housing hot-bed Vancouver:

As I said last week: it seems there’s an article on this theme every week now.

• Third of US Car Owners Can’t Afford Surprise Repairs (UT)

Nearly one-in-three American motorists cannot pay for vehicle repairs without taking on debt, according to a new study from AAA. The study estimates 64 million drivers could not pay out-of-pocket for an average repair bill of $500 to $600. There are about 210 million licensed motorists in the country, according to the U.S. Department of Transportation. About 76% of men said they could afford the expense, while only 62% of women could do the same. “We were a little shocked at the results,” said Michael Calkins, AAA manager of technical services. “That one-third of American drivers couldn’t afford the cost of a $500 auto repair is a little concerning.”

AAA suggests motorists adhere to a scrupulous vehicle maintenance schedule and set aside $50 a month to build a fund for maintenance and unexpected repairs. But some motorists don’t – or can’t. About one-third of U.S. drivers delay or skip recommended car maintenance, Calkins said, a possible lingering repercussion of the 2008 recession. Motorists pay later for putting off vehicle maintenance now, as worn-down parts increase the likelihood of costly roadside breakdowns, Calkins said. A car-care fund can help motorists stick to their maintenance schedules, but for many low-income families, $50 a month is a big ask, said Asley Orr, executive director of Good News Mountaineer Garage, a nonprofit that donates used cars to West Virginians who need transportation to work.

Who owns the stores and malls? Who owns the debt that keeps them going until it doesn’t?

• The Retail Apocalypse’s Terrifying Impact On One Corner Of Wall Street (BI)

One of the biggest waves of retail closures in decades is killing off malls across the US and taking some Wall Street investments with it. Struggling with online competition, huge retailers like Sears, JCPenney, and Macy’s are closing hundreds of stores that typically anchor malls, meaning they occupy the largest spaces at mall entrances and drive most shopper traffic. When a big store shuts down, it triggers a chain reaction that can end with the shopping mall being unable to collect enough rent to cover its debts, forcing it to default. By one measure, as many as a third of the malls in the US are at risk of facing this situation. This has become a nightmare for investors who are expecting to collect on those debts. They own bonds – called commercial mortgage-backed securities, or CMBSs – that are backed by the mall properties’ rents.

If this sounds familiar, that’s because it’s similar to one element of the financial crisis. Back then, mortgage-backed securities, which pooled homeowners’ mortgages into a multitrillion-dollar financial market, were part of the problem. They encouraged risky lending, and together with derivatives on the bonds that were ginned up by Wall Street, they left banks and investors with massive losses that threatened the financial system. Nobody is predicting anything that dire today, but CMBSs, which Morgan Stanley says account for nearly 10% of the $3.6 trillion commercial real-estate mortgage market, work similarly. They pool debt payments from several malls or other commercial properties and then splice them so that investors can buy the segment and take on the kind of risk they want.

What’s happening in the retail market, though, is worse than anyone who invested in the bonds could’ve imagined a few years ago. “Malls are hard to turn around once they go downhill,” said Steve Jellinek, vice president of CMBS analytical services for Morningstar Credit Ratings. As a result, many CMBS investments are getting wiped out, and “retail lending has really taken a beating,” he said. About $48 billion in loans backed by mall properties are at risk of default, according to Morningstar.

This is how the Chinese see Beijing, first as full of hot air (true), and second as capable of making good on any and all losses (not true): “Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.”

• China Is Playing a $9 Trillion Game of Chicken With Savers (BBG)

Like many individual investors in China, Yang Mo has no idea what’s in the wealth management products that make up a big chunk of her net worth. She says there’s really no point in finding out. Sure, WMPs invest in all kinds of risky assets, but the government would never let a big one fail, she explains. “It’s not how the Chinese government does things, and it’s not even Chinese culture,” says Yang, a 29-year-old public relations professional in Beijing. Hers is a common refrain in Asia’s largest economy, where savers have poured $9 trillion into WMPs and similar products on the assumption that they’ll get bailed out if the investments sour. Even after news in February that policy makers are drafting rules to make it clear that state guarantees don’t exist, Yang is undaunted.

She says she’ll only withdraw money from WMPs in the unlikely event that they start to suffer losses. “Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.” Yang’s steadfast faith in bailouts illustrates the dilemma for authorities as they try to reduce moral hazard and improve the pricing of risk in China’s financial system: It may require a major WMP blowup to shake investors out of their complacency, an event that could wreak havoc on banks that increasingly rely on the products for funding. [..] WMPs – a key part of China’s shadow banking system – are getting squeezed as the nation’s central bank increases interest rates to discourage excessive leverage.

That’s not only putting pressure on products that use borrowed funds to meet their fixed return targets, it’s also weighing on the Chinese bond market, where WMPs allocate the biggest portion of their funds. For as long as they can, banks will make investors whole when WMPs run into trouble because they fear the reputational damage of a failed product, according to Hong. At some point, though, WMP shortfalls may be too large for the banks to cover, forcing policy makers to decide whether they’re willing to allow losses. Intervention is becoming less likely, if the new draft rules are anything to go by. Regulators are working on language that would make clear there are no state guarantees on asset-management products – which include WMPs, trusts, mutual funds and other products – people familiar with the matter said in February.

Snippets from a great and long article by Australian economist Bill Mitchell. Everything they tell you about austerity is a lie.

• Currency-Issuing Governments Never Have To Worry About Bond Markets (Bilbo)

How many times have you heard a politician claim they had to cut government spending and move the fiscal balance to surplus because they had to engender the confidence of the bond markets. Apparently, this narrative alleges that if bond markets are not ‘confident’ (whatever that means) then they will stop begging treasury departments for more debt issues and the government, in question, will run out of money and then pensions will stop being paid and the public service will be sacked and public trains and buses will stop running and before we know it the skies will blacken and collapse on us. The narrative ignores the usual statistics that bid-to-cover ratios are typically high (hence my ‘begging’ terminology) which are supplemented by well documented cases where the bond dealers (including banks etc) do actually beg central banks to stop driving yields down in maturity segments where these characters have pitched their “business model” (read: where they make the most profits).

The facts are exactly the opposite to the neo-liberal pitch. Currency-issuing governments never need to worry about how bond markets ‘feel’. Essentially, the bond markets are irrelevant to the ability of such a government to design and implement its fiscal plans. And, the central bank always can counteract any tendencies that the bond markets might seek to impose where governments do actually issue debt. [..] Nothing a student learns in a mainstream macroeconomics course at university (at any level – and the deception becomes worse the in later years as the student enters graduate school) about the relative powers of governments and bond markets is true. [..] So next time you hear an economist or a politician talk about how bond markets have to be satisfied and they use that as a justification for hacking into public spending (and driving up unemployment and poverty rates) you know they are lying and are frauds.

The bond traders never have to be satisfied. They can be forced to live on crumbs by the central bank if it so chooses. [..] The narrative that asserts that governments have to assuage the sentiments of the bond markets – which is an oft-repeated claim to justify job-destroying and poverty-inducing austerity – is just fake. It is a lie. It is just one of many lies that the elites use to pursue their biased austerity. Biased because they never advocate cutting spending or government support that helps them. They just support cuts that help the most disadvantaged who have little political voice and so can be disregarded. The point is that currency-issuing governments never have to worry about bond markets. And it would be better if the government eliminated the public debt market altogether – then the bond traders would have to do something productive for a living and get off the corporate welfare teat!

More Bill Mitchell.

• Recessions Are Never Desirable Events And Are Always Avoidable (Bilbo)

Bloomberg published an article last week (April 7, 2017) that it should not have published given that the article offers only fake knowledge to its readership. The article in question – Australia’s Delayed Recession Fallout Is Showing Up in Its Jobs Data – carried the sub-title “There may be trouble ahead” and purported to argue that because the Australian government’s fiscal stimulus allowed our nation to avoid a recession in 2009 we now have to ‘pay the piper’ and take our medicine and suffer a recession anyway. The proposition is ridiculous to say the least. The article uses as authority some nonsensical statements from a “business management consultant”, who doesn’t appear to have a very sound grasp of either history or what is actually going on. This is another case of misinformation.

The fact is that the Australian government’s fiscal stimulus in 2008 and 2009 saved the economy from recession. The current slowdown and parlous labour market is not some delayed effect from that. Rather, it is because the Australian government caught the ‘fiscal surplus bug’ obsession, and began a misguided pursuits of surpluses, irrespective of what the external and private domestic sectors were doing. It caused an immediate slowdown and all the virtuous dynamics that were accompanying the stimulus-led growth (for example, fall in household debt and the rise in the household saving ratio) were reversed, as we would expect. Far from being delayed effects, the poor jobs data is because current fiscal policy is too restrictive. Simple solution: expand the discretionary fiscal deficit (preferably with a large-scale public sector job creation strategy).

“..Deutsche is ten times larger than Lehman Brothers..”, ” (90% of Deutsche’s revenue has been from derivative trading, which is what brought down Lehman.)”

• So Many Triggers (Thomas)

Deutsche Bank has announced that it will create more shares, selling them at a 35% discount. Existing shareholders have not been pleased and, in the first four days since the offer was announced, the value of existing shares dropped by 13% as shareholders began dumping them. So why on earth would Germany’s foremost bank do something so rash? Well, in recent years, the bank has been involved in many arbitrations, litigations, and regulatory proceedings as a result of fraudulent activities, including the manipulation of markets. Having been found guilty, they presently owe $7.2 billion to the US Department of Justice and are now facing an additional $10 billion litigation bill. Unfortunately, the bank is already broke and, should Deutsche actually be able to sell the new shares, the $8.6 billion they hope to receive will still not save them from bankruptcy.

Business has also not been so good. They’ve lost nearly $2 billion in the last two years, instituted a hiring freeze, cut bonuses by 80%, and are facing a $2.5 million civil penalty to pay to the Commodity Futures Trading Commission for failure to report transactions and, not surprisingly, have been downgraded. The German government has stated that they will not bail out Deutsche and, indeed, under the EU agreement, they cannot do so. It’s safe to say that Germany’s largest bank will soon go the way of the dodo. For those who don’t live in Europe, this may not seem all that significant. However, Deutsche is the bank that funds the euro system, which they can now no longer do. Further, Deutsche is ten times larger than Lehman Brothers, an American bank that famously went down in 2008, heralding in that year’s economic crash. (90% of Deutsche’s revenue has been from derivative trading, which is what brought down Lehman.)

Upon the collapse of Deutsche Bank, four major US banks would be expected to become insolvent in a matter of days. The ripples would then continue to spread outward into the economic system as a whole. For many years, I’ve made repeated reference to the fact that the Western powers have been headed south economically, repeatedly relying on strategies that would provide short-term gain but would ultimately create long-term pain. They’ve been remarkably consistent and steadfast in this trend and, at this point, Deutsche is merely the latest trigger that may bring down the system.

Chilling.

• American Carnage – The New Landscape of Opioid Addiction (Caldwell)

There have always been drug addicts in need of help, but the scale of the present wave of heroin and opioid abuse is unprecedented. Fifty-two thousand Americans died of overdoses in 2015—about four times as many as died from gun homicides and half again as many as died in car accidents. Pawtucket is a small place, and yet 5,400 addicts are members at Anchor. Six hundred visit every day. Rhode Island is a small place, too. It has just over a million people. One Brown University epidemiologist estimates that 20,000 of them are opioid addicts—2% of the population. Salisbury, Massachusetts (pop. 8,000), was founded in 1638, and the opium crisis is the worst thing that has ever happened to it. The town lost one young person in the decade-long Vietnam War. It has lost fifteen to heroin in the last two years.

Last summer, Huntington, West Virginia (pop. 49,000), saw twenty-eight overdoses in four hours. Episodes like these played a role in the decline in U.S. life expectancy in 2015. The death toll far eclipses those of all previous drug crises. And yet, after five decades of alarm over threats that were small by comparison, politicians and the media have offered only a muted response. A willingness at least to talk about opioid deaths (among other taboo subjects) surely helped Donald Trump win last November’s election. In his inaugural address, President Trump referred to the drug epidemic (among other problems) as “carnage.” Those who call the word an irresponsible exaggeration are wrong.

Jazz musicians knew what heroin was in the 1950s. Other Americans needed to have it explained to them. Even in the 1960s and 1970s, with bourgeois norms and drug enforcement weakening, heroin lost none of its terrifying underworld associations. People weren’t shooting it at Woodstock. Today, with much of the discourse on drug addiction controlled by medical bureaucrats, it is common to speak of addiction as an “equal-opportunity disease” that can “strike anyone.” While this may be true on the pharmacological level, it was until quite recently a sociological falsehood. In fact, most of the country had powerful moral, social, cultural, and legal immunities against heroin and opiate addiction. For 99 percent of the population, it was an adventure that had to be sought out. That has now changed.

America had built up these immunities through hard experience. At the turn of the nineteenth century, scientists isolated morphine, the active ingredient in opium, and in the 1850s the hypodermic needle was invented. They seemed a godsend in Civil War field hospitals, but many soldiers came home addicted. Zealous doctors prescribed opiates to upper-middle-class women for everything from menstrual cramps to “hysteria.” The “acetylization” of morphine led to the development of heroin. Bayer began marketing it as a cough suppressant in 1898, which made matters worse. The tally of wrecked middle-class families and lives was already high by the time Congress passed the Harrison Narcotics Tax Act in 1914, threatening jail for doctors who prescribed opiates to addicts. Americans had had it with heroin. It took almost a century before drug companies could talk them back into using drugs like it.

Referendum on April 16: “..some pollsters see the “no” camp ahead by as much as 10%.”

• How Erdogan’s Referendum Gamble Might Backfire (Spiegel)

Support for the presidential system is crumbling. Erdogan may be giving the impression that the entire country is behind him, with his speeches resembling religious masses. On Sunday a week ago, tens of thousands cheered him on in Ankara. But some pollsters see the “no” camp ahead by as much as 10%. Even previously loyal Erdogan supporters, including party functionaries, don’t understand why the president so desperately wants this referendum. According to polls, one third of AKP voters are fluctuating between yes and no. The new system would concede powers to the president that even the nation’s founder, Mustafa Kemal Atatürk, didn’t have.

The president would be able to appoint ministers and 12 of 15 constitutional judges, and he would have the power to dissolve parliament any time he wanted to. The position of prime minister would also be eliminated. Erdogan claims the reform is necessary to secure stability and prevent further coup attempts. But he already has more power than any other politician in recent Turkish history. Campaign posters plasterd with Erdogan’s visage hang everywhere in Bursa. The balconies are decorated with Turkish flags and vehicles drive through the streets blaring AKP election songs. The AKP is trying to create excitement, and that shouldn’t be too difficult here in Bursa. The city is Turkey’s fourth-largest and a higher-than-average share of residents voted for the AKP in the November 2015 parliamentary election.

For a long time, the residents of Bursa were the way Erdogan wanted them to be: hard-working and pious. The city has developed into an industrial center and the government built brand new residential neighborhoods, with shopping malls and mosques. But since the attempted coup, the economy has collapsed and many storefronts now stand empty. Mumcu’s cousin, who runs a textile company, says that his revenue has dropped from €50 million to €2 million in the past year.

Germany and France are half of EU GDP. The rest are mere pawns.

• Share of Member States in EU GDP (EC)

In 2016, the GDp of the European Union (EU) amounted to €14 800 billion (bn) at current prices. Over half of it was generated by three Member States: Germany, the United Kingdom and France. With a GDP worth €3 100bn in 2016, Germany was the leading EU economy, accounting for over a fifth (21.1%) of EU GDP. It was followed by the United Kingdom (16.0%), France (15.0%), Italy (11.3%), Spain (7.5%) and the Netherlands (4.7%). At the opposite end of the scale, eleven Member States had a GDP of less than 1% of the EU total. They were: Malta, Cyprus, Estonia, Latvia, Lithuania, Slovenia, Croatia, Bulgaria, Luxembourg, Slovakia and Hungary. As regards the 19 Member States which form the euro area, their cumulated GDP stood at €10 700 bn in 2016, meaning that they accounted all together for 72.5% of the EU GDP. Germany (29.2%) and France (20.7%) made up half of the euro area GDP.

Schäuble is shaking his head.

• Austria FinMin Calls For €1 Billion EU Investment In Greece (R.)

The European Union should consider a one-billion-euro special investment programme to spur growth in debt-ridden Greece, Austria’s finance minister told daily Der Standard in an interview published on Monday. Hans Joerg Schelling said Greece would only be able to get back on track and regain access to capital markets if it was able to generate sustainable growth in the mid- and long-term. It was important to help the country participate in a pick-up in growth in the euro zone, he added. There was no immediate comment from Athens which has called for more help and debt relief as it struggles to cope with its financial crisis and attain a budget surplus of 3.5% of economic output, excluding debt servicing outlays next year.

“You must assess whether to start a big investment programme through the European Investment Bank or maybe with the (European bailout fund) ESM… to get an additional boost (for the Greek economy),” the paper quoted Schelling as saying. “I would define a scale of one billion euros.” Schelling, seen as a possible successor to Eurogroup President Jeroen Dijsselbloem, said one project could be an investment in renewable energy to make Greece less dependent on energy imports. The European Investment Bank (EIB) launched a one billion euro credit line to Greek banks in December, mainly to be used for on-lending to small and medium sized companies and firms promoting youth employment.

JP Morgan doesn’t understand the state the Greek economy is in.

• JP Morgan Report Sees ‘Light At The End Of The Tunnel’ For Greece (Amna)

The decision reached by Eurozone finance ministers in Malta concerning Greece increases the chances of a solution for completing the second review of the Greek programme before May 22, according to a report by J. P. Morgan released on Monday. The U.S. banking and financial services giant said the decisions appears to have clarified most of the obstacles that were delaying talks for concluding the review and point to a higher possibility of a good outcome for Greece. J.P. Morgan’s central scenario, to which it gives an 85 pct probability, predicts that the next step will be the return of the institutions’ missions to Greece to finalise the technical details that will support a staff-level agreement (SLA).

If its predictions are correct, the report said, there will be great progress over the next few weeks, while the sequence of events will be the signature of the SLA, passing of the measures agreed by the Greek Parliament and the completion of the review ensuring future disbursements and further details on debt relief measures. As a part of this positive scenario, J.P. Morgan said, it was also expected that Greece will become eligible for inclusion in the ECB’s quantitative easing programme in the summer. “We give an 85 pct probability to this development. This is the most positive result for the Greek bond market and we expect that 10-year Greek bonds will have price/yield rations of about 85 euros/5.5-6 pct with this scenario,” the report says. Even if the worst of the three scenarios it has drawn up should be proved right, J.P. Morgan said that an accident leading to Grexit was extremely unlikely after last Friday’s decisions and that in its medium-term outlook on Greek bonds “the reward for the risk remains attractive.”

Fantastic. The Automatic Earth and its very generous readers play a substantial role in this. Thank you so much for making it possible.

• Refugee Community Center Set To Open On Lesvos (K.)

Just a 10-minute walk from the municipal-run camp of Kara Tepe and a bit over a half-hour from the Moria migrant camp north of Mytilene, the capital of Lesvos, a community center currently under construction on a 1.5-acre site aspires to become a magnet for individuals stranded on the eastern Aegean island by offering a wide range of activities. Run by the Swiss Cross charity, the center, which is set to open in the coming days, was built by migrants with the help of volunteers who arrived here from different parts of Europe. The project is called “One Happy Family.” The facility will provide a coffee shop (complete with nargile), a home cinema, a library and a garden.

The O Allos Anthropos (Fellow Man) group has agreed to provide about 1,000 servings of food [daily]. The entire project will cost 200,000 euros, which includes rent for the first 12 months. “The Swiss are very good at organizing, while the Greeks are good at hospitality, so great things can come out of that mix,” Achilleas Peklaris, a writer and journalist now working for Swiss Cross, told Kathimerini. After doing charity work in Thessaloniki, northern Greece, Swiss Cross moved to Lesvos, prompted by the tragic deaths of Moria camp residents living outdoors in tents in freezing conditions this past winter.

Debt Rattle April 8 2017

Apr 082017

April 8, 2017 Posted by Raúl Ilargi Meijer at 8:13 am Finance Tagged with: apparel, bubble, credit card, debt, Greece, jobs, red lines, refugees, retail, Syria, Toronto 1 Response »

Dorothea Lange Wife of sharecropper in town to sell crop at tobacco auction, Douglas Georgia 1938

• US Credit Card Debt Tops $1 Trillion For The First Time In A Decade (ZH)

• Store Wars: US Retail Sector Is Shedding Jobs Like It’s A Recession (MW)

• Apparel Retailers Lead The Charge Out Of Brick-And-Mortar (Forbes)

• Wall Street Is Making It Harder to Buy a Car (BBG)

• US Jobs Growth Slumps To 98,000 In March (MW)

• Millions Of Americans Desperate To Trade Part-Time Work For Full-Time (MW)

• Toronto Real Estate Is In A Bubble Of Historic Proportions (Rosenberg)

• Rosenberg: Toronto Housing Bubble ‘On Par With What We Had In The US’ (BNN)

• Could Europe Copy America’s Supersized Corporate Debt? (BBG)

• Syrian Gas Attack is a Lie: “Stop Your Governments!” – Russia (FR)

• US Missile Strikes in Syria Cross Russian ‘Red Lines’ (RI)

• Greece On Course To Avoid Debt Default As Athens Agrees Pension Cuts (Tel.)

• Letting People Drown Is Not A European Value (EUO)

On top of auto and student loans, both already well over $1 trillion. Get a fork and turn ’em over.

• US Credit Card Debt Tops $1 Trillion For The First Time In A Decade (ZH)

Unlike last month’s unexpectedly week consumer credit report, which saw a plunge in revolving, or credit card, debt moments ago the Fed, in its latest G.19 release, announced that there were few surprises in the February report: Total revolving credit rose by $2.9 billion, undoing last month’s $2.6 billion drop – the biggest since 2012 – while non-revolving credit increased by $12.3 billion, for a total increase in February consumer credit of $15.2 billion, roughly in line with the $15 billion expected. However, while in general the data was uneventful, there was one notable milestone: in February, following modest prior revisions, total revolving/credit card debt, has once again risen above the “nice round number” of $1 trillion for the first time since January 2007… where it now joins both auto ($1.1 trillion) and student ($1.4 trillion) loans, both of which are well above $1 trillion as of this moment.

It IS a recession.

• Store Wars: US Retail Sector Is Shedding Jobs Like It’s A Recession (MW)

The U.S. retail industry is shedding jobs at an unparalleled pace outside of recession and stands to lose many more as the industry continues to shrink its physical footprint, a response to the shift in consumer shopping habits away from purchasing in stores and malls in favor of e-commerce. The U.S. retail sector lost 60,600 jobs in February and March, the worst two months for the sector since the tail end of 2009, according to Labor Department data. The category called general merchandise stores – Target, J.C. Penney and the like – has shed jobs for five consecutive months. Media reports have tallied more than 3,500 store closures for 2017, with retailers including J.C. Penney, Sears, Macy’s and others announcing that they are shutting doors and making job cuts.

Ralph Lauren has outlined the next phase of its turnaround effort, which includes shutting stores and cutting jobs. Bankruptcies and liquidations have also picked up, with Payless ShoeSource just this week announcing nearly 400 store closures. Wet Seal, Aeropostale, Sports Authority, and Hhgregg are among the many other retailers that have either filed for bankruptcy or liquidated. The current state of retail, which is weighed by less foot traffic, more promotions, and increased competition, particularly from Amazon.com, suggests that additional closures are on the horizon. The U.S. simply has too many stores, according to a report from Cowen & Company titled “Retail’s Disruption Yields Opportunities – Store Wars!,” which found that up to 2,000 stores should close.

“[W]e expect online penetration of apparel to increase to 35% to 40% from 20%, yielding closures of 20% at oversized chains,” the report said. Cowen analysts say there are about 1,200 malls in the U.S. and they represent about 15% of retail square footage. Cowen anticipates that up to about 20%, or 240 malls, will close or be repurposed, with anchor store closures and the rise of digital among the primary drivers.

The Amazon bubble. Killing off America’s last remaining meeting places.

• Apparel Retailers Lead The Charge Out Of Brick-And-Mortar (Forbes)

This week, Payless ShoeSource filed for bankruptcy, joining many other U.S. apparel brands, including The Limited and Wet Seal, that have sought Chapter 11 protection in recent months. These three chains alone will shutter almost 1,000 stores. Fung Global Retail & Technology estimates that all of the major U.S. store closures announced so far this year total 2,507. That total is just for announcements made in the three months through April 4, 2017, yet it already dwarfs the 1,674 store closures we recorded across major U.S. chains in all of 2016. Closures are impacting multiple sectors: electronics is represented by RadioShack, furniture and appliances by Hhgregg, office products by Staples and healthcare by CVS. Apparel, however, is leading the charge out of brick-and-mortar. We calculate that apparel retailers and department stores account for 2,060 (82%) of the 2,507 closures announced so far this year.

What can we infer from this surge in store closures? We see three principal takeaways: Weak demand for apparel persists. The most obvious conclusion from the recent bankruptcy filings is that apparel retailers continue to feel the impact of subdued consumer demand. American shoppers have been flush with cash thanks to low gas prices, but they have chosen to spend on cars and their homes rather than on fashion. The latest retail sales data from the U.S. Census Bureau show that apparel specialist stores saw a 1% year-over-year decline in sales in February. There is little reason to think shoppers will switch back to apparel as interest rates rise and if fuel prices creep up.

Second, pure-play retailing is fashionable again. Amid all the talk of omnichannel retailing and Internet pure plays opening brick-and-mortar stores, we are now seeing a trend of retailers going the opposite way, moving from operating stores to selling only online. Bebe is one such retailer that is planning to become an Internet pure play. The Limited considered a similar plan but is no longer selling online after filing for bankruptcy. Third, more retailers are facing reality. Not all store closures are being forced by bankruptcies. J.C. Penney and Macy’s, for instance, are slimming down their store networks in order to prepare for the future. We expect more retailers to join them in recognizing a need for fewer stores. Accordingly, we do not expect this year’s store-closure count to stop at 2,507.

Just in time economy?!

• Wall Street Is Making It Harder to Buy a Car (BBG)

On countless occasions in recent years, the U.S. auto industry has relied on cheap and easy credit from Wall Street to get it through rough patches. Not this time. With both bad loans and interest rates on the rise, financial institutions are becoming more selective in doling out credit for new-car purchases, adding to the pressure for automakers already up against the wall with sliding sales, swelling inventories and a used-car glut. “We’ve been having a party for a few years and it was fun,” said Maryann Keller, an industry consultant in Stamford, Connecticut. “Now lenders are getting back to basics.” Many figure they have to. For one thing, subprime borrowers have been falling behind on their car-loan payments at a rate not seen since just after the 2008 financial crisis.

Delinquencies for auto debt of all stripes have been climbing, with the value of those behind for at least 30 days swelling to $23.3 billion in December, a 14% jump from a year earlier, according to the Federal Reserve. This helps explain why 10% of senior bank-loan officers said they expect to pull back on extending credit to car buyers this year, according to a Fed survey. Expectations are that terms will toughen for loans the vast majority of Americans need to buy new vehicles as the Fed boosts benchmark rates. “There are only so many people wanting a new car and only so much capital available,” said Daniel Parry, CEO of Praxis Finance and co-founder of Exeter Finance, a subprime lender. “Manufacturers and lenders will have to reset to reduced volume levels.”

The reset has already started, with auto sales dipping in each of the first three months of the year. In March, the annualized pace, adjusted for seasonal trends, slowed to 16.6 million from 16.7 million a year earlier, according to Autodata Corp. Analysts had projected it would accelerate to about 17.2 million. Now Goldman Sachs economists figure there’s only demand for about 15 million per year, they said in an April 4 report. The industry set a record by selling 17.6 million cars and trucks in 2016 and has been on a seven-year growth streak. But General Motors, Ford and others had to pile on discounts and incentives to keep the expansion going, with both their finance arms and third-party lenders giving them a boost with easy credit. “This has come full circle,” Keller, the consultant, said. “We’ve created an auto market of 17.5 million vehicles based on accommodating credit. There will be consequences.”

Whaddaya think? Yup, weather.

• US Jobs Growth Slumps To 98,000 In March (MW)

The U.S. created just 98,000 new jobs in March to mark the smallest gain in almost a year, a sign the labor market is not quite as strong as big hiring gains earlier in 2017 suggested. The unemployment rate, meanwhile, fell to 4.5% from 4.7% and touched a nearly 10-year low despite the slowdown in hiring. U.S. stocks ended the session pretty much where they started as investors sifted through the March employment report. The U.S. had added more than 200,000 jobs in January and February, but hiring in weather-sensitive industries such as construction was helped by unusually high temperatures in the dead of winter.

Many economists were skeptical the recent pace of job creation was sustainable after a six-year hiring boom that chopped the unemployment rate in half and ignited growing complaints among companies about a shortage of skilled workers to fill open jobs. As a result, economists polled by MarketWatch had estimated the number of new jobs created in March would taper off to 185,000 in the third month of Donald Trump’s young presidency. Instead the decline was even steeper, speared by plunging employment in a beleaguered retail industry. “The 200,000-plus numbers reported for job gains in January and February always seemed a bit outlandish,” said Steven Blitz, chief U.S. economist at TS Lombard. Added economist Harm Bandholz of UniCredit: “Most of this is weather related and correct for exaggerated strengths seen earlier in the year.”

It’s going so well, get me come shades.

• Millions Of Americans Desperate To Trade Part-Time Work For Full-Time (MW)

Millions of Americans don’t want to work part-time. The U.S. economy added just 98,000 jobs in March, the smallest gain in nearly a year, after adding more than 200,000 jobs in January and February. Economists predicted that the number of jobs created in March would hit 180,000, so the actual figures fell far short of that. Unemployment fell to a 10-year-low of 4.5% in March from 4.7% in February, but the “real” unemployment rate that includes part-time workers who would rather work full-time and job hunters who gave up searching for work was 8.9%, although this was also down from 9.2% in February. Part-time work is still a contentious alternative for many workers. On Thursday, Amazon said it will create 30,000 part-time jobs in the U.S. over the next year, nearly double the current number. Of those, 25,000 will be in warehouses and 5,000 will be home-based customer service positions.

Amazon said in January it would create 100,000 full-time jobs over the next 18 months, according to a separate announcement made in January. Last year, Amazon’s world-wide workforce grew by 48% to 341,400 employees. In the U.S., it has over 70 “fulfillment centers” and 90,000 full-time employees. There were some 5.6 million involuntary part-time workers in March 2017, little changed from the month before, but down from 6.4 million a year earlier, according to the Bureau of Labor Statistics. That number is up from 4.5 million in November 2007, but way off a peak of 8.6 million in September 2012. These figures are almost entirely due to the inability of workers to find full-time jobs, leaving many workers to take or keep lower-paying jobs, according to the Economic Policy Institute, a nonprofit think-tank in Washington, D.C. And 54% of the growth in these involuntary part-time jobs between 2007 and 2015 were in retail, leisure and hospitality industries, the EPI said.

[..] Perhaps not surprisingly, involuntary part-time workers tend to earn less than their voluntary part-time counterparts. Approximately 40% of involuntary part-time workers report a total family income of less than $30,000, compared with just 18% of the latter and 29% of the population as a whole, according to an earlier report published in 2015 by Rutgers University. More than four out of every five involuntary part-time workers says it’s hard to save for retirement and about seven out of every 10 say they earn less money than they and their family need to get by and pay bills.

It’s too late to gently deflate.

• Toronto Real Estate Is In A Bubble Of Historic Proportions (Rosenberg)

The concerns about froth in Toronto’s housing market are not likely to subside given the sticker-shock from the latest report from the Toronto Real Estate Board. As per the March report, the average single-detached house in the Greater Toronto Area (GTA) sold for $1,214,422 last month up from $910,375 in March of last year – that is a 33% YoY surge, and follows a 16% run-up over the prior 12 months. Whatever the term is for an acceleration in an already parabolic curve, well, that is what we have on our hands today. And it isn’t just detached homes seeing this degree of rapid price appreciation — the benchmark single-family home selling price was up 29% YoY, the benchmark townhouse price was up 28% and the condo/apartment composite was up 24%. This is a bubble of historic proportions.

Not only to have home prices in the GTA now absorb an unprecedented 13 years of median family income, but to have 30%-ish run-ups against a backdrop of a 2% inflation rate, wages that are barely going up 2% as well, and nominal GDP growth of around 4%. This should put 30% into some sort of perspective when we conclude that what we have on our hands is a near three standard deviation event. That alone qualifies as a bubble — if you don’t like that term, then call it a giant sud. In the past, Toronto home prices went up at an annual rate of 4% in real terms, in the past year they have surged by nearly 30%. [..] it goes without saying that if the name of the game is to tame the flame then have the foreign investor share the blame. A tax on foreign transactions, as was already done in Vancouver, seems like a pretty good idea.

And the government can at the very least use the revenues to either provide greater tax incentives to build and/or provide tax relief for the low/mid income entry-level buyer who is struggling to cobble together the funds for a down payment. So yes, in this sense, I would be advocating a Robin Hood style of economic policy. Indeed, what may be needed is a very progressive tax on foreign buying of local residential real estate in the bid to cool demand and reverse the exponential surge in home prices – a surge that is creating tremendous social problems by crowding out young families (or individuals) from chasing the homeownership dream (a typical response is for these folks is to go out and buy a condo instead, but the reality is that average prices here have also skyrocketed 24% in the past year and are in a bubble of their own).

Everyone says that the Bank of Canada cannot raise interest rates to curb the excess demand because of the deleterious effect this would have on the economy writ large (for example, taking the Canadian dollar back up to or above 80 cents which would thwart our export competitiveness which has become a longstanding role of the central bank). Be that as it may, the home price surge in the GTA over the past year has impaired homeowner affordability to such an extent that it is basically the equivalent of the Bank of Canada having raised rates 150 basis points – actually a 200 basis point increase if you were to look at what home prices have done to affordability ratios over the past two years …

“Where home prices are in Toronto, they absorb 13 years of average family income. That is completely abnormal. We’ve never seen this before.”

• Rosenberg: Toronto Housing Bubble ‘On Par With What We Had In The US’ (BNN)

Gluskin Sheff Chief Economist David Rosenberg is joining the growing chorus of calls for government intervention into the Toronto housing market. In an interview on BNN, Rosenberg, who correctly called the U.S. housing bubble in 2005, said the massive deviation from historical norms has him drawing comparisons between the two situations. “This bubble is on par with what we had in the States back in ’05, ’06, ’07,” he said. “We have to actually take a look at the situation. The housing market here is in a classic price bubble. If you don’t acknowledge that, you have your head in the sand.” Rosenberg warned unchecked increases in home prices are becoming a social issue. “It’s not an equity, it’s not a bond – it’s where people live,” he said. “Where home prices are in Toronto, they absorb 13 years of average family income. That is completely abnormal. We’ve never seen this before.”

Rosenberg said he’d be singing a different tune if price increases were running in line with any of the usual economic fundamentals, such as job growth, rising incomes, or nominal GDP growth. “We’re out of equilibrium, and when we’re out of equilibrium, or there’s some sort of market failure, are there grounds there for government intervention? I think even the most ardent libertarian would say ‘yes,’” he said. Rosenberg said there are a trio of levers the government can pull to cool down the market. Authorities can address supply, which he said has already been “kiboshed.” Interest rates can be raised, but Rosenberg doesn’t believe the Bank of Canada will do that. Or new policy can be drafted to address the prevalence of speculation.

“These are not prices driven by the local fundamentals – this is the foreign buyer coming in,” Rosenberg said. “Toronto has really emerged as a first-class city, not just politically, not just culturally and economically, but also in terms of being a major financial centre. But if you’re going to ask me at this stage, ‘do we need to approach taxation of this capital coming in differently to curb the demand?’ [That’s] absolutely right.”

In a word: YES.

• Could Europe Copy America’s Supersized Corporate Debt? (BBG)

Unilever CEO Paul Polman must have had one eye focused across the Atlantic when he unveiled his revamp of the consumer goods giant this week. And not just because erstwhile suitors 3G Capital, Kraft Heinz and Warren Buffett will have been watching. In an effort to appease shareholders, Polman also ripped a couple of pages from any U.S. CEO’s post-crisis playbook: load more debt on the balance sheet and buy back lots of your own shares. So Unilever will lift its net debt to Ebitda ratio from 1.3 to 2 and buy back 5 billion euros ($5.3 billion) of stock.In Europe, that counts as relatively bold. Faced with anemic economic growth since the global financial crisis, non-financial companies here have typically been reluctant to take on more debt, as the chart below shows.

They’re also far less likely to buy back stock: U.S. corporations repurchased more than $530 billion of stock last year. In Europe the total was a fraction of that.Polman seems to have belatedly recognized the obvious: having a lightly geared balance sheet makes a company vulnerable to a takeover. That’s especially true if the buyer is holding dollars and your stock is priced in relatively cheap euros or pounds.

Of course there’s an argument what Polman is doing is common sense. Debt is cheap compared to equity, so Unilever’s balance sheet is simply becoming more efficient. Having more debt shouldn’t pose a problem for Unilever as its earnings power is considerable. People still need to buy soap and deodorant, even in a recession.Still, this sets a rather uncomfortable precedent. Polman rebuffed Kraft Heinz’s $143 billion bid in part because he’s no fan of financial engineering. It would be a shame if other European companies now drew the conclusion that to remain independent they need to indulge in some financial engineering of their own. Especially if they load up on too much debt just as the current economic cycle starts to look long in the tooth.

She’s crystal clear.

• Syrian Gas Attack is a Lie: “Stop Your Governments!” – Russia (FR)

On April 7th, US warships delivered an illegal blow to a Syrian airbase in Homs. Their justification was the recent “chemical weapon” attack on behalf of the Syrian government in Idlib. The Kremlin condemned the strike as an act of aggression against a sovereign state, and a violation of international law. Meanwhile, at the UN, representatives of Western governments attempt to push through a resolution that is based on information taken out of thin air. It includes the removal of Assad, whether or not he was behind the attack.

It is noteworthy, that the only real source of information on what took place, are the videos made by the White Helmets, an infamous propaganda organisation as it pertains to the Syrian civil war. In this clip, Maria Zakharova calls on Western respresenatives/ journalists to hear Russia, and what it has to say. The attack against the Syrian government, much like the Ghouta gas attack in 2013, which precipitated the Syrian civil war, is a giant facade for the military industrial warhawks in the US, to put their money where their mouth is.

“Putin has a cool mind and we may anticipate that the Russian response will come at a time of his choosing and in a manner that is appropriate to the seriousness of the U.S. offense. Look for this before the end of the month.”

• US Missile Strikes in Syria Cross Russian ‘Red Lines’ (RI)

My days as apologist for Donald Trump’s backsliding on his electoral campaign promise of a new direction in foreign policy are over. From being the solution, he has become an integral part of the problem. And with his bigger than life ego, petulance and stubbornness, Commander-in-Chief Trump is potentially a greater threat to world peace than the weak-willed Barack Obama whom he replaced. Trump has ignored Russian calls for an investigation into the alleged chemical gas attack in Idlib province before issuing conclusions on culpability, as happened within hours of the event. He has accepted a narrative that is very possibly a false flag produced by anti-government rebels in Syria, disseminated by the White Helmets and other phony NGO’s paid from Washington and London.

He ordered the firing of 50 or more Tomahawk missiles against a Syrian Government air base in Homs province, thereby crossing all Russian “red lines” in Syria. Until this point, the Kremlin has chosen not to react to all signs coming from Washington that Trump’s determination to change course on Russia and global hegemony was failing. The wait-and-see posture antedated Trump’s accession to power when Putin overruled the dictates of protocol and did not respond to Obama’s final salvo, the seizure of Russian diplomatic property in the U.S. and the eviction of Russian diplomats. The Russians also looked the other way when the new administration continued the same Neocon rhetoric from the tribune of the UN Security Council and during the visits of Vice President Pence, Pentagon boss Mattis and Secretary of State Tillerson to Europe.

However, the missile attack in Syria is a game changer. The pressure on Vladimir Vladimirovich Putin to respond in kind is now enormous. Putin has a cool mind and we may anticipate that the Russian response will come at a time of his choosing and in a manner that is appropriate to the seriousness of the U.S. offense. Look for this before the end of the month. In the meantime, we who have been hoping for a change of direction, for the rooting out of the Neocons and Liberal hawks directing the Deep State should drop what we are doing, and help form a grass roots political statement that Donald Trump and the political establishment will hear loud and clear.

A mass letter-writing campaign to Congress and the White House? A march on Washington? One way or another, the White House must be told that arranging foreign policy moves out of purely domestic calculations, such as likely happened yesterday puts the nation’s very existence at risk. Acting tough, striking out at Russia and its allies, is not the way to form a coalition to pass a tax reform act. The same may be said of an alternative reading of the missile attack yesterday: that it was intended as a message to visiting Chinese President Xi that should there be no joint action to restrain North Korea, the United States will act alone and with total disregard for international law. Either logic in the end is a formula for suicide.

I predict very large demonstrations, and quite possibly more violent ones. This could well be the end of Tsipras, and of SYRIZA; there’s no credibility left. They should have fought for the people.

• Greece On Course To Avoid Debt Default As Athens Agrees Pension Cuts (Tel.)

Greece is on course to avoid a debt default this summer after creditors reached a deal with Athens on reforms including pension cuts and tax changes that will continue until the end of the decade. Jeroen Dijsselbloem, who leads the group of eurozone finance ministers, said creditors had reached an agreement in principle on the “size, sequencing and timing” of Greek reforms. The agreement also paves the way for the IMF to join the country’s third, €86bn bail-out programme. The Eurogroup chief said “significant progress” had been made in all areas, with debt inspectors expected to return to Greece shortly to “put the last dots on the ‘i’s and to reach a full staff-level agreement as soon as possible”.

A final agreement among finance chiefs will unlock a fresh tranche of rescue funds, enabling Athens to pay back around €6bn to creditors in July, including the ECB. “We’ve solved all the big issues,” said Mr Dijsselbloem. “The big blocks have now been sorted out and that should allow us to speed up and go for the final stretch.” The measures, which include controversial cuts to pensions and a widening of the tax base, amount to 2pc of Greek GDP in 2019 and 2020. Greece will be able to implement “parallel expansionary measures” if the economy is strong enough, said Mr Dijsselbloem. He said discussions on medium-term debt relief would not be discussed at a political level until a full agreement is reached and approved by the Greek government, which has a slim majority.

The pension cuts are likely to spark a fresh wave of protests across the country. Euclid Tsakalotos, the Greek finance minister, said austerity measures would be legislated “in the coming weeks”. “There are things that will upset the Greek people,” he said. Mr Tsakalotos said the government would also adopt stimulus measures in parallel, which will be “activated” if Athens meets its fiscal targets. Gerry Rice, a spokesman at the IMF, welcomed the “important progress” made in recent weeks, but said it still needed “satisfactory assurances” on debt sustainability before the Fund would seek board approval to participate in Greece’s third rescue programme.

There is so much in the way of international law and UN conventions to protect refugees, but none of it has any meaning in Brussels.

• Letting People Drown Is Not A European Value (EUO)

595. A nice round number, right? It refers to the dead and missing in the central Mediterranean, mostly between Libya and Italy, in the first three months of 2017. The known dead died from drowning, exposure, hypothermia, and suffocation. Horrible, agonising deaths. 24,474. This is a nicer number. It refers to the women, men, and children who made it safely to Italy this year, all of them plucked from flimsy, overcrowded boats by European vessels. Many were rescued by teams from nongovernmental organisations patrolling international waters just off Libya, where most migrant boats depart. Those groups – including Doctors Without Borders (MSF), Migrant Offshore Aid Station (MOAS), SOS Mediterranee, Proactiva Open Arms, Sea-Watch and others – are now being accused of encouraging boat migration. Or worse, of collusion with people smugglers.

The EU border agency, Frontex, has suggested that the presence of rescue operations by nongovernmental groups is a pull factor, encouraging people to take the dangerous journey in hopes of rescue. A prosecutor in Catania, Sicily, has opened an inquiry into the funding streams for these groups, indicating a suspicion that they may be profiting illicitly from the movement of people in search of safety and better lives. This is the latest cruel twist in the EU’s response to boat migration from Libya. It reflects concern over increasing numbers of people embarking from Libya, the strain on the reception system in Italy and beyond, and the rise of xenophobic populism in many EU countries. But blaming the lifesavers ignores history, reality, and basic morality.

As MSF’s Aurelie Ponthieu explained, the NGO group rescuers are not “the cause but a response” to an ongoing human tragedy. Even before the significant increase in numbers in 2015, tens of thousands of people have been risking their lives in unseaworthy boats in the Mediterranean for decades; almost 14,000 have died or been reported missing since 2011. After the October 2013 Lampedusa tragedy, in which 368 people lost their lives, there was increased talk among organisations about mounting rescue missions in the central Mediterranean. In 2015, that became a reality, in large part because the end of the Italian navy’s humanitarian rescue mission Mare Nostrum and the gaps in its poor replacement by the EU border agency Frontex. People embark on these dangerous journeys for myriad reasons; they are fleeing persecution, violence, and poverty, and moving toward freedom, safety, and opportunity.

Both pull and push factors are always in play when people are on the move. Insofar as more freedoms, liberties, and policies grounded in respect for human rights – including vital rescue-at-sea operations – serve as pull factors, these should not be sacrificed in the name of limiting migration. The presence of EU vessels just off Libyan waters has changed the dynamic of boat migration. There is more hope of rescue, and smugglers have adopted even more unscrupulous tactics like using inflatable (throw-away) Zodiacs instead of wooden boats and providing only enough fuel to reach international waters. But to question the humanitarian imperative of rescue at sea is to discard our most basic respect for life. And the logic of those who criticise the rescue operations as a pull factor is that the groups should stop rescuing people and let them drown to discourage others from coming.

Debt Rattle March 30 2017

Mar 302017

March 30, 2017 Posted by Raúl Ilargi Meijer at 9:05 am Finance Tagged with: ban, bubble, deep subprime, EU, margin debt, oil, refugees, retail, single payer, Trump 1 Response »

Carole Lombard 1926

• Fed’s Williams Says Bank Lending Slowdown Doesn’t Worry Him Yet (YF)

• Retailing in America: Game Theory in Reverse (DiMartinoBooth)

• ‘Deep Subprime’ Auto Loans Are Surging (BBG)

• Margin Debt Hit All-Time High in February (WSJ)

• US Oil Export Surge Steals More OPEC Share (CNBC)

• Australia World’s Worst Money Laundering Property Market (TI)

• Sydney, Melbourne House Price Gains Accelerate (AFR)

• Auckland Housing Market Losing All Capital Gains Of The Last 12 Months (INZ)

• House Panel Passes Bill To Audit The Fed (MW)

• Hawaii Judge Places Indefinite Hold On Trump Travel Ban (BBC)

• Paul Ryan Opposes Trump Working With Democrats On Healthcare (R.)

• Democrats Against Single Payer (Jacobin)

• American Empire Crumbling (Quinn)

• The EU Cannot Survive If It Sticks To Business As Usual (Varoufakis)

• Capitalism Inevitably Creates A ‘Sad’ Unfair World – Physicist (Ind.)

• ‘That Was Some Weird Shit’ (NYMag)

• 146 Feared Dead In Mediterranean, Boy The Sole Survivor (R.)

Today’s main theme just has to be W’s ‘That Was Some Weird Shit’. Here’s the graph to go with it.

• Fed’s Williams Says Bank Lending Slowdown Doesn’t Worry Him Yet (YF)

A recent slowdown in bank lending has some observers concerned that the post-election pops in optimism are sending a false signal about the strength of the U.S. economy. To San Francisco Fed president John Williams, however, this decline is out of step with everything else credit markets are saying about the economy. “The big picture is: I don’t see any signs of a slowing either on the demand side or on the credit supply side,” Williams told Yahoo Finance on Wednesday. “Overall, the other indicators, everything we see, [says] economic conditions are good,” Williams added. “Confidence is good, and we’re not seeing any signs of bank lending standards changing fundamentally. So it’s hard to see anything, from my viewpoint, that [says] credit is less available.”

In recent months, the growth rate of commercial and industrial loans, as tracked by the Federal Reserve’s weekly H.8 report on assets and liability of U.S. banks, has been on the decline. This is viewed by many as a negative development in an economy where lending and borrowing activity serve as proxies for the economy’s overall health. But Williams also cautioned that lending data can reveal economic developments on a lag. For example, he noted to Yahoo Finance that in 2008 bank lending increased, which contradicted the notion that the financial markets were seizing up. Indeed, companies were unable to borrow by tapping the bond markets. However, the lending did increase because companies drew from existing lines of credit.

Right now, Williams noted that one story behind the drop in C&I loan growth going around is that oil and gas companies last year drew on lines of credit, boosting loan growth at the time. And thus the current decline in lending, which appears out of step with broader economic conditions, is occurring largely because of difficult year-over-year comparisons.

Retail demise exposes banks.

• Retailing in America: Game Theory in Reverse (DiMartinoBooth)

On March 21st, Sears Holding Corporation submitted a filing with its regulators that it has “substantial doubt” it can continue as a “going concern.” Don’t recall companies being charged with making their own death throes’ announcements from your Accounting coursework? You are correct. Meet the new and improved U.S. accounting rules that have just come into effect for public companies reporting annual periods that ended after December 15, 2016, Sears included. The change shifted the onus to disclose from a given company’s auditors to its management. It was telling that the Sears news fell on the very same day discount retailer Payless announced it could soon file for bankruptcy protection. That same day, the less ubiquitous Bebe female fashion chain said it too was ‘exploring strategic options,’ typically code for that same ill-fated Chapter in the court system.

[..] At the opposite end of the denial spectrum sits Boston Fed President Eric Rosengren, who is and has been publicly worried about an entirely different sort of challenge facing the real estate market. It’s no secret that apartment prices are soaring. Over the past year, prices have risen 11%, leading the broad market. While that increase may seem benign in and of itself, consider how the sector has fared over the course of the recovery: prices have recouped an eye-watering 240% of their peak-to-trough losses. In sharp contrast, retail has performed the worst; it’s only recovered 96% of its losses. Rosengren is rightly worried that the “sharp” increase in apartment prices could catalyze financial instability. He went on to say that, “Because real estate holdings are widespread, and the monetary and macro-prudential tools for handling valuation concerns are somewhat limited, I believe we must acknowledge that the commercial real estate sector has the potential to amplify whatever problems may emerge when we at some point face an economic downturn.”

If you would indulge a translation: The bubble in commercial real estate (CRE) could trigger systemic risk, which of course, no central bank can contain. The ‘macro-prudential’ tools to which Rosengren refers include rules and caps on banks’ exposure to CRE. Odds are, however, that the horse has already fled the barn. Over the past five years, CRE lending has been running at roughly double economic growth, a dangerous dynamic. The result: banks’ exposure to CRE has reached record levels. Last year alone, bank holdings of CRE and multifamily mortgages rose nine and 12%, respectively. More worrisome yet is that the most concentrated cohort – those with more than 300% of their risk-based capital at risk – is banks with less than $50 billion in assets; most have assets south of $10 billion. How exactly will small banks confront a systemic risk conflagration? That pesky potential presumably is what’s robbing Rosengren of sleep at night. He might just remember that small German lenders called Landesbanks were where subprime bombs detonated unexpectedly way back when.

Anyone who can fog a mirror is back

• ‘Deep Subprime’ Auto Loans Are Surging (BBG)

About a third of the risky car loans that are bundled into bonds are considered “deep subprime,” a level that has surged since 2010 and is translating to higher delinquencies on the loans, according to Morgan Stanley. Consumers are falling behind on most subprime car loans, but deep subprime borrowers have deteriorated fastest, the analysts said. Sixty-day delinquencies for bonds backed by these loans have risen 3 percentage points since 2012, compared with just 0.89 percentage points on all other subprime auto securities, Morgan Stanley’s Vishwanath Tirupattur, James Egan and Jeen Ng said in a report dated March 24. “The securitization market has become more heavily weighted towards issuers that we would consider deep subprime,” the strategists wrote. “Auto loan fundamental performance, especially within ABS pools, continues to deteriorate.”

The percentage of subprime auto-loan securitizations considered deep subprime has risen to 32.5% from 5.1% since 2010, Morgan Stanley said. The researchers define deep subprime as lenders with consumer credit grades known as FICO scores below 550. The scale from Fair Isaac Corp. ranges from 300 to 850 and while there’s no firm definition of subprime, borrower scores below 600 are in general considered high credit risks. As Wall Street banks have found it tougher to profit under new regulatory regimes born out of the last subprime crisis, they’ve become more willing to underwrite riskier auto-loan asset-backed security sales. Investors, starved for returns with about $8 trillion of debt globally carrying negative yields, have in turn proven to be insatiable, further facilitating higher levels of risk in the market for the securities.

The casino’s open for business.

• Margin Debt Hit All-Time High in February (WSJ)

Margin debt climbed to a record high in February, a fresh sign of bullishness for flummoxed investors trying to navigate the political and economic crosscurrents driving markets. The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, according to the most recent data available from the New York Stock Exchange, released Wednesday. That is up 2.9% from $513.3 billion in January, which had been the first margin debt record in nearly two years. With margin debt, investors pledge securities, typically stocks or bonds, to obtain a loan from their brokerage firms. The money doesn’t have to be used to buy more investments, though it often is. The gauge tends to climb—and pull back—along with broader stock market gauges, which have been rising to fresh records in the wake of November’s presidential election.

Rising levels of margin debt are generally considered to be a measure of investor confidence. Investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. But experts say a steep rise can indicate that investors are losing sight of market risks and betting that stocks can only go up. Margin debt has a history of peaking right before financial collapses like the ones in 2000 and 2008. When stocks move lower, investors who are buying with borrowed money often must pull out of the market, exacerbating the decline. Before January, the previous record high for margin debt was $505 billion in the spring of 2015. Margin debt then started falling, months ahead of a summer swoon that sent major indexes down more than 10%.

As demand falls.

• US Oil Export Surge Steals More OPEC Share (CNBC)

As OPEC tries to keep oil off the world market, U.S. oil producers are pouring more onto it. The U.S. last week sent more than 1 million barrels a day of crude out of the country, the third biggest export week ever, and double the average amount exported in 2016. It is also the third time this year that U.S. exports exceeded a million barrels a day, an industry record. “It should be somewhat supportive of [U.S. oil prices] in the short run, particularly if the exports keep up. But it obviously is a challenge for the global market and a renewed threat to OPEC and their designs of keeping prices up,” said John Kilduff of Again Capital While the U.S. exported oil, it also exported fuel last week — a steadily growing business. The U.S. sold 1.1 million barrels of diesel fuel, in line with the recent average, but 608,000 barrels a day of gasoline, up from less than 400,000 barrels a day a year ago.

Analyst say the jump in exports means U.S. producers are grabbing more share at the expense of OPEC and its partners, at a time when the cartel and other producers are considering whether to extend their deal to hold 1.8 million barrels of oil off the market. But the U.S. may also be seeing the early signs of a potential rebalancing of its own supply picture, and that could ultimately help clear a logjam of domestic oil barrels. “What we’re now seeing in the U.S. is refinery utilization increasing, as the maintenance season draws to a close. At the same time, there’s good demand for gasoline and diesel which is helping get inventories under control. Those product inventories are less than they were this time last year,” said Andrew Lipow, president of Lipow Oil Associates. U.S. refineries supplied 9.5 million barrels a day of gasoline last week, up from 9.2 million the week earlier. Refinery runs increased by 425,000 barrels a day.

Transparency International reports.

• Australia World’s Worst Money Laundering Property Market (TI)

The real estate market has long provided a way for individuals to secretly launder or invest stolen money and other illicitly gained funds… According to the Financial Action Task Force (FATF), real estate accounted for up to 30% of criminal assets confiscated worldwide between 2011 and 2013… In many such cases, property is purchased through anonymous shell companies or trusts without undergoing proper due diligence by the professionals involved in the deal. The ease with which such anonymous companies or trusts can acquire property and launder money is directly related to the insufficient rules and enforcement practices in attractive markets… This assessment identifies the following 10 main problems that have enabled corrupt individuals and other criminals to easily purchase luxurious properties anonymously and hide their stolen money in Australia, Canada, the UK and the US:

• Inadequate coverage of anti-money laundering provision
• Identification of the beneficial owners of legal entities, trusts and other legal arrangements is still not the norm
• Foreign companies have access to the real estate market with few requirements or checks
• Over-reliance on due diligence checks by financial institutions leads to cash transactions going unnoticed
• Insufficient rules on suspicious transaction reports and weak implementation
• Weak or no checks on politically exposed persons and their associates
• Limited control over professionals who can engage in real estate transactions: no “fit and proper” test
• Limited understanding of and action on money laundering risks in the sector
• Inconsistent supervision
• Lack of sanctions

Australia has severe deficiencies under all 10 areas identified in the research and is therefore not in line with any of the commitments to tackle corruption and money laundering in real estate made in international forums. In Australia, real estate agents are not subject to the provisions of the Anti-Money Laundering and CounterTerrorism Financing Act 2006. Other professionals such as lawyers and accountants who may also play a role in the sector are not covered either. This means that properties can be bought and sold without any due diligence on the parties. Currently there are no requirements for real estate agents or any professional involved in real estate deals to submit STRs, even if they suspect illegal activity is taking place, and there are no requirements or rules for verifying whether customers are PEPs or their close associates…

In Australia, Canada and the US, the current anti-money laundering framework shows a tendency to rely on financial institutions to conduct the necessary background checks on real estate transactions… there are no checks on cash transactions. In Australia, 70% of Chinese buyers pay in cash and they represent the largest proportion of foreign purchases in the country.

How this does not scare very single person out of their socks, I can’t imagine.

• Sydney, Melbourne House Price Gains Accelerate (AFR)

House price growth accelerated further in March, with gains in Sydney and Melbourne pushing higher than previous cyclical peaks, preliminary CoreLogic figures show. Data for the first 28 days of the month shows Sydney prices have risen 19% over the past year while Melbourne has posted a 16% gain, the company said on Thursday. The combined capital city average of 1.4% – the same pace of growth as February – suggests that the strengthening in the two largest cities offsets further weakness in other markets. “The early results come after a strong rebound in housing market conditions through the latter half of 2016 and into 2017,” CoreLogic head of research Asia Pacific Tim Lawless said. “The strong capital gain results are further evidenced by a continuation in low stock levels, high auction clearance rates and strong investment demand.”

In other data that will underpin property prices, official figures released on Thursday show Sydney’s population hit five million, and Melbourne is the country’s fastest-growing capital. Some caution is needed. A methodology change by CoreLogic last year exaggerated price growth in Sydney and Melbourne while also exacerbating the declines in the falling Perth market. CoreLogic has not yet revised the figures to account for the methodology and distortions will only drop out of the year-on-year comparison in June. It’s clear the market is buoyant, however. Even with lenders tightening loan conditions to investor borrowers, they are increasing discounts to owner owner occupiers to protect market share, Deloitte’s annual Australian mortgage report said on Thursday.

Nice bubble you got there. Wouldn’t want anything to happen to it, would you?

• Auckland Housing Market Losing All Capital Gains Of The Last 12 Months (INZ)

The Auckland housing market is on the verge of having all of the capital gains it made in the last 12 months wiped out. Prices of Auckland properties have fallen so much in the last few months that median prices are within a hair’s breadth of going into negative territory on an annual basis. They may already be there. In February the average price of Auckland homes sold by Harcourts, the country’s largest real estate agency, was $934,428, down 1.1% compared to where it was in February last year. While Harcourts’ average prices can be a bit choppy on a month by month basis, the figures do not appear to be an aberration. According to the Real Estate Institute of New Zealand, Auckland’s median selling price peaked at $868,000 in October last year and has declined every month since. In February it hit $800,000, down 7.8% from October’s peak.

But just as significantly, Auckland’s median price in March last year was $820,000. So even if the median price for March this year doesn’t fall any further from where it was in February, or if it increases by anything less than $20,000, Auckland’s median price will have declined to the point where it will be below where it was 12 months previously. Then it’s goodbye capital gains. The interesting thing about those numbers is that the downward trend they show is occurring at a time when Auckland’s migration-driven population growth is increasing at record levels and construction of new housing continues to fall miserably below the numbers that are required, exacerbating the region’s growing housing shortage. How can this be? As you might expect, the market is being influenced by forces converging from several different directions.

One of the biggest changes to affect the Auckland market over the last few months has been the relative absence of local ethnic Chinese buyers. It would be hard to underestimate the impact they were having on Auckland’s residential property market up until about the end of the third quarter of last year. They dominated some of what are often called the “big room” auctions where several dozen properties could be auctioned in a single day, and it wasn’t uncommon for them to account for around 70% of sales. Often they were competing amongst themselves for properties and their bidding could be fierce. Sometimes it seemed as if the prices they were prepared to pay knew no limits. Then late last year, just as the market geared up for the summer selling season, the Chinese tide went out.

Auckland now has a significant population of Chinese people, so there will always be some who are actively buying or selling properties. But the numbers are well down on where they were a year ago. Auctions that were packed with Chinese buyers this time last year are now much quieter and Chinese faces are often more notable by their absence rather than their presence. When they are buying, they are more likely to be buying a home for themselves or perhaps their children than a pure investment property, and their bidding has been far more cautious than it was just a few months ago. Often they will bid on a property only to let it be passed in, figuring that they may not face much competition from other buyers in post-auction negotiations. With the odd exception, the days of the bidding frenzy are over.

All for it.

• House Panel Passes Bill To Audit The Fed (MW)

A House panel on Tuesday approved legislation that would let a government watchdog audit the Federal Reserve’s monetary policy decisions, a move bitterly opposed by the central bank. The House Committee on oversight and government reform passed the measure by voice vote after roughly 30 minutes of debate. The bill was the brainchild of Ron Paul, the former House Republican and libertarian presidential candidate and sharp critic of the U.S. monetary policy. Versions of the bill have twice passed the House by wide margins but then stalled due to lack of support from Democrats in the Senate and the Obama administration. Analysts said the measure has a better chance to become law now that Republicans control both houses of Congress and the White House. Paul’s son, Rand, the Republican senator from Kentucky, has introduced a similar measure in the Senate.

Democrats in the committee were firmly against the bill. “This bill would open the floodgates to political interference in monetary-policy making,” said Del. Eleanor Holmes Norton, a Democrat from the District of Columbia. Rep. Carolyn Maloney, a Democrat from New York, said the measure would lead to higher interest rates because it would undermine the market’s confidence in the independence of the central bank. Republicans said the measure was needed to rein in the Fed. “It is ironic that the arsonists that caused the financial collapse are now being given credit…for putting out the fire. Almost every macroeconomist concedes in retrospect that [the Fed’s] extended period of easy money led to the financial crisis,” said Rep. Thomas Massie, a Republican from Kentucky.

What good could it do to go to the Ninth Circuit Court at this point?

• Hawaii Judge Places Indefinite Hold On Trump Travel Ban (BBC)

A US federal judge in Hawaii has indefinitely extended the suspension of President Trump’s new travel ban. Judge Derrick Watson’s ruling means Mr Trump will be barred from enforcing the ban on six mostly Muslim nations while it is contested in court. In a lawsuit, the US state says the ban would harm tourism and the ability to recruit foreign students and workers. President Trump says his revised travel ban seeks to prevent terrorists from entering the United States. Judge Watson made the ruling late on Wednesday after hearing arguments from attorneys for the state of Hawaii and the US Department of Justice. The judge turned his earlier temporary restraining order into a preliminary injunction that would have a more lasting effect.

President Trump’s executive order on 6 March would have placed a 90-day ban on people from Iran, Libya, Somalia, Sudan and Yemen and a 120-day ban on refugees. An earlier version of the order, issued in late January, sparked confusion and protests, and was blocked by a judge in Seattle. Other courts across the US have issued different rulings on Mr Trump’s revised ban, with a judge in Maryland halting a part of the ban earlier this month. Mr Trump has complained of “unprecedented judicial overreach”, pledging to take the case “as far as it needs to go”. An appeal against the Hawaii decision would be expected to go next to the Ninth Circuit Court of Appeals – the same court which in February said it would not block a ruling by a Seattle court to halt the original travel ban.

Because working together is so last century?!

• Paul Ryan Opposes Trump Working With Democrats On Healthcare (R.)

U.S. House of Representatives Speaker Paul Ryan, the top Republican in Congress, said he does not want President Donald Trump to work with Democrats on new legislation for revamping the country’s health insurance system, commonly called Obamacare. In an interview with “CBS This Morning” that will air on Thursday, Ryan said he fears the Republican Party, which failed last week to come together and agree on a healthcare overhaul, is pushing the president to the other side of the aisle so he can make good on campaign promises to redo Obamacare. “I don’t want that to happen,” Ryan said, referring to Trump’s offer to work with Democrats. Carrying out those reforms with Democrats is “hardly a conservative thing,” Ryan said, according to interview excerpts released on Wednesday.

“I don’t want government running health care. The government shouldn’t tell you what you must do with your life, with your healthcare,” he said. On Tuesday, Trump told senators attending a White House reception that he expected lawmakers to reach a deal “very quickly” on healthcare, but he did not offer specifics. “I think it’s going to happen because we’ve all been promising – Democrat, Republican – we’ve all been promising that to the American people,” he said. Trump said after the failure of the Republican plan last week that Democrats, none of whom supported the bill, would be willing to negotiate new healthcare legislation because Obamacare is destined to “explode.”

Who’s left to represent actual Americans?

• Democrats Against Single Payer (Jacobin)

Virginia Democratic senator Chuck Robb, one of the DLC’s founders, warned in 1989 that “policies forged in the economic crisis of the 1930s and the social and cultural schisms of the 1960s” were irrelevant to most Americans. Two years later, Bill Clinton’s issue director Bruce Reed, who doubled as policy director for the DLC, made sure to distance Clinton from single payer. The issue flared up again during the 2008 Democratic primary fight, where both Obama and Hillary Clinton tried hedging their bets. Clinton put forward a plan that was basically Obamacare while insisting that “Medicare for All” could still be on the cards under the right circumstances. Meanwhile Obama repeatedly flip-flopped, at one point telling an audience that “the Canadian model won’t work in the United States” and that “we’ve got to develop a uniquely American approach,” and nine days later hinting to a different audience that over time single payer may be on the table.

DLC leaders felt reassured however, telling the New York Times they were “pleased that none of the Democratic candidates supports a single-payer health-care system.” So Democrats’ attempts to quell their base’s clamoring for a comprehensive, public health-care system isn’t new. What is new is the open, public disparagement of such a goal — not just by Democratic leaders, but by leading liberal commentators, too. Ironically, this appears largely to have been due to the Sanders campaign — or rather, the challenge it posed to Hillary Clinton’s previously wide-open road to the White House. Needing to differentiate herself from Sanders’s unabashed progressivism, and to dampen popular enthusiasm for his message, Clinton began attacking his policies, despite her historic sympathy toward single payer.

Sanders’s proposals were “ideas that sound good on paper but will never make it in real life,” she told crowds; for good measure, she insisted that single-payer health care “will never, ever come to pass.” Two years earlier, she explained her opposition to the policy on the basis that “we don’t have a one size fits all; our country is quite diverse.” In January 2016, she warned breathlessly that Sanders’s plan would “end all the kinds of health care we know” and claimed it would “send health insurance to the states,” while her daughter warned that it would “dismantle Obamacare” and “strip millions and millions and millions of people off their health insurance.”

As late as October, Clinton’s team was still trying to distance herself from Trump’s accusation that she — heaven forbid! — “wants to go to a single-payer plan,” with her spokesman directing Politifact to an earlier fact-check confirming her lack of support for the policy. (Lest we mistake this for mere expediency, we can rest assured that at least some of the Clinton camp really felt this way: campaign manager John Podesta declared in an email to ThinkProgress editor-in-chief Judd Legum that Sanders’s “actual proposal sucks, but we live in a leftie alternative universe.”)

Jim Quinn’s series on the similarities between Isaac Asimov’s Foundation Trilogy and Strauss & Howe’s Fourth Turning.

• American Empire Crumbling (Quinn)

You can hear the creaking as the winds of this Fourth Turning winter howl through the branches of this dying empire. Trump may have forced the Deep State Second Foundation to reveal itself as they seek to destroy him, but the relentless decline of the American Empire continues unabated. Tinkering around the edges of a healthcare system designed to benefit mega-corporations and the Deep State will do nothing to reverse or even delay the decline. Slowing the growth of government when the national debt is already $20 trillion and headed to $30 trillion within the next decade won’t cure the rot in our tree trunk. Completely ignoring the $200 trillion of unfunded welfare state liabilities helps accelerate the inevitable collapse of this empire. Cutting taxes while expanding the war making machine known as the military industrial complex does nothing to reverse what is already in motion.

In addition to the absolutely quantifiable reasons why the American Empire will collapse, there are demographic, cultural, and societal trends which will contribute dramatically to the fall. The rapidly aging populace, with 10,000 Americans per day turning 65 years old, is the driving force towards national bankruptcy, as this inexorable demographic tsunami sweeps over the fraying fabric of welfare state promises. The onslaught of illegal immigrants and purposeful execution of a plan by the effete liberal elite to weaken our common American culture through the insertion of Muslim refugees into our communities, is undermining the shared values which built the country. The immigrants who built this country assimilated, learned the language, worked hard, and adopted our common culture. The hordes invading America at this time hate our values and refuse to assimilate. This Soros funded effort to create diversity havoc throughout the world is part of the globalization one world order plan.

As Europe disintegrates under the unrelenting wave of violent refugees creating upheaval, chaos, and spreading religious zealotry through viciousness, the next target is the mighty American Empire. Fighting in the streets between the normal law abiding Trump supporters and the Soros funded, draped in black, flag burning, social justice warrior criminals has begun. Widespread societal strife is just around the corner. When the next financial crisis, created by the Deep State to further their plans, destroys the remaining wealth of the barely surviving middle class, all hell will break loose in the streets. The 86% of the country occupied by red state, gun owning, Trump supporters will openly go to war against the condescending, left wing, violence provoking blue state liberals. Blood will be spilled in copious amounts. It always does during Fourth Turnings.

It cannot survive, period.

• The EU Cannot Survive If It Sticks To Business As Usual (Varoufakis)

Angela Merkel, the German Chancellor, had for years opposed the idea of a Europe that proceeds at different speeds – allowing some countries to be less integrated than others, due to their domestic political situation. But now – after the colossal economic mismanagement of the euro crisis has weakened the EU’s legitimacy, given Eurosceptics a major impetus, and caused the EU to shift to an advanced stage of disintegration – Mrs Merkel and her fellow EU leaders seem to think that a multi-speed Europe is essential to keeping the bloc together. At the weekend, as EU leaders gathered to celebrate the 60th anniversary of the Treaty of Rome, leaders of the remaining 27 member states signed the Rome Declaration, which says that they will “act together, at different paces and intensity where necessary, while moving in the same direction, as we have done in the past.”

The failure to keep the EU together along a single path toward common values, a common market and a common currency will come to be embraced and rebranded as a new start, leading to a Europe in which a coalition of the willing will proceed with the original ambition while the rest form outer circles, connected to the inner core by unspecified bonds. In principle, such a manifold EU will allow for the East’s self-proclaimed illiberal democracies to remain in the single market, refusing to relocate a single refugee or to adhere to standards of press freedom and judicial independence that other European countries consider essential. Countries like Austria will be able to put up electrified fences around their borders. It could even leave the door open for the UK to return as part of one of Europe’s outer circles. Whether one approves of this vision or not, the fact is that its chances depend on a major prerequisite: a consolidated, stable eurozone.

One only needs to state this to recognize the second paradox of our post-Brexit reality: In its current state, the eurozone cannot provide the stability that the EU – and Europe more broadly – needs to survive. The refusal to deal rationally with the bankruptcy of the Greek state is a useful litmus test for the European establishment’s capacity to stabilize the eurozone. As it stands, the prospects for a stabilized eurozone do not look good. Business as usual – the establishment’s favored option – could soon produce a major Italian crisis that the eurozone cannot survive. The only alternative under discussion is a eurozone federation-light, with a tiny common budget that Berlin will agree to in exchange for direct control of French, Italian and Spanish national budgets. Even if this were to happen, which is doubtful given the political climate, it will be too little, too late to stabilize the eurozone.

“Professor Jeremy Baumberg, director of the NanoPhotonic Centres at Cambridge University, was distinctly unimpressed. “It seems to me an extremely poorly written paper, conflating many ideas in a rather unrigorous mishmash,” he said.”

• Capitalism Inevitably Creates A ‘Sad’ Unfair World – Physicist (Ind.)

Capitalism is inherently unfair and will produce a world full of ‘sad’ and disgusting inequalities, but Communism is also “doomed to fail”, a leading scientist claims to have proved using the laws of physics. Professor Adrian Bejan told The Independent he was so excited by the “huge” implications of his theory that he kept having to pinch himself. A former member of the Romanian national basketball team, he is now an expert in thermodynamics and fluid mechanics at Duke University in the US, having written 30 books and more than 600 scientific papers. He now claims to have shown that physics can essentially explain economics. Inequality has been seen as a factor in the election of Donald Trump as US President and in the UK referendum vote in favour of Brexit.According to Oxfam, the richest eight men own the same wealth as the poorest 50% of the world’s population.

Professor Bejan said it was possible to explain how such inequality can develop by demonstrating that wealth moves around in a society like water in a river basin using the laws of physics. In a natural environment, water flows from small tributaries into larger and larger streams. And, according to Professor Bejan’s theory, the same is true of money. So, in a free market system, wealth will naturally flow from the poorest in the small tributaries to the richest in the wide rivers. Using this analogy, Communism is comparable to an attempt to restrict the flow of water to a network of equally sized concrete channels, which Professor Bejan said would inevitably be overcome by the forces of nature. But, just as humans do sometimes harness rivers to produce energy or divert them around cities, it is possible to alter the flow of money in society, he added.

And this is exactly what is being done by liberal democracies around the world with measures such as free education and healthcare, anti-trust regulations designed to prevent large corporations abusing their power, and the rule of law. “I want to see less inequality in the distribution of wealth. I get not just sad, but disgusted by it,” Professor Bejan said.

Getting more popular by the day.

• ‘That Was Some Weird Shit’ (NYMag)

The inauguration of Donald Trump was a surreal experience for pretty much everyone who witnessed it, whether or not they were at the event and regardless of who they supported in the election. On the dais, the stoic presence of Hillary Clinton – whom candidate Trump had said he would send to prison if he took office – underlined the strangeness of the moment. George W. Bush, also savaged by Trump during the campaign, was there too. He gave the same reason for attending that Bill and Hillary Clinton did: to honor the peaceful transfer of power. Bush’s endearing struggle with his poncho at the event quickly became a meme, prompting many Democrats on social media to admit that they already pined for the relative normalcy of his administration. Following Trump’s short and dire speech, Bush departed the scene and never offered public comment on the ceremony. But, according to three people who were present, Bush gave a brief assessment of Trump’s inaugural after leaving the dais: “That was some weird shit.” All three heard him say it.

On and on and on.

• 146 Feared Dead In Mediterranean, Boy The Sole Survivor (R.)

Dozens of people are feared to have drowned after a rubber boat carrying migrants and refugees from Libya sank in the Mediterranean. The sole survivor – a 16-year-old Gambian boy – told rescuers that 146 other people were on board when the boat sank. A Spanish frigate, the Canarias, found the boy hanging on to a piece of debris in the sea on Tuesday. He was transferred to an Italian Coast Guard ship and brought to the Sicilian island of Lampedusa early on Wednesday. “He was very tired when they found him. He’s resting now, so we’ll have more details later,” said the International Organisation for Migration (IOM) spokesman Flavio Di Giacomo in Rome, after speaking to staff in Lampedusa.

“The boy said they left Sabratha, Libya, a couple of days ago on a rubber boat with 147 sub-Saharan Africans on board, including five children and some pregnant women,” Di Giacomo said. In the past two days, rescuers have picked up more than 1,100 migrants at sea and recovered one body, Italy’s Coast Guard said. The Coast Guard did not comment on the latest shipwreck. So far this year nearly 600 migrants have died trying to reach Italy from North Africa, IOM estimates, after 4,600 deaths last year. Migrant arrivals to Italy are up more than 50% this year on the same period of last year. Early on Wednesday the Golfo Azzurro, a humanitarian vessel, rescued about 400 migrants – mainly from Morocco, Algeria, Libya, Gambia and Bangladesh – including 16 women and two children.

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