Oct 122017
 
 October 12, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Piet Mondriaan Broadway boogie wooogie 1943

 

The Bubble Economy Is Set To Burst, US Elections Be The Trigger (Andy Xie)
Fed Divide On Inflation Intensified At September Policy Meeting (R.)
UK Resigned To Endless Productivity Gloom (Tel.)
The World Must Spend $2.7 Trillion on Charging Stations for Tesla to Fly (BBG)
Bullet Train Wheel Parts Made By Kobe Steel Failed Quality Tests (BBG)
General Motors Checking Impact Of Kobe Steel Data Cheating (R.)
De-dollarization Not Now (WS)
Xi’s Legacy May Rest on the World’s Biggest Infrastructure Project (BBG)
Retirement in Australia is Unrealisable For Most Workers (Satyajit Das)
With Brexit Talks Stuck, Britain Is Preparing For The Worst (BBG)
IMF Report Suggests New Greek Debt Measures Necessary (K.)

 

 

“In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools.”

“In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises.”

“China’s residential property value may have surpassed the total in the rest of the world combined.”

The Bubble Economy Is Set To Burst, US Elections Be The Trigger (Andy Xie)

While Western central bankers can stop making things worse, only China can restore stability in the global economy. Consider that 800 million Chinese workers have become as productive as their Western counterparts, but are not even close in terms of consumption. This is the fundamental reason for the global imbalance. China’s most important asset bubble is the property market China’s model is to subsidise investment. The resulting overcapacity inevitably devalues whatever its workers produce. That slows down wage rises and prolongs the deflationary pull. This is the reason that the Chinese currency has had a tendency to depreciate during its four decades of rapid growth, while other East Asian economies experienced currency appreciation during a similar period. Overinvestment means destroying capital. The model can only be sustained through taxing the household sector to fill the gap.

In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises. The most important asset bubble is the property market. It redistributes about 10% of GDP to the government sector from the household sector. The levies for subsidising investment keep consumption down and make the economy more dependent on investment and export. The government finds an ever-increasing need to raise levies and, hence, make the property bubble bigger. In tier-one cities, property costs are likely to be between 50 and 100 years of household income. At the peak of Japan’s property bubble, it was about 20 in Tokyo. China’s residential property value may have surpassed the total in the rest of the world combined.

In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius How is this all going to end? Rising interest rates are usually the trigger. But we know the current bubble economy tends to keep inflation low through suppressing mass consumption and increasing overcapacity. It gives central bankers the excuse to keep the printing press on. In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius. In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools. In 2000, the dotcom bubble burst because some firms were caught making up numbers. Today, you don’t need to make up numbers. What one needs is stories.

Hot stocks or property are sold like Hollywood stars. Rumour and innuendo will do the job. Nothing real is necessary. In 2007, structured mortgage products exposed cash-short borrowers. The defaults snowballed. But, in China, leverage is always rolled over. Default is usually considered a political act. And it never snowballs: the government makes sure of it. In the US, the leverage is mostly in the government. It won t default, because it can print money. The most likely cause for the bubble to burst would be the rising political tension in the West. The bubble economy keeps squeezing the middle class, with more debt and less wages. The festering political tension could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.

Read more …

Time to acknowledge these people really don’t have a clue. They are stuck in models that have long since failed, and they have no others.

Fed Divide On Inflation Intensified At September Policy Meeting (R.)

Federal Reserve policymakers had a prolonged debate about the prospects of a pickup in inflation and slowing the path of future interest rate rises if it did not, according to the minutes of the U.S. central bank’s last policy meeting on Sept. 19-20 released on Wednesday. The readout of the meeting, at which the Fed announced it would begin this month to reduce its large bond portfolio mostly amassed following the financial crisis and unanimously voted to hold rates steady, also showed that officials remained mostly sanguine about the economic impact of recent hurricanes. “Many participants expressed concern that the low inflation readings this year might reflect… the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the Fed said in the minutes.

As such several said that they would focus on incoming inflation data over the next few months when deciding on future interest rate moves. Nevertheless, many policymakers still felt that another rate increase this year “was likely to be warranted,” the Fed said. U.S. stocks and yields on U.S. Treasuries were little changed following the release of the minutes. Fed Chair Janet Yellen has repeatedly acknowledged since the meeting that there is rising uncertainty on the path of inflation, which has been retreating from the Fed’s 2% target rate over the past few months. However, Yellen and a number of other key policymakers have made plain they expect to continue to gradually raise interest rates given the strength of the overall economy and continued tightening of the labor market.

“The majority of Fed officials are worried that core inflation might not rebound quickly, but that isn’t going to stop them from continuing to normalize interest rates, particularly not when the unemployment rate is getting so low,” said Paul Ashworth, an economist at Capital Economics.

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More clueless hacks. On Twitter, Tropical Traderhas this: “UK is a f**king leveraged real estate hedge fund Ponzi scheme run by and for spivs and chancers. Of course productivity is going nowhere… ”

UK Resigned To Endless Productivity Gloom (Tel.)

Britain’s productivity crisis is not going to come to an end any time soon. That is the verdict of the Office for Budget Responsibility (OBR), the official watchdog of Britain’s government finances, which monitors the economy closely. Productivity is crucial to economic growth and to living standards – workers can be paid more and work less if they produce more output for every hour worked. But since the financial crisis productivity has barely budged. Back in 2010 the OBR predicted productivity would resume its pre-crash trend, rising by about 15pc from 2009 to 2016. That did not happen. Each time the OBR made a forecast – at the Budget or the Autumn Statement – it thought the strong old trend rate would pick up. But it did not. Productivity remained stubbornly low.

After seven years of persisting with this forecast, the OBR has thrown in the towel. “As the period of historically weak productivity growth lengthens, it seems less plausible to assume that potential and actual productivity growth will recover over the medium term to the extent assumed in our most recent forecasts,” the watchdog said. “Over the past five years, growth in output per hour has averaged 0.2%. This looks set to be a better guide to productivity growth in 2017 than our March forecast.” That paints a gloomy picture for future economic growth, pay rises and the government’s finances. The report notes that “some commentators have argued that advanced economies have entered an era of permanently subdued productivity growth for structural reasons”. However, the OBR does not quite go that far.

This puzzle is a global one. Productivity growth has been disappointing across much of the rich world. But that is barely a silver lining, particularly when the underlying causes are hard to establish. At least the global nature of the problem allows for more ‘cures’ to be attempted. The US is currently engaged in monetary tightening. Interest rates are rising and quantitative easing will soon start to be wound back – gently, but still significantly. The move by Janet Yellen and her colleagues at the Federal Reserve should begin to test the idea that low interest rates are in part to blame for low productivity. At some point the theory around employment will surely have to be tested.

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That’s a lot of green.

The World Must Spend $2.7 Trillion on Charging Stations for Tesla to Fly (BBG)

A $2.7 trillion chasm stands between electric vehicles and the infrastructure needed to make them popular. That’s how much Morgan Stanley says must be spent on building the supporting ecosystem for EVs to reach its forecast of 526 million units by 2040. The estimate, projected by scaling up Tesla Inc.’s current network of charging stations to assembly plants, shows how infrastructure can be the biggest bottleneck for the industry’s expansion, Morgan Stanley said in a Oct. 9 report. To support half a billion EVs, the projected investment will require a mix of private and public funding across regions and sectors, and any auto company or government with aggressive targets will be at risk without the necessary infrastructure, the report said.

The industry shift to battery-powered cars is being helped by government efforts to reduce air pollution by phasing out fossil fuel-powered engines. China, which has vowed to cap its carbon emissions by 2030 and improve air quality, recently joined the U.K. and France in seeking a timetable for the elimination of vehicles using gasoline and diesel. China will become the largest EV market, accounting for about a third of global infrastructure spending by 2040, according to Morgan Stanley.

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Just wait for the dominoes to drop. “In Central Japan Railway’s bullet trains, 310 of the tested parts were found to be sub-standard..”

Bullet Train Wheel Parts Made By Kobe Steel Failed Quality Tests (BBG)

Kobe Steel’s fake data scandal penetrated deeper into the most hallowed corners of Japanese industry as iconic bullet trains were found with sub-standard parts supplied by the steelmaker. While they don’t pose any safety risks, aluminum components connecting wheels to train cars failed Japanese industry standards, according to Central Japan Railway, which operates the high-speed trains between Tokyo and Osaka. West Japan Railway, which runs services from Osaka to Fukuoka, also found sub-standard parts made by Kobe Steel. The latest scandal to hit Japan’s manufacturing industry erupted on Sunday after the country’s third-largest steel producer admitted it faked data about the strength and durability of some aluminum and copper.

As scores of clients from Toyota to General Motors scrambled to determine if they used the suspect materials and whether safety was compromised in their cars, trains and planes, the company said two more products were affected and further cases could come to light. “I deeply apologize for causing concern to many people, including all users and consumers,” Kobe Steel CEO Hiroya Kawasaki said at a meeting with a senior official from the Ministry of Economy, Trade and Industry on Thursday. He said trust in the company has fallen to “zero” and he will work to restore its reputation. “Safety is the top priority.” Shares in the company rebounded 1% Thursday, after plunging 36% over the previous two days. About $1.6 billion of the company’s market value has been wiped out since the revelations were made.

Figures were systematically fabricated at all four of Kobe Steel’s local aluminum plants, with the practice dating back as long as 10 years for some products, the company said Sunday. Data was also faked for iron ore powder and target materials that are used in DVDs and LCD screens, it said three days later. In Central Japan Railway’s bullet trains, 310 of the tested parts were found to be sub-standard and will be replaced at the next regular inspection, spokesman Haruhiko Tomikubo said. They were produced by Kobe Steel over the past five years, he said.

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I suggest mass recalls before Kobe is bankrupt. Or GM will have to pay up.

General Motors Checking Impact Of Kobe Steel Data Cheating (R.)

General Motors is checking whether its cars contain falsely certified parts or components sourced from Japan’s Kobe Steel, the latest major automaker to be dragged into the cheating scandal. “General Motors is aware of the reports of material deviation in Kobe Steel copper and aluminum products,” spokesman Nick Richards told Reuters, confirming a Kyodo News report. “We are investigating any potential impact and do not have any additional comments at this time” GM joins automakers including Toyota and as many as 200 other companies that have received parts sourced from Kobe Steel as the scandal reverberates through global supply chains. On Wednesday fresh revelations showed data fabrication at the steelmaker was more widespread than it initially said, as the company joins a list of Japanese manufacturers that have admitted to similar misconduct in recent years.

Investors, worried about the financial impact and potential legal fallout, again dumped Kobe Steel stock, wiping about $1.6 billion off its market value in two days. On Thursday in Tokyo, the shares stabilized and were up 1.1% [..] Kobe Steel President Hiroya Kawasaki said on Thursday his company would do the utmost to investigate the reason for the tampering and take measures to prevent further occurrences. He was speaking before meeting an industry ministry official to discuss the matter. The steelmaker admitted at the weekend it had falsified data about the quality of aluminum and copper products used in cars, aircraft, space rockets and defense equipment, a further hit to Japanese manufacturers’ reputation for quality products. Kobe Steel said late on Wednesday it found 70 cases of tampering with data on materials used in optical disks and liquid crystal displays at its Kobelco Research Institute Inc, which makes and tests products for the company.

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“Dollar denominated debt owed by governments and non-bank corporations in advanced economies with currencies other than the dollar has reached 26% of their GDP, nearly three times the level of the year 2000.”

And now raise rates….

De-dollarization Not Now (WS)

China announced today that it would sell $2 billion in government bonds denominated in US dollars. The offering will be China’s largest dollar-bond sale ever. The last time China sold dollar-bonds was in 2004. Investors around the globe are eager to hand China their US dollars, in exchange for a somewhat higher yield. The 10-year US Treasury yield is currently 2.34%. The 10-year yield on similar Chinese sovereign debt is 3.67%. Credit downgrade, no problem. In September, Standard & Poor’s downgraded China’s debt (to A+) for the first time in 19 years, on worries that the borrowing binge in China will continue, and that this growing mountain of debt will make it harder for China to handle a financial shock, such as a banking crisis.

Moody’s had already downgraded China in May (to A1) for the first time in 30 years. “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” it said. These downgrades put Standard & Poor’s and Moody’s on the same page with Fitch, which had downgraded China in 2013. But the Chinese Government doesn’t exactly need dollars. On October 9th, it reported that foreign exchange reserves – including $1.15 trillion in US Treasuries, according the US Treasury Department – rose to $3.11 trillion at the end of September, an 11-month high, as its crackdown on capital flight is bearing fruit (via Trading Economics):

[..] In total, emerging market governments and companies have issued $509 billion in dollar-denominated bonds so far this year, a new record. Dollar-denominated junk bond issuance in the developing world has hit a record $221 billion so far this year, up 60% from the total for the entire year 2016. [..] Dollar denominated debt owed by governments and non-bank corporations in advanced economies with currencies other than the dollar has reached 26% of their GDP, nearly three times the level of the year 2000. Borrowing in foreign currencies increases the default risks.

When the dollar rises against the currency that the borrower uses – which is a constant issue with many emerging market currencies that have much higher inflation rates than the US – borrowers can find it impossible to service their dollar-denominated debts. And when these economies or corporate cash flows slow down, central banks in these countries cannot print dollars to bail out their governments and largest companies. Financial crises have been made of this material, including the Asian Financial Crisis and the Tequila Crisis in Mexico. But today, none of this matters. What matters are yield-chasing investors that, after years of zero-interest-rate-policy brainwashing by central banks, can no longer see any risks at all. And the dollar remains the foreign currency of choice.

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The new Silk Road isn’t a Chinese idea. The US toyed with it. Xi has realized it’s the way to export China’s Ponzi. They will insist on having countries use Chinese products, and paying for them. Often with Chinese loans.

Xi’s Legacy May Rest on the World’s Biggest Infrastructure Project (BBG)

There’s one ambitious scheme of Xi’s about whose importance we may already be certain, one that will leave a big mark one way or another. It’s fundamentally geopolitical in nature, though it may ultimately maintain China’s historical sense of empire. The project is the Belt and Road Initiative, which aims to be nothing less than the biggest infrastructure program the world has ever seen. Sometimes known as One Belt One Road, or OBOR, it will attempt to integrate China’s markets with those on three continents, Asia, Europe, and Africa. The idea is to build an integrated rail network crisscrossing Central and Southeast Asia and reaching far into Europe, while constructing large, modern deep-water ports to link shipping from China and the surrounding western Pacific to South Asia, Kenya, Tanzania, and beyond.

So far, more than 60 countries have signed on or appear inclined to participate. Together they account for about 70% of the Earth’s population and 75% of its known energy supplies. Finding reasonably accurate statistics about Chinese geopolitical initiatives has long been a challenge, but under Xi, OBOR appears to have amassed well over $100 billion in commitments from various Chinese or Chinese-derived institutions, including the recently formed Asian Infrastructure Investment Bank, which some already see as a rival to the World Bank. Backed by Xi’s personal prestige, heft on this scale has turned OBOR into a kind of organizing motif for China’s politics and economy. The clear hope is that it will cement the country’s place as a leading, and, perhaps someday soon, the preeminent center of gravity in the world.

[..] Although downplayed in boosterish Chinese discussions, Beijing’s desire for markets to help soak up some of its overcapacity in steel and cement is an important motive behind OBOR’s focus on infrastructure—especially railroad lines. In 2015, China’s steel surplus was equivalent to the total output of the next four producers, Japan, India, the U.S., and Russia. Much the same is true for other key industrial materials. This push to develop outlets for China’s badly unbalanced economy has led many to skip over basic questions about the economic rationale for a vast rail network in the first place. If the ultimate idea is to link East and West with rapid, modern freight trains, as is often suggested, what’s the category of products that will benefit enough from these connections to make them profitable? Perishable and highly time-sensitive goods will almost always be transported by air. Meanwhile, no train, no matter how modern, will beat ocean freight for capacity or price per mile.

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Sobering.

Retirement in Australia is Unrealisable For Most Workers (Satyajit Das)

Australians make up barely 0.3% of the globe’s population and yet hold $2.1 trillion in pension savings – the world’s fourth-largest such pool. Those assets are viewed as a measure of the country’s wealth and economic resilience, and seem to guarantee a high standard of living for Australians well into the future. Other developed nations, aging even faster than Australia and subject to fraying safety nets, have held up the system as a world-class model to fund retirement. In fact, its future looks nowhere near so bright. Australia’s so-called superannuation scheme is a defined contribution pension plan funded by mandatory employer contributions (currently 9.5%, scheduled to rise gradually to 12% by 2025). Employees can supplement those savings and are encouraged to do so with tax breaks, pension fund earnings and generous benefits.

The gaudy size of the investment pool, however, masks serious vulnerabilities. First, the focus on assets ignores liabilities, especially Australia’s $1.8 trillion in household debt as well as total non-financial debt of around $3.5 trillion. It also overlooks Australia’s foreign debt, which has reached over 50% of GDP – the result of the substantial capital imports needed to finance current account deficits that have persisted despite the recent commodity boom, strong terms of trade and record exports. Second, the savings must stretch further than ever before, covering not just the income needs of retirees but their rapidly increasing healthcare costs. In the current low-income environment, investment earnings have shrunk to the point where they alone can’t cover expenses. That’s reducing the capital amount left to pass on as a legacy.

Third, the financial assets held in the system (equities, real estate, etc.) have to be converted into cash at current values when they’re redeemed, not at today’s inflated values. Those values are quite likely to decline, especially as a large cohort of Australians retires around the same time, driving up supply. Meanwhile, weak public finances mean that government funding for healthcare is likely to drop, forcing retirees to liquidate their investments faster and further suppressing values. Fourth, the substantial size of these savings and the large annual inflow (more than $100 billion per year) into asset managers has artificially inflated values of domestic financial assets, given the modest size of the Australian capital markets. As retirees increasingly draw down their savings, withdrawals may be greater than new inflows, reducing demand for these financial assets.

[..] The real lesson of Australia’s experience may be that the idea of retirement is unrealisable for most workers, who will almost certainly have to work beyond their expected retirement dates if they want to sustain their lifestyles. Governments have implicitly recognised this fact by abandoning mandatory retirement requirements, increasing the minimum retirement age, tightening eligibility criteria for benefits and reducing tax concessions for this form of saving. If the world’s best pension system can’t succeed, we’re going to have to rethink retirement itself.

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I must admit, the circus continues to amaze. By now, everyone involved on the UK side is just trying to save their political careers. But the Tories want to hold on to power too, and those two things will conflict. They’ll need to make a choice.

With Brexit Talks Stuck, Britain Is Preparing For The Worst (BBG)

With Brexit talks stuck, the U.K. is preparing for the worst. As the fifth round of negotiations draws to a close on Thursday, progress is so scant that the European side is stepping back from concessions it was said to be considering last month. The Commission won’t talk about trade before getting assurances that the U.K. will pay its dues, and with less than 18 months to go until the country tumbles out of the bloc, the focus in London has turned to contingency planning. Philip Hammond, the pro-EU chancellor of the exchequer, says he’s reluctant to spend cash on a Plan B just to score negotiating points. But he’ll start releasing money as soon as January if progress hasn’t been made in talks. Judging by the latest EU rhetoric, the chances of that happening are growing.

The goodwill that Prime Minister Theresa May generated in her speech in Florence, where she promised to pay into the EU budget for two years after Brexit and asked in return for a transition period so businesses can prepare for the split, hasn’t translated into progress in talks. Meanwhile May’s Conservatives remain deeply divided on the shape of Brexit, with the premier struggling each week to tread a careful line between rival camps. The political establishment is so conflicted that late on Wednesday two politicians from opposing parties joined forces to try and effectively bind May’s hands by tabling an amendment that would enshrine a two-year transition in law. Pound investors are expecting swings in the currency to get more dramatic over the next three months, options show, as political uncertainty unnerves traders.

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The torture never stops. And in the end the Germans win.

IMF Report Suggests New Greek Debt Measures Necessary (K.)

The third review of Greece’s third bailout could hit a snag after the International Monetary Fund’s forecast Thursday that the country’s primary surplus in 2018 will be at 2.2% of GDP– significantly lower than the 3.5% predicted by European insititutions and stipulated in the government’s draft budget and the bailout agreement. The latest forecast included in the IMF’s Fiscal Monitor report released Wednesday could, analysts believe, be a source of misery not just for Athens, which may once again be forced to look down the barrel of fresh measures next year to the tune of €2.3 billion – 1.3% of GDP – but for its European Union partners as well, who will have to decide whether to go along with the IMF’s forecast or not.

If they do not, then the risk of the IMF leaving the Greek program will be higher. If, however, European lenders go along with IMF’s forecast, which it first made in July, then Athens is concerned that they may revise their own predictions downward in order to placate the organization – as was the case during the second review – in order to ensure that it remains on board with the Greek program. The latter outcome could, analysts reckon, be the more likely one given that Germany’s Free Democrats (FDP), expected to form part of Chancellor Angela Merkel’s governing coalition, have stated that they will agree to an aid program for Greece on the condition that the IMF takes part in the Greek bailout.

Read more …

Mar 292017
 
 March 29, 2017  Posted by at 9:06 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Dismantling clock outside Daily Telegraph building, Fleet Street, London, 1930

 

Jim Rogers Says Fed Has No Clue, Will ‘Ruin Us All’ (BBG)
Article 50: British PM May Signs Letter That Will Trigger Brexit (BBC)
Scottish Parliament Votes For Second Independence Referendum (G.)
Why Brexit Is Best for Britain: The Left-Wing Case (NYT)
ECB Needs Democratic Oversight If The Euro Is To Survive (TI)
12 People, Things That Ruined The EU (Pol.)
Le Pen Victory Five Times As Dangerous As Greek Meltdown – UBS (CNBC)
China Is Desperately Trying To Save A Too Big To Fail Dairy Company (Qz)
Huishan Dairy Turmoil Highlights China’s $8 Trillion Shadow Loan Risk (BBG)
Hong Kong Underground Banks Cash In On Flood Of Money Out Of China (BBG)
A World Without Retirement (G.)
Germany Questions Erdogan’s Turkey ‘Coup’ Narrative (BBC)
Central Europe’s Leaders Reject EU’s Relocation Of Refugees (AP)

 

 

Just so you know. Motorcycle Boy.

Jim Rogers Says Fed Has No Clue, Will ‘Ruin Us All’ (BBG)

Jim Rogers, chairman at Rogers Holdings, explains what the Federal Reserve did wrong in response to the financial crisis and how their mistakes spread to global central banks. Jane Foley, senior FX strategist at Rabobank, joins the conversation with Bloomberg’s Francine Lacqua on “Bloomberg Surveillance.”

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Nothing to fear but…

Article 50: British PM May Signs Letter That Will Trigger Brexit (BBC)

Theresa May has signed the letter that will formally begin the UK’s departure from the European Union. Giving official notice under Article 50 of the Lisbon Treaty, it will be delivered to European Council president Donald Tusk later. In a statement in the Commons, the prime minister will then tell MPs this marks “the moment for the country to come together”. It follows June’s referendum which resulted in a vote to leave the EU. Mrs May’s letter will be delivered at 12:30 BST on Wednesday by the British ambassador to the EU, Sir Tim Barrow. The prime minister, who will chair a cabinet meeting in the morning, will then make a statement to MPs confirming the countdown to the UK’s departure from the EU is under way.

She will promise to “represent every person in the whole United Kingdom” during the negotiations – including EU nationals, whose status after Brexit has yet to be settled. “It is my fierce determination to get the right deal for every single person in this country,” she will say. “For, as we face the opportunities ahead of us on this momentous journey, our shared values, interests and ambitions can – and must – bring us together.” Attempting to move on from the divisions of June’s referendum, Mrs May will add: “We are one great union of people and nations with a proud history and a bright future. “And, now that the decision has been made to leave the EU, it is time to come together.”


Guardian front page today. Got to wonder why they left off Greece.

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How many referendums will it take in the end?

Scottish Parliament Votes For Second Independence Referendum (G.)

Nicola Sturgeon has won a key Holyrood vote on her plans for a second independence referendum, triggering accusations from UK ministers that her demands are premature. Sturgeon won by a 10-vote majority after the Scottish Greens backed her proposals to formally request from the UK government the powers to stage a fresh independence vote at around the time Britain leaves the EU, in spring 2019. She is due to write to Theresa May later this week, asking for Westminster to hand Holyrood the temporary powers to stage the referendum under a section 30 order. She said she would avoid writing until the prime minister had invoked article 50 to trigger the Brexit process, which she is expected to do on Wednesday. “It is not my intention to do so confrontationally, instead I only seek sensible discussion,” Sturgeon told MSPs.

The vote, which split the Scottish parliament cleanly between pro- and anti-independence parties, deepened the dispute between the two governments over both the need for and the timing of the vote. David Mundell, the Scottish secretary, told the BBC the answer to Sturgeon’s request would be no. “We won’t be entering any negotiations at all until the Brexit process is complete,” he said. “Now is the time for the Scottish government to come together with the UK government, work together to get the best possible deal for the UK, and that means Scotland, as we leave the EU.” Mundell rejected Sturgeon’s claims that May had told her the terms of the UK’s departure from the EU and its new trade deal would be clear in about 18 months. Sturgeon said that timeframe matched her preference for a referendum just as the UK quits the EU in March 2019. He said it was too early to say how quickly a Brexit deal could be concluded or whether transitional arrangements were needed.

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“We don’t change our position according to elections..”

Why Brexit Is Best for Britain: The Left-Wing Case (NYT)

Ms. Watkins is a “Lexiteer,” as left-wing supporters of ‘Brexit’ like me are known. We were hardly a significant force among the 52% of Britons who voted to leave in the referendum of June 23. But we were an influence. A counterweight to the anti-immigrant fear mongering of the former leader of the right-wing U.K. Independence Party, Nigel Farage, Lexiteers argued a left-wing, democratic and internationalist case for Brexit. The position was expressed crisply by Perry Anderson, the former longtime editor of New Left Review: “The E.U. is now widely seen for what it has become: an oligarchic structure, riddled with corruption, built on a denial of any sort of popular sovereignty, enforcing a bitter economic regime of privilege for the few and duress for the many.”

Although Lexiteers have little patience for the national nihilism of “Davos Man,” the globalist elite, we are no xenophobes. We voted Leave because we believe it is essential to preserve the two things we value most: a democratic political system and a social-democratic society. We fear that the European Union’s authoritarian project of neoliberal integration is a breeding ground for the far right. By sealing off so much policy, including the imposition of long-term austerity measures and mass immigration, from the democratic process, the union has broken the contract between mainstream national politicians and their voters. This has opened the door to right-wing populists who claim to represent “the people,” already angry at austerity, against the immigrant.

It was the free-market economist Friedrich Hayek, the intellectual architect of neoliberalism, who called in 1939 for “interstate federalism” in Europe to prevent voters from using democracy to interfere with the operation of the free market. Simply put, as Jean-Claude Juncker, the president of the European Commission (the union’s executive body), did: “There can be no democratic choice against the European treaties.” The union’s structures and treaties are designed accordingly. The European Commission is appointed, not elected, and it is proudly unaccountable to any electorate. “We don’t change our position according to elections” was how the commission’s vice president Jyrki Katainen greeted the victory of the anti-austerity party Syriza in Greece in 2015.

The European Parliament is not a real parliament. It is not a legislature; its deputies neither offer manifestoes nor carry out the ideas they propose to voters. Elections in improbably large constituencies, with pitifully low turnouts, change nothing. As a Parliament staff member said at the European Research Seminar at the London School of Economics, “The only people who listen to M.E.P.s are the interpreters,” referring to the members of the Parliament. The European Council, an intergovernmental body where decisive legislative power actually lies, especially for Chancellor Angela Merkel of Germany, comprises member countries’ heads of state, who generally meet just four times a year. They are not directly elected by the inhabitants of the nations whose fate they decide. As for the union principle of “subsidiarity,” a supposed preference for decentralized governance, it is ignored in all practical matters.


Oh, those days of innocence …

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Fine, but who’s going to do it? The ECB is independent?!

ECB Needs Democratic Oversight If The Euro Is To Survive (TI)

The ECB urgently needs to increase democratic oversight and accountability if the euro is to survive the next crisis, according to a new report on the Bank’s governance by Transparency International EU entitled “Two sides of the same coin? Independence and accountability at the ECB”. The report finds that a lack of political leadership and decisive reform has led the ECB to stray into the area of political decision-making, without appropriate democratic scrutiny. This has been accompanied by a marked decline in public trust at a time when the ECB has been granted extensive new powers to supervise major European banks.

“While the ECB has saved the single currency more than once, the absence of a Eurozone finance ministry as counterpart to the ECB means that the Bank has had to stretch its mandate to breaking point,” said Leo Hoffmann-Axthelm, Research and Advocacy Coordinator at Transparency International EU. “If the euro is to survive the next crisis, then EU Member States need to stop hiding behind the technocrats at the ECB, overcome political inertia and get serious about reforming the Eurozone”, continued Hoffmann-Axthelm. The report finds that preserving the ECB’s independence limits its accountability to citizens, and recommends that the Bank should compensate this by increasing its transparency. The ECB should take immediate steps, such as automatically publishing its decisions and opinions and being more open about the political choices it faces, rather than insisting its decisions are purely technical.

For example, at the height of the Greece crisis in 2015 the ECB repeatedly limited the ceiling on Emergency Liquidity Assistance for the country’s banks without publicly announcing it. The ECB’s discretionary powers allowed it to put pressure on Greek banks while negotiating bailout reforms with the Greek government as part of the Troika of international creditors. Similar dynamics could play out in the upcoming negotiations with Greece, and with the current recapitalisation of Italian lender Monte dei Paschi di Siena, which threaten the Eurozone’s current fragile stability, according to the group. “Clearly decisions which affect the fate of whole economies should have some kind of democratic oversight. The ECB should not be in a position to pull the plug on a country’s euro membership, a decision ultimately down to democratically elected politicians”, said Hoffmann-Axthelm.

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An entertaining and educational list.

12 People, Things That Ruined The EU (Pol.)

Last weekend, European leaders gathered in Rome for the 60th anniversary of the Treaty of Rome. They discussed, not for the first time, how to get the EU back on track. And they told each other they are still committed to the Union and believe in its future. (We’ve heard that one before, too.) But let’s just suppose that, when the European leaders sat down for lunch at the Quirinal Palace, some of them had a little too much of the pinot grigio and waxed nostalgic about the days when the idea of a united Europe was still young and promising and beautiful. And then they talked about this week and how British Prime Minister Theresa May would send her goodbye letter and they started slurring their words, saying Grexit, Brexit, Frexit, and they finally admitted to each other that something has gone horribly wrong. When they stood up and got ready to leave, they were devastated, saying to each other: “Good God, how did it come this and, more importantly, who is to blame?” We’ve gathered a dozen suggestions.

1. Zeus Whenever Europe is in trouble, its advocates claim the EU lacks a proper narrative. The whole idea of an “ever-closer union” is still a fine one, they argue, and the only thing that’s needed for people to understand it is a memorable story. The most memorable story about Europe, of course, is the one about Zeus. The Greek God disguised himself as a white bull in order to approach a beautiful girl called Europa. When Europa, perhaps naively, climbed on his back, the God-turned-bull abducted and ravished her. No need to take the story too literally when analyzing the EU’s current malaise (no white bulls there). But it is good to keep in mind that Europe’s founding myth doesn’t exactly bode well for its future. If negative narratives about the EU seem to resonate far more than positive ones, maybe it’s because the Greek gods loaded the dice.

2. Edith Cresson Going straight from Zeus, ruler of Mount Olympus, to good old Edith Cresson may seem a bit of a stretch. But as a strong contender for the title of worst European commissioner ever, the Frenchwoman does have a claim to fame, too. In the early 1990s, Cresson was a French prime minister who quickly fell out of favor and was forced to resign after less than a year in office. That apparently qualified her for a high-powered job in Brussels. As commissioner for science, research and development, Cresson famously paid her dentist to be a scientific adviser. In 1999, allegations of fraud intended to target Cresson ended up bringing down the entire Commission. To put it crudely: Cresson did to the EU what Zeus did to Europa.

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Le Pen won’t ruin the EU. That’s already been done.

Le Pen Victory Five Times As Dangerous As Greek Meltdown – UBS (CNBC)

Europe could be on track to encounter a shock wave up to five times as turbulent as the start of the euro zone debt crisis if French presidential candidate Marine Le Pen was able to secure victory in May, according to a team of UBS analysts. Strategists at the Swiss banking giant stressed the prominence of the anti-immigration and anti-European Union National Front leader meant France’s fast approaching general election would be the most serious political risk event in the region this year. Le Pen, who leads in the latest opinion polls, has vowed to renegotiate the terms of France’s membership of the EU and ditch the single currency if elected as the country’s new premier in just over two months’ time.

“The systemic importance of France for the European project is such that the margin for damage limitation may well be a lot thinner than has been the case in Greece in the past or could be the case for Spain or Italy even,” UBS analysts said in a note. The bank predicted the shock of a Le Pen victory on sovereign spreads could be as dramatic as when Spain and Italy appeared to be on the brink of financial collapse in 2012. UBS forecast a move of up to 500 basis points in sovereign spreads if Le Pen entered the Élysée Palace in early May. In comparison to a peripheral economy such as Greece, when Athens was on the brink of financial collapse in 2010, sovereign spreads widened by around 100 basis points. “It is certainly arguable that risks to the euro zone’s cohesion emanating from the core are by definition more severe and harder to diffuse than those emanating from the periphery,” UBS analysts added.

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A curious case. Shares fell 85% (indefinite trading halt) and nobody seems to know why.

China Is Desperately Trying To Save A Too Big To Fail Dairy Company (Qz)

A mysterious collapse in a Chinese dairy maker’s shares last week has renewed fears that China’s financial system is so shaky that authorities can do nothing but to muddle through a credit crunch. Shares of China Huishan Dairy Holdings plunged 85% in an hour on March 24, wiping more than $4 billion from its market value. The crash, the biggest-ever intraday fall in Hong Kong, prompted an indefinite trading halt. It also caused collateral damage to firms linked to the Liaoning-based company, which has more than 11,600 employees and operates the largest number of dairy farms in China. Market observers are still trying to figure out what exactly triggered the sudden sell-off. A company statement filed to the Hong Kong stock exchange March 28 unearthed at least part of the mystery.

In its first public comments since the stock crash, Huishan confirmed media reports that it had missed interest payments to its creditors, and that on March 23 the Liaoning provincial government held a meeting with the company and its 20-plus creditor banks to discuss remedies. According to the statement, the Liaoning government proposed an “action plan” to solve any overdue interest payments within two weeks and to help improve Huishan’s liquidity position within a month. Some creditors—including Bank of China and Jilin Jiutai Rural Commercial Bank—pledged in the meeting that they “would continue to have confidence in the Group [Huishan] which has over 60 years of operating history,” said the statement. The company also dismissed previous reports that it had issued fake invoices, and that chairman and controlling shareholder Yang Kai had misappropriated funds to invest in real estate in Shenyang, Liaoning’s capital.

The statement confirmed that Yang’s wife Ge Kun, who is also an executive director in charge of relationships with the company’s principal bankers, has been out of contact since March 21, the same day that Yang learned of the late payments. Financial news outlet Caixin revealed more details (link in Chinese) about the bailout package, based on an interview with creditor Hongling Capital head Zhou Shiping, who was at the March 23 meeting. The Liaoning government will pay over 90 million yuan ($13 million) for land owned by Huishan to inject cash into the company. It also ordered financial institutions involved not to downgrade the company’s credit rating or file lawsuits against it.

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Huishan is a bunch of highly leveraged shadow cows.

Huishan Dairy Turmoil Highlights China’s $8 Trillion Shadow Loan Risk (BBG)

Turmoil at a small Chinese dairy company is shedding rare light on the final destination for some of the country’s estimated $8 trillion of shadow banking loans. Jilin Jiutai Rural Commercial Bank, a major creditor to embattled China Huishan Dairy., said late Tuesday it has extended a total of 1.35 billion yuan ($196 million) in credit to the dairy producer, including 750 million yuan through the purchase of investment receivables from a finance lease company. Investment receivables – a category that can include using wealth-management products, asset-management plans and trust-beneficiary rights to disguise what are in effect loans – allow banks to reduce the amount of cash they need to set aside for capital and provisions for loan losses.

The practice of recording loan-type exposures on balance sheets under categories including investment receivables has allowed hundreds of smaller Chinese banks to boost assets and profits. At the same time, it has created opaque risks that could lead to failures, bailouts or liquidity shocks with the potential to jolt national and global markets. The external public relations agency for Jiutai didn’t immediately reply to an email seeking comment. The bank doesn’t appear to have broken any disclosure rules on its receivables. China’s shadow banking system could lead to losses of $375 billion, CLSA estimated in September. The brokerage said such financing expanded at an annual 30% pace from 2011 through 2015 to reach 54 trillion yuan, or 79% of the nation’s GDP. But details have rarely surfaced on the specifics of individual shadow banking arrangements.

“Chinese banks are lending more and more money to companies in recent years through investment receivables, partly to circumvent regulatory or internal rules,” said Yulia Wan, a Shanghai-based banking analyst at Moody’s Investors Service. Lenders don’t disclose enough information about where the money goes, according to Wan. In addition, the banks usually don’t provision enough for such exposures, and they fund the transactions through short-term borrowing from other financial institutions, Wan said. “This practice poses risks to both investors and banks themselves.”

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People will find a way. And then so will the money.

Hong Kong Underground Banks Cash In On Flood Of Money Out Of China (BBG)

Business is good, but Dickson Chan is worried. The Hong Kong money changer saw remittances from mainland China increase by 10% to 20% last month from the end of 2016, yet he is not sure how long the operation can last. The company he works for, Professional Foreign Currency Exchange, helps clients move cash between China and Hong Kong with a bank account in each place by squaring opposing transactions. “Now people feel that the Chinese government may tighten capital controls further and it wants more yuan depreciation, so many clients want to transfer money to Hong Kong more quickly,” Chan said from his store, located in the basement of a drab mall in Causeway Bay, the world’s second-priciest retail district. “We’re worried the Chinese government will introduce some regulations to ban this business, so now although we’re still doing it, we’re trying to raise revenues from other currencies.”

The fate of Hong Kong’s money changers shows both the reach of Chinese authorities, and the limits to their power. While a determined crackdown could kill the industry, such a response would risk spooking China’s citizens and exacerbating outflow pressures. The exodus of funds from Asia’s largest economy has spurred three years of yuan depreciation that at times roiled global markets and influenced monetary policies worldwide, and pushed up asset prices in cities from Hong Kong to Vancouver. An estimated $1.8 trillion has left Asia’s largest economy from the start of 2015 through January 2017, as the yuan lost almost 10% and returns on onshore assets dropped amid slowing economic growth. To stem the flows, the authorities have tightened capital curbs, stepping up scrutiny of residents’ foreign-currency purchases and limiting insurance buying in Hong Kong.Money changers in Hong Kong provide ways to sidestep such restrictions.

Once the cash reaches the semi-autonomous Chinese city, which has no capital controls, it can go almost anywhere. Hong Kong’s shopping districts are dotted with money changers advertising their remittance services and yuan conversion rates in simplified Chinese characters typically used on the mainland. There are 1,891 licensed money operators in the city, Hong Kong customs data show. Money changers or remittance firms need to obtain a license from the government, which requires the companies to conduct customer due diligence and keep records. As part of a sweeping effort to contain outflows, just before the new year, Chinese regulators boosted disclosure requirements for citizens converting yuan into foreign exchange — while retaining the $50,000 annual quota. Authorities busted at least 380 cases of major underground banking involving more than 900 billion yuan ($131 billion) of funds last year.

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A bit shaky in predictions etc., but this is very much is where we’re going. Retirement was an anomaly.

A World Without Retirement (G.)

We are entering the age of no retirement. The journey into that chilling reality is not a long one: the first generation who will experience it are now in their 40s and 50s. They grew up assuming they could expect the kind of retirement their parents enjoyed – stopping work in their mid-60s on a generous income, with time and good health enough to fulfil long-held dreams. For them, it may already be too late to make the changes necessary to retire at all. In 2010, British women got their state pension at 60 and men got theirs at 65. By October 2020, both sexes will have to wait until they are 66. By 2028, the age will rise again, to 67. And the creep will continue. By the early 2060s, people will still be working in their 70s, but according to research, we will all need to keep working into our 80s if we want to enjoy the same standard of retirement as our parents.

This is what a world without retirement looks like. Workers will be unable to down tools, even when they can barely hold them with hands gnarled by age-related arthritis. The raising of the state retirement age will create a new social inequality. Those living in areas in which the average life expectancy is lower than the state retirement age (south-east England has the highest average life expectancy, Scotland the lowest) will subsidise those better off by dying before they can claim the pension they have contributed to throughout their lives. In other words, wealthier people become beneficiaries of what remains of the welfare state. Retirement is likely to be sustained in recognisable form in the short and medium term. Looming on the horizon, however, is a complete dismantling of this safety net.

For those of pensionable age who cannot afford to retire, but cannot continue working – because of poor health, or ageing parents who need care, or because potential employers would rather hire younger workers – the great progress Britain has made in tackling poverty among the elderly over the last two decades will be reversed. This group is liable to suffer the sort of widespread poverty not seen in Britain for 30 to 40 years. Many now in their 20s will be unable to save throughout their youth and middle age because of increasingly casualised employment, student debt and rising property prices. By the time they are old, members of this new generation of poor pensioners are liable to be, on average, far worse off than the average poor pensioner today.

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The strongest wording I’ve seen to date.

Germany Questions Erdogan’s Turkey ‘Coup’ Narrative (BBC)

German Interior Minister Thomas De Maiziere has said Turkey will not be allowed to spy on Turks living in Germany. Reports say the head of Turkey’s intelligence service handed a list of people suspected of opposition sympathies to his German counterpart. The list is said to include surveillance photos and personal data. Germany and other EU states have banned local rallies in support of Turkish President Recep Tayyip Erdogan. Turkish ministers have been seeking to campaign among ethnic Turks in a referendum on 16 April on increasing his powers. Some 41,000 people have been arrested in Turkey since a coup was defeated in July of last year.

According to Germany’s Sueddeutsche Zeitung newspaper and several public broadcasters, the head of Turkey’s intelligence service MIT, Hakan Fidan, handed Bruno Kahl a list of 300 individuals and 200 organisations thought to be linked to the Gulen movement at a security conference in Munich in February The apparent aim was to persuade Germany’s authorities to help their Turkish counterparts but the result was that the individuals were warned not to travel to Turkey or visit Turkish diplomatic addresses within Germany, home to 1.4 million voters eligible to vote in the referendum. Mr De Maiziere said the reports were unsurprising.

“We have repeatedly told Turkey that something like this is unacceptable,” he said. “No matter what position someone may have on the Gulen movement, here German jurisdiction applies and citizens will not be spied on by foreign countries.” [..] “Outside Turkey I don’t think anyone believes that the Gulen movement was behind the attempted putsch,” said German spy chief Hans-Georg Maassen. “At any rate I don’t know anyone outside Turkey who has been convinced by the Turkish government.” And Lower Saxony Interior Minister Boris Pistorius went further, saying, “We have to say very clearly that it involves a fear of conspiracy you can class as paranoid.”

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And Brussels is toothless. But it will all come down on Greece anyway, so why bother?

Central Europe’s Leaders Reject EU’s Relocation Of Refugees (AP)

Leaders from Central Europe said Tuesday they reject a European Union policy that calls for all member states to receive migrants, protesting suggestions that the level of their compliance could be linked to the availability of EU funds to them. A meeting in Warsaw of the so-called Visegrad Group brought together Poland’s Prime Minister Beata Szydlo and her counterparts from Hungary, Slovakia and the Czech Republic for talks including EUs migrant policies and a plan of sharing some 160,000 migrants among member states to ease the migrant wave pressure on Greece and Italy.

The EU recently warned of financial consequences to those who do not comply. Central European leaders said they reject the relocation plan and will not yield under the financial pressure, which they called an attempt at blackmail. Hungary’s Prime Minister Viktor Orban said his country was further sealing its borders and tightening regulations to block access to any more migrants. The Visegrad Group aspires to have a greater role in EU policies while at the same time makes a point of criticizing the bloc’s decisions. [AP]

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Mar 012017
 
 March 1, 2017  Posted by at 10:46 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Vivien Leigh in Gone With The Wind, directed by Victor Fleming, 1939

 

Raising Pension Age Will Mean Many People Die Before Getting It (G.)
NY Teamsters Pension Fund Becomes First To Run Out Of Money (NYDN)
US Baby Boomers Forced By Law To Start Drawing From Retirement Funds (MW)
Greek Pensioners Brace For Latest Crisis Cuts (K.)
Merkel Bypasses Schäuble To Push For Greek Review Conclusion (K.)
US Stepping In To Ease Greece, Turkey Tensions (K.)
Trump Touts Unity Strength In Speech To Congress (R.)
Donald Trump and Paul Ryan are Not Political Philosophers (Baker)
This Chart Signals China’s Housing Bubble May Burst Soon (ME)
Russia Seen Dominating European Energy for Two Decades (BBG)
Sydney Home Prices Surge 14.8%, Fastest Annual Pace Since 2002 (BBG)
UK Nuclear Power Stations ‘Could Be Forced To Close’ After Brexit (G.)
Denmark Reduces Food Waste By 25% In 5 Years With Help Of One Woman (Ind.)
The World-Ending Fire – How America’s Farmers Betrayed The Land (G.)

 

 

Lots of retirement and pension scare stories today. I can only hope our readers have taken our warnings through the years to heart.

Raising Pension Age Will Mean Many People Die Before Getting It (G.)

Further increases in the state pension age could push it to the point where many working people die before qualifying for it, MPs have warned, in a report that calls for the end of the “triple lock” guarantee on pensions. The Commons work and pensions select committee report on intergenerational fairness, published on Tuesday, claims that financing the triple lock in future will not be possible without increasing the state pension age to 70.5 years – leaving men in Manchester, Birmingham, Bradford and Blackpool dying on average before they receive their state pension. Under the triple lock, pensions have risen every year since 2010 by whichever is the higher figure out of the rate of inflation, average earnings or a minimum of 2.5%. This has lifted many pensioners out of poverty but the committee said it had resulted in the over-65s taking an “ever greater share of national income”.

In its November 2016 report, the committee recommended that the triple lock be replaced from 2020 by a smoothed earnings link. This would benchmark the state pension to a fixed proportion of average earnings in the long run, but would protect its purchasing power in times of inflation. Citing figures from the Institute of Fiscal Studies, the committee said the state pension age would need to rise to 70.5 years by 2060 to make the triple lock affordable, “meaning today’s young would face working lives of over 50 years before receiving a state pension”. It added: “Making the triple lock sustainable would mean pushing the state pension age over average life expectancy in poorer areas of the UK”. Current male life expectancy is lowest in Blackpool, at 67.5, while it is 68.7 in parts of Bradford and 70.2 in much of Manchester. Tower Hamlets in London’s East End has a male life expectancy of 69.1.

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Dominoes.

NY Teamsters Pension Fund Becomes First To Run Out Of Money (NYDN)

Chmil is one of roughly 4,000 retired Teamsters across New York State suffering a fate that could soon hit millions of working-class Americans — the loss of their union pensions. Teamsters Local 707’s pension fund is the first to officially bottom out financially — which happened this month. “I had a union job for 30 years,” Chmil said. “We had collectively bargained contracts that promised us a pension. I paid into it with every paycheck. Everyone told us, ‘Don’t worry, you have a union job, your pension is guaranteed.’ Well, so much for that.” Also on the brink of drying up are the pensions for two Teamster locals — 641 and 560 — in New Jersey, union officials said. Plus 35,000 Teamster members upstate who are part of the money-hemorrhaging New York State Teamsters Pension Fund.

Bigger than all of New York’s Teamster locals combined is the Central States Pension Fund — another looming financial disaster that could leave 407,000 retirees without pensions across the Midwest and South. And there’s still more beyond that, in various industries, officials say. “It’s a nightmare, it has just devastated all of our lives. I’ve gone from having $48,000 a year to less than half that,” said Chmil, one of five Local 707 retirees who agreed to share their stories with the Daily News last week. “I don’t want other people to have to go through this. We need everyone to wake up and do something; that’s why we’re talking,” said Ray Narvaez. Narvaez, 77, got a union certificate upon retirement in 2003 that guaranteed him a lifetime pension of $3,479 a month. The former short-haul trucker — who carried local freight around the city — started hearing talk in 2008 of sinking finances in his union’s pension fund.

But the monthly checks still came — including a bonus “13th check” mailed from the union without fail every Dec. 15. Then Narvaez, like 4,000 other retired Teamster truckers, got a letter from Local 707 in February of last year. It said monthly pensions had to be slashed by more than a third. It was an emergency move to try to keep the dying fund solvent. That dropped Narvaez from nearly $3,500 to about $2,000. “They said they were running out of money, that there could be no more in the pension fund, so we had to take the cut,” said Narvaez, whose wife was recently diagnosed with cancer. The stopgap measure didn’t work — and after years of dangling over the precipice, Local 707’s pension fund fell off the financial cliff this month.

With no money left, it turned to Pension Benefit Guaranty Corp., a government insurance company that covers pension. Pension Benefit Guaranty Corp. picked up Local 707’s retiree payouts — but the maximum benefit it gives a year is roughly $12,000, for workers who racked up at least 30 years. For those with less time on the job, the payouts are smaller.

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“Americans who turn 70 1/2 have until April of the following calendar year to make withdrawals or face stiff penalties…”

US Baby Boomers Forced By Law To Start Drawing From Retirement Funds (MW)

Robert Kiyosaki, author of the “Rich Dad” series of books, has for years predicted an epic market crash when baby boomers, forced by law, start drawing from retirement funds in large numbers. That meltdown was supposed to happen last year. Instead, the bull market raged on: It will be eight years old in March, if measured by the 2009 bottom. Kiyosaki has drawn some flak along the way. Kiyosaki hasn’t given up on the prediction, however, he told MarketWatch in a late-January interview and a series of follow-up emails. Baby boomers still need to start drawing money in 2017, he notes: They hold about $10 trillion in tax-deferred savings accounts, according to Bank of New York Mellon; Americans who turn 70 1/2 have until April of the following calendar year to make withdrawals or face stiff penalties. (There were nearly 75 million Boomers in 2015, according to Pew Research.)

“Every time I say that to people they scoff at me,” said Kiyosaki of his baby boomer meltdown theory. “The fact is, they’re pulling the money out…the thing that did happen that I never expected, was the market went up a lot due to the ‘Trump Bump.’” Early in 2016, when stocks posted their worst January since 2009, it looked like Kiyosaki might be right about the market. Stocks recovered only to slide on Brexit last summer and then fall briefly in an autumn pre-election dip. It’s been upward momentum ever since. The surprise election victory of President Donald Trump, who rallied investors with his promise to revamp the economy, further muddied the picture for Kiyosaki’s forecast. While stocks were already up about 4.3% before the election, its outcome boosted the S&P to finish 2016 with a 9.5% gain. The Dow industrials logged their best annual finish in 3 years, up 13.4%.

[..] Kiyosaki says 2016 brought about other, unexpected, crashes. “What has happened instead of a market crash was the crash in interest rates, which are adversely affecting millions of fixed-income retirees, pension plans, and savers — at the same time incentivizing people like me to become debtors, using debt to acquire income-producing real estate,” he said. Most retirement plans assume an 8% return, Kiyosaki said, but “when interest rates are a 1% or 0% or negative%, returns aren’t working.”

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Lots of numbers, but none really matter much. The crux is that if there are Greek pensions that are too high, for instance compared to other European ones, cut them, fine. But don’t cut ones that are already below and and all minimal limits. That is not even worth being labeled policy, it’s simply inhumane.

Greek Pensioners Brace For Latest Crisis Cuts (K.)

One group of Greeks that will look upon the return of creditors to Athens for talks aimed at completing the second review with some trepidation is the country’s 2.7 million pensioners. Since 2010, when Greece signed its first bailout with the eurozone and the IMF, the retirement age and social security contributions have increased, while pensions have come down. There is rarely a review that leaves pensions untouched and this one promises to be no different as lenders are targeting a reduction of annual pension spending by about 1.8 billion euros, or 1% of GDP. The IMF has been the most vociferous among Greece’s lenders regarding the need for a further overhaul of the country’s pension system to make it sustainable in the long run.

Between 2000 and 2010, pension spending in Greece climbed from 11 to 15% of GDP, mostly due to large increases in nominal pensions, generous benefits and options for early retirement. During this period, Greece’s figure was the second highest in the eurozone after that of Italy, according to the IMF. Despite two sets of reforms legislated in 2010 and 2012, pension expenditure continued rising and hit 17.7% in 2015, largely due to a GDP contracting by 25% while the average pension decreased by 8% between 2010 and 2015. The IMF believes the combination of low contribution revenues and high pension spending led to the pension deficit climbing from 7.3% of GDP in 2010 to 11% in 2015, making it by far the highest in the euro area.

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It’s about access to the ECB’s QE program, where Draghi starts buying Greek bonds. And perhaps even the markets too. That would hugely limit Greece’s dependence on the Troika.

Merkel Bypasses Schäuble To Push For Greek Review Conclusion (K.)

Kathimerini understands that German Chancellor Angela Merkel is prepared to do whatever it takes to conclude the second review of Greece’s third bailout so that it can join the ECB’s quantitative easing program (QE), on the condition that the government agrees to a package of pension cuts and a reduced tax threshold – amounting to roughly 2% of GDP. According to sources, Merkel has, to this end, already seized the initiative and met with ECB head Mario Draghi. The German chancellor is also expected to bypass any objections that may be raised by her finance minister, Wolfgang Schaeuble, and will push for a specific outline of what midterm measures for debt relief will look like – once Greece agrees to measures demanded by the IMF.

Draghi, as well as ECB executive board member Benoit Coeure, have already made it clear that Greece can only join the QE mechanism if it concludes the review, and midterm measures for debt relief are in place – which is something that, so far, Schaeuble has opposed. Merkel’s plan stipulates that after a staff level agreement is reached, the Greek Parliament will vote through the measures. When this is done, the specifics of the debt relief measures will be presented as a carrot to Athens. This will open the way for it to join the QE scheme and the IMF to rejoin the Greek program.

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if this is true, it’s massive.

US Stepping In To Ease Greece, Turkey Tensions (K.)

Washington appears to have activated a channel of communication with Ankara in a bid to reduce the recent spike in tensions with Greece in the Aegean Sea. According to sources, the US recently asked Ankara to tone down its aggressive stance in the Aegean. It is not known how Ankara has taken the American initiative, but it is clear that Washington fears a possible incident in the Aegean between the two NATO allies, which could destabilize the alliance’s southeast wing. Meanwhile, the incendiary rhetoric emanating from Ankara, albeit from nongoverment politicians, continued Tuesday with the leader of the ultra-right MHP party Devlet Bahceli speaking of Greek islands that remained “under occupation.” Bahceli is an ally of Recep Tayyip Erdogan and supports the bid by the Turkish president to expand his executive powers in the referendum that will take place in Turkey on April 16.

Citing what he described as international law, Bahceli called for the “unconditional end to the occupation of the islands,” referring to a string of islands and islets in the eastern Aegean. He went even further, referring to the Greek-Turkish war in 1922 and the way the Greek army was defeated by Turkish forces in Asia Minor – without, however, mentioning the Greek population of Turkey which was uprooted as a result of the war. “If [the Greeks] want to fall back into the sea [referring to how the Greek army was pushed out of Asia Minor] and if they are up to it, they are welcome to do it. The Turkish army is ready,” he said. The MHP leader also said the divided island of Cyprus is Turkish. Since the recent escalation of tension between Greece and Turkey, progress in the UN-backed peace talks between Greek and Turkish Cypriots has stalled.

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Most remarkable thing must be that Trump has learned to read from a teleprompter, and was told to stick with only that.

Trump Touts Unity Strength In Speech To Congress (R.)

President Donald Trump told Congress on Tuesday he was open to immigration reform, shifting from his harsh rhetoric on illegal immigration in a speech that offered a more restrained tone than his election campaign and first month in the White House. Trump, in a prime-time address to a country that remains divided over his leadership, set aside disputes with Democrats and the news media to deliver his most presidential performance to date, seeking to regain the confidence of Americans rattled by his leadership thus far. The president’s speech was long on promises but short on specifics on how to achieve a challenging legislative agenda that could add dramatically to budget deficits. He wants a healthcare overhaul, broad tax cuts and a $1 trillion public-private initiative to rebuild degraded roads and bridges.

Trump built a base of support behind his presidential campaign by vowing to fight illegal immigration. In his speech, he took a more moderate tone, appealing to Republicans and Democrats to work together on immigration reform. He said it was possible if both Republicans and Democrats in Congress were willing to compromise, although he also said U.S. immigration should be based on a merit-based system, rather than relying on lower-skilled immigrants. Comprehensive immigration reform eluded his two predecessors, Democrat Barack Obama and Republican George W. Bush, because of deep divisions within Congress and among Americans over the issue. Trump said reform would raise wages and help more struggling families enter the middle class. “I believe that real and positive immigration reform is possible, as long as we focus on the following goals: to improve jobs and wages for Americans, to strengthen our nation’s security, and to restore respect for our laws,” said the Republican president.

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Dean Baker corrects the NYT.

Donald Trump and Paul Ryan are Not Political Philosophers (Baker)

Apparently the paper is confused on this issue since it headlined a front page piece on the budget, “Trump budget sets up clash over ideology within G.O.P.” The article lays out this case in the fourth paragraph: “He [Trump] also set up a battle for control of Republican Party ideology with House Speaker Paul D. Ryan, who for years has staked his policy-making reputation on the argument that taming the budget deficit without tax increases would require that Congress change, and cut, the programs that swallow the bulk of the government’s spending — Social Security, Medicare and Medicaid.” Most of us recognize Donald Trump and Paul Ryan as politicians who hold their jobs as a result of being able to gain the support of important interest groups. It really doesn’t make much difference what their political philosophy is.

Contrary to what the NYT might lead us to believe, this is not a battle of political philosophy, it is a battle over money. On this score, the NYT also gets matters seriously confused. First of all, it is wrong to describe Social Security, Medicare, and Medicaid as “the programs that swallow the bulk of government spending.” Under the law, Social Security can only spend money raised through its designated taxes, either currently or in the past. For this reason, it is not a drain on the rest of the budget unless Congress changes the law. Medicaid would also not rank among the three largest programs. The government is projected to spend $592 billion this year on the military compared to $401 billion on Medicaid.

The claim that Paul Ryan is concerned that these programs would “swallow the bulk of government spending” directly contradicts everything Paul Ryan has been explicitly advocating for years. Ryan has repeatedly put forward budgets that would reduce the size of the federal government to zero outside of the military, Social Security, Medicare, and Medicaid. It is difficult to understand how a major newspaper can so completely misrepresent a strongly and repeatedly stated view of one of the country’s most important political figures.

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Full blown insanity.

This Chart Signals China’s Housing Bubble May Burst Soon (ME)

The probability that a real estate bubble may burst in China is rising. The financial sector heavily depends on real estate, which in turn exposes the entire Chinese economy to systemic risk. This link means that a downturn in real estate could soon spread to other areas of the Chinese economy if banks face liquidity shortfalls. Also, falling housing prices could result in more non-performing loans (NPLs). While NPLs officially account for only 1.75% of all Chinese loans, the government is likely understating the figure. BMI Research, a financial consulting firm, estimated in a 2016 report that NPLs could be close to 20% of loans.

As banks gave more credit to real estate developers and buyers, their profitability stalled. In theory, China’s economy is not based on capitalism and thus doesn’t revolve around profitability; but in practice, money needs to come from somewhere. A company that doesn’t make a profit can’t survive in the long run. The Chinese government can’t afford to let banks fail since it would threaten both the financial system’s health and the key lifeline to state-owned enterprises that provide jobs. This surge in China’s real estate prices, fueled by ongoing credit expansion, are forcing the government to choose between deflating the housing market and slowing growth.

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Pipelines vs pipedreams.

Russia Seen Dominating European Energy for Two Decades (BBG)

Europe has wanted to wean itself from Russian natural gas ever since supplies from its eastern neighbor dropped during freezing weather in 2009. Almost a decade later, the region has never been more dependent. Gazprom, Russia’s state-run export monopoly, shipped a record amount of gas to the European Union last year and accounts for about 34% of the trading bloc’s use of the fuel. Russia will remain the biggest source of supply through 2035, Shell said last week, echoing comments by BP in January. EU lawmakers have had their hearts set on diversifying supplies with liquefied natural gas delivered by tanker from the U.S., where production of the fuel skyrocketed last year. So far, those shipments have failed to materialize amid a lack of firm contracts and higher prices outside Europe. Overall, LNG shipments to the region, led by Qatar, were stagnant last year. “Russia will for sure remain Europe’s largest gas supplier for at least two more decades,” even if most of the incremental gains in EU imports are met by LNG from somewhere else, said Vladimir Drebentsov, chief economist for Russia and CIS at BP in Moscow.

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It was once a good place to live.

Sydney Home Prices Surge 14.8%, Fastest Annual Pace Since 2002 (BBG)

Dwelling values in Australia’s largest city rose at the fastest annual pace in 14-years in February as record-low interest rates outweighed regulatory efforts to avert a housing bubble. Average values in Sydney surged by 18.4%, the biggest jump since December 2002 when the nation was at the tail-end of the early 2000’s housing boom, according to data provider CoreLogic Inc. Across the state capitals combined, values rose by 11.7%. Despite tighter lending restrictions aimed at discouraging speculative buying by landlords, the runaway housing market shows few signs of easing amid strong economic growth, historically low borrowing costs and a tax system that offers perks for property investors. Housing affordability has become a hot-button political issue, with New South Wales premier Gladys Berejiklian promising to make it one of her top priorities.

Last month, she appointed former Reserve Bank of Australia governor Glenn Stevens to advise on the options. Central bank Governor Philip Lowe has signaled he’d prefer not to ease interest rates as it would further inflate Sydney house prices and drive already record household debt even higher, threatening financial stability. “The strong growth conditions across Sydney have provided a substantial wealth boost for home owners,” said Tim Lawless, head of research at CoreLogic. “However, the flipside is that housing costs are becoming increasingly out of reach.” Prices are now almost 8.5 times higher than household incomes in Sydney, according to CoreLogic. There are, however, considerable regional variations. Perth, in the mining heartland of Western Australia that’s suffering as a decade-long investment boom winds down, saw values fall by 4.5% in the year to February.

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You can’t easily tweak internation law on nuclear. For good reasons.

UK Nuclear Power Stations ‘Could Be Forced To Close’ After Brexit (G.)

Nuclear power stations would be forced to shut down if a new measures are not in place when Britain quits a European atomic power treaty in 2019, an expert has warned. Rupert Cowen, a senior nuclear energy lawyer at Prospect Law, told MPs on Tuesday that leaving the Euratom treaty as the government has promised could see trade in nuclear fuel grind to a halt. The UK government has said it will exit Euratom when article 50 is triggered. The treaty promotes cooperation and research into nuclear power, and uniform safety standards. “Unlike other arrangements, if we don’t get this right, business stops. There will be no trade. If we can’t arrive at safeguards and other principles that allow compliance [with international nuclear standards] to be demonstrated, no nuclear trade will be able to continue.”

Asked by the chair of the Commons business, energy and industrial strategy select committee if that would see reactors switching off, he said: “Ultimately, when their fuels runs out, yes.” Cowen said that in his view there was no legal requirement for the UK to leave Euratom because of Brexit: “It’s a political issue, not a legal issue.” The UK nuclear industry would be crippled if new nuclear cooperation deals are not agreed within two years, a former government adviser told the committee. “There is a plethora of international agreements that would have to be struck that almost mirror those in place with Euratom, before we moved not just material but intellectual property, services, anything in the nuclear sector. We would be crippled without other things in place,” said Dame Sue Ion, chair of the Nuclear Innovation and Research Advisory Board, which was established by the government in 2013.

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Bur perhaps none of this matters in the long run, perhaps waste is the inevitable consequence of the need to feel rich, be rich. As Ken Latta put it in his February 23 article here at the Automatic Earth: “wealth is best measured by the capacity to be utterly wasteful”.

Denmark Reduces Food Waste By 25% In 5 Years With Help Of One Woman (Ind.)

Never underestimate the power of one dedicated individual. A woman has been credited by the Danish Government for single-handedly helping the country reduce its food waste by 25% in just five years. Selina Juul, who moved from Russian to Denmark when she was 13 years old, was shocked by the amount of food available and wasted at supermarkets. She told the BBC: “I come from a country where there were food shortages, we had the collapse of infrastructure, communism collapsed, we were not sure we could get food on the table”. Her organisation, Stop Spild Af Mad – which translates as Stop Wasting Food – made all the difference and is recognised as one of the key drivers behind the government’s focus to tackle food waste.

“She was this crazy Russian woman that walked in the door, with a crazy idea about stop wasting food and she has come really far since,” Maria Noel, communication officer of Dagrofa, a Danish retail company, told the BBC. “She basically changed the entire mentality in Danemark,” she added. Ms Juul convinced Rema 1000, the country’s biggest low-cost supermarket chain, to replace all its quantity discounts with single item discounts to minimise food waste. Max Skov Hanser, a grocer at Rema 1000, said the retailer wasted about 80 to 100 bananas every day. However, after the supermarket put up a sign saying “take me I’m single”, it reduced the waste on bananas by 90%. In the past five years Denmark has become one of the leading European countries in the fight against food waste. Last year, a charity in Copenhagen opened Denmark’s first ever food surplus supermarket, which sells products at prices 30 to 50% cheaper than usual retailers.

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On Wendell Berry.

The World-Ending Fire – How America’s Farmers Betrayed The Land (G.)

Berry’s essays roam widely over such topics as “Writer and Region” (an A-grade discussion of The Adventures of Huckleberry Finn), “The Work of Local Culture” and his high-minded disinclination to swap his ancient typewriter for a computer (complete with several shocked technophile responses). But the majority of them return, out of a kind of disgust, to the idea of betrayal, and the way in which the US farming industry has abandoned its responsibility to the terrain it has been cultivating for the last century and a half. The startling aspect of this charge sheet is its proxy villain, which is neither the cereal companies nor the burger chains but the American dream. Ronald Reagan once named his favourite children’s books as Laura Ingalls Wilder’s Little House series, in which the resourceful Ingalls family head west across the newly available prairie states.

Pa chops trees, builds shacks and plants corn while Ma keeps house and thinks the native population “dirty”. To Berry, by contrast, the Pa Ingallses of the 1870s midwest are simply opportunists casting aside the old ways without bothering to reflect on their value, exploiters whose hard work and high moral tone obscure the absence of any real relationship with the land they are bent on despoiling. “A Native Hill”, a series of pointed reflections on the landscape of Henry County, Kentucky, notes that the original inhabitants had managed to preserve its integrity for thousands of years. The pioneers “in a century and half plundered the area of at least half its topsoil and virtually all its forest”, and constructed a road they may not have needed in the first place.

On the one hand, Berry is placing the Native American Indians and Pa Ingalls in false opposition: the effervescing Ingalls brood were different kinds of people – most obviously, nomads and settlers – wanting different things from the world they inhabited. On the other hand, Berry’s agrarian arguments are persuasive. To produce five feet of topsoil, he suggests in “The Making of a Marginal Farm”, takes 50,000 to 60,000 years. Meanwhile, the rallying cries are mounting up: think small; distrust the combines; a family can live for a year off a 60 sq ft vegetable plot; nobody ever did themselves any good by living in a city (he derides “the assumption that the life of the metropolis is the experience, the modern experience … ”).

As for The World-Ending Fire’s implications, you can just about envisage a future in which, once the fossil fuels have run out, necessity forces us all to live in smaller, self-sustaining societies without the benefit of the internal combustion engine. So perhaps Berry will have the last laugh. Whether by that stage in human evolution it will be worth having is another matter.

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May 142016
 
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Camp Meade, Maryland 1917

IMF Meddling On Brexit Is Scandalous Skulduggery (AEP)
The Zombies Return: Steel Firms In China Come Back From The Dead (SCMP)
Europe Launches Probe Into Claims China Is Subsidising Steel Producers (Tel.)
China Complains To WTO That US Fails To Implement Tariff Ruling (R.)
China Inc. Misses Best Shot to Repay $430 Billion as Yuan Drops (BBG)
S&P 500 Companies Plan $600 Billion Buybacks In Losing Strategy (CNBC)
US Energy Bankruptcy Wave Surges Despite Recovering Oil Prices (R.)
The Other Fire: Fort McMurray’s Slow Burn (Tyee)
The New Era Of Monopoly Is Here (Stiglitz)
Vicious Feedback Loops in New York Art and European Equities (Dizard)
What If Greece Got Massive Debt Relief But No One Admitted It? – Part 1 (FT)
“I’ll Never Retire”: Americans Break Record for Working Past 65 (BBG)
Retiree To Fly 80 South African Rhinos To Australia (G.)
Merkel’s Deal with Turkey in Danger of Collapse (Spiegel)
EU to Work with African Despot to Keep Refugees Out (Spiegel)

Ambrose strikes. Can’t go wrong with a headline like that. “..the rescue of the euro and the North European banking system in 2010, otherwise known by some cruel twist of language as the Greek bail-out.” And “..take your rotting pile of damp wood elsewhere Madame Lagarde.”

IMF Meddling On Brexit Is Scandalous Skulduggery (AEP)

If the IMF and its co-conspirators in the Treasury wish to deter undecided voters from flirting with Brexit, they have certainly failed in my case. Having listened to their irritating lectures, I am more inclined to opt for defiance, for their mask of objectivity has fallen. There can no longer be any doubt that they are playing politics with the democratic self-determination of this country. The Fund gives the game away in point 8 of its Article IV conclusion on the UK economy. It states that “the cost of insuring against a UK sovereign default has doubled (albeit from a low level)”. Any normal person who does not follow the derivatives markets would interpret this as a grim warning from global investors. Yes, the price of credit default swaps on 5-year UK debt – the proxy we all use – has jumped from 17 to 37 since late last year.

But the IMF neglected to mention that it has risen from 15 to 33 in Switzerland, from 26 to 43 in France, and from 45 to 65 in Korea. The jump has almost nothing to do with Brexit, and the IMF knows this perfectly well. The French have an expression that will be familiar to the IMF’s Christine Lagarde: ils font feu de tout bois. Her own IMF mentor and long-time chief economist, Olivier Blanchard, told me last month that there was no risk whatsoever of a sovereign bond crisis, or a Gilts strike, or a sudden stop of any kind. “Will financing be more difficult after Brexit? Will investors see the British government as more risky? I don’t think so,” he said. Professor Blanchard, who recently stepped down from the Fund and is free to speak his mind, says there may be a price to pay for Brexit but it is impossible to calculate.

“The cost of exiting will not be seamless, and the uncertainty will last for a very long time afterwards. Firms deciding whether to locate a plant in the UK or in the Continent will wait. Investment will drop,” he said. But he also said weaker pound would cushion the effects of falling investment to some degree. So bare this in mind when you comb through today’s Article IV statement with its delicious mix of precision and selective vagueness on the alleged damage of Brexit. The hit ranges from 1.5pc to 9.5pc of GDP. Note the decimal points. The range depends on whether it is “a la Switzerland, a la Norway, or a la WTO,” said Madame Lagarde. Perhaps it is churlish to point out that the IMF completely missed the onset of the global financial crisis, and was blindsided when the US fell into recession in November 2007. The Fund’s staff were still predicting sunlit uplands as far as the eye could see, even when the blackest of black storms was upon them.


The IMF misjudged the fiscal multiplier horribly in Greece

Its forecasts for Greece were wrong every single year following the rescue of the euro and the North European banking system in 2010, otherwise known by some cruel twist of language as the Greek bail-out. They originally said the Greek economy would contract by 2.6pc in 2010 and then recover briskly. What actually happened – as predicted at the time by the Indian member of the IMF board – was the most spectacular collapse of a developed economy in the post-war era. Output ultimately fell by 26pc from peak to trough. To its credit, the IMF later admitted that it had horribly misjudged the fiscal multiplier. Indeed. I don’t wish the denigrate the Fund. It remains a superb institution. I use its research all the time in my work. But on this occasion it has been misused for political purposes.

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Maybe they can pay people to dig a big hole to throw the produced steel in.?!

The Zombies Return: Steel Firms In China Come Back From The Dead (SCMP)

The grey smoke pouring once again into the sky above a rusty steel plant in a town in northern China is seen as a blessing by people who live nearby. One of the plant’s six blast furnaces was put back into operation earlier this month, breathing new life into Dongzhen in Shanxi province. The plant, formally known as Haixin Iron and Steel, was closed two years ago as demand for the metal plunged in China. Steel companies with little hope of turning a profit are among the enterprises known as “zombie firms” in China, many operating in ailing heavy industries that the central government has pledged to cut back as it attempts to create a modern, high-tech and innovation driven economy. Millions of jobs are due to be axed in the steel and coal sectors in the coming years.

But the plant at Dongzhen has been given a lifeline. It has been renamed and taken over by new owners amid signs of a rise in steel prices, plus massive support from the local government. And there is evidence that increasing numbers of other steel plants are also reopening in China, despite the government’s pledges that the industry must be cut back. Local people in Dongzhen, at least, now dare to believe there may still be hope for their beleaguered industry. Restaurants have reopened, new food stalls set up, and even watermelon vendors are driving their carts and trucks nearby to serve the thousands of workers coming in and out of the compound. Uniformed workers in red and blue helmets flow through the foundry gate, heavy trucks and cars blow their horns and there is a renewed sense of dynamism in this dusty town.

The fate of the Dongzhen steel plant highlights the dilemma facing many local government across the country: the need for massive economic reforms, weighed against the suffering created by massive job losses and the fear of social unrest. President Xi Jinping has said cutting overcapacity in ailing industries such as steel is an essential part of the government’s “supply-side” economic reforms. An unidentified “authoritative figure” was also quoted in a prominent article in the Communist Party mouthpiece the People’s Daily on Monday renewing calls to terminate “zombie companies”. Haixin, however, is not the only “zombie” steel firming coming back from the dead. As China pumped unprecedented amounts of credit to boost growth in the first quarter, many steel plants are back on stream to take advantage of a rise in steel prices.

Daily steel output on the mainland in March rebounded to a nine-month high and output in April could be even higher, according to analysts, although the steel price rally has started to fizzle away this month. “It’s difficult to take Chinese pledges to address surplus capacity seriously,” said Christopher Balding, an associate professor of economics at Peking University HSBC Business School. “There is a recent track record of talking about the problem and not taking the steps required to solve it: like a dieter who wants to lose weight and still eats chocolate chip cookies.”

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Fighting for a share of a collapsing market.

Europe Launches Probe Into Claims China Is Subsidising Steel Producers (Tel.)

A new front has opened up in the “steel war” between China and Europe after Brussels launched an investigation into whether the Beijing government is subsidising its steel producers. The European Commission said it was starting a probe into a complaint that China is subsiding its producers of hot rolled flat steel – one of the most widely used forms of the alloy. The Commission has already imposed tariffs on some forms of steel being exported into Europe after earlier investigations determined they were being “dumped” – sold at below cost – by Chinese plants, as they get rid of excess production in the wake of a drop in domestic demand. However, the new investigation could tackle the problem at source, by looking into claims China is subsidising its largely state-owned steel industry, damaging European rivals.

If it finds subsidisation is taking place, further duties could be imposed on Chinese imports in an attempt to level the playing field. The announcement comes less than 24 hours after the European Parliament voted with an overwhelming majority against China being given the coveted Market Economy Status. The move follows a complaint from Eurofer, the European steel association, and a spokesman said the group “welcomed the move into unfair subsidisation originating in China”. “Hot rolled flat steel is the bread and butter of the industry, going into everything from cans to cars and by far the most commonly used form of steel,” the spokesman added. “The European steel industry suffers damage from unfair trading practices originating in China.”

The European steel industry is in crisis at the moment as it battles the flood of cheap steel from China, and struggles against tougher environmental controls and higher prices, which are particularly punishing in the UK. More than 5,000 jobs have been lost in Britain’s steel industry in the past year as plants have struggled to compete. In April Tata launched the sale of its loss-making British steel operations based around the massive Port Talbot plant. Gareth Stace, director of trade body UK Steel, said the widening of investigations from dumping into subsidies was a progression of the campaign to fight unfair trade. “This is a welcome and much-needed investigation into Chinese Government subsidies which will run in parallel to its ongoing investigation into dumping of steel into the EU. The significant unfair trading practices carried out by China has been a major cause of the worst steel crisis in over a generation here in the UK.”

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“China’s complaint to the WTO was filed just days after Washington lodged a similar complaint against China..”

China Complains To WTO That US Fails To Implement Tariff Ruling (R.)

In another sign of escalating trade tensions between China and the United States, Beijing told the World Trade Organization on Friday that Washington was failing to implement a WTO ruling against punitive U.S. tariffs on a range of Chinese goods. China’s Ministry of Commerce (MOFCOM) said it had requested consultations with the United States over the issue, and anti-subsidy duties on products including solar panels, wind towers and steel pipe used in the oil industry. China’s complaint to the WTO was filed just days after Washington lodged a similar complaint against China, accusing it of unfairly continuing punitive duties on U.S. exports of broiler chicken products in violation of WTO rules.

“By disregarding the WTO rules and rulings, the United States has severely impaired the integrity of WTO rules and the interests of Chinese industries,” MOFCOM said in a statement distributed by the Chinese embassy in Washington. The case was first brought before the WTO by China in 2012 against U.S. duties on 15 diverse product categories that also include thermal paper, steel sinks and tow-behind lawn grooming equipment. In December 2014, the WTO’s Appellate Body ruled in favor of Chinese claims that the products subject to duties had not benefited from subsidies from “public bodies” favoring particular manufacturers.

The deadline for implementation of the rulings and recommendations of the WTO Dispute Settlement Body, set through binding arbitration, expired on April 1, according to WTO records. A U.S. Trade Representative spokesman said the United States had been “working diligently to comply with the recommendations” and to fully conform with its WTO obligations. He added that the U.S. response to China’s request for consultations would come “in due course.”

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Dollar-denominated debt is the sword of Damocles.

China Inc. Misses Best Shot to Repay $430 Billion as Yuan Drops (BBG)

The best time for China Inc. to repay its dollar debt may be coming to an end. The greenback is rallying after its worst quarter since 2010, threatening to drive up costs for companies seeking to either repay U.S. currency borrowings or hedge exposure. The yuan declined 1% since March 31, following a 2% rally between February and March. Royal Bank of Canada and Credit Suisse see more depreciation. “If corporates haven’t taken advantage of this period of yuan gains, they really only have themselves to blame,” said Sue Trinh, Hong Kong-based head of Asian foreign-exchange strategy at RBC. “The government won’t hold down the exchange rate forever.”

RBC estimates Chinese companies’ outstanding dollar borrowings have now been trimmed to $430 billion, while Daiwa Capital Markets says as much as $3 trillion was borrowed to plow into the higher-yielding yuan, including by individuals and foreign companies. A rush to repay risks accelerating capital outflows and yuan weakness amid China’s slowest economic growth in 25 years. The yuan’s renewed depreciation is a challenge for companies that took advantage of the currency’s gains in the four years through 2013 to borrow dollars offshore, profiting from both an appreciating exchange rate and higher interest rates at home. The one-way bets began to unravel as the currency dropped 2.4% in 2014 and 4.5% last year.

The yuan sank 2.6% in August last year after a shock devaluation, and then rose for the next two months as the People’s Bank of China intervened in the market to support the exchange rate. The authority reiterated in its latest monetary policy implementation report released last week that it wants to keep the currency stable. “The recent yuan stability was artificial and likely helped by consistent verbal intervention from the PBOC that there is no depreciation pressure,” said Koon How Heng at Credit Suisse in Singapore. “However, in the background, there is growing concern of increasing debt issues. We are watching growing incidences of coupon defaults.”

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Pretty damning. But it will continue short term. And a few years down the road, infrastructure will start falling apart.

S&P 500 Companies Plan $600 Billion Buybacks In Losing Strategy (CNBC)

Companies are planning to devote billions to buying back their own stock this year, even though the strategy seems to be losing its bite. Statements accompanying first-quarter earnings indicate corporations are preparing to buy a total of $600 billion in their own shares, according to Goldman Sachs calculations. That comes after a year in which S&P 500 buybacks amounted to $572.2 billion, which itself was a 3,3% increase from 2014 and part of a trend that has seen repurchases amount to more than $2.7 trillion since 2010, data from S&P Dow Jones Indices show. Buybacks slowed in the first part of the year, with TrimTabs reporting a 35% decline over 2015. However, that’s not likely to last as companies struggle to find the best way to spend cash. S&P 500 companies have nearly $1.5 trillion in cash on their balance sheets.

“The main thing that determines that is whether they see their markets pop or not,” said Jim Paulsen, chief market strategist at Wells Capital Management. “One of the things we really haven’t had in this recovery is getting all the economic boats moving north at the same time.” With the lack of sustained economic growth, companies have turned to buybacks and dividends to pick up the slack. However, the effectiveness of returning cash directly to shareholders doesn’t have the same pop it once had. Where buybacks had helped fuel the S&P 500’s meteoric rise and the second longest bull market in history, the market has been volatile but flat over the past year or so. Moreover, companies that have been the biggest movers in buybacks have underperformed significantly.

The PowerShares BuyBack Achievers Portfolio exchange-traded fund tracks companies that have bought back at least 5% of their shares over the past 12 months. The ETF is down about 0.7% in 2016 and off 8.4% over the past year. The fund’s biggest holdings include McDonald’s, Boeing, Qualcomm, Lowes and Mondelez. A big name missing from the top holdings is Apple, which has buyback plans totaling $175 billion for a stock that is down 13.2% year to date and 27.5% over the past year. Yet the buyback and dividend trend continues as companies remain reluctant to hire and invest in equipment and as the deal climate cools after a blistering 2015. Mergers and acquisitions activity plunged 25% in the first quarter, with much of the steam taken out by the collapse of multiple big-ticket deals, the most recent being the $6 billion Staples-Office Depot marriage.

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“..once the hedges roll off you can’t support that debt.”

US Energy Bankruptcy Wave Surges Despite Recovering Oil Prices (R.)

The wave of U.S. oil and gas bankruptcies surged past 60 this week, an ominous sign that the recovery of crude prices to near $50 a barrel is too little, too late for small companies that are running out of money. On Friday, Exco Resources, a Dallas-based company with a star-studded board, said it will evaluate alternatives, including a restructuring in or out of court. Its shares fell 35% to 62 cents each. Exco’s notice capped off one of the heaviest weeks of bankruptcy filings since crude prices nosedived from more than $100 a barrel in mid-2014. Prices have bounced back to $46 a barrel from February lows in the mid-$20s, but the futures market shows investors do not expect U.S. benchmark crude to rise above $50 for more than a year.

That will not help smaller producers built for far higher prices. These companies have largely exhausted funding alternatives after issuing more equity and debt, tapping second-lien loans and shedding assets over the last two years to stay afloat as banks trimmed credit lines. Some companies are in more acute distress, faced with the expiration of derivative contracts that had allowed them to sell oil above market prices. “Everybody was able to hold on for a while,” said Gary Evans, former CEO of Magnum Hunter Resources, which emerged from bankruptcy protection this week. “But once the hedges roll off you can’t support that debt.”

Bankruptcy filers this week included Linn Energy and Penn Virginia. Struggling SandRidge, a former high flyer once led by legendary wildcatter Tom Ward, said it would not be able to file quarterly results on time. The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecommunications sector bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and bankruptcydata.com.

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I would normally shudder at the very thought of anyone quoting Larry Summers or god forbid Jeff Rubin, but this is a topic that warrants attention.

The Other Fire: Fort McMurray’s Slow Burn (Tyee)

At the end of the day the $10-billion wildfire that consumed 2400 homes and buildings in Fort McMurray may be the least of the region’s problems. Although the chaotic evacuation of 80,000 people through walls of flame will likely haunt its brave participants for years, a slow global economic burn has already taken a nasty toll on the region’s workers. That fire began last year when global oil prices crashed by 40% and evaporated billions of investment capital in the tarsands. As the project’s most hight cost producers started to bleed cash, corporations laid off 40,000 engineers, labourers, cleaners, welders, mechanics and trades people with little fanfare and even less thanks. Many of these human “stranded assets” endured home foreclosures and lineups at the food bank.

Worker flights to Red Deer and Kelowna got cancelled and traffic at the city’s new airport declined by 16%. Unemployment in Canada’s so-called economic engine soared to nearly nine%. Despite the high cost of the oil price crash, most residents of Fort McMurray, along with Canada’s politicians, think that oil prices will rebound and things will turn around sooner or later. They’ve seen it all before, they say. But a number of economic trends and analyses suggest that bitumen’s glory days may be over. What resembles a string of bad luck may actually be the unfortunate consequence of rapidly developing a high risk and volatile resource with no real safety net. The first undeniable factor is weakening demand for oil, the engine of global economic growth. China’s economy, the world’s largest oil importer, is faltering as its industrial revolution peaks and fades.

Europe, Japan and the United States are also using less oil, and their economies are stagnating too. The global economy has become so stuck in neutral that famous financial power brokers such as Larry Summers now write depressing articles entitled “The Age of Secular Stagnation,” in Foreign Affairs no less. In such a world, little if any bitumen will be needed in the international market place. In fact economists now trace about 50% of the oil price collapse to evaporating demand. But there are many other potent signs and they have already covered the economic landscape with smoke. Murray Edwards, the billionaire tycoon behind Canadian Natural Resources, one of the largest bitumen extractors, has decamped from Alberta to London, England. Edwards and company slashed $2.4-billion from CNRL’s budget in 2015. Since the oil price crash, by some accounts, Murray’s company has lost 50% of its market value.

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“..the large bonuses paid to banks’ CEOs as they led their firms to ruin and the economy to the brink of collapse are hard to reconcile with the belief that individuals’ pay has anything to do with their social contributions.”

The New Era Of Monopoly Is Here (Stiglitz)

For 200 years, there have been two schools of thought about what determines the distribution of income – and how the economy functions. One, emanating from Adam Smith and 19th-century liberal economists, focuses on competitive markets. The other, cognisant of how Smith’s brand of liberalism leads to rapid concentration of wealth and income, takes as its starting point unfettered markets’ tendency toward monopoly. It is important to understand both, because our views about government policies and existing inequalities are shaped by which of the two schools of thought one believes provides a better description of reality. For the 19th-century liberals and their latter-day acolytes, because markets are competitive, individuals’ returns are related to their social contributions – their “marginal product”, in the language of economists.

Capitalists are rewarded for saving rather than consuming – for their abstinence, in the words of Nassau Senior, one of my predecessors in the Drummond Professorship of Political Economy at Oxford. Differences in income were then related to their ownership of “assets” – human and financial capital. Scholars of inequality thus focused on the determinants of the distribution of assets, including how they are passed on across generations. The second school of thought takes as its starting point “power”, including the ability to exercise monopoly control or, in labour markets, to assert authority over workers. Scholars in this area have focused on what gives rise to power, how it is maintained and strengthened, and other features that may prevent markets from being competitive. Work on exploitation arising from asymmetries of information is an important example.

In the west in the post-second world war era, the liberal school of thought has dominated. Yet, as inequality has widened and concerns about it have grown, the competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works. So, today, the second school of thought is ascendant. After all, the large bonuses paid to banks’ CEOs as they led their firms to ruin and the economy to the brink of collapse are hard to reconcile with the belief that individuals’ pay has anything to do with their social contributions. Of course, historically, the oppression of large groups – slaves, women, and minorities of various types – are obvious instances where inequalities are the result of power relationships, not marginal returns.

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“The ECB’s requirement for an “investment-grade” rating turns out to be an elastic condition; something you tell the Germans to put them off until the next meeting.”

Vicious Feedback Loops in New York Art and European Equities (Dizard)

The remarkable swing in sentiment, from depression to relief, and, in some cases, euphoria, around the New York art auctions this past week was one of the most astonishing examples of herd mentality I have seen. Back in 1990, we would buy a paper from the newsboy that would describe a decline in the Japanese stock market that had taken place the previous year. Weeks later, bids for Renoirs would dry up, and there would be talk about a correction in the art market. These days, we are all in short-cycle businesses. But I am trying to take the long-term view here, one that might hold up until the US elections in November. So in that spirit of philosophical detachment, I would say it is time to buy euro-denominated high-yield bonds before the other bidders come in next month in response to the ECB’s corporate bond-buying programme.

I understand that most of the quantitative analysis done on art and securities markets tells us that equity prices “cause” art prices to rise or fall, but it seems to me that the present volatility and vicious feedback loops in both markets are being caused by a more general instability. The weak equity markets at the beginning of this year, and the decline in art prices that had set in by early 2015, apparently led collectors to hold off on consigning contemporary works of art to the spring auctions in New York. Then when the Christie’s evening contemporary sale on Tuesday night worked out better than many expected, with 87% of the lots sold, there was suddenly a shortage of works on public offer. This led to more frantic bidding for contemporary art in that market’s equivalent of junk or high yield, the day sales. All within a couple of days.

The same risk-averse sentiment earlier this year led euro-area junk-rated companies to hold off on selling new bond issues. According to Richard Briggs, credit strategist at CreditSights, a fixed income research provider, euro high-yield debt issuance declined to just €12.7bn in the year to date up to May 9, compared with €47.9bn in the same period in 2015. So euro-based investors are even more starved for yield than New York collectors were for contemporary art. Not everyone agrees with me about the relative value of European junk bonds. As Matt King at Citi Research says: “A lot of investors prefer, or have preferred, US high yield. Optically, the yields are higher. Most of that, though, is about duration and credit quality, and you should adjust for those. The US has more CCC credits [the bottom of the non-defaulting junk pile], and when you take that into account, all the US HY advantage disappears.”

[..] The ECB’s bond-buying programme could have an outsized effect. It is targeted specifically at non-financial corporate bonds. The ECB has indicated it will buy €3bn-€5bn of corporate bonds each month, which is about the same rate of non-financial bond purchases as euro-area financial institutions have maintained since 2012. The ECB’s requirement for an “investment-grade” rating turns out to be an elastic condition; something you tell the Germans to put them off until the next meeting. If just one rating agency, including the Canadian DBRS, will give a corporate bond an investment-grade stamp, the ECB will be open to buying it. Mr King calculates that one little tweak will make about 4% of the European junk-bond market eligible for purchase. In a relatively illiquid €310bn market, every little bit helps.

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Intriguing by Matthew Klein. To be continued.

What If Greece Got Massive Debt Relief But No One Admitted It? – Part 1 (FT)

In 2012, the “official sector” lenders realised they needed to do something different. Over the course of the year they made new loans at low interest rates, lowered interest rates on existing loans, gave the Greek government much more time to repay existing loans, remitted profits from the ECB’s holdings of Greek government bonds back to the Greek government, and forced private lenders to accept getting repaid less than originally owed, among other things. The net effect was to sharply reduce the present value of the Greek government’s debt burden. According IMF data, the Greek government spent about €15 billion, or 7.3% of GDP, on debt interest payments in 2011. For perspective, the Italian government was spending 4.4% and the Portuguese government was spending 3.8%.

By 2013, the Greek economy had shrunk by 13%, in nominal euro terms, yet the sovereign debt interest burden was now 4.0% of GDP, against 4.5% for Italy and 4.2% for Portugal. Put another way, the debt modifications in 2012 cut the amount spent by the Greek government on interest payments by more than half. Subsequent debt modifications and the general decline in euro area interest rates have cut the amount the Greek government spends on interest payments by another 12.6%. Interest expense was 3.6% of Greek GDP in 2015, compared to 4.0% in Italy and 4.1% in Portugal. So why didn’t the 2012 modifications end the crisis? My colleague Martin Sandbu puts it well:

“The problem is the chill caused by the uncertainty the debt overhang causes: will the debt service cost at some point increase (perhaps to crippling levels), and will there be another refinancing crisis whenever a large portion of debt is set to mature? It is this uncertainty that must be erased for investment to pick up.”

In other words, investors don’t care about the decline in the interest burden nearly as much as they worry, reasonably, about the headline debt figures. This makes it impossible for the Greek government to fund itself in the markets at reasonable rates, leaving it dependent on the whims of “official sector” creditors to make its small interest payments and roll over its large debts. This is why it matters whether Kazarian is right about the accounting treatment of Greek sovereign obligations. There are plenty of weak economies in the euro area with miserable productivity growth, terrible demographics, and lots of debt. Greece isn’t that different except insofar as it’s excluded from ECB bond-buying and insofar as the markets and ratings companies treat it as a pariah.

So if the Greek government’s actual debt number were far lower than what’s commonly reported, investors would have little reason to charge it more than they demand from Portugal. And that would have big implications for an economy wracked for years by uncertainty about debt default, sky-high capital costs, and outside demands for “structural reform” and budget surpluses. In part 2, we’ll look at why exactly Kazarian thinks the Greek government’s net debt is only 39% of GDP, rather than 177%, as well as some potential objections. In part 3, we’ll imagine what sorts of budget surpluses would have been required to make the Greek government compliant with Maastricht criteria for debt levels by 2020 under different assumptions of the impact of the 2012 modifications, in comparison to what “official sector” creditors actually demanded.

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The US is falling apart in many places.

“I’ll Never Retire”: Americans Break Record for Working Past 65 (BBG)

Almost 20% of Americans 65 and older are now working, according to the latest data from the U.S. Bureau of Labor Statistics. That’s the most older people with a job since the early 1960s, before the U.S. enacted Medicare. Because of the huge baby boom generation that is just now hitting retirement age, the U.S. has the largest number of older workers ever. When asked to describe their plans for retirement, 27% of Americans said they will “keep working as long as possible,” a 2015 Federal Reserve study found. Another 12% said they don’t plan to retire at all. Why are more people putting off retirement? Three in five retirees surveyed by the Transamerica Center for Retirement Studies said making money or earning benefits was at least one reason they had retired later than they planned to.

Almost half said financial problems were their main reason for working past 65. The financial crisis, and the tech bust before it, devastated many baby boomers’ retirement savings. That’s if they had any to begin with. Today, 60% of U.S. households have no money in a 401(k) or similar retirement account, and the benefits of 401(k)s are skewed toward the wealthiest Americans, a recent report by the Government Accountability Office found. The waning of traditional, defined-benefit pensions could also be delaying retirement, even for wealthier Americans. Instead of getting a monthly check, many retirees end up with a pot of 401(k) assets they’re not sure how they should be spending. The ups and downs of the market can heighten their anxiety and keep them going into the office.

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The sadness is hard to describe.

Retiree To Fly 80 South African Rhinos To Australia (G.)

A retired South African sales executive who emigrated to Australia 30 years ago is hatching a daring plan to airlift 80 rhinos to his adopted country in an attempt to save the species from poachers. Flying each animal on the 11,000-kilometre journey will cost about $A60,500, but Ray Dearlove believes the expense and risk is essential as poaching deaths have soared in recent years. The rhinos will be relocated to a safari park in Australia, which is being kept secret for security reasons, where they will become a “seed bank” to breed future generations. “Our grand plan is to move 80 over a four-year period. We think that will provide the nucleus of a good breeding herd,” Dearlove said while visiting South Africa to organise for the first batch to be flown out.

The Australian Rhino Project, which the 68-year-old founded in 2013, hopes to take six rhinos to their new home before the end of the year. Funding – from private and corporate sources – is nearly in place, and the first rhinos have been selected from animals kept on private reserves in South Africa. “We have got to get this first one right because it’s a big task, it’s expensive, it’s complex,” Dearlove said. When they are settled successfully in Australia, “then we hopefully will go up in gear,” he added. [..] Poachers slaughtered 1,338 rhinos across Africa last year – the highest level since the poaching crisis exploded in 2008, according to the International Union for Conservation of Nature (IUCN). The IUCN, which rates white rhinos as “near threatened” as a species, says that booming demand for horn and the involvement of international criminal syndicates has fuelled the explosion in poaching since 2007.

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A German point of view.

Merkel’s Deal with Turkey in Danger of Collapse (Spiegel)

On Thursday, Turkish President Recep Tayyip Erdogan was standing on a stage in Ankara raging against the European Union. “Since when are you controlling Turkey?” he demanded. “Who gave you the order?” He then accused Brussels of dividing his country. “Do you think we don’t know that?” It sounded as though he was laying the groundwork for a break with Europe. Erdogan’s fit of rage is only the most recent escalation in the conflict over German Chancellor Angela Merkel’s refugee deal with Turkey. Thus far, officials in Berlin have been dismissing the Turkish president’s tirades as mere theater. “Erdogan is following the Seehofer playbook,” says one Chancellery official, a reference to the outspoken governor of Bavaria who has been extremely critical of Merkel’s refugee policies.

But things aren’t looking good for the deal, which the chancellor has declared as the only proper way to solve the refugee crisis. Indeed, Merkel’s greatest foreign policy project is on the verge of collapsing. The chancellor still hopes that Erdogan will stick to the refugee deal. A key element of that deal is visa-free travel to the EU for Turkish citizens, and Merkel believes that Erdogan’s popularity would take a hit if that didn’t come to pass. That’s why she believes that Erdogan will come around in the end. But she could be mistaken. After all, no one aside from the German chancellor appears to have much interest in the agreement anymore. Erdogan certainly doesn’t: He does not want to make any concessions on his country’s expansive anti-terror laws, the reform of which is one of a long list of conditions Turkey must meet before the EU will grant visa freedoms.

The Europeans at large, wary of selling out their values to the autocrat in Ankara, are also deeply skeptical. And in Germany, Merkel’s junior coalition partners, the center-left Social Democrats (SPD), have seized on the deal as a way to finally score some much needed political points against the powerful chancellor. Even within Merkel’s own conservatives, many are seeing the troubles the deal is facing as an opportunity to break with the chancellor’s disliked refugee policies.

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Brussels and Berlin would make a deal with Hitler if it suited them.

EU to Work with African Despot to Keep Refugees Out (Spiegel)

The ambassadors of the 28 European Union member states had agreed to secrecy. “Under no circumstances” should the public learn what was said at the talks that took place on March 23rd, the European Commission warned during the meeting of the Permanent Representatives Committee. A staff member of EU High Representative for Foreign Affairs Federica Mogherini even warned that Europe’s reputation could be at stake. Under the heading “TOP 37: Country fiches,” the leading diplomats that day discussed a plan that the EU member states had agreed to: They would work together with dictatorships around the Horn of Africa in order to stop the refugee flows to Europe – under Germany’s leadership.

When it comes to taking action to counter the root causes of flight in the region, Angela Merkel has said, “I strongly believe that we must improve peoples’ living conditions.” The EU’s new action plan for the Horn of Africa provides the first concrete outlines: For three years, €40 million is to be paid out to eight African countries from the Emergency Trust Fund, including Sudan. Minutes from the March 23 meetings and additional classified documents obtained by SPIEGEL and German public TV station ARD show that the focus of the project is border protection. To that end, equipment is to be provided to the countries in question. The International Criminal Court in The Hague has issued an arrest warrant against Sudanese President Omar al-Bashir on charges relating to his alleged role in genocide and crimes against humanity in the Darfur conflict.

Amnesty International also claims that the Sudanese secret service has tortured members of the opposition. And the United States accuses the country of providing financial support to terrorists. Nevertheless, documents relating to the project indicate that Europe want to send cameras, scanners and servers for registering refugees to the Sudanese regime in addition to training their border police and assisting with the construction of two camps with detention rooms for migrants. The German Ministry for Economic Cooperation and Development has confirmed that action plan is binding, although no concrete decisions have yet been made regarding its implementation. The German development agency GIZ is expected to coordinate the project.

The organization, which is a government enterprise, has experience working with authoritarian countries. In Saudi Arabia, for example, German federal police are providing their Saudi colleagues with training in German high-tech border installations. The money for the training comes not directly from the federal budget but rather from GIZ. When it comes to questions of finance, the organization has become a vehicle the government can use to be less transparent, a government official confirms.

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Apr 292016
 
 April 29, 2016  Posted by at 8:40 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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Harris&Ewing Treasury Building, Fifteenth Street, Washington, DC 1918

Asia’s Two Biggest Stock Markets Have Become An $11 Trillion Headache (BBG)
Japan’s Abenomics ‘Dead In The Water’ After US Currency Warnings (AEP)
Debt Is Growing Faster Than Cash Flow By The Most On Record (ZH)
The Typical American Couple Has Only $5,000 Saved For Retirement (MW)
US Corporate Profits on Pace for Third Straight Decline (WSJ)
Dollar Drops to 11-Month Low as Asian Stocks Fall; Oil Near $46 (BBG)
Sluggish US Growth Part Of A Worrying Global Trend (G.)
Renting In London More Costly Than Living In Most European 4-Star Hotels (Ind.)
China Banks’ Profit Growth Stalls As Bad Debts Rise (R.)
China’s Central Bank Raises Yuan Fixing by Most Since July 2005 (BBG)
Puerto Rico Risks Historic Default as Congress Chooses Inaction (BBG)
El Niño Dries Up Asia As Its Stormy Sister La Niña Looms (AFP)
German Inflation Turns Negative In April (R.)
Greece’s Perfect Debt Trap (Kath.)
German Minister Proposes Law To Limit Social Benefits For EU-Foreigners (DW)
Finland Parliament, Pressured By Weak Economy, Debates Euro Exit (R.)
Italy Says Austria ‘Wasting Money’ In Migrant Border Row (AFP)
One Nation in Europe Wants Refugees But Is Failing to Get Enough (BBG)

$11 trillion is merely the start.

Asia’s Two Biggest Stock Markets Have Become An $11 Trillion Headache (BBG)

Asia’s two biggest stock markets are jostling for an ignominious prize. Japan’s Topix index and China’s Shanghai Composite Index have tumbled more than 13% in 2016 to rank along Nigerian and Mongolian shares as the world’s worst performers. In the two years through the end of December, the Asian gauges outperformed MSCI’s global measure by at least 20 percentage points. The Bank of Japan stood pat on monetary policy Thursday, sending Tokyo stocks tumbling, while the Shanghai measure fell to a one-month low. The benchmark gauges in two of the world’s largest stock markets, which have a combined value of almost $11 trillion, are declining as investors detect a reduced appetite from policy makers to boost monetary stimulus.

Thursday’s BOJ decision was the first under Governor Haruhiko Kuroda where a majority of economists expected easing that didn’t materialize, while strategists now see China’s central bank keeping its main interest rate on hold until the fourth quarter. “Neither China nor Japan have a solid plan on dealing with their slowing economies,” said Tomomi Yamashita at Shinkin Asset Management. “There is still scope for easing, and as for Japan there are fiscal policies they can carry out. There’s still hope. But today there was just too much hope on the BOJ.”

The Topix sank 3.2% on Thursday after the central bank kept bond-buying, interest rates and exchange-traded fund purchases unchanged. The stock gauge has fallen for four straight days, handing losses to foreign investors who piled the equivalent of $4.9 billion into the market last week, the most in a year. Overseas traders were net sellers of Japanese equities for the first 13 weeks of 2016. “I give up,” Ryuta Otsuka at Toyo Securities in Tokyo said. “It’s a really disappointing result and I feel like throwing in the towel. It cuts because we had so much hope.” The Topix posted four straight annual gains through 2015, while even a $5 trillion rout in Chinese shares last summer couldn’t stop the Shanghai Composite from being the world’s top-performing major market over the last two years. The declines for both gauges in 2016 compare with a 2.5% advance by the S&P 500, which is closing in on last year’s record.

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Sometimes I wonder why it takes people so long to figure things out. I’ve been saying ever since Abenomics was launched that it would fail. Because it was always pie in the sky only, not based on any understanding of what caused spending to plummet.

Japan’s Abenomics ‘Dead In The Water’ After US Currency Warnings (AEP)

The Bank of Japan has been forced to retreat from further emergency stimulus after a blizzard of criticism at home and abroad, and warnings that extreme measures may now be doing more harm than good. The climb-down by the world’s most radical central bank is the latest sign that the monetary experiments since Lehman crisis may have run their course. The authorities have not exhausted their ammunition but are hitting political and legal constraints. The yen surged 3pc against the US dollar in the biggest one-day move in eight months and equities skidded across Asia after the BOJ failed to take fresh action to stave off deepening deflation, catching markets badly off guard. Governor Haruhiko Kuroda dashed hopes for ‘helicopter money’, warning that direct monetary financing of spending would be “illegal”.

Mr Kuroda insisted that the BoJ still has plenty of firepower and can at any time push interest rates even deeper into negative territory or boost bond purchases beyond the current $74bn a month. “If additional easing is needed, we will do so promptly,” he said. The reality is that negative rates (NIRP) have backfired badly on every front. They have prompted bitter protests from banks and money market funds caught in a squeeze. The yen has appreciated by 10pc since the BoJ first embarked on the policy in January, the exact opposite of what was intended. The rising yen – ‘endaka’ – is pushing Japan deeper into a deflation trap and undercutting the whole purpose of ‘Abenomics’. Core inflation has fallen to minus 0.3pc. The Nikkei has dropped 13pc this year, with contractionary wealth effects that make the BoJ’s task even harder.

“Negative rates have completely failed,” said David Bloom from HSBC. Washington will not tolerate the use of NIRP in any case, deeming it a disguised attempt to drive down exchange rates and export problems to the rest of the world. Jacob Lew, the US Treasury Secretary, warned Japan and the eurozone at the G20 in Shanghai in February that the Obama administration is losing patience with use of beggar-thy-neighbour tactics by countries already running a current account surplus. They are in effect shifting their excess capacity abroad. Germany in particular is coming into the US cross-hairs. Richard Koo from Nomura said the US is now on the warpath against currency manipulators. Mr Lew’s threat effectively renders Abenomics “dead in the water”. The Japanese economy is contracting again, caught in a debt-deflation vice.

Growth has been negative for four of the last eight quarters. What was once a ‘Lost Decade’ is turning into a “Lost Quarter Century” with no remedy in sight. “Their options are diminishing. I can’t see any way out of the debt-trap, and it is an acid test for the western world,” said Neil Mellor from BNY Mellon. Public debt is rising fast on a shrinking economic base, pushing the public debt ratio to an estimated 250pc of GDP this year. “The debt will never be ‘repaid’ in the normal sense of the word,” said Lord (Adair) Turner from the Institute for New Economic Thinking. Olivier Blanchard, the former chief economist for the International Monetary Fund, warned recently that country is nearing the end-game as the pool of domestic funding for the bond market starts to dry up and the Japanese treasury is forced to rely on much more costly capital from global investors.

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The predictable culmination of decades of a failed system is a hockeystick.

Debt Is Growing Faster Than Cash Flow By The Most On Record (ZH)

By now it is a well-known fact that corporations have no real way of generating organic growth in this economy, so they are relying on two things to boost share prices: multiple expansion (courtesy of central banks) and debt-funded buybacks (courtesy of central banks), the latter of which requires the firm to generate excess incremental cash. Incidentally, as SocGen showed last year, all the newly created debt in the 21st century has gone for just one thing: to fund stock buybacks.

 

The problem with this is that if a firm is going to continue to add debt to its balance sheet in order to fund buybacks (and dividends), then it needs to be able to generate enough operational cash flow in order to service the debt. Even if one makes the argument that debt is cheap right now, which may be true, or that central banks are backstopping it, which is certainly true in Europe as of a month ago, the fact remains that principal balances come due eventually also, and while debt can be rolled over, at some point the inability to generate cash from the operations catches up with them; furthermore even a small increase in rates means the rolling debt strategy is dies a painful death, as early 2016 showed.

In the following chart we can see net debt growth skyrocketing nearly 30% y/y, while EBITDA (cash flow) has been contracting for the past year. In fact, as SocGen shows below, the difference in the growth rate between these two most critical data series is now over 35% – the biggest negative differential in recent history.

 

Of course, every finance 101 student knows that a firm which has to borrow more cash than it is able to produce from its core operations is not a sustainable business model, and yet today’s CFOs, pundits and central bankers do not. And the next question is: what happens if the Fed does raise rates, what happens to the feasibility of these companies servicing the debt while also spending on R&D and CapEx (assuming there is any), and who can only afford the rising interest expense as a result of ever smaller interest rates? The answer is, first, massive cost cutting, i.e. layoffs, which would be a poetic way for the Fed’s disastrous policies to be reintroduced to the real economy… and then, more to the point, mass defaults. 

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Our entire societies will have to change dramatically because of this. Parents will have to move in with their children again. The children who earn much less than the parents did.

The Typical American Couple Has Only $5,000 Saved For Retirement (MW)

When American companies began switching from traditional pensions to self-directed 401(k)-like plans in the 1980s and 1990s, it was supposed to lead to a golden age of retirement security. No longer would workers be at the mercy of the company’s generosity or of Social Security’s solvency; workers themselves would be responsible for saving enough for a comfortable retirement. Some 30 years later, the results are in: The median working-age couple has saved only $5,000 for their retirement, according to an analysis of the Federal Reserve’s 2013 Survey of Consumer Finances by economist Monique Morrissey of the Economic Policy Institute. The do-it-yourself pension system is a disaster.

Even as the traditional company-funded pension has nearly disappeared and even as Social Security benefits are being slowly eroded, most workers haven’t saved enough to offset those losses to their retirement income. 70% of couples have less than $50,000 saved. Even those on the cusp of retirement — the median couple in their late 50s or early 60s — has saved only $17,000 in a retirement savings account, such as a defined-contribution 401(k), individual retirement account, Keogh or similar savings account. How long does $5,000, or even $50,000, last? Until the first big medical bill? Morrissey figures that about 43% of working-age families have no retirement savings at all. Among those who are five to 10 years away from retirement, 39% have no retirement savings of their own.

The sad fact is that most Americans are less prepared for retirement than Americans were 30 years ago. Few have enough pension wealth to make much difference in their lives once they stop working. The lack of savings in 401(k) and individual retirement accounts wouldn’t be a such big deal if retirees could rely on other sources of income, such as a traditional defined-benefit pension or Social Security. But those other income sources are declining. Fewer and fewer newly retired people are covered by a regular pension that provides a guaranteed monthly check based on salary and years of service. In addition, Social Security benefits are already being reduced as the normal retirement age is gradually increased from 65 to 67. Further reductions in Social Security benefits — by limiting the cost-of-living adjustment or by increasing the normal retirement age to 70, for example – would be disastrous for tomorrow’s retirees.


The median working-age couple had $5,000 in a retirement savings account as of the most recent data. The top 10% of savers had accumulated $274,000, according to the Economic Policy Institute analysis of Federal Reserve survey data

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Forget growth. Think survival.

US Corporate Profits on Pace for Third Straight Decline (WSJ)

U.S. corporate profits, weighed down by the energy slump and slowing global growth, are set to decline for the third straight quarter in the longest slide in earnings since the financial crisis. Weakness was felt across the board, with executives from Apple to railroad Norfolk Southern and snack giant Mondelez saying the current quarter remains tough. 3M, which makes tapes, filters and insulation for consumer electronics, forecast continued weak demand for that industry. Procter & Gamble reported sales declines in its five business categories despite price increases. “It’s a difficult environment indeed,” said PepsiCo CEO Indra Nooyi. “Most of the developed world outside the United States is grappling with slow growth. GDP growth in developing and emerging markets is also challenged.”

The concerns from company executives echo weak economic data released Thursday morning, which showed U.S. gross domestic product rose just 0.5% in the first quarter. Business investment and consumer spending on goods slowed, while consumer spending on services climbed. “On the one hand, consumer spending continued to be the primary economic driver in the U.S. On the other hand, industrial production has been disappointing,” United Parcel Service Inc. CEO David Abney said Thursday after the delivery company reported a 3.1% revenue increase. Based on the 55% of companies in the S&P 500 index that had already reported results Thursday morning, Thomson Reuters expects overall earnings to decline by 6.1% in the first quarter compared with a year earlier.

Even excluding energy companies, which are expected to have their worst quarter since oil prices began to plunge in 2014, profits are on pace to fall by 0.5%. Revenues are expected to fall 1.4% overall, or rise 1.7% excluding energy, according to Thomson Reuters. This would mark the S&P 500’s third consecutive quarter of declining earnings—the longest streak since the financial crisis. Revenues will have declined for five quarters in a row, outstripping even the four-quarter slide in 2008 and 2009.

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The US dollar is set to rise like a mushroom cloud and break the global camel’s back.

Dollar Drops to 11-Month Low as Asian Stocks Fall; Oil Near $46 (BBG)

The dollar dropped against all of its G-10 peers after weaker-than-expected U.S. economic growth dimmed prospects for a Federal Reserve interest-rate increase at a time when monetary easing is being put on hold elsewhere. Asian stocks fell and crude oil traded near $46 a barrel. The Bloomberg Dollar Spot Index sank to an 11-month low, while the yen was headed for its biggest weekly jump since 2008 after the Bank of Japan unexpectedly refrained from adding to record stimulus on Thursday. Japanese financial markets are shut for a holiday and an MSCI gauge of shares in the rest of the Asia-Pacific region slid for the third day in a row. The greenback’s decline is proving a plus for commodities, which are poised for their best monthly gain since 2010. Crude has jumped 20% since the end of March, while gold and silver are at 15-month highs.

The BOJ’s surprise decision capped a week of fence-sitting for central banks, with the Fed keeping interest rates steady for a third straight meeting and policy makers from New Zealand to Brazil also holding the line. The slowest pace of American economic expansion in two years reignited some concern over the global outlook, and pushed out bets on the potential timeline for tighter Fed policy. “Central banks look like they have run out of bullets to a degree,” said Mark Lister at Wellington’s Craigs Investment Partners. “We’re getting to that point where there are limits to the results they can get from anything more they do. This points to a fragile outlook with still a lot of risks out there.”

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Worrying only if it surprises you perhaps?!

Sluggish US Growth Part Of A Worrying Global Trend (G.)

It would be easy to dismiss the slowdown in the US economy to near-stall speed as a piece of rogue data resulting from the inability of number crunchers at the Department of Commerce in Washington to take account of the fact that large parts of the country are blanketed by snow during the winter. Easy but wrong. Back in spring 2015, the world’s biggest economy was expanding at an annual rate of 3.9%. In the third quarter the growth rate halved to 2%, before falling again to 1.4% in the final three months of the year. Describing the further easing to 0.5% in the first three months of 2016 as a temporary aberration – which was the knee-jerk response of upbeat analysts on Wall Street – is pushing it a bit.

A better explanation is that the sluggishness of US growth is part of a global trend, in which all the major economies are expanding more weakly than they were in the middle of last year. That’s the story for China, the eurozone, Japan and the UK. Each quarter, the data company Markit compiles a global Purchasing Managers’ Index for JP Morgan, with the intention of providing an up-to-date picture of economic conditions. The result for the first three months of 2016 showed activity at its lowest level in more than three years. Nor is there much hint of an improvement in the near future. In the US, firms are hacking back at investment – normally the sign of a looming recession. Consumer confidence has weakened, in part because real incomes are being squeezed.

As export-driven economies, Japan and the eurozone rely on a thriving US to buy their goods, so it is no surprise to find both struggling. The Bank of Japan will be forced to revisit its decision not to provide additional stimulus, since the upshot of its inaction has been a sharp rise in the yen, which will lead to even slower growth. Mario Draghi may again have to lock horns with the Bundesbank president, Jens Weidmann, in order to force through measures aimed at boosting activity in Europe. But the law of diminishing returns is at work. Each cut in interest rates, each fresh dollop of quantitative easing, has less of an impact than the last. The global economy is running out of steam and the conventional weapons are increasingly ineffective. This is not about blizzards shutting factories in Michigan. It goes much deeper than that.

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Britain is a sad joke.

Renting In London More Costly Than Living In Most European 4-Star Hotels (Ind.)

It is now cheaper to live in a 4-star hotel in two-thirds of European capitals than it is to rent the average London flat. Latest figures show that the average rent for a London flat is now £1,676 per month – or £55 a night – having increased by 30% in the last four years. For the same amount of money you could live year round in a hotel in Dublin, Rome, Paris or Brussels. Among the hotels that are more affordable than the average London rent include the Mercure Warszawa Grand in Warsaw that boasts a fitness centre, business facilities and two restaurants.

The Best Western Plus Hotel in Paris, the Nordic Hotel Domicil in Berlin and the Relais Castrum Boccea in Rome can also all be booked for less than £55 a night on travel websites for the 5th May this year. The figures were highlighted by Labour’s Mayoral candidate Sadiq Khan. He said: “Renting a home shouldn’t be a luxury, but under the Tories Londoners could live in 4-star luxury in most of Europe for what they pay. “Rents have gone up by 30% with a Tory Mayor and it would be exactly the same under Zac Goldsmith – with rents soaring above £2,000 a month. Mr Khan said he would create a London-wide social letting agency as well as naming and shaming bad landlords and setting up a landlord licensing scheme.”

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And that’s before the bad debts are properly accounted for, and while the PBoC still issues record amounts of additional debt.

China Banks’ Profit Growth Stalls As Bad Debts Rise (R.)

Four of China’s five largest state-owned banks barely posted any growth in profit in the first quarter, as widely expected, with rising bad debt and narrower margins hitting their bottom lines. The country’s banks face challenges from both defaulting borrowers, who are struggling amid a slowing economy, and successive cuts in interest rates which have eaten away at margins. Industrial and Commercial Bank of China, China’s biggest lender by assets, announced a 0.6% rise in net profit on Thursday. Bank of Communications posted a 0.5% rise in net profit in the first quarter and Agricultural Bank of China a slightly better 1.1% rise in profit. On Tuesday, Bank of China recorded a 1.7% rise in net profit in the fist quarter.

Non-performing loan (NPL) ratios remained flat -or rose- at all four lenders, while bad loan volumes increased, helping to sink loan-loss allowance ratios. At ICBC, the volume of non-performing loans increased 14% in the three-month period to 204.66 billion yuan ($31.60 billion), from 179.52 billion yuan at the end of 2015, sending the bank’s NPL ratio to 1.66% from 1.5%. ICBC’s loan-loss allowance ratio fell to 141.21%, from 156.34% at the end of December. ICBC also pointed to “the continuing impact of five interest rate cuts by the People’s Bank of China” since 2015 as a source of stress. The bank reported its interest margin (NIM) – the difference between its lending rate and the cost of borrowing – fell to 2.28 at the end of the first quarter, from 2.47 at end-December.

At BoC, NIM fell to 1.97 at end-March from 2.12 at end-December. BoCom did not disclose its NIM, but reported a 2.78% decline in net interest income, even as the bank’s net income rose half a% to 19.07 billion yuan for the first quarter. AgBank also did not disclose its NIM. In a bid to relieve banks of the mounting pile of bad debts, China’s central bank is preparing regulations that would allow commercial lenders to swap non-performing loans of companies for stakes in those firms, sources told Reuters in February.

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Going through the motions.

China’s Central Bank Raises Yuan Fixing by Most Since July 2005 (BBG)

China’s central bank responded to an overnight tumble in the dollar by strengthening its currency fixing the most since a peg was dismantled in July 2005. The reference rate was raised by 0.6% to 6.4589 per dollar. A gauge of the greenback’s strength sank 1% on Thursday after the Bank of Japan’s decision to unexpectedly keep monetary policy unchanged sent the yen surging. The offshore yuan was little changed at 6.4834 after gaining 0.3% in the last session. While the change in the fixing is extreme relative to the small moves of recent years, analysts said it reflects increased volatility in the dollar against other major exchange rates rather than a policy shift by the People’s Bank of China. The yuan weakened against a basket of peers even as it climbed versus the greenback on Friday.

“The offshore yuan’s reaction is muted, so it seems the market was already expecting a much stronger fixing,” said Ken Cheung, a currency strategist at Mizuho Bank in Hong Kong. “This is a reaction to the dollar weakness overnight, and there’s not much in the way of policy intention to read into.” The dollar reached the lowest level since June after the yen jumped the most in almost six years and data showed U.S. gross domestic product expanded in the first quarter at the slowest pace in two years. A Bloomberg replica of the CFETS RMB Index, which measures the yuan against 13 exchange rates, fell 0.2% to a 17-month low. The onshore yuan climbed less than 0.1%.

“The fixing is no surprise, the expectation for a stronger yuan fix was laid by the gains for the yen after the Bank of Japan announcement yesterday,” said Patrick Bennett at Canadian Imperial Bank of Commerce in Hong Kong. “The trade weighted basket continues to depreciate, albeit at a modest pace. But the key to the lower trade-weighted rate does not really lie with the PBOC, rather it is the dollar weakness against other major currencies which is the main driver.”

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May 1 is big, but still just a transfer station. July 1 is much bigger.

Puerto Rico Risks Historic Default as Congress Chooses Inaction (BBG)

Even if Puerto Rico manages to strike a last-minute deal to defer bond payments due in three days, the commonwealth’s financial collapse is about to enter an unprecedented phase. Anything short of making the $422 million payment that Puerto Rico says it can’t afford would be considered a technical default. More importantly, it opens the door to larger and more consequential defaults on debt protected by the island’s constitution, and raises the risk of putting efforts to resolve the biggest crisis ever in the $3.7 trillion municipal market into turmoil. Nearly 10 months after Governor Alejandro Garcia Padilla said the commonwealth was unable to repay all its obligations, Puerto Rico has failed to reach an accord on a broad restructuring deal presented to bondholders.

During that time the administration has delayed payments to suppliers, postponed tax refunds, grabbed revenue originally used to repay other bonds and missed payments on smaller agency debt. With its options drying up, no bondholder agreement in sight and Congressional action delayed, defaulting may be the next step for Puerto Rico. “It’s a game changer because it starts an actual legal process with teeth on both sides that can finally advance settlement negotiations,” said Matt Fabian at Municipal Market Analytics. “Pre-default negotiations are really not going anywhere. Post default might have a better chance.” Puerto Rico and its agencies racked up $70 billion in debt after years of borrowing to fill budget deficits and pay bills as its economy shrunk and residents left the island for work on the U.S. mainland.

The island’s Government Development Bank, which lent to the commonwealth and its municipalities, is in talks with creditors to avoid defaulting on the $422 million that’s due May 1. The commonwealth may use a new debt moratorium law if it cannot defer that GDB payment, Jesus Manuel Ortiz, a spokesman for Garcia Padilla, said. While a GDB default would be the largest yet by Puerto Rico, a missed payment on its general obligations would signal to investors that the commonwealth is finally executing on its warnings that it cannot pay its debts. Puerto Rico and its agencies owe $2 billion on July 1, including a $805 million payment on its general-obligation bonds, which are guaranteed under the island’s constitution to be paid before anything else.

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“..60 million people worldwide requiring “urgent assistance..”..

El Niño Dries Up Asia As Its Stormy Sister La Niña Looms (AFP)

Withering drought and sizzling temperatures from El Nino have caused food and water shortages and ravaged farming across Asia, and experts warn of a double-whammy of possible flooding from its sibling, La Nina. The current El Nino which began last year has been one of the strongest ever, leaving the Mekong River at its lowest level in decades, causing food-related unrest in the Philippines, and smothering vast regions in a months-long heat wave often topping 40 degrees Celsius (104 Fahrenheit). Economic losses in Southeast Asia could top $10 billion, IHS Global Insight told AFP. The regional fever is expected to break by mid-year but fears are growing that an equally forceful La Nina will follow.

That could bring heavy rain to an already flood-prone region, exacerbating agricultural damage and leaving crops vulnerable to disease and pests. “The situation could become even worse if a La Nina event — which often follows an El Nino — strikes towards the end of this year,” Stephen O’Brien, UN under-secretary-general for humanitarian affairs and relief, said this week. He said El Nino has already left 60 million people worldwide requiring “urgent assistance,” particularly in Africa. Wilhemina Pelegrina, a Greenpeace campaigner on agriculture, said La Nina could be “devastating” for Asia, bringing possible “flooding and landslides which can impact on food production.” El Nino is triggered by periodic oceanic warming in the eastern Pacific Ocean which can trigger drought in some regions, heavy rain in others.

Much of Asia has been punished by a bone-dry heat wave marked by record-high temperatures, threatening the livelihoods of countless millions. Vietnam, one of the world’s top rice exporters, has been particularly hard-hit by its worst drought in a century. In the economically vital Mekong Delta bread basket, the mighty river’s vastly reduced flow has left up to 50% of arable land affected by salt-water intrusion that harms crops and can damage farmland, said Le Anh Tuan, a professor of climate change at Can Tho University. More than 500,000 people are short of drinking water, while hotels, schools and hospitals are struggling to maintain clean-water supplies. Neighbouring Thailand and Cambodia also are suffering, with vast areas short of water and Thai rice output curbed.

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You would think the reason to continue executing a policy lies in its success rate. Not so, you poor innocent you. In reality, the very failure of a policy is reason to continue it: if the strongest eurozone economy with low unemployment does not show any signs of inflationary pressures, the ECB after all might have a point in continuing its ultra-loose monetary policy

German Inflation Turns Negative In April (R.)

German consumer prices unexpectedly fell in April, data showed on Thursday, illustrating the scale of the task the ECB faces in trying to propel inflation back to its target range. The eurozone has struggled with little or no inflation for the past year and the ECB expects the bloc-wide figure to turn negative again before slowly ticking up, undershooting its goal of just under 2% for years to come. The ECB unveiled a surprisingly large stimulus package in March but falling inflation expectations have fueled expectations of even more easing, possibly as early as June, when the bank’s staff present new growth and inflation forecasts. “It might be hard for some German ECB critics to digest, but if the strongest eurozone economy with low unemployment does not show any signs of inflationary pressures, the ECB after all might have a point in continuing its ultra-loose monetary policy,” ING Bank economist Carsten Brzeski said.

Separate data on Thursday showed unemployment unexpectedly fell in April, with the jobless rate remaining at its lowest in more than 25 years. German consumer prices, harmonized to compare with other European countries (HICP), fell by 0.1% on the year after a 0.1% rise in March, the Federal Statistics Office said. The Reuters consensus forecast was for a zero reading. On a non-harmonized basis, consumer prices fell 0.2% on the month and inched up 0.1% on the year. A breakdown showed energy remained the main drag while the food, services and rental costs increased at a slower pace. Analysts said the German data suggested that the April inflation rate for the whole eurozone, due out on Friday, would also turn negative again.

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It’s high time now to see how the Greek debt trap is linked to the article above about German deflation. The link continues with the article below this one: Germany monopolizes the benefits of being in the EU.

Greece’s Perfect Debt Trap (Kath.)

The longer we spend in the hole the harder it is to get out. As long as the negotiations with the troika are not finished and the economy is starved of cash, as long as businesses cannot plan for the next day and citizens remain wary of returning cash to the banks, recovery becomes even more difficult. The government promises that after a positive evaluation by creditors the economy will bounce back like a spring released. Even if we were to accept this theory – which would also demand huge investments – a positive evaluation is still the prerequisite. Despite the progress made in the talks, the economy is deteriorating. Indicative of this is a growing inability to pay taxes. Today outstanding tax debts exceed €87 billion. At the end of 2012 they were at €55.1 billion.

They have grown by 32 billion euros since then, equaling the amount raised by tax rate increases over the same period (as Kathimerini reports on Friday). In the first quarter of 2016, outstanding debts increased by €3.22 billion and, by the end of the year, may exceed last year’s total of €13.48 billion. Nonperforming bank loans, which were at 8.2% of the total at the start of 2010, were at 36.4% at the end of 2015. Unpaid dues to social security funds came to €15.78 billion at the end of the first quarter, from €13.02 billion last September. The swelling of these debts did not begin under this government. Previous governments and opposition parties, as well as creditors, all played a role in this. From the start of the crisis, citizens/taxpayers have been buffeted by uncertainty, despair and anger.

The expectation of debt relief encouraged delays in payments, while excessive taxation meant that outstanding payments multiplied. Also, the state, unable to meet its own obligations, held back on paying what it owed to taxpayers. With the worsening economy and the lack of trust, capital controls were inevitable and, of course, drove us deeper into trouble. This anxiety is set to continue. The government cannot undertake the burden of what creditors demand, and the creditors, in turn, appear disinclined to help out. As the Federation of Greek Industries noted in its weekly bulletin on Thursday: “The government’s insistence on raising taxes instead of cutting expenses, and the recessionary impact that this will have on the economy, leads to the troika’s shortsighted persistence on contingency measures which, unfortunately, increase further the recessionary wave and will be the final blow to the economy.”

We are caught in the perfect trap. As long as the negotiations drag on, the instability and lack of confidence will increase outstanding debt at all levels, prevent growth and, in turn, demand even harsher measures. The only way out is for both the government and creditors to show good will and trust each other. After the past year this seems a most unlikely leap of faith.

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Dividing and demolishing the Union brick by brick. Germany wants to be left with the benefits of that union only, and to shed the drawbacks. Not going to work out well.

German Minister Proposes Law To Limit Social Benefits For EU-Foreigners (DW)

EU foreigners living in Germany may soon have to wait five years before qualifying for social benefits, reported newspapers on Thursday, in reference to a new proposed law from German Labor Minister Andrea Nahles. “We have to stop immigration into the social security system,” Nahles said during an interview in December when she announced plans to restrict social benefits for non-German EU citizens. She added that the restrictions were a matter of “self defense” for Germany. Should the law pass, foreigners from fellow EU member states will be strictly excluded from social assistance if they do not work in Germany or have not acquired social security rights through previous work in Germany. With those same conditions, EU foreigners would also be shut out from Germany’s benefit system for the unemployed, which is known as “Hartz IV.”

EU citizens can eventually gain access to social benefits – but only if they have been living in Germany for five years without state assistance. The draft law, however, provides so-called “transition benefits” for those EU foreigners who no longer qualify for social assistance in Germany. For a maximum of four weeks, those affected will receive assistance to cover the costs of food, housing, and health care. They will also be given a loan to cover costs for a return trip to their home country, where they can then apply for social benefits. The new measures are a direct response to a decision by Germany’s Federal Social Court late last year concerning immigrants from EU countries. In December 2015, the court ruled that EU-foreigners would only acquire entitlement to social benefits after living in the country for at least six months. The decision led to backlash from local authorities, who feared the social system would be overburdened.

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This is something we’ll see a lot of. It’s over. What’s left is pretense.

Finland Parliament, Pressured By Weak Economy, Debates Euro Exit (R.)

Finnish lawmakers on Thursday held a rare debate on whether the Nordic country should quit the euro after 53,000 people signed a petition to force the issue into parliament. The petition, although very unlikely to lead to Finland’s exit of the 19-member currency bloc, highlights the growing level of frustration over the country’s economic performance amid rising unemployment, weak outlook and government austerity. The initiative demands a referendum on euro membership, but this would only go ahead if parliament backed such a vote. Although no political group has proposed a euro exit, some euro-sceptic parliamentarians cited lack of independent monetary policy as a problem and said Finland should have held a referendum before adopting the euro in 1998.

Nordic neighbors Sweden and Denmark voted against adopting the euro a few years later. “The euro is too cheap for Germany and too expensive for the rest of Europe, it does not fulfill requirements of an optimal currency union,” said Simon Elo, an MP from the co-ruling euro-sceptic Finns party. The Finnish economy grew by just 0.5% last year after three years of contraction. The stagnation stemmed from a string of problems, including high labor costs, the decline of Nokia’s former phone business and a recession in neighboring Russia. This year, Finland’s economy is expected to grow slower than in any other EU country, except Greece. Some economists say the country’s prospects would improve if it returned to the markka currency which could then devalue against the euro.

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Union? What union?! Get real.

Italy Says Austria ‘Wasting Money’ In Migrant Border Row (AFP)

Italy told Austria Thursday it would prove Vienna was “wasting money” on anti-migrant measures and closing the border between the two countries would be “an enormous mistake”. Austrian Interior Minister Wolfgang Sobotka, who has vigorously defended the controversial package which was driven by a surge of the far right, met his counterpart Angelino Alfano over the plans, which have infuriated Italians. Alfano said “the numbers do not support” fears of a mass movement of migrants and refugees across the famous Brenner Pass in the Alps. Sobotka said preparations would continue for the construction of a 370-metre (yard) barrier which would be up to four metres (13 foot) high in places, but Alfano said the feared-for crisis would not materialise and “we will show them it is money wasted”.

Italian Premier Matteo Renzi has warned that closing the pass would be a “flagrant breach of European rules” and is pushing the European Commission to force Austria to hold off on a move many fear could symbolise the death of the continent’s Schengen open border system. On Thursday he described the bid to close the border as being “utterly removed from reality”. A European Commission spokesman said the body had “grave concerns about anything that can compromise our ‘back to Schengen’ roadmap”. Its chairman Jean-Claude Juncker is expected to discuss the issue with Renzi at talks in Rome on May 5. The Vienna government is under intense domestic pressure to stem the volume of asylum seekers and other migrants arriving on its soil with the far-right surging in polls.

UN chief Ban Ki-moon hit out Thursday at what he called “increasingly restrictive” refugee policies in Europe, saying he was “alarmed by the growing xenophobia here” and elsewhere in Europe, in a speech to the Austrian parliament. More than 350,000 people, many of them fleeing conflict and poverty in countries like Syria, Iraq and Eritrea, have reached Italy by boat from Libya since the start of 2014, as Europe battles its biggest migration crisis since World War II. Wedged between the Italian and Balkan routes to northern Europe, Austria received 90,000 asylum requests last year, the second highest in per capita terms of any EU country. Legislation approved Wednesday by the Austrian parliament enables the government to respond to spikes in migrant arrivals by declaring a state of emergency which provides for asylum seekers to be turned away at border points.

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Portugal sees what Canada sees too. Question is how deliberate is the EU policy of being so slow in relocating refugees to countries asking for them? Portugal wants 10,000. Canada will take a multiple of that.

One Nation in Europe Wants Refugees But Is Failing to Get Enough (BBG)

Portugal has offered to host 10,000 of the refugees who’ve landed on Europe’s shores from the globe’s war-torn zones. So far, it has taken in 234. Not because it doesn’t want to. Rather, because few have come knocking at its door. “It’s difficult to quickly find refugees that can come to Portugal,” President Marcelo Rebelo de Sousa said on Friday as he met migrants in Evora, southern Portugal. As the refugee crisis stretches the struggling Greek government and rattles politics in Germany and beyond, Portugal’s willingness to share the burden isn’t getting a lot of attention. While the country blames a lack of coordination in Europe and administrative roadblocks, the contrast between its economic performance and that of Germany, which admitted more than 1 million migrants in 2015 alone, may also be playing a role.

Although the Portuguese economy recovered in 2014 and accelerated last year after shrinking for three years through 2013, joblessness remains high. Unemployment, which has eased to 12.3% after peaking at 17.5% in 2013, is still almost triple the German rate of 4.3%, and that may continue to dent Portugal’s allure. “It’s not a very appealing destination given the unemployment rate,” said Rui Serra, chief economist at Caixa Economica Montepio Geral in Lisbon. “It’s easier for an immigrant to go to the center of Europe where there is a more concentrated market than in some countries of the periphery like Portugal. In the center of Europe income per capita is higher.” Prime Minister Antonio Costa says there are structural problems in the euro zone that aggravate the disparities.

“That structural problem has to do with the asymmetry between the different economies,” he said in Athens on April 11. “It’s necessary to give a new impulse to the convergence of our economies with the more developed economies of the euro zone.” With the country’s demographics in mind, the Portuguese government has laid out the welcome mat for refugees. Portugal’s population has declined and aged every year from the end of 2011 to about 10.37 million at the end of 2014 as a weak economy has led many working-age residents to leave. Germany’s population, while also aging, still increased overall every year in the same period.

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