Jan 062017
 
 January 6, 2017  Posted by at 10:23 am Finance Tagged with: , , , , , , , , ,  


Joel Meyerowitz Girl On A Scooter 1965

Intel Report Says US Identifies Go-Betweens Who Gave Emails To WikiLeaks (CNN)
All US Envoys Appointed By Obama Told To Quit By Inauguration Day (R.)
FBI Never Requested Access To Allegedly Hacked DNC Server (DM)
The Coup Against Truth (Paul Craig Roberts)
Rebuild the Fed From the Bottom Up (DiMartino Booth)
Annual US Auto Sales Fell for First Time since 2009 (WS)
Dismal Holiday Sales At Macy’s And Kohl’s Cast Gloom Over Sector (R.)
Half Of Jobless US Men Not In The Labor Force Take Daily Pain Medication (AP)
The Real Reasons Brexit Is Succeeding (Ashoka Mody)
Economics is in Crisis – BOE’s Haldane (G.)
Why Has The UK Economy Defied Predictions Of Doom? (G.)
UK Unsecured Consumer Credit Grows At Annual Rate Of 11% (G.)
No End In Sight For Europe’s Banking Troubles (CNBC)

 

 

What a circus this has become. No matter how hard they try, they still have to admit that “..there is no single intercepted communication that qualifies as a “smoking gun” on Russia’s intention to benefit Trump’s candidacy or to claim credit for doing so.” As for the go-betweens, WikiLeaks will never give info on sources.

Intel Report Says US Identifies Go-Betweens Who Gave Emails To WikiLeaks (CNN)

US intelligence has identified the go-betweens the Russians used to provide stolen emails to WikiLeaks, according to US officials familiar with the classified intelligence report that was presented to President Barack Obama on Thursday. In a Fox News interview earlier this week, WikiLeaks founder Julian Assange denied that Russia was the source of leaked Democratic emails that roiled the 2016 election to the detriment of President-elect Donald Trump’s rival, Democrat Hillary Clinton. Meanwhile, US intelligence has received new information following the election that gave agencies increased confidence that Russia carried out the hack and did so, in part, to help Trump win. Included in that new information were intercepted conversations of Russian officials expressing happiness at Trump’s win. Another official described some of the messages as congratulatory.

Officials said this was just one of multiple indicators to give them high confidence of both Russian involvement and Russian intentions. Officials reiterated that there is no single intercepted communication that qualifies as a “smoking gun” on Russia’s intention to benefit Trump’s candidacy or to claim credit for doing so. Vice President Joe Biden said in an interview with PBS NewsHour that an unclassified version of an intel report provided to him will be released “very shortly” and will “lay out in bold print what” the US knows about the hacking. “I think it will probably confirm what a lot of the American people think,” he said, adding that it would “state clearly” the Russians involvement in the hacking.

In response to the interview, Trump tweeted on Wednesday, “Julian Assange said “a 14 year old could have hacked Podesta” – why was DNC so careless? Also said Russians did not give him the info!” Trump has been publicly skeptical of Russia’s involvement in the hacking, as well as has been publicly deriding the US intelligence community for its unanimous conclusion that Russia hacked Democratic Party groups and individuals to interfere in the US presidential election. Officials told CNN there’s been a disconnect between Trump’s remarks about the intelligence community and his behind-the-scenes behavior when he’s present at private intel briefings.

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Oh lovely.

All US Envoys Appointed By Obama Told To Quit By Inauguration Day (R.)

U.S. President-elect Donald Trump’s transition team has issued a blanket mandate requiring politically appointed ambassadors installed by President Barack Obama to leave their posts by Inauguration Day, the U.S. ambassador to New Zealand said on Friday. “I will be departing on January 20th,” Ambassador Mark Gilbert said in a Twitter message to Reuters. The mandate was issued “without exceptions” through an order sent in a State Department cable on Dec. 23, Gilbert said. He was confirming a report in the New York Times, which quoted diplomatic sources as saying previous U.S. administrations, from both major political parties, have traditionally granted extensions to allow a few ambassadors, particularly those with school-age children, to remain in place for weeks or months.

The order threatens to leave the United States without Senate-confirmed envoys for months in critical nations like Germany, Canada and Britain, the New York Times reported. A senior Trump transition official told the newspaper there was no ill will in the move, describing it as a simple matter of ensuring Obama’s overseas envoys leave the government on schedule, just as thousands of political aides at the White House and in federal agencies must do. Trump has taken a strict stance against leaving any of Obama’s political appointees in place as he prepares to take office on Jan. 20, aiming to break up many of his predecessor’s signature foreign and domestic policy achievements, the newspaper said.

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And why not? Throw on some more…

FBI Never Requested Access To Allegedly Hacked DNC Server (DM)

The FBI never asked the Democratic National Committee if it could examine a computer server that was the subject of cyber attacks last year. Instead federal law enforcement relied on data that, Crowdstrike, a private computer security company, gathered from the device. The FBI later endorsed the conclusion that Russian intelligence services were behind the hacking, and that their goal was to help Donald Trump win the November presidential election. ‘The DNC had several meetings with representatives of the FBI’s Cyber Division and its Washington Field Office, the Department of Justice’s National Security Division, and U.S. Attorney’s Offices, and it responded to a variety of requests for cooperation,’ DNC deputy communications director Eric Walker told BuzzFeed, ‘but the FBI never requested access to the DNC’s computer servers.’

Trump’s incoming press secretary Sean Spicer told reporters on a Thursday morning conference call that ‘the DNC is on the record saying the FBI never contacted them to validate claims by Crowdstrike, which is the third-party tech security firm, and never actually requested the hacked server.’ ‘You know, I would equate this to no one actually going to a crime scene to actually look at the evidence,’ Spicer declared. Walker said there were no restrictions on what the FBI could request from its private security company’s findings. ‘Beginning at the time the intrusion was discovered by the DNC, the DNC cooperated fully with the FBI and its investigation, providing access to all of the information uncovered by CrowdStrike – without any limits,’ he said.

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Restructuring US intelligence can be a hazardous occupation.

The Coup Against Truth (Paul Craig Roberts)

Washington is so intent on its anti-Russian propaganda that Congress has passed, and Obama has signed, an intelligence bill that contains a section, Title V, that authorizes active measures to counter purveyors of false news. These purveyors are alternative media websites, such as this one, that challenge the official lies. The truthful alternative media is accused of being under Russian influence. Last summer a website shrouded in secrecy was created that recently posted a list of 200 websites alleged to be under Russian influence, either directly or indirectly. The Washington Post irresponsibly published a long article endorsing the fake news of 200 websites working for the Russian government. In other words, the suppression of the truth is the last defense of the corrupt American ruling establishment.

During the last 24 years three Washington regimes have murdered millions of peoples in nine or more countries along with US civil liberty. To cover up these vast crimes, unparalleled in history, the presstitutes have lied, slandered, and libeled. And the Washington criminal regime holds itself up to the world as the indispensable protector of democracy, human rights, truth, and justice. As the Russian Foreign Ministry spokeswoman said recently, what makes America exceptional is the use of might in the service of evil. Washington brands not only its opponents but all who speak the truth “Russian agents,” hoping that the demonization of Russia has sufficiently frightened the population that Americans will turn their backs to those who speak the truth.

It would seem obvious even to the insouciant that an establishment that has gone so far out on a limb that the CIA director publicly attributes the election of Donald Trump to Russian interference but is unable to produce a shred of evidence—indeed in the face of totally conclusive evidence to the contrary—is determined to hold on to power at all costs. The CIA’s open, blatant, and unprecedented propaganda attack against a president-elect has caused Trump to throw down the gauntlet to CIA director John Brennan. There are reports that Trump intends to revamp and reorganize the intelligence agency. The last president who said this, John F. Kennedy, was murdered by the CIA before he could strike against them. Kennedy believed that he could not take on the CIA until he was re-elected. The delay gave the CIA time to arrange his assassination.

Trump appears to understand his danger. He has announced that he intends to supplement his Secret Service protection (which was turned against JFK) with private security. Isn’t it striking? The president of Russia states publicly that Washington is driving the world to thermo-nuclear war and that his warnings are ignored. The president-elect of the United States is under full-scale attack from the CIA and knows that he cannot trust his official security force. One might think that these extraordinary topics would be the only ones under discussion. But you can find such discussion only on a few alternative media websites, such as this one, branded by PropOrNot and the Washington Post as “under Russian influence.”

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Why am I under the impression that what Danielle DMB is describing is still an inside(r) job? Can economists clean up the Fed? Can it be cleaned up at all?

Is it as hazardous as redoing intelligence?

Rebuild the Fed From the Bottom Up (DiMartino Booth)

Today the institution of the Fed is as intellectually entrenched as it has ever been. It has become the largest employer of people with doctorates in economics. It has hired or contracted with more than 1,000 of these economists, who actively endeavor to validate, rather than question, orthodox theories and policies. The pipeline of talent filling new positions at the Fed is sourced from the same stagnant academic pool that produced the current leadership. Is it any wonder criticism within the Fed has been quashed? Now the door is open for an outsider to bring the outside world back into the Fed. The last time that all seven governor positions on the Federal Reserve Board were occupied was in 2013. Trump can expeditiously fill these seats, but, more important, he can remake the culture inside the Fed.

Armies of consultants have presumably been busy making a list of potential board nominees. If these advisers have the interests of those who voted for Trump at heart, they will look for individuals who have been on the receiving end of monetary policy and therefore understand it. They will find CEOs who would rather have invested in the future of their companies, thus creating more jobs and opportunities, rather than be pressured to buy back their shares with cheap debt because of regulatory uncertainty. They will seek out the handful of pension fund managers who have insisted on using assumptions for lower rates of return, to better reflect the reality of lower returns on fixed-income securities, and who resisted the siren call of inappropriate investments to offset the dearth of options in a low-interest-rate world.

They will seek rational critics of Fed policy who empathize with, not roundly dismiss, the plight of savers in this environment. Once a full complement of possible nominees is in place, the new administration can concentrate on redrawing the institution to reflect the tremendous change the U.S. economy has undergone in the more than 100 years since the Fed first came into being. Right now, there are 12 Fed districts. Some regions of the U.S. have become more economically powerful over the years. California is the largest economy followed by Texas. They should have their own Fed districts. A third one could encompass most of the rest of the West. At the same time, the regions that have become less economically relevant should be consolidated.

For example, Missouri no longer merits two Feds. St. Louis can be incorporated into the Chicago Fed, along with Cleveland. New York is the third-largest state economy. It seems economically reasonable, from Philadelphia north, to have two Fed districts rather than three. Then give the presidents of the 10 districts that remain permanent votes on the Federal Open Market Committee. This is a necessary act to begin dismantling the over-concentration of power at the board in Washington and at the New York Fed.

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Turning their back on their gods?

Annual US Auto Sales Fell for First Time since 2009 (WS)

The media hoopla has been deafening. In December, “new vehicles sales” – defined as the number of new cars, trucks, and SUVs that dealers sold to their customers, including fleets – rose 3.1%. That was stronger than “expected.” And in the media reports, there was euphoria between the lines. Automakers and dealers had certainly tried. Inventories are high, layoffs and plant closings have already been announced, and so every effort was made to move the iron and pull out the year. No incentive was spared to get the job done. With this gain in December, total sales for 2016 edged up 0.4% to a record 17.55 million vehicles, according to Autodata. Sales of light trucks and SUVs rose 7.2% for the year, but sales of cars sagged 8.1%. Gasoline is cheap, and Americans love big implements.

Car sales at GM dropped 4.3% in 2016, at Ford 13.0%, and at Fiat Chrysler a catastrophic 33.5%! Plants that build cars were the ones mostly (but not exclusively) hit by shutdowns and layoffs. Then there was the whole to-do about Trump, Ford, and the plant in Mexico. Alas, while some automakers posted record sales for the year, the biggest automakers were not among them. And you probably didn’t see this in the media unless you started digging through the data yourself. Somehow this one slipped by the media’s attention. Because something ugly happened in 2016, something we haven’t seen since 2009. For ALL of the big three US automakers, plus for a number of others, sales in 2016 actually fell. For them it was the first annual sales decline since nightmare-year 2009.

Here they are, in terms of the annual decline in their total vehicles sales, as measured by dealer sales to their customers (in descending order of sales): • GM -1.3% • Ford -0.1% • Toyota -2.0% • Fiat-Chrysler -0.4% • Volkswagen -3.3% • BMW -9.7% • Mazda -6.7%. The sales of these seven automakers combined amounted to 11.5 million vehicles in 2016, or 65% of total US sales! And combined, their sales were down 1.5% from the prior year. So this is what Ford meant earlier this year, when it began mentioning the “car recession.”

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‘T is the season to be folly.

Dismal Holiday Sales At Macy’s And Kohl’s Cast Gloom Over Sector (R.)

Disappointing holiday-season sales at Macy’s and Kohl’s underscored the uphill task facing department stores to win back shoppers, who are increasingly turning to online retailers and spending less on apparel. Macy’s shares fell as much as 14% on Thursday, their biggest percentage drop in seven months. Kohl’s stock dropped as much as 20.5%, its biggest decline in more than 14 years. Both reported lower-than-expected sales for November and December and cut their full-year profit forecasts on Wednesday. Macy’s, known the world over for its flagship Herald Square store in Manhattan and its annual Thanksgiving Day parade, is considered a bellwether for department stores. However, it is expected to relinquish its position as the largest U.S. apparel retailer to Amazon.com as soon as this year as it struggles to compete on prices and the convenience offered by online shopping.

Amazon said last week it had its “best ever” holiday season, shipping more than 1 billion items worldwide. Shares of other department store operators, including J.C. Penney and Nordstrom also fell as the dismal showing took investors by surprise. Expectations were high that department stores would get a good boost from a strong holiday shopping season. The National Retail Federation had forecast that 2016 holiday period sales would rise 3.6% to $656 billion. A jump in spending in the last days of December was expected to make up for a slow start to the shopping season. “The strength around Thanksgiving and Christmas was insufficient to offset the sales weakness in the balance of the quarter,” Stifel, Nicolaus & Co analyst Richard Jaffe wrote. “In addition, these peak selling periods were characterized by greater promotions which contributed to weaker than anticipated gross margin as well,” he said in a client note. Struggling Sears, the operator of Sears and Kmart stores, reported a 12-13% drop in same-store sales for November and December on Thursday.

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Brought up as a mere detail in the AP article, but what a striking one. We’re talking many millions of men: “Health problems and the opioid epidemic may also be a major barrier to work, according to research by Alan Krueger, a Princeton economist and former Obama adviser. Nearly half of men ages 25 through 54 who are neither working nor looking for work take pain medication daily, Krueger found.” Go back 100 years and imagine this then.

Half Of Jobless US Men Not In The Labor Force Take Daily Pain Medication (AP)

If President-elect Donald Trump is going to meet his pledge to energize the U.S. economy, there’s a simple yet tough way to do so: Put more men to work. The proportion of men in their prime working years who either have a job or are looking for one has been dropping for decades — and limiting economic growth in the process. The full brunt of the 60-year decline burst into view during the 2016 election. Trump triumphed in part by vowing to restore jobs at steel mills, auto plants and coal mines — the types of work that had once employed legions of men who lacked a college education. Bringing more non-college-educated men into the workforce is a Herculean challenge that has long bedeviled economists. Among the root causes:

• Automation. Factory robots and computer software have eliminated the need for many workers, wiping out an array of jobs that once provided a middle class lifestyle. • Global competition. U.S. workers have been competing for jobs with cheaper foreign workers, a trend that’s led to some offshoring of jobs and curbed pay in some industries. • Criminal records. Stricter criminal laws have left over 20 million Americans with felony convictions and prison records — a fourfold increase from 30 years earlier. That background has made it hard for them to get hired. • Prescription drug use. Nearly half of jobless men who are no longer looking for work are on pain medication, research has found.

Still, Trump appears to endorse a straightforward fix: Bump up economic growth, and workers will land good jobs at decent wages. “Many are dropping out of the labor force because they cannot find good-paying jobs in an economy operating near stall-speed,” the Trump campaign said before the election. To chart the problem and any progress Trump might achieve over the next four years, his team has pointed to an obscure gauge called the “labor force participation rate.” This is the proportion of people who are either working or looking for work. It excludes anyone who’s stopped searching for a job.

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Mody’s been smoking the real good stuff. Bankers leave? Great! Housing market crashes? Even better! Pound plummets? Fantastic!

It’ll all add up to Britain becoming “a beacon amidst the desolate and depressing decay of Western politics and social norms.”

The Real Reasons Brexit Is Succeeding (Ashoka Mody)

Banks are expected to leave for the European continent, taking with them jobs and tax revenues. But if banks do leave, that would be another good outcome for the British economy. Banks have fuelled the finance-property price nexus and have drawn the best talent to flip financial assets. A smaller banking sector will mean a more balanced British economy. And as for those who expect that the economy will suffer when the details of the divorce with the European Union are revealed, their logic does not work. It is the uncertainty of what lies ahead that should depress the economy. Once details become clearer, businesses will adapt. The fact that six months after the decision, the economy is doing so well is a judgement that Brexit could deliver a net economic dividend.

But the greater prize from Brexit lies in a possible political dividend. Western democracy is under the threat of authoritarian populism. Mainstream political parties, having for long failed to heed the calls of those being left behind, are being pushed aside by charlatans. The Brexit vote was a cry of despair by the poorly educated and those employed in dead-end jobs; many such Brexiters have reason to fear that their children will do even worse than them. Through their vote to leave the European Union, the most vulnerable have given another opportunity to the Conservative Party rather than to a Government run by self-promoting and destructive extremists.

Brexit will happen. Prime Minister Theresa May’s Government must heed the true message of the Brexit vote. The task is to regenerate the communities that have turned into wastelands and spread quality education to prepare ever larger numbers of British citizens for the rigours of a 21st century competitive global economy. If the Government succeeds in this greater task, then Britain would not only have done well for itself, it would become a beacon amidst the desolate and depressing decay of Western politics and social norms.

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The crisis in economics should not be confused with that inside the BOE, where Carney turned political to influence the Brexit vote. In vain.

Economics is in Crisis – BOE’s Haldane (G.)

The Bank of England’s chief economist has admitted his profession is in crisis having failed to foresee the 2008 financial crash and having misjudged the impact of the Brexit vote. Andrew Haldane, said it was “a fair cop” referring to a series of forecasting errors before and after the financial crash which had brought the profession’s reputation into question. Blaming the failure of economic models to cope with “irrational behaviour” in the modern era, the economist said the profession needed to adapt to regain the trust of the public and politicians. Haldane described the collapse of Lehman Brothers as the economics profession’s “Michael Fish moment” (a reference to when the BBC weather forecaster predicted in 1987 that the UK would avoid a hurricane that went on to devastate large parts of southern England).

Speaking at the Institute for Government in central London, Haldane said meteorological forecasting had improved markedly following that embarrassing mistake and that the economics profession could follow in its footsteps. The bank has come under intense criticism for predicting a dramatic slowdown in the UK’s fortunes in the event of a vote for Brexit only for the economy to bounce back strongly and remain one of the best performing in the developed world. Haldane is known to be concerned about mounting criticism of experts and the potential for Threadneedle Street’s forecasts to be dismissed by politicians if errors persist. Former Tory ministers, including the former foreign secretary William Hague and the former justice secretary Michael Gove, last year attacked the Bank of England governor, Mark Carney, for predicting a dramatic slowdown in growth if the country voted to leave the EU.

Prominent Brexit campaigners have also besieged the central bank. Before the vote, the foreign secretary, Boris Johnson accused the bank of risking undermining economic confidence by issuing warnings about the potential effects of a vote for Brexit. During her conference speech following the vote, on 6 October, the prime minister, Theresa May, criticised the bank’s reaction to the vote after it cut interest rates further and boosted its package of stimulus measures by £60bn to £435bn.Gove said last week that when he said experts needed to be challenged, he meant economists in particular. In a debate with Stephanie Flanders, the former BBC economics editor, he cited an academic study to support his argument that expert economists were not good at making predictions.

Gove said: “Sometimes we’re invited to take experts as though they were prophets, as though their words were carved in tablets of stone and that we had to simply meekly bow down before them and accept their verdict. “I think the right response in a democracy, to assertions made by experts, is to say ‘show us the evidence, show us the facts’. And then, if experts or indeed anyone in the debate can make a strong case, draw on evidence and let us think again – then of course they deserve respect.”

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For the answer, check the article below this one.

Why Has The UK Economy Defied Predictions Of Doom? (G.)

First it was manufacturing. Then it was construction. Now the hat-trick of upbeat economic news has been completed by the strongest performance by the services sector in 17 months. It goes without saying that this is not what the Treasury or the Bank of England expected at the time of the EU referendum last June. At the time, there was talk of the economy plunging straight into recession. This week’s reports from purchasing managers point to growth of 0.5% in the final three months of 2016 compared with 0.6% in the third quarter. Post-referendum forecasts for 2016 were quickly shredded by the Bank of England when it became clear that activity had not collapsed. Likewise, predictions for 2017 may also soon be revised upwards. There are a number of reasons for this. Firstly, the economy had momentum in late 2016 which will persist into the first few months of 2017.

Secondly, the international outlook is looking brighter than it was a few months ago. Donald Trump’s tax-cutting agenda means the US economy is going to grow rapidly this year and that’s good news for UK exporters. Finally, the stance of both fiscal and monetary policy in the UK has become more growth friendly since the referendum. Philip Hammond throttled back on the government’s austerity plans in last November’s autumn statement, reinforcing the impact of Bank of England’s decision three months earlier to cut interest rates and embark on a new round of quantitative easing. When it cut rates to 0.25% in August the Bank signalled that a further cut was likely to be needed. Clearly, that is no longer going to happen. Official borrowing costs will remain where they are for now but there is a good chance of the next move from Threadneedle Street being a rate rise.

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This is why “The UK Economy Defied Predictions Of Doom”.

UK Unsecured Consumer Credit Grows At Annual Rate Of 11% (G.)

Britain went on a bit of a borrowing binge as Christmas approached. Unable to resist all the bargains on offer on Black Friday, shoppers pulled out the plastic. The rise in unsecured consumer debt in November was the biggest for more than a decade. News of the increase in consumer debt is not exactly a surprise. When the Bank of England cut interest rates in August last year, the aim was to making borrowing cheaper and therefore more attractive. The message came through loud and clear: UK households need little encouragement to buy on the never-never. Unsecured credit is growing at an annual rate just shy of 11% Rising consumer debt is not necessarily a problem. When unemployment is low and real incomes are rising, it can make perfectly good sense to borrow for a big-ticket item, especially when, as on Black Friday, it is on offer at a knockdown price and when interest rates are so low.

But anybody who believes consumers can continue to amass credit at 11% a year is living in cloud cuckoo land. The UK has been through these credit cycles many times in the past, and things have never ended well. Annual growth in unsecured borrowing is edging back up towards the 16% peak reached in the early 2000s, as is unsecured debt as a proportion of disposable income. The danger comes when unemployment rises, real incomes are squeezed or interest rates start to go up. At that point, borrowing becomes less a matter of personal choice and more a sign of financial distress. Britain is not at that point – yet. Consumers are not optimistic about the outlook for the economy but they are relatively happy about the state of their own finances. That could change as inflation starts to climb.

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100% guaranteed.

No End In Sight For Europe’s Banking Troubles (CNBC)

There is another pressing issue to solve in Europe’s banking system: Novo Banco – a Portuguese bank that emerged from the collapse of the country’s biggest lender. The Portuguese Central Bank and government have to find a solution for Novo Banco by August – a deadline agreed with European regulators, after previous failed attempts to recover the 4.9 billion euros ($5.2 billion) used to save the bank. Portugal’s Finance Minister Mario Centeno told a newspaper on Wednesday that “all options are on the table”, including a nationalization. Earlier last year, the government had rebuffed calls for the nationalization of the bank. Such a solution could spark further political turmoil at a sensitive time in European Union politics.

“It’s here (in the stability of the Portuguese government) where I find risks,” Diogo Teixeira dos Santos, chief executive officer at Optimize Investment Partners, told CNBC over the phone. Nationalizing the bank would be more of a political problem rather than an economic issue, he explained. Portugal is being governed by a minority-socialist led government, who enjoys parliamentary support from two leftist parties (the Left Bloc and the Communist Party). Though there are no general elections scheduled for 2017, it is clear that there are divergent views between the three parties when it comes to Novo Banco, which could shake the stability of the government.

The Left Bloc has previously mentioned that Novo Banco should be state owned, but the government continues to push for a private solution – just like the Italian government did for Monte dei Paschi, until the political turmoil forced a state intervention. More importantly, the leftist parties want the solution to have zero impact for taxpayers. The government lent nearly 4 billion euros to the rescue of the bank – an amount that it hopes to recover with a sale. Any losses from the sale will have to be paid gradually by the other Portuguese banks. But, even the best private option at the moment has “a potential impact on public accounts,” Lisbon’s central bank said Wednesday. The bank announced that an offer from Lone Star, a U.S. fund, is the best placed in ongoing negotiations.

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Dec 012014
 
 December 1, 2014  Posted by at 11:10 pm Finance Tagged with: , , , , , , ,  


DPC Government Street, Mobile, Alabama 1906

Is the Plunge Protection Team really buying oil now? That would be so funny. Out of the blue, up almost 5%? Or was it the Chinese doing some heavy lifting stockpiling for their fading industrial base? Let’s get to business.

First, in the next episode of Kids Say The Darndest Things – oh wait, that was Cosby .. -, we have New York Fed head (rhymes with methhead) Bill Dudley. Dudley’s overall message is that the US economy is doing great, but it’s not actually doing great, and therefore a rate hike would be too early. Or something. Bloomberg has the prepared text of a speech he held today, and it’s hilarious. Look:

Fed’s Dudley Says Oil Price Decline Will Strengthen US Recovery

The sharp drop in oil prices will help boost consumer spending and underpin an economy that still requires patience before interest rates are increased, Federal Reserve Bank of New York President William C. Dudley said. “It is still premature to begin to raise interest rates,” Dudley said in the prepared text of a speech today at Bernard M. Baruch College in New York. “When interest rates are at the zero lower bound, the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late.” Dudley expressed confidence that, although the U.S. economic recovery has shown signs in recent years of accelerating, only to slow again, “the likelihood of another disappointment has lessened.”

How is this possible? ‘The sharp drop in oil prices will help boost consumer spending’? I don’t understand that: Dudley is talking about money that would otherwise also have been spent, only on gas. There is no additional money, so where’s the boost?

Investors’ expectations for a Fed rate increase in mid-2015 are reasonable, he said, and the pace at which the central bank tightens will depend partly on financial-market conditions and the economy’s performance. Crude oil suffered its biggest drop in three years after OPEC signaled last week it will not reduce production. Lower energy costs “will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending,” Dudley said.

The drop will especially help lower-income households, who are more likely to spend and not save the extra real income, he said.

Extra income? Real extra income, as opposed to unreal? How silly are we planning to make it, sir? Never mind, the fun thing is that Dudley defeats his own point. By saying that lower-income households are more likely to spend and not save the ‘extra real income’, he also says that others won’t spend it, and that of course means that the net effect on consumer spending will be down, not up. He had another zinger, that the whole finance blogosphere will have a good laugh at:

[..] He also tried to disabuse investors of the notion that the Fed would, in times of sharp equity declines, ease monetary conditions, an idea known as the “Fed put.” “The expectation of such a put is dangerous because if investors believe it exists they will view the equity market as less risky,” Dudley said. That could cause investors to push equity markets higher, contributing to a bubble, he said. “Let me be clear, there is no Fed equity market put,” he said.

That’s in the category: ‘Read my lips’, ‘Mission Accomplished’ and ‘I did not have sex with that woman.’ I remain convinced that they’ll move rates up, and patsies like Dudley are being sent out to sow the seeds of confusion. Apart from that, this is just complete and bizarre nonsense. And that comes from someone with a very high post in the American financial world. At least a bit scary.

Another great one came also from Bloomberg today, when it reported that US holiday sales had missed by no less than 11%. Maybe Dudley should have put that in his speech?! This one turns the entire world upside down:

US Consumers Reduce Spending By 11% Over Thanksgiving Weekend

Even after doling out discounts on electronics and clothes, retailers struggled to entice shoppers to Black Friday sales events, putting pressure on the industry as it heads into the final weeks of the holiday season. Spending tumbled an estimated 11% over the weekend, the Washington-based National Retail Federation said yesterday. And more than 6 million shoppers who had been expected to hit stores never showed up. Consumers were unmoved by retailers’ aggressive discounts and longer Thanksgiving hours, raising concern that signs of recovery in recent months won’t endure.

The NRF had predicted a 4.1% sales gain for November and December – the best performance since 2011. Still, the trade group cast the latest numbers in a positive light, saying it showed shoppers were confident enough to skip the initial rush for discounts. “The holiday season and the weekend are a marathon, not a sprint,” NRF Chief Executive Officer Matthew Shay said on a conference call. “This is going to continue to be a very competitive season.” Consumer spending fell to $50.9 billion over the past four days, down from $57.4 billion in 2013, according to the NRF. It was the second year in a row that sales declined during the post-Thanksgiving Black Friday weekend, which had long been famous for long lines and frenzied crowds.

Shoppers are confident enough to not shop. And why do they not shop? Because the economy’s so strong. Or something. They were so confident that 6 million of them just stayed home. While those that did go out had the confidence to spend, I think, 6.4% less per capita. Maybe that confidence has something to do with at least having some dough left in our pocket.

On the – even – more serious side, two different reports on how much stocks in the US are overvalued. First John Hussman talking about his investment models, an where he did get it right:

Hard-Won Lessons and the Bird in the Hand

[..] the S&P 500 is more than double its historical valuation norms on reliable measures (with about 90% correlation with actual subsequent 10-year market returns), sentiment is lopsided, and we observe dispersion across market internals, along with widening credit spreads. These and similar considerations present a coherent pattern that has been informative in market cycles across a century of history – including the period since 2009. None of those considerations inform us that the U.S. stock market currently presents a desirable opportunity to accept risk.

I know exactly the conditions under which our approach has repeatedly been accurate in cycles across a century of history, and in three decades of real-time work in finance: I know what led me to encourage a leveraged-long position in the early 1990’s, and why were right about the 2000-2002 collapse, and why we were right to become constructive in 2003, and why we were right about yield-seeking behavior causing a housing bubble, and why we were right about the 2007-2009 collapse. And we know that the valuation methods that scream that the S&P 500 is priced at more than double reliable norms, and that warn of zero or negative S&P 500 total returns for the next 8-9 years, are the same valuation methods that indicated stocks as undervalued in 2008-2009.

As an important side note, the financial crisis was not resolved by quantitative easing or monetary heroics. Rather, the crisis ended – and in hindsight, ended precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned mark-to-market rules, in response to Congressional pressure by the House Committee on Financial Services on March 12, 2009. The decision by the FASB gave banks “significant judgment” in the values that they assigned to assets, which had the immediate effect of making banks solvent on paper despite being insolvent in fact.

Rather than requiring the restructuring of bad debt, policy makers decided to hide it behind an accounting veil, and to gradually make the banks whole by lowering their costs and punishing ordinary savers with zero interest rates, creating yet another massive speculative yield-seeking bubble in risky assets at the same time. [..]

This is 5.5 years ago. Do we still think about this enough? Do we still realize what the inevitable outcome will be? Hussman suggests the moment is near.

The equity market is now more overvalued than at any point in history outside of the 2000 peak, and on the measures that we find best correlated with actual subsequent total returns, is 115% above reliable historical norms and only 15% below the 2000 extreme. Based on valuation metrics that are about 90% correlated with actual subsequent returns across history, we estimate that the S&P 500 is likely to experience zero or negative total returns for the next 8-9 years. At this point, the suppressed Treasury bill yields engineered by the Federal Reserve are likely to outperform stocks over that horizon, with no downside risk.

As was true at the 2000 and 2007 extremes, Wall Street is quite measurably out of its mind. There’s clear evidence that valuations have little short-term impact provided that risk-aversion is in retreat (which can be read out of market internals and credit spreads, which are now going the wrong way). There’s no evidence, however, that the historical relationship between valuations and longer-term returns has weakened at all. Yet somehow the awful completion of this cycle will be just as surprising as it was the last two times around – not to mention every other time in history that reliable valuation measures were similarly extreme. Honestly, you’ve all gone mad.

115% above reliable historical norms. That’s what the equity put that doesn’t exist, plus the Plunge Protection Team, have achieved. None of that stuff is worth anything near what you pay for it. But people do it anyway, and think very highly of themselves for doing it. Because it makes them money. And anything that makes you money makes you smart.

Then, the crew at Phoenix Capital, courtesy of Tyler Durden:

Stocks Have Been More Overvalued Only ONCE in the Last 100 Years (Phoenix)

Stocks today are overvalued by any reasonable valuation metric. If you look at the CAPE (cyclical adjusted price to earnings) the market is registers a reading of 27 (anything over 15 is overvalued). We’re now as overvalued as we were in 2007. The only times in history that the market has been more overvalued was during the 1929 bubble and the Tech bubble. Please note that both occasions were “bubbles” that were followed by massive collapses in stock prices.


Source: https://www.multpl.com/shiller-pe/

Then there is total stock market cap to GDP, a metric that Warren Buffett’s calls tge “single best measure” of stock market value. Today this metric stands at roughly 130%. It’s the highest reading since the DOTCOM bubble (which was 153%). Put another way, stocks are even more overvalued than they were in 2007 and have only been more overvalued during the Tech Bubble: the single biggest stock market bubble in 100 years.


Source: Advisorperspectives.com


1) Investor sentiment is back to super bullish autumn 2007 levels.
2) Insider selling to buying ratios are back to autumn 2007 levels (insiders are selling the farm).
3) Money market fund assets are at 2007 levels (indicating that investors have gone “all in” with stocks).
4) Mutual fund cash levels are at a historic low (again investors are “all in” with stocks).
5) Margin debt (money borrowed to buy stocks) is near record highs.

In plain terms, the market is overvalued, overbought, overextended, and over leveraged. This is a recipe for a correction if not a collapse.

If we combine Hussman and Phoenix, we see an enormous amount of people playing with fire. And their lives. And that of their families. All as ‘confident’ as those American shoppers are (were?) supposed to be. At least a whole bunch of those were smart enough not to show up. How smart will the investment world be? Their senses have been dulled by 6 years of low interest rates, handouts and other manipulations. They’re half asleep by now.

Nobody knows what anything is worth anymore, investors probably least of all. After all, their sentiment is back to ‘super bullish autumn 2007’ levels. And they listen to guys like Dudley, who don’t have their interests at heart. Everybody thinks they’ll outsmart the others, and the falling knife too. Me, I’m wondering how much y’all lost on oil stocks and bonds recently. And how much more you’re prepared to lose.

Nov 302014
 
 November 30, 2014  Posted by at 11:56 am Finance Tagged with: , , , , , , , , ,  


DPC Harlem River Speedway and Washington Bridge, New York 1905

Fresh Signs Of Global Slump Pose Challenge To US (WSJ)
Swiss Go to Polls on SNB’s Gold, Immigration in Economic U-Turn (Bloomberg)
Swiss To Vote On Massive Gold-Buying Plan (AP)
Can QE Prop Up Asset Prices Forever? (Acting Man)
Shale And Cheap Oil Make America The New Lucky Country (Telegraph)
Black Friday Online Sales Jump 22% as Jobs Spur Shopping (Bloomberg)
Capping Brazil’s Corruption Gusher (Bloomberg)
ECB Likely To Hold Off On Sovereign Bond Purchases (WSJ)
ECB Board Member Dampens Quantitative Easing Hopes (Reuters)
France Might As Well Be Communist, Blasts US Tyre Tycoon (Telegraph)
When Will the US National Debt Exceed $18 Trillion? (MyGovCost.org)
That Hot US-EU Trade Deal Destroys 600,000 EU Jobs (Don Quijones)
Economics’ Failure To Tackle Real-World Issues Drives Women Away (Observer)
Australia: Haven for Bank Control Frauds? (Macrobusiness)
Do We Own Our Stuff, or Does Our Stuff Own Us? (CH Smith)
Global Importance Of Urban Agriculture ‘Underestimated’ (BBC)
Geo-Engineering: Climate Fixes ‘Could Harm Billions’ (BBC)
Does Anybody Ever ‘Think The Unthinkable’? (John Gray)

“The low-growth outlook is raising questions over whether weak demand could wash onto U.S. shores in the coming months .. ”

Fresh Signs Of Global Slump Pose Challenge To US (WSJ)

Economic prospects are flagging across Europe, Japan and big emerging markets such as India, a turn that presents fresh challenges to the relatively robust U.S. economy at a time when the world needs a dependable growth engine. Multiple strands Friday pointed to slackening economic vitality across the globe. In Europe, consumer prices rose in November at their slowest annual pace in five years, deepening fears the continent may be tipping toward deflation. In Japan, the core consumer-price index in October rose at its slowest pace this year. In both places the fall in energy prices has clouded a concerted push by central banks to boost the inflation rate and stoke consumer and business confidence. The picture in emerging markets isn’t much brighter.

Economic growth in India decelerated in the third quarter, according to government data released on Friday. Figures in Brazil showed Latin America’s biggest economy had edged out of recession in the third quarter, helped by government spending, but economists warned of potentially prolonged stagnation. The low-growth outlook is raising questions over whether weak demand could wash onto U.S. shores in the coming months, even as American businesses and consumers benefit from falling gasoline prices heading into the holiday shopping season. America’s economy has grown steadily this year after a first-quarter contraction, and employers have added more than 200,000 jobs a month for nine straight months through October. But consumer spending and business investment in the U.S. was muted in October, suggesting the U.S. might provide insufficient demand to help buoy other economies.

Cheaper energy stands to boost both the U.S. economy and those of other oil importers, including China, by offering what amounts to a tax cut to businesses and consumers. But in Europe, “problems go well beyond oil,” said Joel Naroff, president of Naroff Economic Advisors, an economic forecasting firm in Holland, Pa. “But the better off the U.S. is, the better off Europe is going to be. So would we rather see oil at $70 a barrel instead of $100? The answer is absolutely yes, and so would Europe.” Economists at Oxford Economics estimated in a report Friday that oil prices at around $60 a barrel over the next two years would offer “a significant strengthening” of economic growth “for most of the major advanced and emerging economies.”

Read more …

A Yes vote would put the Swiss central bank in an unenviable position. It has spent tens of billions buying euros to keep the Swiss franc down. If it has to sell those to buy gold instead, it will be at a great loss, and it would push the euro down, which is what Switzerland tried to prevent in the first place.

Swiss Go to Polls on SNB’s Gold, Immigration in Economic U-Turn (Bloomberg)

Switzerland holds three referendums today that have the potential to have an effect on everything from the economy to the central bank and even the country’s international relations. Up for a vote is a requirement for the Swiss National Bank to hold at least 20% of its assets in gold, a clampdown on immigration and the abolishment of tax privileges for foreign millionaires. While polls by gfs.bern indicate all three proposals could get rejected, there remains a sizable cohort of undecided voters. Plebiscites are a key feature of Switzerland’s system of direct democracy, and are held nationally and at a municipal level several times a year. Campaigns in the run-up to the latest votes have seen factions throwing out accusations of xenophobia, while there have been warnings that the economy’s potential could be weakened and the SNB’s power neutered. “Independent of the fact of a ‘yes’ or a ‘no’ on the votes, the message that is being sent abroad is that the Swiss model is not as predictable as we thought it would be,” said Stephane Garelli at the IMD business school.

While most votes are cast by mail before today, polling stations will close by 12:00 p.m. Zurich time and the first projections are due after 12:30 p.m. A final tally will be announced later in the day and the government will hold a press conference. There has been a sharp increase in the number of initiatives in recent years, including a ban on construction of minarets, curbs on executive compensation and a minimum wage. Some in Switzerland argue direct democratic privileges are being abused. “The constitution is becoming the toy of political exhibitionism,” Richard Saegesser, member of government in the town of Uster, near Zurich, said in a Nov. 23 speech. The “Save Our Swiss Gold” initiative would require the SNB to build up its bullion holdings, currently about 8% of assets, over the next five years and forbid it from ever selling any. That would make it harder to defend its cap on the franc of 1.20 per euro and fulfill its price stability mandate. The central bank would have to buy about 70 billion francs ($73 billion) of gold, policy makers estimate.

Read more …

Swiss bankers and politicians must feverishly hope this is voted down.

Swiss To Vote On Massive Gold-Buying Plan (AP)

In Switzerland, a campaign is on to protect the country’s wealth by investing in gold – a lot of gold. In a test of their sense of financial security, the Swiss are being asked to vote on a proposal to make the central bank hold a fifth of its reserves in gold within five years. That would mean buying about 1,500 metric tons, or 1,650 short tons, of gold worth more than US$60 billion. If the initiative wins the backing of a majority of voters today, the Swiss National Bank would also be prohibited from spending any of the treasure, which would have to be locked away in vaults entirely on Swiss soil. The prospect risks causing a spike in gold prices globally. The nationalist Swiss People’s Party, the country’s largest, has brought the “Save our Swiss Gold” initiative, arguing it will restore trust in the central bank and its paper money. The proposal is opposed by the Government and financial leaders but aims to capitalise on a growing sense of caution among the Swiss about the perceived dangers and increasing volatility of financial markets.

Though the country is among the world’s most prosperous, the initiative argues that owning physical gold in vaults would protect the country’s wealth from trouble in markets beyond the control of this small Alpine nation. The experience of the 2008 global financial crisis, triggered in part by complex investments that brought down multiple banks and bankrupted states, is fresh in people’s memories. Jacques Mayor, a Geneva accountant, said he was wary of the idea of Switzerland buying or selling gold in large amounts in international markets. “The last time they sold gold, we had an enormous loss,” Mayor said, referring to the central bank going US$10 billion in the red in 2013, when the value of its gold holdings slumped. Despite the perception that gold’s value is protected by the fact it is a physical good, its market price can in fact be quite volatile. The metal is used often by speculators as a safe haven.

Read more …

” .. genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers. That’s a problem for the US.”

Can QE Prop Up Asset Prices Forever? (Acting Man)

It’s not just voters who buy into popular myths. Many investors do too. Few have wider appeal than the myth that central banks can create economic growth via the printing press. What central bankers and their supporters seem to forget is that growth comes from living, breathing human beings. It often sounds a lot more complicated than it really is. But genuine economic growth comes from two things: the number of workers in the labor force and the productivity of those workers. That’s a problem for the US. Because according to a recent report in The Economist, its potential labor force is set to grow at less than one-third the 0.9% rate we saw between 2003 and 2013.

Making things worse, many of America’s boomers – the first of whom qualified for Social Security in 2008 – are opting out of the labor force. Instead of looking for jobs, they are choosing to live on benefits. This helps explain why the%age of working-age adults looking for jobs in the US has fallen to below 63% from about 66% when the global financial crisis struck. And it’s not just Americans who are getting older on average. From The Economist:

“[T]he ratio of workers to retirees is now plunging in most developed countries and soon will in many emerging markets. Japan is already liquidating the foreign assets its people acquired during their high-saving years; China and South Korea are starting to do so and Germany will soon.”

Fewer workers in the labor force. More retirees to support for those with jobs. Foreign retirees cashing out of their US stocks and bonds. Janet Yellen et al. better hope investors are gullible enough to believe the magic of QE can continue to levitate financial assets forever. Otherwise, stock and bond investors will start to reconsider the prices they’re willing to pay to own their pieces of paper.

Read more …

The positive at all costs message here at the Telegraph makes so little sense it hurts.

Shale And Cheap Oil Make America The New Lucky Country (Telegraph)

We normally think of Australia as the “lucky country” but that label is surely better applied to the US today. You could hardly envisage a more benign backdrop for its economy and stock market than the current environment of tumbling energy prices, low inflation, narrowing deficits, competitive industry, a popular currency and consequently lower-for-longer interest rates. The frantic shuttle diplomacy in the run up to last week’s Opec summit in Vienna illustrated the pain being felt by the world’s less favoured nations – those like Venezuela and Russia which simply can’t balance the books at a $75 oil price. The meeting showed how difficult it can be to persuade individual countries, even members of a supposedly co-operative cartel like Opec, to work together if doing so runs counter to their own self-interest.

It may be beneficial to Opec as a whole to curb production in the face of surging US shale oil output and flagging global energy demand, but individual countries may quite rationally decide it is better to keep the oil flowing to protect their market share. If you have built up enough foreign currency reserves in the good years (as Saudi Arabia has) and you want to make life tough for your new rivals in the marginal oilfields of North Dakota, you might feel a couple of years of cheap crude is a price worth paying. The excess supply created by America’s shale revolution has been disguised in recent years by capacity reductions in war-torn countries such as Libya.

But the producers’ luck has run out this year as supply has picked up around the world even as China’s slowdown and stagnation in Europe and Japan has reduced demand. The jockeying for position by Saudi Arabia and others might sound like a game, but it really matters. With world oil exports amounting to around 40m barrels a day, the $40 drop in the oil price since June represents a transfer from oil exporters to oil consumers of more than $400bn a year. US consumers have an extra $70bn in their pockets, money they used to spend on fuel and can direct towards eating out, buying electronic gizmos or going on holiday. Even with the usual lag before consumers see the benefit of falling petrol prices, we are starting to feel the impact. Last week’s revision to third quarter US GDP, from 3.5pc to 3.9pc, was in part a reflection of more confident consumers with higher disposable incomes.

Read more …

And Bloomberg does the Telegraph one better.

Black Friday Online Sales Jump 22% as Jobs Spur Shopping (Bloomberg)

Sales online the day after Thanksgiving surged 22% from a year earlier as U.S. consumers, buoyed by higher employment and lower gasoline prices, flocked to computers and smartphones to hunt bargains. The gain outpaced online shopping on Thanksgiving as heavy Black Friday promotions attracted consumers, researcher ChannelAdvisor Corp. said today in an online statement. Sales at EBay rose 27% on Black Friday over last year, and Amazon saw a 24% increase. The online gains give a strong start to a holiday shopping season that the National Retail Federation predicts will be the best in three years.

Consumer spending in the last quarter grew at a 2.2% annualized rate, exceeding estimates for a 1.8% improvement. Black Friday online shopping was done less on mobile devices this year than on Thanksgiving, slipping to 46% from 49%, the company said. The rates of actual purchases also declined from Thursday, perhaps because consumers were more selective or finding hot items out of stock, ChannelAdvisor said. IBM Benchmark said Black Friday online sales rose 9.5%, and mobile sales jumped 25%. For Thanksgiving, mobile sales on smartphones and tablets accounted for 52% of online traffic.

Read more …

Note: all this does not yet include the 40% oil price plunge. Petrobras can indeed drag the whole country down.

Capping Brazil’s Corruption Gusher (Bloomberg)

Petrobras, Brazil’s state-run oil giant, is now engulfed in a scandal befitting its size – a multibillion-dollar miasma of bribery, larceny and political chicanery. How newly re-elected President Dilma Rousseff responds may decide not only her fate but also, to exaggerate only slightly, that of Brazil itself. It’s hard to overestimate the role of Petrobras in Brazilian society. Once a symbol of national pride, just four years ago it had the largest stock offering. Now police say it is at the heart of the case in which some of Brazil’s biggest builders formed a cartel to win $23 billion in public contracts. One Petrobras refinery was budgeted at $2.5 billion but will end up costing at least $18.5 billion. Kickbacks from overpriced contracts were allegedly used to bribe politicians to support the ruling Workers’ Party.

Rousseff, who was Petrobras chairwoman from 2003 to 2010, has said the case “will forever change the relationship between Brazilian society, the Brazilian government and private companies.” It’s already threatening the financial health of Brazilian builders and the prospects for a revival in economic growth. Corruption in Brazil eats up as much as 2.3% of gross domestic product a year. To Rousseff’s credit, she has done more than just talk about the need to fight corruption. During her first term, several ground-breaking laws were passed, including a “clean companies act” that could fine companies as much as 20% of their revenue and bar them from state financing or state contracts, and a freedom of information law guaranteeing access to public documents. Yet Brazil is notorious for “laws that don’t take.” Many states and cities have yet to implement the 2011 freedom of information law, for instance; in one audit of those that have, two of every five requests for information received no response at all.

In the 14 years since Brazil joined the Anti-Bribery Convention of the OECD, only one case has been prosecuted, and no sanctions have ever been levied. That’s a pretty thin docket for the world’s seventh-biggest economy. The “clean companies” law that Brazil passed last year could change that. Unfortunately, Rousseff has yet to issue the regulations for implementing the law. She should. Rousseff also needs to follow through on her pledge to reform Brazil’s campaign finance laws. Under their current terms, companies can donate up to 2% of their gross annual revenue. In fact, they supply more than 95% of the money for Brazilian elections, which have become wildly expensive. And campaigns need only disclose the identity and contribution amounts of donors in a final consolidated report issued after the election is over.

Read more …

The Germans have been consistent all along in their message.

ECB Likely To Hold Off On Sovereign Bond Purchases (WSJ)

Economists expect the European Central Bank to hold off on sovereign bond purchases next week, despite further dangers of deflation haunting the eurozone. The bank’s governing council meeting Thursday – the final one of 2014 – is likely to convey a more dovish message and lower inflation expectations, analysts say, but no new measures are expected until next year. The central bank has set in motion schemes to purchase covered bonds and asset-backed securities, but weaker prices put pressure on its President Mario Draghi to start buying sovereign bonds as well, a policy known as quantitative easing.

In a speech this week, ECB Vice-President Vitor Constancio opened the door to such purchases in 2015. “We must wait to see if ECB President Mario Draghi will repeat his readiness to start buying government bonds if the inflation outlook deteriorates further,” said Zach Witton, economist at Moody’s Analytics, in a research note Friday. Purchasing managers’ index figures for the manufacturing and services sectors are expected to show economic activity in the core eurozone countries – Germany, France and Italy – remained broadly flat in November.

Read more …

But one wonders what will happen to the euro after Thursday meeting.

ECB Board Member Dampens Quantitative Easing Hopes (Reuters)

ECB Executive Board member Sabine Lautenschlaeger said on Saturday she saw little room for further easing of monetary policy despite a further fall in euro zone inflation. “According to the current situation, the threshold as I see it for taking further action is very high, particularly for large-scale purchasing programmes,” she said in Berlin, speaking five days ahead of the ECB’s next Monetary Policy Committee meeting. Innovation in monetary policy was not a taboo, but must also not be an “end in itself”, she added. The ECB has cut interest rates to practically zero and is readying more buying programmes that could include government bonds – known as quantitative easing – to ward off the threat of deflation in the euro zone. Vice President Vitor Constancio said this week the ECB could make a decision on government bond-buying in the first quarter if the economy did not improve. The purchase of government bonds would be viewed extremely critically in Germany.

Read more …

France suffers from a dangerous dose of entitlement.

France Might As Well Be Communist, Blasts US Tyre Tycoon (Telegraph)

A US tyre tycoon has ridiculed French laws and trade unions that he said had prevented him from rescuing a stricken factory, saying France should become “communist”. Maurice Taylor, chief executive of Titan International, had initially expressed interest in taking over the loss-making Goodyear tyre plant in Amiens. But he pulled out of the deal and explained why to France Info radio. “You can’t buy Goodyear. Under your law, we have to take a minimum of 662 or 672 employees. You can’t do that. The most you could take is 333 … there’s no business for that plant now,” said Mr Taylor. “I tried to tell them all that before but you guys have got to wake up over there and tell the unions, ‘Hey if they’re so smart, they should buy the factory’. “It’s stupid. It’s the dumbest thing in the world. France should just become communist and then when it goes all bad like Russia did, then maybe you’d have a chance,” added Mr Taylor.

Goodyear announced in January last year that it was closing the factory, which employs 1,173 people, after years of negotiations with unions failed to come up with a solution to save jobs. Unions launched a series of legal proceedings against the company, but to no avail. Mr Taylor, known as “The Grizz” for his tough talk, has made waves before for his comments on France. In 2013, he wrote a letter to the French industrial renewal minister calling the country’s workers lazy and overpaid after years of negotiations by Titan to take over the plant had failed. “They get one hour for breaks and lunch, talk for three and work for three. I told this to the French union workers to their faces. They told me that’s the French way,” wrote Mr Taylor. The minister at the time, Arnaud Montebourg, hit back, telling Mr Taylor: “Your extremist insults display a perfect ignorance of what our country is about. Be assured that you can count on me to inspect your tyre imports with a redoubled zeal.”

Read more …

“… can you point to what you personally got in return for that $42,291 worth of additional debt per household that the federal government accumulated during the last six years?”

When Will the US National Debt Exceed $18 Trillion? (MyGovCost.org)

Sometime in the next two to three weeks, the total public debt outstanding for the U.S. government will exceed 18 trillion dollars. If you were to ask us to pin down a precise date, we would say sometime around December 9, 2014, given the rate at which the national debt has been increasing during the federal government’s current fiscal year. Since the start of the U.S. federal government’s 2015 fiscal year on October 1, 2014, the national debt has grown at an average rate of $2.08 billion per day. If it helps put these very large numbers into a more human scale, when the U.S. national debt reaches $18 trillion, that will work out to be about $124,275 per U.S. household, which is up from $81,984 per U.S. household at the end of the 2008 fiscal year.

And the new figure would be on top of your mortgage, car loans, student loans, credit cards, et cetera that you might also have. But unlike those tangible things, where you can at least point to your house, your car, your education, or even the Christmas presents you might be buying this upcoming Black Friday, can you point to what you personally got in return for that $42,291 worth of additional debt per household that the federal government accumulated during the last six years? If you cannot, is it really worth it?

Read more …

The TTIP is more deadly than ebola.

That Hot US-EU Trade Deal Destroys 600,000 EU Jobs (Don Quijones)

In a 1994 interview with Charlie Rose, the British billionaire financier James Goldsmith delivered a stark, eerily prescient warning of the state the world would be in today if it succumbed to the freer borders and more centralized, corporate-owned governance envisaged by trade regimes such as NAFTA and GATT (the predecessor to the World Trade Organization). Goldsmith was spot on about just about everything, from the threats posed by derivatives – then in their infancy – to the risks of industrializing agriculture throughout the developing world. Yet his warnings went unheeded, as laments the U.S. economist and former Assistant Treasury Secretary Paul Craig Roberts:

Sir James called it correct, as did Roger Milliken. They predicted that the working and middle classes in the US and Europe would be ruined by the greed of Wall Street and corporations, who would boost corporate earnings by replacing their domestic work forces with foreign labor, which could be paid a fraction of labor’s productivity as a result of the foreign country’s low living standard and large excess supply of labor.

Now, 20 years on from the signing of NAFTA and GATT, our governments’ enthusiasm for bilateral and multilateral trade agreements is undimmed, despite the social upheaval and economic destruction they have left in their wake. Indeed, our governments now seek to take “free” trade to a whole new level, far beyond what was originally envisaged for NAFTA and GATT. If signed, the new generation of trade deals would sound the final death knell of what remains of nation-state sovereignty, while doing next to nothing to improve economic conditions on the ground. Of particular concern is the Transatlantic Trade and Investment Partnership (TTIP), which seeks to bind together the world’s two largest markets, the U.S. and the EU, under a homogenized regulatory and legal superstructure designed for the exclusive benefit of transatlantic corporations and banks. Unsurprisingly, most of the official (i.e. European Commission-commissioned) assessments of TTIP predict gains, albeit negligible ones, in trade and GDP for both the EU and US.

Some even predict gains for non-TTIP countries, suggesting that the agreement would be a win-win for just everyone. However, according to a new study by Tufts University Professor Jeronim Capaldo, these rose-tinted forecasts rely on methods virtually unchanged from the models used to promote the liberalization of markets in the 1980s and 1990s. As then, they assume that the “competitive” sectors of the economy would benefit from the enhanced trade conditions while the losses racked up in the other sectors would be offset by falling salaries and rising employment.This assumption is provably false. As recent experience in Southern Europe has shown, lower salaries do not necessarily translate into the creation of new jobs. In fact, according to Capaldo’s findings – based on the UN’s much more up-to-date Global Policy Model – not only would the TTIP not create new jobs in Europe, it would destroy in the space of ten years a net total of roughly 600,000 jobs.

Read more …

“In the UK, women make up just 27% of economics students, despite accounting for 57% of the undergraduate population .. ”

Economics’ Failure To Tackle Real-World Issues Drives Women Away (Observer)

On the first Thursday of every month, nine men and women meet within the marble halls of the Bank of England to decide whether the nation’s mortgages will get more expensive and to answer the £375bn question: is it time to reverse the Bank’s electronic printing presses, which pumped money into the economy during the financial crisis. More specifically, seven men and two women make those vital decisions. As recently as six months ago it was nine men. It was only the arrival of Nemat (Minouche) Shafik, a former World Bank official, and Kristin Forbes, a US academic, at the monetary policy committee that ended an all-male run that had lasted for four years. Around the same time Charlotte Hogg was poached from Santander to become the Bank’s chief operating officer, as part of governor Mark Carney’s attempt to get more women into the 320-year-old institution. And early next year in the US, Janet Yellen will mark the anniversary of her becoming the first woman to run the Federal Reserve.

But despite these appointments, researchers warn that progress in getting women into such influential jobs will remain slow because not enough women are studying economics. In the UK, women make up just 27% of economics students, despite accounting for 57% of the undergraduate population, according to a study from the University of Southampton last month. This gap has remained unchanged for almost 20 years, even though female undergraduates now outnumber men in law and medicine, while almost equal numbers study business. Fewer girls than boys take A-level maths, a common prerequisite for an economics degree, but according to the Southampton researchers, those girls who did were more likely to get top grades, but then less likely to go on to economics at university. Mirco Tonin, lead author of the study, thinks deeper cultural factors put women off the “dismal science”. “Maybe when people think about economics what comes to mind is a male role model,” he says.

Kate Barker, who served on the MPC for nine years, was at times the only woman and says it was an odd experience. “It is not because I felt crushed or got at… There is just something odd about being the only woman on a panel of nine. It was much better when [former members] Marion Bell and Rachel Lomax were on. When there were three women it felt much more normal.” She was invited to help recruit her successors when her fixed term came to an end, but says: “We weren’t always able to attract as many applications from women as we would like. On the first two occasions we appointed men and we felt uneasy about perpetuating an all-male panel…but equally you have to appoint people of the right calibre.”

Read more …

Subprime down under.

Australia: Haven for Bank Control Frauds? (Macrobusiness)

Identifying whether a similar form of subprime fraud is widespread in Australia’s banking system and housing market deserves close scrutiny. Deregulation and privatisation of the financial sector since the 1980s has increased competitive pressures and the potential for fraud, as commercial lenders are provided with an incentive to maintain robust profitability via strong credit growth. Substantial evidence of subprime fraud has been provided by Denise Brailey, a criminologist and president of the Banking & Finance Consumers Support Association (BFCSA). It is a public-interest organisation dedicated to protecting investors and the pursuit of compensation for victims of predatory finance. Brailey is responsible for eleven inquiries investigating the predations of the FIRE sector and compliant regulators between 1997 and 2010.

Having worked in this field since the 1980s, Brailey has witnessed first-hand the financial and social destruction wrought by a multitude of scams and predatory lending, including the ‘finance brokers scandal’ in Western and South Australia, and the ‘mortgage solicitor scams’ stretching down the east coast from Queensland to Tasmania. Brailey alleges that since 1996, commercial lenders have engaged in widespread subprime fraud through over-lending to owner-occupiers and property investors, far beyond their ability to finance the debt. At the centre of the alleged fraud are loan application forms (LAFs), with borrower metrics altered by lenders without the knowledge, authority or consent of borrowers. The value of borrowers’ assets and incomes are radically inflated, justifying the approval of large loan sums, to the benefit of lenders and the broker channel.

As defaults typically show several years after loan origination, subprime borrowers struggle for an extended period before eventually succumbing, to the great benefit of the lenders in the form of higher interest payments, including penalties. Lenders then realise borrowers’ entire equity through foreclosure and sale. Similar to the US, Australian mortgage fraud is more closely linked with low-doc and no-doc mortgages than conventional (prime) mortgages. The process of alleged fraud begins with a potential borrower completing a three page LAF detailing their current assets and incomes. In the back office, the broker inputs the borrower’s details into a password-protected online ‘service calculator’, an application determining the amount of credit the lender, associated with the broker, is willing to provide.

The service calculator amounts to a black box, as brokers are not provided with any information as to how this application functions; it simply provides a ‘calculated’ futuristic income based upon the basic provided income details entered and then uses accounting add-ons and add-backs providing tax incentive ‘advantages’, to produce greater incomes. This in turn enables the banks to significantly increase the volume of lending.

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The answer is obvious. Just look around you.

Do We Own Our Stuff, or Does Our Stuff Own Us? (CH Smith)

The frenzied acquisition of more stuff is supposed to be an unalloyed good: good for “growth,” good for the consumer who presumably benefits from more stuff and good for governments collecting taxes on the purchase of all the stuff. But the frenzy to acquire more stuff raises a question: do we own our stuff, or does our stuff own us? I think the answer is clear: our stuff owns us, not the other way around. Everything we own demands its pound of flesh in one way or another: space must be found for it amid the clutter of stuff we already own, it must be programmed, recharged, maintained, dusted, moved, etc. The only way to lighten the burden of ownership is to get rid of stuff rather than buy more stuff. The only way to stop being owned is to is get rid of the stuff that owns us.

I propose a new holiday event, Gold Sunday: this is the day everyone hauls all the stuff they “own” that is a burden to a central location and dumps it in a free-for-all. Whatever is left after the freeters have picked through the pile is carted to the recycling yard and whatever’s left after that culling is taken to the dump. Frankly, I wouldn’t accept a new big-screen TV, vehicle, tablet computer, etc. etc. etc. at any price because I am tired of stuff owning me. I don’t want any more entertainment or computational devices, musical instruments, vehicles, clothing, kitchen appliances, or anything else for that matter, except what can be consumed with some modest enjoyment and no ill effects. We live in a small flat and I have no room for more stuff, and I have no time for more devices or entertainment. I have too much of everything but money and time. I don’t want to pay more auto insurance, maintenance costs, etc., nor do I want more devices to fiddle with. I am enslaved to the few I already own.

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“The most interesting factor when we look at India is that we could map the whole country as urban or peri-urban because there are so many towns and cities.”

Global Importance Of Urban Agriculture ‘Underestimated’ (BBC)

Urban agriculture is playing an increasingly important role in global food security, a study has suggested. Researchers, using satellite data, found that agricultural activities within 20km of urban areas occupy an area equivalent to the 28-nation EU. The international team of scientists says the results should challenge the focus on rural areas of agricultural research and development work. The findings appear in the journal Environmental Research Letters. “This is the first study to document the global scale of food production in and around urban settings,” explained co-author Pay Drechsel, a researcher for the International Water Management Institute (IWMI). “There were people talking about urban agriculture but we never knew details. How did it compare with other farming systems? This assessment showed us that it was much larger than we expected.”

The team acknowledged that the study could actually be conservative, as it focused on urban areas with populations of 50,000 or greater.Dr Drechsel said that when urban farming was compared with other (ie rural) farming systems, the results were surprising. For example, the total area of rice farming in South Asia was smaller than what was being cultivated in urban areas around the globe. Likewise, total maize production in sub-Saharan Africa was not as large as the area under cultivation in urban areas around the world. UN data shows that more than 50% of the world’s population now lives in urban areas, which could explain the changing landscape of global agriculture. “We could say that the table is moving closer to the farm,” observed Dr Drechsel. “The most interesting factor when we look at India is that we could map the whole country as urban or peri-urban because there are so many towns and cities.”

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What’s that line again about human stupidity?

Geo-Engineering: Climate Fixes ‘Could Harm Billions’ (BBC)

Schemes to tackle climate change could prove disastrous for billions of people, but might be required for the good of the planet, scientists say. That is the conclusion of a new set of studies into what’s become known as geo-engineering. This is the so far unproven science of intervening in the climate to bring down temperatures. These projects work by, for example, shading the Earth from the Sun or soaking up carbon dioxide. Ideas include aircraft spraying out sulphur particles at high altitude to mimic the cooling effect of volcanoes or using artificial “trees” to absorb CO2. Long regarded as the most bizarre of all solutions for global warming, ideas for geo-engineering have come in for more scrutiny in recent years as international efforts to limit carbon emissions have failed. Now three combined research projects, led by teams from the universities of Leeds, Bristol and Oxford, have explored the implications in more detail.

The central conclusion, according to Dr Matt Watson of Bristol University, is that the issues surrounding geo-engineering – how it might work, the effects it might have and the potential downsides – are “really really complicated”. “We don’t like the idea but we’re more convinced than ever that we have to research it,” he said. “Personally I find this stuff terrifying but we have to compare it to doing nothing, to business-as-usual leading us to a world with a 4C rise.” The studies used computer models to simulate the possible implications of different technologies – with a major focus on ideas for making the deserts, seas and clouds more reflective so that incoming solar radiation does not reach the surface. One simulation imagined sea-going vessels spraying dense plumes of particles into the air to try to alter the clouds. But the model found that this would be far less effective than once thought.

Another explored the option of injecting sulphate aerosols into the air above the Arctic in an effort to reverse the decline of sea-ice. A key finding was that none of the simulations managed to keep the world’s temperature at the level experienced between 1986-2005 – suggesting that any effort would have to be maintained for years. More alarming for the researchers were the potential implications for rainfall patterns. Although all the simulations showed that blocking the Sun’s rays – or solar radiation management, as it is called – did reduce the global temperature, the models revealed profound changes to precipitation including disrupting the Indian Monsoon. Prof Piers Forster of Leeds University said: “We have found that between 1.2 and 4.1 billion people could be adversely affected by changes in rainfall patterns. “The most striking example of a downside would be the complete drying-out of the Sahel region of Africa – that would be very difficult to adapt to for those substantial populations – and that happens across all the scenarios.”

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“Capitalism has lurched into a crisis from which it still has not recovered. Yet the worn-out ideology of free markets sets the framework within which our current generation of leaders continues to think and act. Today nothing is safe from the juggernaut of market forces.”

Does Anybody Ever ‘Think The Unthinkable’? (John Gray)

I have a vivid memory of the moment when I realised it wouldn’t be long before Margaret Thatcher’s radical experiment hit the buffers. It must have been sometime in the late 1980s. The venue was one of the free market think tanks that were so prominent in those far-off years. The topic of discussion was how we should be ready to transgress the boundaries of what was considered politically possible. Nearly all of those present were at one on the need to challenge existing assumptions. What we needed to do, they insisted, was “think the unthinkable” and extend the reach of market forces into public services and throughout society. For me this earnest consensus was not without an element of comedy. Free market ideas had been in power in Britain since Thatcher became prime minister in 1979. They were the ruling ideas of the age, and from my point of view already becoming rather stale.

In the early 70s, when I first became interested in Hayek and other free market thinkers, challenging the post-war political consensus may have required a certain contrariness. By the late 70s, when Britain had come close to bankruptcy and been bailed out by the IMF, there were many signs that the country was heading for a shift of regime in which it would be transformed irreversibly. But an abrupt change of this kind seems unimaginable to most people until it actually happens, and in much of politics, the media and academia Thatcher’s policies came as a bolt from the blue. By the late 80s, what had been heresy had been enthroned as orthodoxy. In these circumstances, the suggestion that one could become a fearless free-thinker by repeating, in louder and more extreme tones, what those in power were constantly saying was entertainingly farcical. At the same time it illuminated how political ideas actually work in practice.

As a general rule, “thinking the unthinkable” means accentuating and exaggerating, preferably to the point of absurdity, beliefs that are currently fashionable. Over the past three decades, this has meant, to my mind, applying the ruling free market ideology with little regard for history, circumstances or common sense. One may agree or disagree with Thatcher’s policies, but throughout most of her time in power she was more pragmatic than is often imagined, and rarely did anything just because it was required by an idea or theory. It was only when the ideologues in the free market think tanks persuaded her of the virtues of the poll tax that she allowed doctrinaire thinking to guide her, and that was the beginning of her downfall. The irony is that the ideas that ended her career in government nearly a quarter of a century ago have shaped politics ever since.

Capitalism has lurched into a crisis from which it still has not recovered. Yet the worn-out ideology of free markets sets the framework within which our current generation of leaders continues to think and act. Today nothing is safe from the juggernaut of market forces. If British Telecom could be successfully privatised, why not the prison service, national forensic service and probation service? Why not hand over the provision of blood plasma, or the search and rescue operations that have long been provided by the RAF and the Royal Navy, to private companies? No sell-off has been so obviously ill-conceived that it couldn’t be implemented. All of these privatisations have in fact occurred, under a variety of governments, or are currently in the works.

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