Apr 072018
 
 April 7, 2018  Posted by at 10:24 am Finance Tagged with: , , , , , , , ,  


Arthur Rothstein Grain elevators, Great Falls, Montana 1939

 

US Jobs: One Big Miss (CNBC)
Everything Has Changed In Macroeconomics, But.. (Murphy)
Income From UK Savings Accounts Dropped 16% In A Year (Ind.)
Social Media Users Treated As ‘Experimental Rats’ – EU Watchdog (CNBC)
Facebook Users Have To Pay To Opt Out Of Their Data Being Used (CNBC)
AI: An ‘Immortal Dictator From Which We Can Never Escape’ (CNBC)
960,000 Households In Australia Will Face ‘Mortgage Stress’ (IBT)
Another Mighty Conundrum (Kunstler)
Provocations (Dmitry Orlov)
Shipping Is a Big Part of the Climate Problem (BBG)
Chinese Man Caught Smuggling Five Rhino Horns Is Jailed By Dutch Court (G.)

 

 

93 million not in the labor force.

US Jobs: One Big Miss (CNBC)

Nonfarm payrolls rose 103,000 in March while the unemployment rate was 4.1%, falling well short of Wall Street expectations during a month where weather caused havoc on the jobs market, according to a Bureau of Labor Statistics report Friday. Economists had been expecting a payrolls gain of 193,000 and the unemployment rate to decline one-tenth of a point to 4%. The monthly reading was a huge slip from the 326,000 reported in February. A broader measure of unemployment that includes discouraged workers and those holding part-time positions for economic reasons — the underemployed — fell two-tenths of a point to 8%, its lowest reading in 11 years.

“If one were to only focus on this single month, the March employment report is on the disappointing side,” said Mark Hamrick, senior economic analyst at Bankrate.com. “Broader context is appropriate, however. The job market is widely regarded to be close to full employment. So, hiring gains should be slowing at this point in the expansion.” In addition to the payrolls news, the closely watched average hourly earnings figure rose 0.3%, against estimates of 0.2%. The number equates to a healthy but not worrisome 2.7% rate on an annualized basis. The average work week was unchanged at 34.5 hours.

Stock market reaction to the report was muted, with major indexes lower largely on renewed worries over a U.S. trade war with China. “Wage growth continues to inch higher but not enough to worry markets at this point,” said Quincy Krosby, chief market strategist at Prudential Financial. “As we move closer and closer towards full employment expectations are that headline employment should slow. This number reflects a continued reversion to the mean.” Professional and business services led with 33,000 new jobs while manufacturing and health care added 22,000 new jobs apiece. Mining rose 9,000 while construction lost 15,000 positions and retail fell 4,000.

Read more …

Never again…

Everything Has Changed In Macroeconomics, But.. (Murphy)

I spend a lot of time writing about the Global Financial Crisis. Not much of it is published yet: academia is desperately slow. The crash of 2008 and its aftermath is, however, an ever-present reality both in my work life, and to be candid, the world beyond it. But I still do not think we appreciate how much everything has changed. A blog from John Lewis who works for the Bank of England gave some hint of the scale of this change this week. Lewis looked at real interest rates for three centuries i.e. those adjusted for inflation. When considering real bank rate, mortgage rates, and 10-year government bond yields over time this is what he found. As he notes: ‘the lines show the five-year moving averages of the ex-post real interest rate. The dots show the values over the years 2012 to 2016’:

As he notes: “The 5-year average of real bank rate rarely goes below zero – previous instances were mainly during the 1970s inflation and around world wars. The decline in real bond yields since the 1980s leaves them about 300bps below their all time average.” Now there may be good reason for that: broader markets, real reduced risk because of better information, and so on. The absence of world war helps too. But it also means that if we were to return to ‘normal’ or the mean then the change in rates would be massive:

The most useful contrast is with 1997 – 2007, of course. We’re talking adjustments of 4% or more. That is not going to happen. There are good reasons. Most mortgage holders would fail to make their payments. Most banks would then collapse. and government debt costs would increase and may politicians would panic at that whether appropriately or not. I will be blunt. Everything has changed. Those rates are history. This though has massive implications. If this is the case then monetary policy as a mechanism for controlling inflation and economic activity has died: rates that let it work cannot be recreated. And yet almost the whole of macroeconomic thinking is premised on its use, as is the role of central banks in our economies.

The reality is that everything has changed. And yet there is, so far, almost no reaction. Fiscal policy – spend and tax – is the only tool left to the government now and yet no one is saying so. No wonder I spend half my time wondering why we feel so out of control. We are.

Read more …

We’ll get you into the casino yet.

Income From UK Savings Accounts Dropped 16% In A Year (Ind.)

UK savers’ income from bank accounts fell 16 per cent in a year, according to new research, due to low interest rates from banks and building societies. According to easyMoney, the investment platform launched by easyJet founder Stelios Haji-Ioannou, the drop in savings income is worse in real terms due to rising inflation. The decline in income is based on numbers from the 2015/2016 financial year (the latest available data from HMRC) when savers made £5.7bn compared with £6.8bn in 2014/2015. At the end of the 2014/2015 fiscal year, inflation was -0.1 per cent; by January this year it had risen to 3 per cent.

With savers seeing less benefit from stashing their money in bank accounts and cash ISAs, easyMoney said, people are increasingly turning towards alternatives, with many inclined to “take on a sensible increase in risk”. Andrew de Candole, CEO of easyMoney, said: “Savers are increasingly fed up with seeing their money just sitting doing nothing in bank accounts. “It’s easy to see why: these figures show that savings accounts’ and cash ISAs’ performance has been getting worse. With inflation eating away at values, the reality is there’s very little incentive to save through these traditional routes. “For many people the time has come to take action. Investors need products that offer real returns, and many are prepared to accept a sensible, calculated increase in risk in order to achieve this.”

Read more …

So act.

Social Media Users Treated As ‘Experimental Rats’ – EU Watchdog (CNBC)

Facebook needs to make sure the new tools it has introduced to help safeguard user data in the wake of the Cambridge Analytica scandal is done in “practice and not only on paper,” the European Union’s top data watchdog told CNBC. The social network has unveiled a raft of new tools since news of the fiasco broke, with the aim of helping users understand and control how their data are used. Giovanni Buttarelli, the European Data Protection Supervisor (EDPS), said Facebook CEO Mark Zuckerberg needs to ensure these changes are done in practice. “I take note of what Zuckerberg has said recently, he said that he takes care of the privacy right. The question is they should do it in practice and not only on paper,” Buttarelli told CNBC in a phone interview on Thursday.

[..] Buttarelli criticized social media firms’ data collection practices. “There are days when you have the impression people are treated as battery animals or experimental rats. We are treated as a farm for data. We are in within a walled garden and every single action is monitored,” Buttarelli said. The EDPS is in charge of making sure that data are being handled correctly within EU institutions like the Commission. But it is also part of a working group made up of the data protection authorities from various member states.

[..] Buttarelli said there are likely to be far-reaching consequences which could include punishments for companies. “I’m expecting far-reaching consequences on the broader scale. There is a need of a change of culture,” he told CNBC. Last month, European Parliament President Antonio Tajani invited Zuckerberg to testify in front of lawmakers and give reassurances that EU citizens’ data were not used to “manipulate democracy.” Buttarelli said it would be “wise” for Zuckerberg to honor the invitation from Tajani.

Read more …

If you ask me, the highest tree ain’t high enough. But that’s just me. And it’s not those that do it, it’s those that let them.

Facebook Users Have To Pay To Opt Out Of Their Data Being Used (CNBC)

Facebook users could have to pay to completely opt out of their data being used to target them with advertising, the company’s Chief Operating Officer Sheryl Sandberg told NBC News on Thursday. NBC asked if Facebook could come up with a tool to let people have a button that allows them to restrict the social network from using their profile data to stop targeted ads. Sandberg said that the company has “different forms of opt out” but not one button for everything. “We don’t have an opt-out at the highest level. That would be a paid product,” Sandberg told NBC. The comments come in the wake of the scandal in which 87 million Facebook profiles were scraped with the data being sent to political consultancy Cambridge Analytica.

Facebook CEO Mark Zuckerberg has apologized for the company’s role in the data scandal and is now set to testify in front of Congress on April 11. Zuckerberg has also been summoned to appear in front of lawmakers in the U.K. and European Union. The data issue arose from a quiz app that collected data of Facebook users and their friends. This data was then passed on to Cambridge Analytica. Facebook banned the app in 2015, and said it got “assurances” from Cambridge Analytica and the app maker that the data was deleted. However, reports suggested this wasn’t the case. Facebook has been criticized for not checking the data had been erased, a mistake that Sandberg acknowledged.

Read more …

Even Musk makes sense once in a blue moon.

AI: An ‘Immortal Dictator From Which We Can Never Escape’ (CNBC)

Superintelligence — a form of artificial intelligence (AI) smarter than humans — could create an “immortal dictator,” billionaire entrepreneur Elon Musk warned. In a documentary by American filmmaker Chris Paine, Musk said that the development of superintelligence by a company or other organization of people could result in a form of AI that governs the world. “The least scary future I can think of is one where we have at least democratized AI because if one company or small group of people manages to develop godlike digital superintelligence, they could take over the world,” Musk said. “At least when there’s an evil dictator, that human is going to die. But for an AI, there would be no death. It would live forever. And then you’d have an immortal dictator from which we can never escape.”

The documentary by Paine examines a number of examples of AI, including autonomous weapons, Wall Street technology and algorithms driving fake news. It also draws from cultural examples of AI, such as the 1999 film “The Matrix” and 2016 film “Ex Machina.” [..] “If AI has a goal and humanity just happens to be in the way, it will destroy humanity as a matter of course without even thinking about it. No hard feelings,” Musk said. “It’s just like, if we’re building a road and an anthill just happens to be in the way, we don’t hate ants, we’re just building a road, and so, goodbye anthill.”

Read more …

Lowballing.

960,000 Households In Australia Will Face ‘Mortgage Stress’ (IBT)

The number of Australian households facing “mortgage stress” will likely reach 960,000, according to a new data. Slow wage growth is blamed for the trend as it does not keep up with the rising cost of living. Digital Finance Analytics (DFA) has recently released data which suggests that the number of households facing mortgage stress will likely reach about one million. Mortgage stress is a term used to refer to households spending 30% or above of its pre-tax income on home loan repayments. Households are defined as “stressed” when cash flow does not cover ongoing costs.

As for access to other available assets, that is something that they may or may not have. Some households have paid ahead, but those in mild stress have little leeway in their net income while those in severe stress could not meet repayments from current income. The new data also shows that the figure was a climb of 30,000 in the last month, encapsulating low and high-income-earning households, according to 9 News. For DFA spokesperson Martin North, it was an indication of how dire the country’s housing situation is getting.

“Things will get more severe, especially as household debt continues to climb to new record levels, mortgage lending is still growing at two to three times income,” Daily Mail Australia reported him as saying. North added that those numbers were not sustainable. It was estimated that over 55,000 households risk 30-day default in the next 12 months. Bank portfolio losses were expected to be about 2.8 basis points. Aside from flat wages growth and rising costs of living, higher real mortgage rates are perceived to be a burden. Mortgage lending continues to grow at two to three times income. The latest household debt to income ratio is currently at a record 188.6.

Read more …

Pot and sanctuary.

Another Mighty Conundrum (Kunstler)

The sanctuary city movement seems to me the most mendacious element of the story, a nakedly emotional appeal against the rule of law. The attorney general of California, Xavier Becerra, lately threatened to fine corporations there that share employee information with federal agents. There has not been such arrant flouting of federal law by state officials since Governor George Wallace stood in the doorway of the University of Alabama crying “segregation now, segregation tomorrow, segregation forever” in June, 1963 — and we all know how that ended. I’m among those who would like to see the immigration laws honestly enforced. In fact, I would also like to see the 1965 immigration law reformed to admit far fewer people from any land into this country. We have economic and cultural interests to protect, and they would seem to be self-evident.

So why has there been no move by the federal authorities to impose sovereign federal law over figures like Mr. Becerra, or Oakland Mayor Libby Schaaf, who went through the barrio there Paul Revere style warning that the ICE agents were coming? Well, one big reason is the marijuana situation. Nine states have legalized cannabis for recreational use (i.e. for getting high), and 29 have legalized it for medical purposes. This includes all of the states on the “Left Coast.” All of them are flouting federal law in doing that. But imagine the political uproar if the feds tried to step in at this point and quash the cannabis trade. In the early adapters, like Colorado, California, and Washington State, the trade has blossomed into multi-million dollar corporate enterprise, with significant tax revenue.

So, much as I object to the dishonest practices around immigration, I don’t see how the federal government can take principled action against them without first addressing its attitude to the marijuana situation. Of course, that could be easily disposed of by congress adopting a simple law to the effect that the cultivation and sale of cannabis shall be regulated by the states. The craven members of congress apparently don’t even dare to raise the issue of resolving this conundrum, and the thought may have never even entered the mighty golden brain-pan of our president — not to mention The New York Times, The Washington Post, CNN, Fox-News, or any of the other media organs of public debate. Well, maybe the time has come for that discussion.

Read more …

An absolutely fantastic story by Dmitry. Don’t miss this.

Provocations (Dmitry Orlov)

First, I will present just the facts. Next, I will indicate some huge, gaping holes in the plot which we must, perforce, fill using our imaginations (for lack of detailed factual information), but relying on real world knowledge as much as possible to build a plausible scenario (or two). In the end, the most plausible scenario wins. On February 22, 2018, the Argentine newspaper El Clarin has reported that a major shipment of drugs from Buenos Aires to Moscow—389 kg of pure cocaine, valued at over 60 million USD, and bearing the markings of the Sinaloa drug cartel of Northern Mexico—was prevented from taking place thanks to the efforts of Russia’s FSB and the Argentine authorities. Several people, including a member of the Argentine police and someone involved in charity work, have been detained.

Victor Coronelli, Russia’s ambassador to Argentina, related how all the way back in 2016 the embassy received information that possessions belonging to some third party had been found in a storage space at a children’s school operated by the embassy and located several blocks away from it. Suspicions arose and a thorough examination had uncovered 12 colorful suitcases filled with 389 “keys” (1-kilo blocks) of cocaine bearing the little star that is the symbol of the Sinaloa cartel of Northern Mexico. Shortly after the cocaine was discovered, Russia’s FSB, working together with the Argentine police, hatched an ingenious plan for a sting operation, to find out who is behind this shipment. To this end, they carefully replaced the cocaine with flour and placed the 12 colorful suitcases back in storage.

And there they sat for over a year. What has been done with the cocaine that was extracted isn’t known. Apparently, it took a great deal of effort to get anyone to take possession of these suitcases. Eventually, two people were found who agreed to take delivery of them in Moscow: Vladimir Kalmykov and Ishtimir Hudzhamov. They are currently in pretrial detention in Russia. A third suspect, Andrei Kovalchuk, is under arrest in Germany, awaiting extradition to Russia, but his extradition is conditional on whether the Russian side can offer evidence of his complicity or guilt in organizing the shipment.

Kovalchuk used to work for Russia’s Foreign Ministry, but most recently he has used his old ministerial connections to arrange for some small-scale contraband to be shipped to Russia via diplomatic mail: cigars, coffee, cognac, etc. Such trade had been common during the 1990s, when Russian diplomats had fallen on hard times and did whatever they could to make ends meet, but it has become unnecessary in recent years, now that they are very well provided for once again. Still, cigars, coffee and cognac is what Kovalchuk—an apparent throwback to this earlier, meager era—maintains was in the suitcases he had stashed at the school in Buenos Aires: he has kept all of the receipts. He plans to travel to Russia of his own free will once he has gathered all the evidence he needs to exonerate himself.

Read more …

Bloomberg editors are clueless, but the issue is real.

Shipping Is a Big Part of the Climate Problem (BBG)

When almost all the world’s governments agreed in Paris more than two years ago to address climate change, they sidestepped an important issue: carbon emissions from international shipping. Next week in London, they have a chance to put this right. Shipping is by far the most energy-efficient mode of transport, and it moves some 80% of world trade by volume. However, the fuel it uses is hard on the environment and human health — and ships last a long time, so deploying cleaner fleets takes time. Already, international shipping accounts for about as much carbon dioxide each year as Germany’s whole economy. On current trends, its share of the total will rise quickly. It could account for roughly 15% of the global carbon budget set by the Paris accord for 2050.

Next week, the International Maritime Organization is expected to announce a strategy for reducing these emissions. The plan is unlikely to be bold. Countries including Argentina, Brazil, India, Panama and Saudi Arabia are resisting carbon dioxide targets for shipping. Unsurprisingly, the industry itself is also opposed. Despite this resistance, the IMO needs to be ambitious. Ultimately, the most cost-effective approach would be to put a tax on carbon, and let that guide investment and innovation. But devising and implementing an international carbon-price system won’t be done overnight. In the short run, the IMO ought to propose a variety of useful course corrections.

Read more …

The problem in a nutshell: 1 year in jail (5 months with good conduct?!) for 5 rhinos. He’ll do it again as soon as he’s freed. $600,000. Another issue where the tallest tree isn’t high enough.

And we’re not even trying.

Chinese Man Caught Smuggling Five Rhino Horns Is Jailed By Dutch Court (G.)

A Dutch court has sentenced a Chinese man to a year in jail for smuggling five rhino horns and four other horn objects worth about €500,000 ($613,000) in his luggage. The man was caught by customs officials at Schiphol airport in December as he traveled through Amsterdam on his way from South Africa to the Chinese city of Shanghai. It recalled that trading in endangered species is banned under the CITES convention prohibiting sales of protected animals and plants. South Africa is battling a scourge of rhino poaching fuelled by insatiable demand for their horn in Asia.

The country’s ministry of environmental affairs said earlier this year that 1,028 rhinos were slaughtered in 2017. In the last eight years alone, roughly a quarter of the world population of rhinos has been killed in South Africa, home to 80% of the remaining animals. Most of the demand comes from China and Vietnam, where the horn is coveted as a traditional medicine, an aphrodisiac or as a status symbol.

Read more …

Jan 312018
 
 January 31, 2018  Posted by at 10:58 am Finance Tagged with: , , , , , , , , , , ,  


Paul Gauguin Farm in Brittany 1894

 

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3% (BBG)
Forget Stocks, Look At EU Bonds – They Are The Real Problem (Luongo)
The Ticking Time Bomb in the Municipal-Bond Market (Barron’s)
UK Interest-Only Mortgagees Are at Risk of Losing Their Homes
US National Debt Will Jump by $617 Billion in 5 Months (WS)
Trump Urges Congress To Pass $1.5 Trillion In Infrastructure Spending (R.)
Trump Joins Bezos, Dimon, Buffett In Pledge To Stop Soaring Drug Prices (MW)
Trump Says ‘100%’ After He’s Asked to Release GOP Memo (BBG)
Saving Rate Drops to 12-Year Low As 50% of Americans Don’t Have Savings (WS)
U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether (BBG)
Customer Lawsuits Pummel Spanish Banks (DQ)
Britons Ever More Deeply Divided Over Brexit (R.)
The GDP of Bridges to Nowhere (Michael Pettis)

 

 

If central banks and governments have really lost control over bonds, find shelter.

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3% (BBG)

It’s getting harder and harder to quarantine the selloff in Treasuries from equities and corporate bonds. The benchmark 10-year U.S. yield cracked 2.7% on Monday, rising to a point many forecasters weren’t expecting until the final months of 2018. For over a year, range-bound Treasuries helped keep financial markets in a Goldilocks state, with interest rates slowly rising due to favorable forces like stronger global growth and the Federal Reserve spearheading a gradual move away from crisis-era monetary policy. Yet the start of 2018 caught many investors off guard, with the 10-year yield on pace for its steepest monthly increase since November 2016. It’s risen 30 basis points this year and reached as high as 2.73% in Asian trading Tuesday.

Suddenly, they’re confronted with thinking about what yield level could end the good times seen since the presidential election. For many, 3% is the breaking point at which corporate financing costs would get too expensive, the equity market would lose its luster and growth momentum would fade. “We are at a turning point in the psyche of markets,” said Marty Mitchell, a former head government bond trader at Stifel Nicolaus & Co. and now an independent strategist. “A lot of people point to 3% on the 10-year as the critical level for stocks,” he said, noting that higher rates signal traders are realizing that quantitative easing policies really are on the way out.

U.S. stocks have set record after record, buoyed by strong corporate earnings, President Donald Trump’s tax cuts and easy U.S. financial conditions. The S&P 500 Index has returned around 6.8% this year, once reinvested dividends are taken into account, and the U.S. equity benchmark is already higher than the level at which a Wall Street strategists’ survey last month predicted it would end 2018. What often goes unsaid in explaining the equity-market exuberance is that Treasury yields refused to break higher last year. Instead, they remained in the tightest range in a half-century, allowing companies to borrow cheaply and forcing investors to seek out riskier assets to meet return objectives.

Read more …

It’s all bonds, not even just sovereign bonds. Investors will move from equities into bonds all over the place.

Forget Stocks, Look At EU Bonds – They Are The Real Problem (Luongo)

While all the headlines are agog with stories about the Dow Jones dropping a couple hundreds points off an all-time high, German bunds are getting killed right before our eyes. The Dow is simply a market overdue for a meaningful correction in a primary bull market. And it’s a primary bull market brought on by a slow-moving sovereign debt crisis that will engulf Europe. It’s not the end of the story. Hell, the Dow isn’t even a major character in the story. In fact, similar stories are being written in French 10 year debt, Dutch 10 year debt, and Swiss 10 year debt. These are the safe-havens in the European sovereign debt markets. Meanwhile, Italian 10 year debt? Still range-bound. Portuguese 10 year debt? Near all-time high prices. The same this is there with Spain’s debt. All volatility stamped out. Why? Simple. The ECB.

The ECB’s quantitative easing program and negative interest rate policy (NIRP) drove bond yields across the board profoundly negative for more than a year. [..] the ECB is trapped and cannot allow rates to rise in the vulnerable sovereign debt markets — Italy, Portugal, Spain — lest they face bank failures and a real crisis. The problem with that is, the market is scared and so they are selling the stuff the ECB isn’t buying – German, French, Dutch, Swiss debt. In simple terms, we are seeing the flight into the euro intensify here as investors are raising cash. The euro and gold are up. The USDX continues to be weak even though capital is pouring into the U.S. thanks to fundamental changes to tax and regulatory policy under President Trump. In the short term Dow Jones and S&P500 prices are overbought. Fine. Whatever. But, the real problem is not that. The real problem is the growing realization in the market that governments and central banks do not have an answer to the debt problem.

[..] The U.S. economy is about to be unleashed by Trump’s tax cut law. It will be able to absorb higher interest rates for a while. Yield-starved pension funds, as Armstrong rightly points out, will be bailed out slightly forestalling their day of reckoning. And in doing so, higher rates in the U.S. are driving core-rates higher in Europe. An overly-strong euro is crushing any hope of further economic recovery in the periphery, like Italy. The debt load on Italy et.al. has increased relative to their national output by around 20% since the end of 2016. This will put the ECB at risk of a massive loss of confidence when Italian banks start failing, Italy’s budget deficit starts expanding again and hard-line euroskeptics win the election in March. As capital is drained out of Europe into U.S. equities, the dollar, gold and cryptocurrencies, things should begin to spiral upwards rapidly.

Read more …

See? More bonds. Meredith Whitney was 10 years early.

The Ticking Time Bomb in the Municipal-Bond Market (Barron’s)

There’s a looming disaster in the market for municipal debt. Every market participant knows about it, and there isn’t much any of them can do about it. Many state and local governments, even more than corporations, have promised generous pensions they can’t afford. The promises may have looked plausible in the past, especially during the dot-com boom, when money that pension funds put in the markets was doubling. When the market crashed, so did their returns—and, a few years later, the global financial crisis took out another substantial chunk. And with interest rates at historic lows, bonds have failed to deliver the income the funds relied on. While governments delay dealing with the problem as long as they can, analysts and researchers are wondering if we have reached the point of no return. For investors in municipal bonds, it could mean future defaults and losses.

“We are increasingly wary of high pension exposure, especially among state and local credits,” the Barclays muni-research team wrote this month, citing “inflated return targets, low funded ratios, growing obligations, perhaps heavy allocations to equities and compressed tax revenues make for especially adverse conditions.” What’s more, “short-term investment gains won’t be sufficient to plug liability gaps.” Yet many pensions still assume they will be able to generate the returns they saw in the past. New Jersey’s pension and the California Public Employees’ Retirement System have lowered their assumed rate of return to 7%. But with the 30-year Treasury yielding less than 3% and stocks already at record highs, it’s unclear how public markets can generate 7%—which is why many pensions have turned to higher-risk, lower-liquidity strategies, such as private equity.

Muni investors, for their part, are increasingly sensitive to pensions’ widening gap. After the financial crisis and the ensuing recession, they suddenly became interested in pension finances. A report late last year by the Center for Retirement Research at Boston College found that, as pension liabilities grew, spreads between state and local municipal bonds and Treasuries also increased. When such issuers came to issue new debt, they discovered the market was charging them more to borrow. “Pensions have become increasingly relevant to the municipal bond markets and can have a meaningful impact on the borrowing costs of a municipality,” the report says.

Read more …

Rising bond yields mean higher mortgage rates. Australia is overflowing with interest only loans. Plenty other countries have loads of it too.

UK Interest-Only Mortgagees Are at Risk of Losing Their Homes

Some borrowers with interest-only mortgages may lose their homes as a result of shortfalls in repayment plans, the U.K.’s Financial Conduct Authority warned. The FCA has identified three peaks in interest-only mortgage repayments, the first of which is currently underway. Defaults are less likely in the present wave of maturities because the homeowners are approaching retirement and have higher incomes. The next two peaks, from 2027 through 2028 and in 2032, are more at risk of shortfalls, the regulator said. Customers are reluctant to discuss with their lenders how they’ll pay off the loans, limiting their options, the FCA found. Almost 18% of outstanding mortgages in the U.K. are interest-only or involve only partial payment of the capital, according to the statement.

“Since 2013, good progress has been made in reducing the number of people with interest-only mortgages,” Jonathan Davidson, executive director of supervision retail and authorization at the regulator, said in a statement. “However, we are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes.” The FCA reviewed 10 lenders representing about 60% of the interest-only mortgage market for the study. The supervisor also urged lenders to review and improve their own strategies regarding repayment of the loans.

Read more …

Now add some infrastructure.

US National Debt Will Jump by $617 Billion in 5 Months (WS)

While everyone is trying to figure out how to twist the new tax cut to their advantage and save some money, the US Treasury Department just announced how much net new debt it will have to sell to the public through the second quarter to keep the government afloat: $617 billion. That’s what the Treasury Department estimates will be the total amount added to publicly traded Treasury securities — or “net privately-held marketable borrowing” — through the end of the second quarter. This will be the net increase in the US debt through the end of Q2. By quarter: During Q1, the Treasury expects to increase US public debt by $441 billion. It includes estimates for “lower net cash flows.” During Q2 – peak tax seasons when revenues pour into the Treasury – it expects to increase US public debt by $176 billion.

It also “assumes” that with these increases in the debt, it will have a cash balance at the end of June of $360 billion. So over the next five months, if all goes according to plan, the US gross national debt of $24.5 trillion currently – which includes $14.8 trillion in publicly traded Treasury securities and $5.7 trillion in internally held debt – will surge to about $25.1 trillion. That’s a 4% jump in just five months. Note the technical jargon-laced description for this (marked in green on the chart). The flat lines in 2013, 2015, and 2017 are a result of the prior three debt-ceiling fights. Each was followed by an enormous spike when the debt ceiling was lifted or suspended, and when the “extraordinary measures” with which the Treasury keeps the government afloat were reversed. And note the current debt ceiling, the flat line that started in mid-December.

In November, Fitch Ratings said optimistically that, “under a realistic scenario of tax cuts and macro conditions,” the US gross national debt would balloon to 120% of GDP by 2027. The way things are going right now, we won’t have to wait that long. Back in 2012, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. At the end of 2017, gross national debt was 106% of GDP! Over the next six month, the debt will grow by about 4%. Unless a miracle happens very quickly, the debt will likely grow faster over the next five years due to the tax cuts than over the past five years. But over the past five years, the gross national debt already surged nearly 25%, or by $4.1 trillion. So that’s a lot of borrowing, for an economy that is growing at a decent clip.

Read more …

Coverage of SOTU proves my point: Moses split the nation.

As for infrastructure, they will go for what provides most short term gain. That is, make people pay. For roads, not public transport, for instance.

Trump Urges Congress To Pass $1.5 Trillion In Infrastructure Spending (R.)

President Donald Trump called on the U.S. Congress on Tuesday to pass legislation to stimulate at least $1.5 trillion in new infrastructure spending. In his State of the Union speech to Congress, Trump offered no other details of the spending plan, such as how much federal money would go into it, but said it was time to address America’s “crumbling infrastructure.” Rather than increase federal spending massively, Trump said: “Every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private-sector investment.” The administration has already released an outline of a plan that would make it easier for states to build tollways and to privatize rest stops along interstate highways.

McKinsey & Company researchers say that $150 billion a year will be required between now and 2030, or about $1.8 trillion in total, to fix all the country’s infrastructure needs. The American Society of Civil Engineers, a lobbying group with an interest in infrastructure spending, puts it at $2 trillion over 10 years. Trump said any infrastructure bill needed to cut the regulation and approval process that he said delayed the building of bridges, highways and other infrastructure. He wants the approval process reduced to two years, “and perhaps even one.” Cutting regulation is a top priority of business lobbying groups with a stake in building projects and the U.S. Chamber of Commerce.

Read more …

Just the kind of folk you want in charge of your health. With your medical needs standing in the way of their profits.

Trump Joins Bezos, Dimon, Buffett In Pledge To Stop Soaring Drug Prices (MW)

President Trump pledged to bring down drug prices. “One of my greatest priorities is to reduce the price of prescription drugs,” Trump said during his State of the Union address on Tuesday evening. “In many other countries, these drugs cost far less than what we pay in the United States and it’s over, very unfair. That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities for the year.” Mark Hamrick, Washington, D.C. bureau chief at Bankrate.com, said the president has made that promise before. “Will his choice of a former drug industry executive, Alex Azar, now the head of Health and Human Services, deliver results on that front?” he said. “I’d prefer to place my bet on the partnership just announced by Berkshire Hathaway, J.P. Morgan Chase and Amazon.”

Earlier Tuesday, Amazon, Berkshire Hathaway and JP Morgan Chase, three of the biggest companies in the U.S., surprised the health-care industry on Tuesday with a plan to form a company to address rising health costs for their U.S. employees. They said it will be “free from profit-making incentives and constraints.” Health-care costs have skyrocketed over the last 60 years, according to the Kaiser Family Foundation, a nonprofit, private foundation based in Washington, D.C. In 1960, hospital costs cost $9 billion. In 2016, they cost $1.1 trillion. In 1960, physicians and clinics costs were $2.7 billion, but ballooned to $665 billion. Prescription drug prices soared from $2.7 billion in 1960 to $329 billion. U.S. health-care spending reached $3.3 trillion, or $10,348 per person in 2016.

The Trump administration has pledged to roll back the 2010 Affordable Care Act, perhaps Barack Obama’s signature achievement as U.S. president. Roughly 1 million people will lose their insurance under Trump’s plans, according to the Congressional Budget Office. Berkshire Hathaway chairman and CEO Warren Buffett didn’t hold back in excoriating the health-care industry. “The ballooning costs of health care act as a hungry tapeworm on the American economy,” Buffett said. Amazon founder CEO Jeff Bezos and J.P. Morgan Chase chairman and CEO Jamie Dimon were more measured in their remarks. “Amazon, Chase and Berkshire Hathaway think they can do it better than the insurance companies,” said Jamie Court, president of Consumer Watchdog. “There’s a lot of frustration with the high cost of health insurance, yet government’s offering almost no systemic solutions. It’s as big a change as I have seen in the market in years.”

Read more …

Just do it?! Perhaps it makes sense not to release it before SOTU, it would have been the only talking point.

Trump Says ‘100%’ After He’s Asked to Release GOP Memo (BBG)

President Donald Trump was overheard Tuesday night telling a Republican lawmaker that he was “100%” planning to release a controversial, classified GOP memo alleging bias at the FBI and Justice Department. As he departed the House floor after delivering his State of the Union address, C-SPAN cameras captured Representative Jeff Duncan, a South Carolina Republican, asking Trump to “release the memo.” Republican lawmakers say the four-page document raises questions about the validity of the investigation into possible collusion between Trump’s campaign and Russia, now led by Special Counsel Robert Mueller. “Oh yeah, don’t worry, 100%,” Trump replied, waving dismissively. “Can you imagine that? You’d be too angry.”

Republicans in the House moved to release the memo, authored by House Intelligence Chairman Devin Nunes, in a party-line vote on Monday. The move has been opposed by Democrats, who argue the memo gives an inaccurate portrayal of appropriate actions undertaken by law enforcement, and by the Justice Department, which has said it should remain classified. Releasing the memo has become a cause for conservative congressional Republicans, who say the FBI and the Justice Department pursued the investigation of possible Russian ties to the Trump presidential campaign under false pretenses. Trump has as many as five days to review the document for national security concerns, and White House officials insisted earlier Tuesday he hadn’t yet seen the document.

Read more …

Talk about your American Dream: “..households are living paycheck-to-paycheck even if those paychecks are reasonably large and even if life is comfortable at the moment.”

Saving Rate Drops to 12-Year Low As 50% of Americans Don’t Have Savings (WS)

In terms of dollars, personal saving dropped to a Seasonally Adjusted Annual Rate of $351.6 billion, meaning that at this rate in December, personal savings for the whole year would amount to $351.6 billion. This is down from the range between $600 billion and $860 billion since the end of the Financial Crisis. But who is – or was – piling up these savings? Numerous surveys provide an answer, with variations only around the margins. For example, the Federal Reserve found in its study of US households: Only 48% of adults have enough savings to cover three months of expenses if they lost their income. An additional 22% could get through the three-month period by using a broader set of resources, including borrowing from friends and selling assets. But 30% would not be able to manage a three-month financial disruption. 44% of adults don’t have enough savings to cover a $400 emergency and would have to borrow or sell something to make ends meet.

Folks who had experienced hardship were more likely to resort to “an alternative financial service” such as a tax refund anticipation loan, pawn shop loan, payday loan, auto title loan, or paycheck advance, which are all very expensive. Similarly, Bankrate found that only 39% of Americans said they’d have enough savings to be able to cover a $1,000 emergency expense. They rest would have to borrow, sell, cut back on spending, or not deal with the emergency expense. All these surveys say the same thing: about half of Americans have little or no savings though many have access to some form of credit, including credit cards, pawn shops, payday lenders, or relatives. So what does it mean when the “saving rate” declines?

Many households spend more than they make. For them, the personal saving rate is a negative number. This negative personal saving rate translates into borrowing, which explains the 5.7% year-over-year surge in credit card debt, and the 5.5% surge in overall consumer credit. It boils down to this: most of the positive saving rate, with savings actually increasing, takes place at the top echelon of the economy – at the top 40%, if you will – where households are flush with cash and assets and where the saving rate is very large. But the growth in borrowing for consumption items (the negative saving rate) takes place mostly at the bottom 60%, where households are living paycheck-to-paycheck even if those paychecks are reasonably large and even if life is comfortable at the moment.

Read more …

Peculiar: $2.3 billion ‘worth’ of a dollar-pegged ‘currency’, backed by nothing much in proof.

U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether (BBG)

U.S. regulators are scrutinizing one of the world’s largest cryptocurrency exchanges as questions mount over a digital token linked to its backers. The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information. The firms share the same chief executive officer. Tether’s coins have become a popular substitute for dollars on cryptocurrency exchanges worldwide, with about $2.3 billion of the tokens outstanding as of Tuesday.

While Tether has said all of its coins are backed by U.S. dollars held in reserve, the company has yet to provide conclusive evidence of its holdings to the public or have its accounts audited. Skeptics have questioned whether the money is really there. “We routinely receive legal process from law enforcement agents and regulators conducting investigations,” Bitfinex and Tether said Tuesday in an emailed statement. “It is our policy not to comment on any such requests.” Bitcoin, the biggest cryptocurrency by market value, tumbled 10% on Tuesday. It fell another 3.2% to $9,766.41 as of 9:19 a.m. in Hong Kong, according to composite pricing on Bloomberg. The virtual currency hasn’t closed below $10,000 since November.

Read more …

Who’s aiding Spain in keeping its problems hidden? 30,000 complaints in 9 months, and the ECB is silent?!

Customer Lawsuits Pummel Spanish Banks (DQ)

Following a succession of consumer-friendly rulings, bank customers in Spain are increasingly taking their banks to court. And many of them are winning. Last year an unprecedented wave of litigation against banks forced the Ministry of Justice to set up dozens of courts specialized in mortgage matters to prevent the collapse of the rest of the national judicial system. The Bank of Spain, according to its own figures, received 29,957 complaints from financial consumers between January and September 2017 — already double that of the previous year and by far the highest number of complaints registered since 2013, a record year when investors and customers were desperately trying to claw back the money they’d lost in the preferred shares that issuing banks had pushed on their own customers as savings products.

In 2017, eight out of 10 complaints related to one key product: mortgages, and in particular the so-called “floor clauses” contained within them. These floor clauses set a minimum interest rate — typically of between 3% and 4.5% — for variable-rate mortgages, even if the Euribor dropped far below that figure. This, in and of itself, was not illegal. The problem is that most banks failed to properly inform their customers that the mortgage contract included such a clause. Those that did, often told their customers that the clause was an extreme precautionary measure and would almost certainly never be activated. After all, they argued, what are the chances of the Euribor ever dropping below 3.5% for any length of time? At the time (early 2009), Europe’s benchmark rate was hovering around the 5% mark.

Within a year it had crashed below 1% and has been languishing at or below zero ever since. As a result, most Spanish banks were able to enjoy all the benefits of virtually free money while avoiding one of the biggest drawbacks: having to offer customers dirt-cheap interest rates on their variable-rate mortgages. But all that came to a crashing halt in May 2013 when Spain’s Supreme Court ruled that the floor clauses were abusive and that the banks must reimburse all the funds they’d overcharged their mortgage customers — but only from the date of the ruling! Then, on December 21, 2016, the European Court of Justice (ECJ) delivered a further hammer blow when it acknowledged the right of homeowners affected by “floor clauses” to be reimbursed money dating back to when the mortgage contract was first signed. Since the ECJ ruling, law firms are now so confident of winning floor-clause cases that they’re even offering no win, no-fee deals.

Read more …

US and UK suffer from the exact same problem.

Britons Ever More Deeply Divided Over Brexit (R.)

The social divide revealed by Britain’s 2016 vote to leave the European Union is not only here to stay but deepening, according to academic research published on Wednesday. Think tank The UK in a Changing Europe said Britons were unlikely to change their minds about leaving the EU, despite the political and economic uncertainty it has brought, because attitudes are becoming more entrenched. “The (Brexit) referendum highlighted fundamental divisions in British society and superimposed a leave-remain distinction over them. This has the potential to profoundly disrupt our politics in the years to come,” said Anand Menon, the think tank’s director.

Britain is negotiating a deal with the EU which will shape future trade relations, breaking with the bloc after four decades, but the process is complicated by the divisions within parties, society and the government itself. Menon said the research, based on a series of polls over the 18-month period since Britain voted to leave the European Union, showed 35% of people self-identify as “Leavers” and 40% as “Remainers”. Research also found that both sides had a tendency to interpret and recall information in a way that confirmed their pre-existing beliefs which also added to the deepening of the impact of the vote. The differences showed fragmentation was more determined by age groups and location than by economic class.

Polls have shown increasing support for a second vote on whether or not to leave the European Union once the terms of departure are known, but such a vote would not necessarily provide a different result, a poll by ICM for the Guardian newspaper indicated last week. The report also showed that age was a better pointer to how Britons voted than employment. Around 73% of 18 to 24-year-olds voted to stay in the EU, but turnout among that group was lower than among older voters. “British Election Study surveys have suggested that, in order to have overturned the result, a startling 97% of under-45s would have had to make it to the ballot box, as opposed to the 65% who actually voted,” the report said.

Read more …

How China hides debt through swaps. As US and EU have done for ages now.

The GDP of Bridges to Nowhere (Michael Pettis)

In most economies, GDP growth is a measure of economic output generated by the performance of the underlying economy. In China, however, Beijing sets annual GDP growth targets it expects to meet. Turning GDP growth into an economic input, rather than an output, radically changes its meaning and interpretation. On January 18, 2018, China’s National Bureau of Statistics announced that the country’s GDP grew by 6.9% in 2017. A day earlier, the People’s Bank of China (PBoC) announced that total social financing (TSF) in 2017 had increased to 19.44 trillion renminbi.

[..] I was recently part of a discussion on a listserv that brings together Chinese and foreign experts to exchange views on China-related topics. What set off this discussion was a claim that the Chinese economy began to take deleveraging seriously in 2017. Everyone agreed that debt in China is still growing far too quickly relative to the country’s debt-servicing capacity, but the pace of credit growth seems to have declined in 2017, even as real GDP growth held steady and, more importantly, nominal GDP growth increased. I was far more skeptical than some others about how to interpret this data. It is not just the quality of data collection that worries me, but, more importantly, the prevalence in China of systemic biases in the way the data is collected. Not all debt is included in TSF figures. The table above, for example, indicates a fall in TSF in 2015, but this did not occur because China’s outstanding credit declined.

[..] in 2015 there was a series of debt transactions (mainly provincial bond swaps aimed at reducing debt-servicing costs and extending maturities) that extinguished debt that had been included in the TSF category and replaced it with debt not included in TSF. The numbers are large. According to the China Daily, there were 3.2 trillion renminbi worth of bond swaps in 2015, plus an additional 600 billion renminbi of new bonds issued. If we adjust TSF by adding these back, rather than indicate a decline of 6.4%, we would have recorded an increase of 15.7%. [..] The point is that the deceleration in credit growth implied by TSF data might indeed reflect the beginning of Chinese deleveraging, but it could also reflect the surge in regulatory concern. In the latter case, this would mean that China has experienced not the beginnings of deleveraging, but rather a continuation of the trans-leveraging observers have seen before.

Read more …

Nov 182017
 
 November 18, 2017  Posted by at 1:49 pm Finance Tagged with: , , , , , , , , ,  


Rembrandt van Rijn The Three Crosses 1653

 

John Rubino recently posted a graph from Bob Prechter’s Elliot Wave that points to some ominous signs. It depicts the S&P 500, combined with consumer confidence and savings rate. As the accompanying video at Elliott Wave, What “Too Confident to Save” Means for Stocks, shows, when the gap between high confidence and low savings is at its widest, a market crash -often- follows.

In 2000, the subsequent crash was 39%, in 2007 it was 54%. We are now again witnessing just such a gap, with the S&P 500 at record levels. Here’s the graph, with John’s comments:

 

Consumers Are Both Confident And Broke

Elliott Wave International recently put together a chart that illustrates a recurring theme of financial bubbles: When good times have gone on for a sufficiently long time, people forget that it can be any other way and start behaving as if they’re bulletproof. They stop saving, for instance, because they’ll always have their job and their stocks will always go up. Then comes the inevitable bust. On the following chart, this delusion and its aftermath are represented by the gap between consumer confidence (our sense of how good the next year is likely to be) and the saving rate (the portion of each paycheck we keep for a rainy day). The bigger the gap the less realistic we are and the more likely to pay dearly for our hubris.

 

 

John is mostly right. But not entirely. Not that I don’t think he knows, he simply forgets to mention it. What I mean is his suggestion that people stop saving because they’re confident, bullish. To understand where and why he slightly misses, let’s turn to Lance Roberts. Before we get to the savings, Lance explains why the difference between the Producer Price Index (PPI) and Consumer Price Index (CPI) is important to note.

Summarized, producer prices are rising, but consumer prices are not.

 

You Have Been Warned

There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week. On Tuesday, we saw the release of the Producer Price Index (PPI) which ROSE 0.4% for the month following a similar rise of 0.4% last month. This surge in prices was NOT surprising given the recent devastation from 3-hurricanes and massive wildfires in California which led to a temporary surge in demand for products and services.

 

 

Then on Wednesday, the Consumer Price Index (CPI) was released which showed only a small 0.1% increase falling sharply from the 0.5% increase last month.

 

 

Such differences have real life consequences. In Lance’s words:

 

This deflationary pressure further showed up on Thursday with a -0.3% decline in Export prices. (Exports make up about 40% of corporate profits) For all of you that continue to insist this is an “earnings-driven market,” you should pay very close attention to those three data points above. When companies have higher input costs in their production they have two choices: 1) “pass along” those price increase to their customers; or 2) absorb those costs internally.

If a company opts to “pass along” those costs then we should have seen CPI rise more strongly. Since that didn’t happen, it suggests companies are unable to “pass along” those costs which means a reduction in earnings. The other BIG report released on Wednesday tells you WHY companies have been unable to “pass along” those increased costs.

The “retail sales” report came in at just a 0.1% increase for the month. After a large jump in retail sales last month, as was expected following the hurricanes, there should have been some subsequent follow through last month. There simply wasn’t. More importantly, despite annual hopes by the National Retail Federation of surging holiday spending which is consistently over-estimated, the recent surge in consumer debt without a subsequent increase in consumer spending shows the financial distress faced by a vast majority of consumers.

 

That already hints at what I said above about savings. But it’s Lance’s next graph, versions of which he uses regularly, that makes it even more obvious. (NOTE: I think he means to say 2009, not 2000 below)

 

The first chart below shows a record gap between the standard cost of living and the debt required to finance that cost of living. Prior to 2000(?!), debt was able to support a rising standard of living, which is no longer the case currently.

 

 

The cut-off point is 2009, unless I miss something in Lance’s comment. Before that, borrowing could create the illusion of a rising standard of living. Those days are gone. And it’s very hard to see, when you take a good look, what could make them come back.

Not only are savings not down because people are too confident to save, they are down because people simply don’t have anything left to save. The American consumer is sliding ever deeper into debt. And as for the Holiday Season, we can confidently -there’s that word again- predict that spending will be disappointing, and that much of what is still spent will add to increasing Consumer Credit Per Capita, as well as the Gap Between Real Disposable Income (DPI) And Cost Of Living.

The last graph, which shows Control Purchases, i.e. what people buy most, a large part of which will be basic needs, makes this even more clear.

 

With a current shortfall of $18,176 between the standard of living and real disposable incomes, debt is only able to cover about 2/3rds of the difference with a net shortfall of $6,605. This explains the reason why “control purchases” by individuals (those items individuals buy most often) is running at levels more normally consistent with recessions rather than economic expansions.

 

 

If companies are unable to pass along rising production costs to consumers, export prices are falling and consumer demand remains weak, be warned of continued weakness in earnings reports in the months ahead. As I stated earlier this year, the recovery in earnings this year was solely a function of the recovering energy sector due to higher oil prices. With that tailwind now firmly behind us, the risk to earnings in the year ahead is dangerous to a market basing its current “overvaluation” on the “strong earnings” story.

“Prior to 2009, debt was able to support a rising standard of living..” Less than a decade later, it can’t even maintain the status quo. That’s what you call a breaking point.

To put that in numbers, there’s a current shortfall of $18,176 between the standard of living and real disposable incomes. In other words, no matter how much people are borrowing, their standard of living is in decline.

Something else we can glean from the graphs is that after the Great Recession (or GFC) of 2008-9, the economy never recovered. The S&P may have, and the banks are back to profitable ways and big bonuses, but that has nothing to do with real Americans in their own real economy. 2009 was a turning point and the crisis never looked back.

Are the American people actually paying for the so-called recovery? One might be inclined to say so. There is no recovery, there’s whatever the opposite of that is, terminal decline?!. It’s just, where does that consumer confidence level come from? Is that the media? Is The Conference Board pulling our leg? Is it that people think things cannot possibly get worse?

What is by now crystal clear is that Americans don’t choose to not save, they have nothing left to save. And that will have its own nasty consequences down the road. Let’s raise some rates, shall we? And see what happens?!

One consolation: Europe, Japan, China are in the same debt-driven decline that Americans are. We’re all going down together. Or rather, the question is who’s going to go first. That is the only hard call left. America’s a prime candidate.

 

 

Aug 262017
 
 August 26, 2017  Posted by at 7:40 am Finance Tagged with: , , , , , , , , ,  


Vincent van Gogh Self-Portrait with Straw Hat Aug-Sep 1887

 

Draghi Warns Of Serious Risk To Global Economy From Rising Protectionism (CNBC)
Yellen and Draghi Both Defend Post-Crisis Financial Regulation (BBG)
Central Banks’ Pursuit Of Inflation Has Turned Sisyphean (CNBC)
IMF: We See A Broad-Based Global Recovery (CNBC)
Rickards: September Meltdown Ahead (DR)
Negative Interest Rates Have Come To America (Black)
Adults Take Over at Uber, Cost Cutting Starts (WS)
Sears Revenues to Hit Zero in 3 Years. But Bankruptcy First (WS)
Health-Care Costs Could Eat Up Your Retirement Savings (BBG)
Schaeuble Defends Tough Line On Greek Reforms (K.)
Minister: Young Greeks Fleeing A ‘Debt Colony’ (K.)

 

 

Only globalization can save you. In other news: all your base are belong to us.

Draghi Warns Of Serious Risk To Global Economy From Rising Protectionism (CNBC)

European Central Bank President Mario Draghi said protectionist policies pose a “serious risk” for growth in the global economy. At a gathering of central bankers, economists and others in Jackson Hole, Wyoming, on Friday, Draghi said the global economy is firming up. He told the audience in a speech that “a turn towards protectionism would pose a serious risk for continued productivity growth and potential growth in the global economy.” The comments come at a time when President Donald Trump is taking a hard look at the U.S.’s trade agreements around the world, pushing to reduce trade deficits and make conditions more favorable for American manufacturers.

Trump also came to office promising American business leaders he would break down regulations, which he said have constrained economic growth. The financial industry in particular seems poised to benefit if Obama-era regulations on banks and Wall Street get dismantled or diluted. On Friday, Draghi, a former Goldman Sachs executive, said “there is never a good time for lax regulation” especially because it can create incentives that lead to higher risk-taking. “By contrast, the stronger regulatory regime that we have now has enabled economies to endure a long period of low interest rates without any significant side-effects on financial stability, which has been crucial for stabilizing demand and inflation worldwide,” Draghi said. “With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis.”

Read more …

MO: make a godawful mess, then switch to being sensible.

Yellen and Draghi Both Defend Post-Crisis Financial Regulation (BBG)

The world’s two most powerful central bankers on Friday delivered back-to-back warnings against dismantling tough post-crisis financial rules that the Trump administration blames for stifling U.S. growth. ECB President Mario Draghi, speaking at the Federal Reserve’s annual retreat in Jackson Hole, Wyoming, said it was a particularly dangerous time to loosen regulation given that central banks are still supporting their economies with accommodative monetary policies. That warning followed earlier remarks by Fed Chair Janet Yellen, who offered a broad defense of the steps taken since the 2008 financial-market meltdown and urged that any rollback of post-crisis rules be “modest.” The combined effect was “a subtle shot across the bow of those who seek deregulation,” said Michael Gapen, chief U.S. economist at Barclays in New York.

The complementary speeches come at what may be the tail end of Yellen’s tenure at the Fed’s helm. President Donald Trump is not expected to reappoint her when her leadership term expires in February, according to economists surveyed by Bloomberg. Gapen said that by delivering overlapping messages, Yellen and Draghi could help amplify their points, but “in practice that’s not the agenda the Trump administration is likely to seek.” In a talk aimed broadly at defending the merits of globalization, Draghi said it’s crucial to make sure open policies on trade and global finance should be safeguarded with regulations designed to make globalization fair, safe and equitable. “We have only recently witnessed the dangers of financial openness combined with insufficient regulation,” Draghi said, referring to the global financial crisis of 2008-09.

Any reversal of the regulatory response to that crisis, he added, “would call into question whether the lessons of the crisis have indeed been learnt – and thus whether financial integration can still be considered safe.” That point was all the more important given that central banks are continuing to provide stimulus to their economies. “With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis,” Draghi said.

Read more …

Blind as bats.

Central Banks’ Pursuit Of Inflation Has Turned Sisyphean (CNBC)

Central banks globally have spent years fruitlessly trying to awaken long-dormant inflation, and some analysts say it’s time to stop trying. Anemic inflation has become a bugaboo for global central banks, with frequent mentions in the meeting minutes. It’s been a speed bump in the U.S. Federal Reserve’s path toward normalizing interest rates, with members voting at the July meeting to keep the current target rate in a 1% to 1.25% range. Minutes from that July decision show some policymakers were pushing for caution on rate hikes due to low inflation. The Fed’s target is for 2% inflation, and its preferred measure of inflation is at about 1.5%. It’s not limited to the U.S. by any stretch: Japan’s colossal struggle to goad inflation to life has been a stalemate at best. Since the Bank of Japan launched a massive quantitative easing program in 2013, the country has exited deflation.

But even the September 2016, introduction of a “yield-curve control” policy, seen by markets as essentially a “whatever it takes” stance on boosting inflation, hasn’t seemed to move the needle much. Japan’s core consumer price index, which includes oil products and excludes fresh food, rose 0.5% year-on-year in July, Reuters reported on Friday. That compared with the BOJ’s goal for inflation to meet or exceed its target of 2% “in a stable manner.” It also was oddly jarring compared with Japan’s economy growing a better-than-expected annualized 4% year-on-year in the April-to-June quarter. Some analysts have said the persistently low inflation was a signal that central banks shouldn’t be using inflation to guide monetary policy. “If we’ve got growth at trend, which most places appear to have, if we’ve got the unemployment rate at full employment, which most places appear to have, then we shouldn’t even worry about what inflation is doing,” Rob Carnell, head of research for Asia at ING, said recently.

Read more …

The future’s are so bright you just got to wear shades.

IMF: We See A Broad-Based Global Recovery (CNBC)

The global economy is doing well, the chief economist for the International Monetary Fund told CNBC on Friday. The IMF’s new forecast on the world’s economy is expected in about five weeks, Maury Obstfeld said. And while he wouldn’t divulge what that may be, he did say the organization “certainly” isn’t going to lower the number from its last projection. In July, the IMF forecast global economic growth of 3.5% for 2017 and 2.5% for 2018. “We see broad-based recovery. The importance is that it’s really broad-based in a way that it hasn’t been in a decade,” Obstfeld said in a “Closing Bell” interview from the sidelines of the Federal Reserve’s symposium in Jackson Hole, Wyoming.

That doesn’t mean there won’t be concerns ahead. While there are not any immediate downside risks, there are longer-term ones, he noted. “One risk is just continuing tepid growth. What we’re seeing now is a cyclical upswing, but potential growth remains slow,” Obstfeld said. “That brings with it political tensions which we’ve seen spilling over into protectionist rhetoric, for example.” Earlier Friday, ECB Mario Draghi told the audience at Jackson Hole that protectionist policies pose a “serious risk” for growth in the global economy. The comments come at a time when President Donald Trump has been scrutinizing U.S. trade agreements around the world in a push to reduce trade deficits and boost conditions for American manufacturers.

Read more …

Ice-9.

Rickards: September Meltdown Ahead (DR)

Jim Rickards joined Alex Stanczyk at the Physical Gold Fund to discuss current destabilizing factors that could drastically impact investors. During the first part of their conversation the economic expert delved into gold positioning for the future, the expanding threats from North Korea and liquidity in global markets. To begin Rickards’ was prompted on his latest analysis over North Korea and the international threat the country poses going forward. The currency wars expert urged, “The fact is, the threats from North Korea, even if not to the mainland, still threaten U.S territory. There are a lot of Americans living there. As this escalation continues in sequence the problem is not new.” “The threat of North Korea has been going on for decades and has escalated since the mid 1990’s. Bill Clinton and George W. Bush both offered sanctions relief for the country in exchange for program reductions.

The Obama administration essentially did nothing for eight years. I do think the Trump administration at least deserves credit for clarity.” “Trump has identified that he is not willing to negotiate to arrive at negotiations. They have indicated to North Korea that if the regime wishes to come to the table what the White House must see is a verified cessation of weapons programs. In exchange they could offer potential sanctions relief and even the possibility of integrating the North Korean economy into the global economy. The North Koreans are actually very rich in natural resources and could be a commodity driven exporter.” “The U.S is not going to be bullied. It will continue to operate in South Korea with joint military exercises. One by one the North Koreans have come to understand missile technology and it seems like they are within the final steps toward miniaturization of weapons.”

[..] The author of Road to Ruin highlighted the severity of the debt ceiling and what it means for the economy. Rickards went on, “There are two really big, but separate, deadlines converging on September 29th. The first is the debt ceiling. This has to deal with the borrowing authority of the U.S Treasury and to be able to pay the bills of the government.” “That authority includes the money to cover social security, medicare, medicaid, military and all of the operations within the budget. Until it is authorized, the Treasury is essentially running on fumes. They are running out of cash. They need Congress to authorize an increase in the debt ceiling so they can borrow money so they can pay for their bills. The problem is that Congress is not functional right now.”

[..] Rickards then turned to warn how liquidity can be frozen by governments. “In October 1987, the major U.S stock market, and in particular the Dow Jones, fell 22% in one day. That kind of a drop would be 4,000 Dow points. When I explain that move to investors they typically respond that there are measures in place to freeze the market and stop such a loss.” “My immediate reaction is, which makes you feel more concerned; thousand point drops, or a closed exchange? At least with a significant point drop you can still get out at a price. If you shut the market down, that’s Ice-9. My thesis is that if you shut down one market the demand for liquidity then just moves to another market, requiring another sector shutdown.”

Read more …

“..in principle there’s nothing wrong with paying a bank a reasonable fee to safeguard your money. But that’s not what banks do.”

Negative Interest Rates Have Come To America (Black)

Negative interest rates are particularly prominent in Europe. Starting back in 2014, the European Central Bank (ECB) slashed its main interest rate to below zero. One bizarre effect of this policy is that some banks have passed on these negative interest rates to their retail depositors. This trend has persisted across Europe, Japan, and many other parts of the world. Yet at least Americans were able to breathe a sigh of relief that negative interest rates hadn’t crossed the Atlantic. Well, that’s not entirely true. Recently I was reading through Bank of America’s most recent annual report; it’s filled with some shocking facts about the -real- level of wealth in the Land of the Free… which I’ll tell you more about next week. But here’s one of the things that caught my eye: Bank of America has $592.4 billion in deposits from retail customers, i.e. regular folks who bank at BOA.

And according to its annual report, BOA paid its retail depositors an average interest rate of 0.04% last year. Seriously. That’s a tiny, laughable amount of interest. But hey, at least it’s positive. That 0.04% average rate means the bank paid its retail depositors a total of $236 million in interest. Yet at the same time, Bank of America charged those very same retail depositors $4.1 BILLION in fees. So in total, small depositors forked over a net sum of $3.8+ billion to Bank of America last year for the privilege of holding their money at the bank. Based on the bank’s total consumer deposits of $592.4 billion, it’s as if the bank had charged its customers a negative interest rate of 0.64%. What’s the point? It’s one thing to pay fees to a bank that will safeguard your capital and act in the most conservative way possible.

People pay fees to storage companies to safeguard their wine collections, baseball card collections, all sorts of stuff. We even pay fees for safety deposit boxes to store important documents. So in principle there’s nothing wrong with paying a bank a reasonable fee to safeguard your money. But that’s not what banks do.

Read more …

It’s time for competition.

Adults Take Over at Uber, Cost Cutting Starts (WS)

[..] now the adults have taken over at Uber. And money has become an objective. A 14-member executive committee is running the show since there’s no CEO, no CFO, no number two behind the CFO, and no COO. A gaggle of other executives and managers left or were shoved out in the wake of scandals, chaos, and lawsuits. And the adults have decided to bring the expenses down. One of the steps is to unload Uptown Station. According to the San Francisco Business Times: The possible sale of Uptown Station means Uber can move the asset and development costs off its books, which could put it in a better financial position. That was a key motivator for exploring the sale, spokesperson MoMo Zhou told the Business Times. Uber was looking “to strengthen our financial position so we can better serve riders and drivers in the long term,” she said.

So they’re starting to concentrate their efforts and prioritize their spending where it matters: riders and drivers. In March already, Uber had decided to scale down its move to Uptown Station. Instead of migrating 2,500 to 3,000 employees into the building, it said it would move just a few hundred, and lease out the remaining space. Uber has booming sales – in Q2, “adjusted net revenue” soared by 118% year-over-year to $1.75 billion – but it also has booming expenses and losses, and sooner or later something has to give. In 2016, it booked an “adjusted” loss of $3.2 billion (not including interest, tax, employee stock compensation expenses, and other items). In the first two quarters of 2017, it booked an “adjusted” loss of $1.4 billion: $4.6 billion in “adjusted” losses in six quarters. It has $6.6 billion in cash. At this pace, it’ll be gone quickly.

Uber is now trying to cut its losses and reach profitability, a “person with knowledge of the matter” told the Business Times. And given the chaos surrounding Uber, it might be a better idea to concentrate employees in one place rather than scattering them all over the landscape. This comes after the adults have also decided to shut down Uber’s subprime auto leasing program that was started two years ago. “Xchange Leasing” put their badly paid drivers with subprime credit into new vehicles they couldn’t afford. The leases allowed drivers to put “unlimited miles” on their cars without consequences and return the cars after 30 days with two weeks’ notice. No one in the car business would ever offer this kind of lease. But the folks at Uber simply didn’t need to do the math. Uber invested $600 million in this program. Now the adults found out they’re losing $9,000 per car. With 40,000 cars in the fleet, it adds up in a hurry. So they decided to shut down that program.

Read more …

Sears is toast.

Sears Revenues to Hit Zero in 3 Years. But Bankruptcy First (WS)

In its fiscal year 2017, it already closed about 180 stores and expects to shutter an additional 150 stores in the third quarter. Those closings had been announced previously. But in its earnings release, it announced the closing of 28 more Kmart stores “later this year.” Liquidation sales will begin as early as August 31, it said. The rest of the plunge was caused by same-store sales (sales at stores open longer than one year) which dropped 11.5%. “Softness in store traffic” the company called it. But the trend is falling off a cliff: In Q2 2016, same-store sales had dropped “only” 5.2%. Now they’re plunging at more than double that rate. Despite the ceaseless corporate rhetoric of operational improvements, this baby is going down the tubes at an ever faster speed. How does that $4.37 billion in revenues stack up? They’re down by nearly two-thirds from Q2 2007. This is what the accelerating revenue shrinkage looks like:

[..] Over the past three years, the momentum of the revenue decline has accelerated sharply. Q2 revenues have plummeted from $8.0 billion in 2014 to $4.37 billion in 2017. A decline of $3.6 billion, or 45% in three years. This chart shows Q2 revenues from 2014 to 2017, with the trend line (purple) extended until it hits zero. This is the same track that Q1 revenues are on. As I’d postulated three months ago, at this rate, revenues of the once largest retailer in the US will be zero in three years, or by 2020. Zero is the inevitable result of a hedge-fund strategy of asset-stripping and cost-cutting at a retailer that had already been struggling before the takeover, and that now finds itself embroiled without effective online strategy in the American brick-and-mortar retail meltdown. But revenues won’t drop to zero. Sears won’t last that long.

Read more …

But who actually has the required $275,000? And what happens to those who don’t have it?

Health-Care Costs Could Eat Up Your Retirement Savings (BBG)

In a perfect world, the largest expenses in retirement would be for fun things like travel and entertainment. In the real world, retiree health-care costs can take an unconscionably big bite out of savings. A 65-year-old couple retiring this year will need $275,000 to cover health-care costs throughout retirement, Fidelity Investments said in its annual cost estimate, out this morning. That stunning number is about 6% higher than it was last year. Costs would be about half that amount for a single person, though women would pay a bit more than men since they live longer. You might think that number looks high. At 65, you’re eligible for Medicare, after all. But monthly Medicare premiums for Part B (which covers doctor’s visits, surgeries, and more) and Part D (drug coverage) make up 35% of Fidelity’s estimate.

The other 65% is the cost-sharing, in and out of Medicare, in co-payments and deductibles, as well as out-of-pocket payments for prescription drugs. And that doesn’t include dental care—or nursing-home and long-term care costs. Retirees can buy supplemental, or Medigap, insurance to cover some of the things Medicare doesn’t, but those premiums would lead back to the same basic estimate, said Adam Stavisky, senior vice president for Fidelity Benefits Consulting. The 6% jump in Fidelity’s estimate mirrors the average annual 5.5% inflation rate for medical care that HealthView Services, which makes health-care cost projection software, estimates for the next decade. A recent report from the company drilled into which health-care costs will grow the fastest.

It estimates a long-term inflation rate of 7.2% for Medigap premiums and 8% for Medicare Part D. For out-of-pocket costs, the company estimates inflation rates of 3.7% for prescription drugs, 5% in dental, hearing, and vision services, 3% for hospitals, and 3.4% for doctor’s visits and tests. Cost-of-living-adjustments on Social Security payments, meanwhile, are expected to grow by 2.6%, according to the HealthView Services report.

Read more …

“One day they will build a statue in my honor in Greece in a show of gratitude..”

Schaeuble Defends Tough Line On Greek Reforms (K.)

As Prime Minister Alexis Tsipras prepares to present a positive narrative at next month’s Thessaloniki International Fair about how the country is turning a corner ahead of the next review by international creditors in the fall, German Finance Minister Wolfgang Schaeuble has reportedly suggested that Athens should be grateful to him for his tough stance on economic reform and austerity. “One day they will build a statue in my honor in Greece in a show of gratitude for the pressure that I imposed in order for necessary reforms to be carried out,” the outspoken minister was quoted as saying by German newspaper Handelsblatt. According to the same newspaper, Schaeuble aims to turn the European Stability Mechanism into a European version of the IMF, one of Greece’s creditors.

The concept is that of a European monetary fund that would help eurozone states in financial crisis but subject to strict terms, such as those that underpinned the IMF’s support to Greece and other countries in recent years. Other ideas, such as the possibility of introducing growth-inducing measures in such countries, were reportedly rejected by Schaeuble. French President Emmanuel Macron meanwhile has suggested that the eurozone should have its own central budget which it could tap if necessary to support member-states in financial difficulty. He is also said to back the idea of a eurozone finance minister, another idea opposed by Berlin. Macron is due in Athens in the first week of September for an official visit that government sources hope will bolster Tsipras’s positive narrative while there are also signs that French firms might confirm their interest in investing in the Thessaloniki Port Authority.

Read more …

When you’re bled dry of your young and their energy, you’re not going to recover.

Minister: Young Greeks Fleeing A ‘Debt Colony’ (K.)

In comments to Skai TV on Friday, Deputy Education Minister Costas Zouraris said he understood why large numbers of young Greeks are abandoning the country for better employment opportunities abroad, noting that Greece is “a debt colony” that is “slightly worse” than India. “For now, it’s understandable that kids are saying they want to leave,” Zouraris told Skai. “Let’s hope they return because we are, as you know, bankrupt and a debt colony.” He added that the Greek state has invested about 1 million euros in its top graduates who are now leaving the country. “We are now giving this as a gift to foreign countries for a few years,” he said.

Read more …

Apr 042017
 
 April 4, 2017  Posted by at 8:59 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle April 4 2017


Esther Bubley Child living in alley near US Capitol 1943

 

Living Standard Will Fall Without Productivity Boost, Warns IMF (G.)
67% Of Low-Income Americans Worry A Lot About Hunger, Homelessness (ZH)
The Issue With China Isn’t Trade, It’s Excess Savings (Pettis)
Toronto Bidding Wars So Fierce That Homebuyers Skip Inspections
Can Housing Bubbles Be Stopped? (WSJ)
Cernovich Explains How He Learned About Susan Rice (ZH)
The Deep State Now Works For The ‘Good Guys’ (AlJ)
The Deep State Now Works For The ‘Good Guys’ (AlJ)
Putin Derangement Syndrome Arrives (Matt Taibbi)
Euro MPs ‘Unanimously’ Condemn Dijsselbloem’s No-Show (AFP)
Greek Pensions Hot Potato Puts Tsipras in Tight Spot on Bailout (BBG)
Austerity-Crushed Greek Households Keep Cutting Food Purchases (TNH)
Youth Unemployment Shows Euro-Area Recovery Not Working for All (BBG)
Erdogan Says Turks In Europe Should Defy ‘Grandchildren Of Nazism’ (R.)
Yes, Let’s Allow The Syrian People To Decide For Themselves (Ron Paul)
New Evidence Undermines EU Report Tying Refugee Rescue Group To Smugglers (IC)
The Vanishing Art Of Seizing The Day (Krznaric)

 

 

Interesting. I’m sure Lagarde has no idea why productivity fell. She has some textbook explanation, for sure, but her ‘solutions’ are bland: education and technology. But those were available all along as productivity was falling. Plus, technology costs jobs too. Then again, for the IMF there’s always ‘reforms’ of course: more globalization. But wait: that also costs jobs. Question then: if you lose enough jobs, will productivity rise?

Living Standard Will Fall Without Productivity Boost, Warns IMF (G.)

The head of the IMF has issued a stark warning that living standards will fall around the world unless governments take urgent action to increase productivity by investing in education, cutting red tape and incentivising research and development. Christine Lagarde used a speech in Washington to tell policymakers they could not simply wait for innovation to drive up productivity growth and help living standards recover from the legacy of the global financial crisis. She highlighted a poor global record on productivity growth in recent years and said IMF analysis suggested GDP in advanced economies would be about 5% higher today if the pre-crisis trend had continued for total factor productivity growth – a broad measure of what goes into production, such as research spending.

“That would be the equivalent of adding another Japan – and more – to the global economy,” the IMF managing director in a speech to the American Enterprise Institute. Legarde warned the world could not afford to leave productivity growth in the doldrums. “Another decade of weak productivity growth would seriously undermine the rise in global living standards. Slower growth could also jeopardise the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations. “Leaning back and waiting for artificial intelligence or other technologies to trigger a productivity revival is simply not an option.”

[..] In the UK, productivity growth has been sluggish for years and is behind most other big economies, prompting the chancellor, Philip Hammond, to pledge more investment in infrastructure and other areas with a £23bn national productivity investment fund. Calling on all governments to do more, Lagarde sought to emphasise productivity as the most important source of higher income and rising living standards. “For example, the average American worker today works only about 17 weeks to live at the annual real income level of the average worker in 1915,” she said. That kind of progress had been seen in many countries, she added. “But this engine of prosperity has slowed down in recent years, with negative consequences for growth and incomes that look very hard to unwind.”

She also echoed concerns over how rapid changes in technology had cost jobs in some sectors, hitting lower skilled workers hardest. Governments must help such workers through targeted education programmes, Lagarde said. That in turn would help solve productivity problems and create more inclusive and sustainable growth.

Read more …

Bit of a vague survery, but who today is going to be surprised at the outcome?

67% Of Low-Income Americans Worry A Lot About Hunger, Homelessness (ZH)

Something unexpected happened on the road to Obama’s economic “recovery” – according to Gallup, over the past two years, a record two-thirds, or an average of 67% of lower-income U.S. adults, up from 51% from 2010-2011, have worried “a great deal” about the problem of hunger and homelessness in the country. They are not alone: concern has also increased among middle- and upper-income Americans, but they still worry far less than do lower-income Americans. Some details: since 2001, worry has been highest among those residing in lower-income households, likely because those with limited financial resources are more at risk of going hungry or becoming homeless. A consistent majority of lower-income adults worried about the problem before 2012, but that has only increased in the past five years. Concern among middle-income Americans in 2016-2017 falls just short of the majority level at 47%, while 37% of upper-income Americans are worried.

Rising concern among all income groups could be a result of the political and media attention devoted to U.S. income inequality in recent years. Americans may also worry more about hunger and homelessness when other issues are not dominating the national consciousness, such as the economy and budget deficit were in 2010-2011 and terrorism was in the years after 9/11. Overall, 47% of Americans now worry about hunger and homelessness “a great deal,” according to Gallup’s March 1-5 survey, tied with 2016 as the high in the trend. Previously, concern had been as low as 35% in 2004 and as high as 45% in 2001, the first year Gallup asked the question.

Read more …

In which paying off debt is counted towards savings. And not savings at household level.

The Issue With China Isn’t Trade, It’s Excess Savings (Pettis)

trade imbalances were mostly determined by direct differences in the cost of traded goods, while capital flowed from one country to another mainly to balance trade flows. Today, however, conditions have changed dramatically. Capital flows dwarf trade flows, and investment decisions by fund managers determine their direction and size. This has profound implications for trade. Large, persistent trade surpluses such as the one China runs with the U.S. are no longer the consequence of explicitly mercantilist measures. Instead, they’re driven by policies that distort domestic savings rates by subsidizing production at the expense of households. Take Germany, for example. After a decade of trade deficits and high unemployment, worried leaders in Berlin implemented labor reforms in 2003-05 whose main effect was to weaken wage growth.

As unemployment dropped and business profits surged, the reforms also shrunk the share of national income allocated to ordinary households, driving down the consumption share as well. German businesses, blessed with higher profits, responded unhelpfully. They paid down debt instead of investing the profits, increasing the share of national income devoted to savings. As the growing gap between German savings and investment soon became among the largest in history, so did the German trade surplus. German banks exported the excess savings into other European countries, no longer protected by the interest-rate and currency adjustments proscribed under the rules of the euro. By 2009, after insolvency prevented one European country after another from absorbing any more of the German tsunami of capital outflows, these shifted to countries outside Europe.

While the experiences of China and Japan may seem different on the surface, they were broadly similar in impact. China, for example, severely repressed interest rates in order to boost growth. This simultaneously reduced the household share of Chinese GDP to among the lowest ever recorded and raised Chinese savings to among the highest – so high that, even with the fastest-rising investment in the world, China still needed large trade surpluses to make up for weak domestic demand. What happens next is the most confusing part for economists who don’t understand how trade has changed. When new capital pours into advanced economies that have always had easy access to investment – such as the U.S. and southern Europe – it doesn’t boost investment further. Instead it automatically causes savings to contract.

Read more …

Not a bubble. Why of sound mind gets into this?

Toronto Bidding Wars So Fierce That Homebuyers Skip Inspections

In Toronto, some homebuyers are so desperate to win bidding wars that they’re rushing to make offers without even getting an inspection. The average price for a detached home in Canada’s largest metropolitan area jumped to C$1.21 million ($905,950) in February, up a third from a year earlier, amid a dearth of properties for sale. In the same period, Toronto-based home-inspection firm Carson Dunlop saw a 34% drop in volume. Murray Parish, president of the Ontario Association of Home Inspectors, said he’s seen a 30% decline at his firm, Parish Home Inspections. “The bottom line is we are in a shortage of supply,’’ said Tasis Giannoukakis, a Century 21 broker based in Toronto, adding that it’s not uncommon to see bids of as much as C$200,000 over the asking price.

“That pressure is what’s causing everybody to remove the conditions on an inspection.’’ Home-price increases in North America’s fourth-largest city and its suburbs have outpaced growth in places including Manhattan, Vancouver, Seattle and San Francisco, leading local officials to search for ways to control price gains and spurring concerns a correction may be coming. The frothy market, buoyed by low interest rates, is resulting in frenzied bidding wars, causing many shoppers to leave once-standard clauses such as a professional home inspection and financing contingencies out of their purchase offers. A move away from inspections isn’t unique to Toronto.

Vancouver, Canada’s hottest real estate market until Toronto took that mantle last year, saw a surge in unconditional purchase offers in the first half of 2016, said Adil Dinani, an agent with Royal LePage West Real Estate Services in the West Coast city. The same is true in hot U.S. markets. Mark Attarha, president of Bay Sotheby’s International Realty, which has seven offices in the in San Francisco Bay area, said he’s seeing a spate of offers without contingencies, along with a raft of “overbidding.” Attarha estimates that 75% of prospective buyers he works with are accepting a home-inspection report from the seller rather than ordering their own or including an inspection clause in their purchase offers.

Read more …

Let your house do the work for you: “Demand in Melbourne is driving up valuations of house land plots by $7,500 a week..”

Can Housing Bubbles Be Stopped? (WSJ)

From Australia to Canada, authorities are learning a hard lesson in their efforts to curb the foreign money flooding their property markets: deterrents quickly lose their punch. In recent years, regulators in several countries have raised taxes on residential real-estate purchases, required banks to demand bigger down payments and taxed empty homes—to little long-term avail. Now they are trying again. Australian regulators on Friday ordered banks to limit the flow of interest-only loans—a villain in the U.S. subprime mortgage crisis—to 30% of new loans from about 40% now and to restrict loans to people making small down payments. The country’s corporate regulator said on Monday it was investigating whether lenders and mortgage brokers are inappropriately promoting interest-only loans.

New South Wales state, home to Sydney, is considering a further property-tax rise for foreigners. The moves are an attempt to blunt a price rise that has resumed after the last crackdown starting in late 2014. House prices in Sydney and Melbourne, the nation’s two biggest cities, rose by about 19% and 16% in the year through Mar. 31, much of it in the last six months, according to an analysis by data company CoreLogic released on Monday. The median house price in Sydney hit $821,000 last year, according to Demographia, a U.S. think tank. It said the figure, equivalent to 12.2 times the average annual wage, made Sydney the world’s second most expensive city after Hong Kong on a house-price-to-income ratio. Demand in Melbourne is driving up valuations of house land plots by $7,500 a week, said Giles Bray, a local mortgage broker.

Developers are now building 300-square-foot apartments—roughly a third of the average new American unit—with 8-foot ceiling heights to pack in more units. In the past three years, foreigners have bought thousands of them sight unseen. “They are poorly built and lack light,” Mr. Bray said. The gains are testing the limits of government measures aimed at preventing housing bubbles from developing in cities around the world. The frothiness is driven by ultralow interest rates at central banks that spur investors to hunt for returns in tangible assets. Chinese investors also are a big driver of the phenomenon. The concern: foreign, speculative investors are making properties unaffordable for locals and adding economic risk because these buyers are more likely to flee in a downturn. In 2010 the Reserve Bank of Australia tightened policy to cool things off. But lately the central bank has been keeping rates at a record-low 1.5% to aid an economy that is still struggling to adjust at the end of a long mining boom.

Read more …

The Susan Rice story has many quirks. A big one: what did Obama know? RandPaul wants her to testify under oath to that. It could go a long way towards proving Trump’s wiretap allegations. But also very odd: BBG and NYT sat on the story for -at least- days. And yes, Cernovich is a bit of an oddball. But he has proof, something that’s still sorely lacking for all of the Russia narrative. So much so that it doesn’t matter anymore if proof comes eventually: the US media have published millions of words of innuendo and accusations without any proof. That may work in the echo chamber, but it kills your credibility outside of it.

Cernovich Explains How He Learned About Susan Rice (ZH)

Ever since Mike Cernovich dropped the bombshell report over the weekend outing Obama’s National Security Advisor, Susan Rice, as the person behind the unmasking of the identity of various members of Trump’s team who were ‘incidentally’ surveilled during the 2016 campaign, a report which was subsequently confirmed by Eli Lake of Bloomberg earlier this morning, everyone has been wondering who within the Trump White House or the intelligence community supplied him with such a massive scoop. But, as it turns out, Cernovich didn’t need a ‘deep throat’ within the NSA or CIA for his blockbuster scoop, all he needed was some well-placed sources inside of a couple of America’s corrupt mainstream media outlets. As Cernovich explains below, his sources for the Susan Rice story were actually folks working at Bloomberg and the New York Times who revealed that both Eli Lake (Bloomberg) and Maggie Haberman (NYT) were sitting on the Susan Rice story in order to protect the Obama administration.

“Maggie Haberman had it. She will not run any articles that are critical of the Obama administration.” “Eli Lake had it. He didn’t want to run it and Bloomberg didn’t want to run it because it vindicates Trump’s claim that he had been spied upon. And Eli Lake is a ‘never Trumper.’ Bloomberg was a ‘never Trump’ publication.”

“I’m showing you the politics of ‘real journalism’. ‘Real journalism’ is that Bloomberg had it and the New York Times had it but they wouldn’t run it because they don’t want to run any stories that would make Obama look bad or that will vindicate Trump. They only want to run stories that make Trump look bad so that’s why they sat on it.”

“So where did I get the story? I didn’t get it from the intelligence community. Everybody’s trying to figure out where I got it from. I got it from somebody who works in one of those media companies. I have spies in every media organization. I got people in news rooms. I got it from a source within the news room who said ‘Cernovich, they’re sitting on this story, they’re not going to run it, so you can run it’.”

“If you’re at Bloomberg, I have people in there. If you’re at the New York Times, I have people in there. LA Times, Washington Post, you name it, I have my people in there. I got IT people in every major news room in this country. The IT people see every email so that’s how I knew it.”

Read more …

“Anyone, including experienced journalists, who raises questions or recommends caution is immediately dismissed as a Putin stooge or a Trump apologist by an army of progressives convinced, with obdurate certainty, of who is guilty and what is true.”

The Deep State Now Works For The ‘Good Guys’ (AlJ)

US progressives are clinging on to false heroes like the FBI and CIA in their existential battle to dethrone Trump. [..] In Comey’s case, his rather abrupt and miraculous transformation from devil to saint came after his March 20 testimony before a House Intelligence Committee where he finally, belatedly, confirmed that the FBI was indeed investigating the disturbing, cob-web-like connections between the Trump campaign team and Russia before, during and after the presidential election. Ah, now that the G-men are on the case, the indictments would surely follow, the familiar progressive chorus wrote. Trump’s days are numbered. Resignation and impeachment are in the offing. The cavalry is riding to America’s rescue. Comey’s role in torpedoing Clinton’s chances at becoming America’s first female president has fast receded into the rear-view mirror.

The political executioner has become a prince of probity and the rule of law. Defying history and credulity, joining Comey and the FBI in the progressives’ new-found white knight brigade are, incredibly, the CIA and the National Security Agency (NSA). Like the FBI, the spooks are also being widely celebrated as guardian angels in the existential battle to dethrone the treasonous King. The thinking – such as it is – goes something like this: the CIA and NSA must have the surreptitious “goods” on Trump and his gang of Russian mob and FSB consorting thugs that they will, in time, share with Americans and the world. The “goods” perhaps involves oodles of various types of intercepted and incriminating communications and possibly even a notorious Moscow hotel videotape, starring the deviant king himself.

And the hope is that, taken together, it will all eventually expose and doom him. Apparently, these days, the “deep state” is no longer working for the bad guys, but the good guys. It has, in effect, changed sides. Sure, the deep state may have denied Clinton her rightful and long overdue crown and has, for years, systematically spied on, collected and stored intimate details about the lives of countless people with little or no oversight, let alone a warrant. But progressives are too busy letting bygones be bygones to remember. The good guys have fixed their crosshairs on Trump and treacherous company and that’s all that matters.

Read more …

“One way we recognize a mass hysteria movement is that everyone who doesn’t believe is accused of being in on the plot..” Journalism should not ever be about ‘belief’, but about proven facts. But there are none. oh, and the syndrome doesn’t ‘arrive’, it’s been here for a long time.

Putin Derangement Syndrome Arrives (Matt Taibbi)

So Michael Flynn, who was Donald Trump’s national security adviser before he got busted talking out of school to Russia’s ambassador, has reportedly offered to testify in exchange for immunity. For seemingly the 100th time, social media is exploding. This is it! The big reveal! Perhaps it will come off just the way people are expecting. Perhaps Flynn will get a deal, walk into the House or the Senate surrounded by a phalanx of lawyers, and unspool the whole sordid conspiracy. He will explain that Donald Trump, compromised by ancient deals with Russian mobsters, and perhaps even blackmailed by an unspeakable KGB sex tape, made a secret deal. He’ll say Trump agreed to downplay the obvious benefits of an armed proxy war in Ukraine with nuclear-armed Russia in exchange for Vladimir Putin’s help in stealing the emails of Debbie Wasserman-Schultz and John Podesta.

I personally would be surprised if this turned out to be the narrative, mainly because we haven’t seen any real evidence of it. But episodes like the Flynn story have even the most careful reporters paralyzed. What if, tomorrow, it all turns out to be true? What if reality does turn out to be a massive connect-the-dots image of St. Basil’s Cathedral sitting atop the White House? (This was suddenly legitimate British conspiracist Louise Mensch’s construction in The New York Times last week.) What if all the Glenn Beck-style far-out charts with the circles and arrows somehow all make sense? This is one of the tricks that keeps every good conspiracy theory going. Nobody wants to be the one claiming the emperor has no clothes the day His Highness walks out naked. And this Russia thing has spun out of control into just such an exercise of conspiratorial mass hysteria.

Even I think there should be a legitimate independent investigation – one that, given Trump’s history, might uncover all sorts of things. But almost irrespective of what ends up being uncovered on the Trump side, the public prosecution of this affair has taken on a malevolent life of its own. One way we recognize a mass hysteria movement is that everyone who doesn’t believe is accused of being in on the plot. This has been going on virtually unrestrained in both political and media circles in recent weeks.

Read more …

Illustrating what a dud the European Parliament is. They want the man who’s negotiating with Greece to come explain what he does, and he simply refuses. Imagine that in Congress. A Dutch MP said Dijsselbloem is now effectively a ‘persona non grata’ in the European Parliament. And remember: the Eurogroup has no official status, so what can thay do?

Euro MPs ‘Unanimously’ Condemn Dijsselbloem’s No-Show (AFP)

European Parliament lawmakers on Monday “unanimously condemned” the refusal by Eurogroup chief Jeroen Dijsselbloem to appear at a hearing on Greece this week. Dijsselbloem, who is also the Dutch finance minister, has been facing calls to step down since he suggested in an interview in a German newspaper that southern European countries blew their money on “drinks and women”. In the wake of the controversy, the parliament had invited the head of the Eurogroup of eurozone finance ministers to discuss the stalled Greek bailout at this week’s plenary session in Strasbourg. Expectations were that MEP’s would use the opportunity to harshly criticise Dijsselbloem.

“Unanimous condemnation by the European Parliament against Jeroen Dijsselbloem for umpteenth refusal to answer questions on sacrifices made by our citizens,” European Parliament chief Antonio Tajani posted on Twitter. MEP Gianni Pittella, the head of the left-of-centre S&D group, said Dijsselbloem’s refusal to attend was “a further slight after his previous shameful remarks”. “He should resign,” Pittella added. In a letter on Thursday, Dijsselbloem said he was unable to attend the hearing because of a scheduling conflict.

Read more …

To repeat: Why are Greek pension costs relatively high? Because “The country hasn’t yet put in place a proper social welfare system”. And it can’t of course, because that would cost money it’s not allowed to spend by Brussels. Let’s see all benefits expenditures for all nations, and then talk again.

Greek Pensions Hot Potato Puts Tsipras in Tight Spot on Bailout (BBG)

Greece is set to miss yet another self-imposed deadline with no accord expected when the Eurogroup meets in Malta on Friday. While there has been “a lot of progress,” there will be no agreement on April 7, Jeroen Dijsselbloem, the group’s chief, said on March 31. “That’s too early.” Europe has become impatient with Greece as the region prepares for Brexit and the threat from emerging populist movements. The failure to reach an accord stems in part from the conflicting political interests of the two sides — Tsipras doesn’t want to face a scheduled general election in 2019 at the same time as pensioners take a cut of as much as 30% in their monthly payments. Creditors worry that if the plan is put in place after 2019, a new government that’s not a signatory of the accord might not implement it.

The IMF, backed by Greece’s euro-area creditors, is pushing Athens to save €1.8 billion, or 1% of GDP, from pension cuts. Greece spends more than 13.3% of its GDP on old-age pensions, the highest proportion in the EU, Eurostat figures show. Greece, which crossed what it once characterized as a red line and accepted the need for pension cuts, is asking creditors to give the country more time to see how measures agreed to last year work before embarking on anything new. The country hasn’t yet put in place a proper social welfare system , making pensions the de facto safety net for many families, supporting several generations. A survey in January showed that 49% of households relied on pensions as a primary source of income.

Further cuts in pensions has become a thorny issue to sell at home as pensioners use their ever-shrinking income to support jobless children at time when youth unemployment stands at more than 40%. Take Panagiotis Papapetrou, for example. The 65-year-old retiree and his wife, who collectively take home a pension of €1,480 a month, support two grown children. “Not only can we not afford any kind of entertainment, but we also have made cuts in our diet,” he said. “We eat less meat and we seek to buy cheap goods.”

Read more …

This economy cannot survive. It will keep on shrinking. There is no other possibility as long as there is a Troika. Economies run on consumer spending, and that keeps on falling in Greece. It needs stimulus, not austerity. Europe is creating a powder keg here.

Austerity-Crushed Greek Households Keep Cutting Food Purchases (TNH)

More than seven years into a brutal economic crisis worsened by austerity measures hitting workers, pensioners and the poor, Greek households are continuing to cut food purchases, even for essential items. Repeated salary and pension cuts have left millions unable to keep up, with a survey by the Marketing Laboratory of the Athens University of Economics and Business showing consumers spending almost €40 ($42.72) less a month at supermarkets this year compared to 2016. Average monthly household expenditure came to €274 against €310 a year earlier, with the 13% decline also reflected on supermarket turnover as the sector struggles to lure customers despite sales and 2-for-1 deals.

The study was aimed at average consumers who make up the bulk of supermarket customers drawing a bleak picture of their ability to buy what they want and as more turn away from brand names in favor of cheaper goods. Some 63.4% of Greeks said they buy fewer products and 45.8% buy only the absolute necessities with 54.4% turning to private-label chain products. Data from Nielsen researchers showed that in 2016, some 51% of brand products sold in supermarket were on special offer, up from 33.1% in 2009 and after super markets wouldn’t cut prices despite the crisis, until they were forced to do so by lagging sales. Sales fell another 4% in 2016, driving the cumulative downturn to 18% since 2009, as the crisis began and a year before the then-ruling PASOK Socialists asked for what turned into €326 billion in three bailouts.

The data compiled by Nielsen researchers showed that besides a sharp decline in demand and with more people turning as well to generic brands and looking for offers, that mergers and acquisitions had taken a big bite out of the sector. The phenomenon is likely to continue for several more years with analysts expecting a further drop of 2-3%. In 2016, the sales value of food retailing – including small grocery stores – amounted to about €10.78 billion, down 4.1% from 2015, pushing the sector back to 2005 levels and showing the devastating effect of the crisis and harsh austerity measures that brought big pay cuts, tax hikes, slashed pensions and worker firings. The number of small food retail stores has dropped from about 32,000 in 2005 to 27,000 in 2015 with major chains showing their sales values plummet at the same time with only the discount food chain Lidl showing increases.

Read more …

It shows Euro area is not working. Period.

Youth Unemployment Shows Euro-Area Recovery Not Working for All (BBG)

For all the continued momentum in the euro-area recovery, differing prospects for young people across the bloc show the wounds of the debt crisis remain very raw. The unemployment rate for those under age 25 was at 19.4% in February, according to data on Monday. While that’s an improvement compared with a year ago – and is the lowest since 2009 – it’s more than twice the total for the euro-area of 9.5%. In four southern European countries – Greece, Spain, Italy and Cyprus – at least three in 10 young people are still out of work. [..] the unevenness across geography and age groups show how complicated it is for the ECB to set monetary policy for 19 nations.

In Germany, the youth unemployment rate is just 6.6%. That’s lower than the overall rate in Spain has ever been since the euro’s introduction. In Greece, still struggling seven years after its first bailout, the figure in December was almost seven times greater than Germany’s, at 45.2%. Draghi has said that monetary policy can’t take the whole weight of the economic recovery, and repeatedly urged governments to implement reforms to reduce structural unemployment. That’s made harder by the rise of populist parties across Europe, with France and Germany all facing general elections in the coming months.

Read more …

Waiting for real craziness over the next 2 weeks.

Erdogan Says Turks In Europe Should Defy ‘Grandchildren Of Nazism’ (R.)

President Tayyip Erdogan on Monday called on Turkish voters in Europe to defy the “grandchildren of Nazism” and back a referendum this month on changing the constitution, comments likely to cause further ire in Europe. Erdogan has repeatedly lashed out at European countries, including Germany and the Netherlands, in campaigning for the referendum, accusing them of “Nazi-like” tactics for banning his ministers from speaking to rallies of Turkish voters abroad. Both the Germans and Dutch have been incensed by the comparisons to Nazism and German Chancellor Angela Merkel has said the references must stop. “With this determination, we will never allow three or four European fascists … from harming this country’s honor and pride,” Erdogan told a packed crowd of flag-waving supporters in the Black Sea city of Rize, where his family comes from.

“I call on my brothers and sisters voting in Europe…give the appropriate answer to those imposing this fascist oppression and the grandchildren of Nazism.” Erdogan is counting on the support of expatriates in Europe, including the 1.4 million Turks eligible to vote in Germany, to pass constitutional changes that would give him sweeping presidential powers. But ties with Europe have deteriorated in the run-up to the campaign. Erdogan last month said Turkey would reevaluate its relationship with the bloc, and may even hold a second referendum on whether to continue accession talks. On Monday, he said he could take the issue of whether Turkey should restore the death penalty to referendum if necessary. “The European Union will not like this. But I don’t care what Hans, George or Helga say, I care what Hasan, Ahmet, Mehmet, Ayse and Fatma say. I care what God says… If necessary, we will take this issue to another referendum as well,” he told the rally.

Read more …

“Congress can rein him in with very little effort by saying no money can be spent to deploy US troops to areas where they may encounter hostilities unless a state of war is declared.”

Yes, Let’s Allow The Syrian People To Decide For Themselves (Ron Paul)

Is common sense beginning to creep into US policy in the Middle East? Last week Secretary of State Rex Tillerson said that the longer-term status of Syrian President Assad would be “decided by the Syrian people.” The media reported this as a radical shift in US foreign policy, but isn’t this just stating what should be obvious? What gives any country the right to determine who rules someone else? Washington is currently paralyzed by evidence-free rumors that the Russians somehow influenced our elections, but no one blinks an eye when Washington declares that one or another foreign leader “must go.” It’s only too bad that President Obama hadn’t followed this back in 2011 instead of declaring that Assad had to go and then arming rebel groups who ended up being allies with al-Qaeda.

Imagine how many thousands of lives and billions of dollars would have been saved by following this policy in the first place. Imagine the millions of refugees who could still be in their homes, running their businesses, living their lives. Will the Trump Administration actually follow through on Tillerson’s Syria policy statement? It is too early to tell. The President has illegally sent hundreds of US troops to fight on the ground in Syria. Current US positions in eastern Syria suggest that Washington may be looking to carve out parts of oil-rich areas of the country for some kind of future federation. The White House followed up on Tillerson’s comments by stating that getting rid of Assad was no longer a top priority for the US. This also sounds good. But does this mean that once the current top priority, destroying ISIS, is completed, Washington may return to its active measures to unseat the Syrian president?

Neocons in Washington still insist that the rise of ISIS in Syria was due to President Assad, but in fact ISIS did not appear in Syria until the US began trying to overthrow Assad. They haven’t given up on their desire to overthrow the Syrian government and they do have influence in this Administration. If the Trump Administration is serious about letting the people of Syria decide their fate he needs to take concrete steps. Rather than sending in more troops to fight an ISIS already on its last legs, he must bring US troops home and prohibit the CIA from further destabilizing the country.

It would also be nice if Congress would wake up from its long slumber and start following the Constitution. The President (and his predecessors) have taken this country to war repeatedly without proper Constitutionally-required authority to do so. The president has reportedly decided not to even bother announcing where next he plans to send the troops. Congress can rein him in with very little effort by saying no money can be spent to deploy US troops to areas where they may encounter hostilities unless a state of war is declared.

Read more …

Frontex plays a very ugly role here. We saw that coming from miles away.

New Evidence Undermines EU Report Tying Refugee Rescue Group To Smugglers (IC)

Last month, an Italian prosecutor opened an investigation into whether nonprofits working to rescue refugees in the Mediterranean had connections to smuggling operations. “We want to know who is behind all these humanitarian groups that have proliferated in the last few years,” the prosecutor said, and “where all the money they have is coming from.” The implication of the investigation is inflammatory: Why would humanitarian groups want to have anything to do with human traffickers or smugglers? But the idea that nonprofits are directly involved in smuggling people into Europe has swept through conservative media in recent months, fueled by a news report that the EU’s border agency, Frontex, had “accused charities operating in the Mediterranean of colluding with people smugglers.”

The report, which appeared in the Financial Times in December, didn’t name any particular charities, and it quickly started to show holes; within a week, the paper issued a correction and Frontex distanced itself from the accusations. Despite the walk-back, the story stuck, and the Italian prosecutor cited Frontex’s concerns about “collusion with smugglers” in announcing his investigation. The Intercept has obtained a full copy of the Frontex report on which the Financial Times story was based. The report, along with video evidence and interviews with rescue workers who witnessed the incident described in it, further undermines the allegations of collusion. In the report, Frontex does say that people were smuggled to Europe via an NGO ship. But the report provides little evidence for the allegation, and what it does contain is contradicted by the rescue crew.

The confusion shows the fraught conditions of rescue work in the Mediterranean – where smugglers and opportunists do take advantage of refugees and their rescuers, but where the situation is not always so cut and dry. In dire rescues, if a nonprofit accepts help from nearby Libyan boats, they may have no idea who they are working with. “It’s not us that force the people on the boats and cause them to be out there. But once they are out there, we all have to apply maritime law,” said Ruben Neugebauer, who works with the group Sea-Watch. “If there is a boat in distress, we are obliged to help, but also a potential smuggler is also obliged to help.”

Read more …

Watching TV. Still far more important than other media. “..television takes up a full 50% of our leisure time..” and “if you live to 75, you will have spent around nine years of your life watching television.”

The Vanishing Art Of Seizing The Day (Krznaric)

Carpe diem – seize the day – is one of the oldest philosophical mottos in Western history. First uttered by the Roman poet Horace over 2,000 years ago, it retains an extraordinary resonance in popular culture. Ask someone to spell out their philosophy of life and there’s a good chance they will say something like “seize the day” or “live as if there’s no tomorrow” – even if they appear to be trapped by routine or paralysed by procrastination. It’s a message found in Hollywood films like Dead Poets Society, in one of the most successful brand campaigns of the last century (“Just Do It”), and in the social media hashtag #yolo (“you only live once”). Almost every language has an equivalent expression for the original Latin phrase. Carpe diem has been a call to arms for everyone from the Jewish sage Hillel the Elder, who in the first century bce asked, “If not now, when?”, to the Rastafarian sage Bob Marley, who sang out: “Wake up and live!”

However, in the course of writing my new book on the vanishing art of seizing the day, I discovered that carpe diem has been hijacked – in part, by the most popular leisure pursuit in the Western world. I loved television as a kid, fitting in an hour before school each day (Thunderbirds, Superheroes) and at least an hour-and-a-half before dinner (5.30: Wheel of Fortune, 6.00: The Goodies, 6.30: Dr Who). What I didn’t realise as a teenager, as I sat on my beanbag in suburban Sydney making the agonising decision whether to break tradition and watch Gilligan’s Island instead of The Goodies, was that I was absorbed in a ritual that ranks as one of the most momentous cultural transformations ever experienced by humankind. Within less than 50 years of the first ever television demonstration in

Selfridges London department store in 1925, around 99 per cent of Western households had a set. Today the typical European or American watches an average of around three hours per day, whether it’s on flat-screen TVs, computers, phones or other devices. This is apart from time spent engaged in digital pursuits such as internet surfing, social media, texting or video games. So television takes up a full 50% of our leisure time, and more time than we spend doing any other single activity apart from work or sleep. Perhaps the best way to grasp how much TV has colonised our lives is to tape the following statistic to your remote control: assuming your viewing habits are somewhere near average, if you live to 75, you will have spent around nine years of your life watching television.

Read more …

Apr 012017
 
 April 1, 2017  Posted by at 9:12 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle April 1 2017


Claude Monet The Pond at Montgeron 1876

 

Boaty McBoatface, or Don’t Listen To The Public -BoE’s Haldane (Tel.)
UK Households’ Savings Fall To Record Low (G.)
Multiple Bubbles Are Going To Bring America To Its Knees (Lang)
Ports In China Have Enough Iron Ore To Build 13,000 Eiffel Towers (R.)
French Banks Posted ‘Multi-Billion Euro Profits’ In Tax Havens (F24)
European Right Hopes Macron Will Save France (EUO)
Racket of Rackets (Jim Kunstler)
The Big Contraction – An Interview With Jim Kunstler
Julian Assange Waits For Ecuador’s Election To Decide His Future (G.)

 

 

Haldane is not the dumbest of central bankers. But this is crazy. See, the question is this: would Brexit have been prevented by not listening to people, or did not listening to them cause Brexit? And what’s wrong with calling a ship Boaty McBoatface? Maybe it’s an idea to listen more to people, not less? What else would you like to decide for people to protect them from their own madness?

Boaty McBoatface, or Don’t Listen To The Public -BoE’s Haldane (Tel)

The public should not have a direct say in setting interest rates because they can show “madness” when making collective decisions – just look at Boaty McBoatface, the Bank of England’s chief economist has warned. Central bankers have come under pressure to be more accountable to the public after the financial crisis and years of ultra-low interest rates, but it could be dangerous to hold a referendum on rates. It would be feasible to canvas the public online, said Andy Haldane, but could be dangerous. He pointed to the example of Boaty McBoatface, the name chosen in a public ballot for a new polar research ship last year, winning 80pc of votes cast. The National Environmental Research Council overruled the public and called the ship “Sir David Attenborough”, instead using the comedy name for a smaller submersible.

“This is an object lesson in the perils of public polling for policy purposes,” Andy Haldane, the chief economist, said in a speech at the Federal Reserve Bank of San Francisco. “Sometimes, there is madness in crowds.” He joked: “For some, it was a shameful example of the perils of populism.” He does propose more regular surveying of the public on the economy so the Bank of England knows what people think and how they are affected by monetary policy, however. Mr Haldane also said that “Marmite-gate” – the public row between Tesco and supplier Unilever over the price of the yeast extract spread – was useful in preparing the public for a bout of price rises. “Arguably, “Marmitegate” raised public awareness of rising inflation much more effectively than any amount of central bank jawboning,” he said. “Stories, like Marmite itself, stick.”

Typically the Bank of England struggles to get its message through to the public, often because officials use long words and technical language rather than using phrases which normal people use. “Simple words can make a dramatic difference to readability. ‘Inflation and employment’ leaves the majority of the public cold. ‘Prices and jobs’ warms them up,” he said. Officials should learn from Facebook and from pop songs to learn how to speak in a way which is more clear for the general public, rather than specialist audiences of financiers, Mr Haldane said. “Facebook posts are more likely to be shared the more frequent nouns and verbs and the less frequent adverbs and adjectives,” he said. “The ratio of nouns and verbs to adverbs and adjectives in an Elvis song is 3.3. In my speeches it is 2.7.”

Read more …

Hard to believe, this. Brits are scared, they would hoard. It’s just not in their banks accounts that they do. It’s Go To The Mattresses time.

UK Households’ Savings Fall To Record Low (G.)

British households ran down their savings to a record low at the end of 2016 and disposable incomes fell in a warning sign for the economy that a squeeze in living standards is under way. The savings ratio – which estimates the amount of money households have available to save as a%age of their total disposable income – fell sharply in the fourth quarter to 3.3% from 5.3% in the third. It was the lowest since records began in 1963 according to the Office for National Statistics (ONS), and suggested that people are increasingly dipping into their savings to maintain spending. “Today’s figures should set alarm bells ringing. The last thing our economy needs right now is another consumer debt crisis,” said the TUC general secretary, Frances O’Grady.

“People raiding their piggy banks and borrowing more than they can afford is what helped drive the last financial crash.” In a further sign that household finances are coming under increasing strain from rising inflation and falling wage growth, disposable incomes also fell over the quarter. Real household disposable income – which adjusts for the impact of inflation – shrank by 0.4% compared with the previous three months, the steepest drop in nearly three years. UK growth since the financial crisis has been heavily reliant on consumer spending. The ONS confirmed the wider UK economy grew by 0.7% between October and December, but economists said a weaker consumer backdrop could weigh on growth in the coming months. Growth in 2016 was unrevised at 1.8% as the ONS updated its estimates.

Read more …

And the rest of the world.

Multiple Bubbles Are Going To Bring America To Its Knees (Lang)

If you’ve been paying attention to the ongoing degradation of the American economy since the last financial crisis, you’re probably flabbergasted by the fact that our economy has managed to make it this far without imploding. I know I am. I find myself shocked with every year that passes without incident. The warning signs are there for anyone willing to see, and they are flashing red. Even cursory research into the numbers underlying our system will tell you that we’re on an unsustainable financial path. It’s simple math. And yet the system has proven far more durable than most people thought. The only reasonable explanation I can think of, is that the system is being held up by wishful thinking and willful ignorance.

If every single person knew how unsustainable our economy is, it would self-destruct within hours. People would pull their money out of the banks, the bonds, and the stock market, and buy whatever real assets they could while their money is still worth something. It would be the first of many dominoes to fall before the entire financial system collapses. But most people don’t want to think about that possibility. They want the relative peace and prosperity of the current system to continue, so they ignore the facts or try to avoid them as much as possible. They keep their money right where it is and cross their fingers instead. In other words, the only thing propping up the system is undeserved confidence.

Unfortunately, confidence can’t keep an unsustainable system running forever. Nothing can. And our particular system is brimming with economic bubbles that aren’t going to stay inflated for much longer. Most recessions are associated with the bursting of at least one kind of bubble, but there are multiple sectors of our economy that may crash at roughly the same time in the near future. [..] Our economy is awash in cheap money and financial bubbles that threaten to wipe out tens of trillions of dollars worth of savings, investments, and assets. Everyone can close their eyes and hum while they hope that everything is going to be just fine, but it won’t be.

Read more …

But the economy is fine, of course…

Ports In China Have Enough Iron Ore To Build 13,000 Eiffel Towers (R.)

With enough iron ore to construct Paris’s Eiffel Tower nearly 13,000 times over, China’s ports are bursting with stockpiles of the raw material and some of them are demolishing old buildings to create more storage space, trading sources said. China’s domestic iron ore production jumped 15.3% in January-February as a price rally last year extended into 2017, causing imported ore to pile up at the ports of the world’s top buyer. Stockpiles are at their highest in more than a decade and are affecting prices. Inventory of imported iron ore at 46 Chinese ports reached 132.45 million tonnes on March 24, SteelHome consultancy said, the highest since it began tracking the data in 2004. A third of the stocks belongs to traders and the rest is owned by China’s steel mills, SteelHome said.

That volume would make about 95 million tonnes of steel, enough to build 12,960 replicas of the 324-metre (1,063-foot) high Eiffel Tower in Paris. Global iron ore prices are now at just above $80 a tonne from a 30-month peak of $94.86 reached in February, largely due to the growing port inventory. Prices surged 81% last year, bringing relief to miners after a three-year rout. The rally stretched into 2017, inspiring marginal producers to resume business and lifting supply as China’s steel demand waned. Further falls in the price of iron ore risk shuttering Chinese capacity again. That could boost China’s reliance on top-grade exporters Vale, Rio Tinto and BHP Billiton.

Read more …

Not going to stop as long as we don’t stop it.

French Banks Posted ‘Multi-Billion Euro Profits’ In Tax Havens (F24)

The Eurozone’s 20 biggest banks earned over a quarter of their profits in tax havens in 2015, according to a report released Monday by Oxfam. The report details how, in 2015, top Eurozone banks generated €25 billion in profits in low-tax territories like the Republic of Ireland, Luxembourg, the Cayman Islands and the American state of Delaware. Despite the massive profits, the banks only conducted 12% of their total business and employed 7% of their workers in those countries – a clear sign of the “tricks” that banks are willing use to avoid countries with stricter tax regimes, according to Oxfam’s Manon Aubry, one of the report’s authors. In Europe, banking is now the only sector in which companies must declare country-by-country tax and profit figures, thanks to legislation passed in the wake of the financial crisis.

The anti-poverty NGO Oxfam took advantage of the new data to write its report. Several of France’s biggest banks figure prominently in the report, including BNP Paribas, Crédit Agricole, Société Générale and BPCE (which owns Banque Populaire and Caisse d’Epargne). French banks declared almost €2 billion in profit in Luxembourg, as much as they reported in Germany and Spain combined, despite the fact that Luxembourg’s population is only 1% that of Spain’s. Some of the most telling figures come from discrepancies between profit and other key economic measures. “Société Générale, for instance, reported 22% of its profits in tax havens,” Oxfam’s Aubry told FRANCE 24, “but only 4% of its employee pay was generated there.”

In another example, BNP Paribas declared €134 million of profit in the Cayman Islands in 2015, although it had zero employees there. However, Servane Costrel, Wealth Management Press Officer for BNP Paribas, said that these figures were “obsolete”. “Profits earned in the Cayman Islands were taxed in the United States,” Costrel told FRANCE 24 by email. “But this is a non-issue since that figure [of profits in the Cayman Islands] dropped to zero in 2016.”

Read more …

Save the right from the right. That should work. The French massively hate their own politicial system.

European Right Hopes Macron Will Save France (EUO)

Not long ago, Francois Fillon was considered the most likely winner of the French presidential election in May. But after he was charged for embezzlement over suspicions of fake parliamentary jobs for his wife and children, even his European allies seem to have lost hope. Meanwhile, the fear of seeing far-right candidate Marine Le Pen taking power is growing. “People are worried, they are wondering what is going on in France,” Joseph Daul, president of the European People’s Party (EPP), told EUobserver on the margins of the EPP congress in Malta this week. “And it goes further than that. There are already committees, at the highest level, working on the hypothesis that France leaves the euro and the EU,” he said. He declined to specify whether these working groups were in EU capitals or in the EU institutions.

Officials in Brussels have warned about the consequences for France and the EU if Le Pen were to be elected, but have said so far that that they do not want to envisage a Le Pen scenario. The National Front (FN) leader has said that she wants to “do away with the EU,” and has promised to organise a referendum on the country’s EU membership. Her possible election “has been a risk for some time,” a high level EU source said recently, pointing to the “explosion” of the two main parties, the Socialist Party (PS) of outgoing president Francois Hollande and Fillon’s Republicans. In the most recent poll published on Wednesday (29 March), Socialist Party (PS) candidate Benoit Hamon was credited with only 10% of voting intentions and Fillon with 18%. Both were far behind Le Pen (with 24%) and independent candidate Emmanuel Macron (with 25.5%).

Read more …

Pecora for health care.

Racket of Rackets (Jim Kunstler)

My suggestion for real reform of the medical racket looks to historical precedent: In 1932 (before the election of FDR, by the way), the US Senate formed a commission to look into the causes of the 1929 Wall Street Crash and recommend corrections in banking regulation to obviate future episodes like it. It is known to history as the Pecora Commission, after its chief counsel Ferdinand Pecora, an assistant Manhattan DA, who performed gallantly in his role. The commission ran for two years. Its hearings led to prison terms for many bankers and ultimately to the Glass-Steagall Act of 1932, which kept banking relatively honest and stable until its nefarious repeal in 1999 under President Bill Clinton — which led rapidly to a new age of Wall Street malfeasance, still underway.

The US Senate needs to set up an equivalent of the Pecora Commission to thoroughly expose the cost racketeering in medicine, enable the prosecution of the people driving it, and propose a Single Payer remedy for flushing it away. The Department of Justice can certainly apply the RICO anti-racketeering statutes against the big health care conglomerates and their executives personally. I don’t know why it has not done so already — except for the obvious conclusion that our elected officials have been fully complicit in the medical rackets, which is surely the case of new Secretary of Health and Human Services, Tom Price, a former surgeon and congressman who trafficked in medical stocks during his years representing his suburban Atlanta district. A new commission could bypass this unprincipled clown altogether.

It is getting to the point where we have to ask ourselves if we are even capable of being a serious people anymore. Medicine is now a catastrophe every bit as pernicious as the illnesses it is supposed to treat, and a grave threat to a nation that we’re supposed to care about. What party, extant or waiting to be born, will get behind this cleanup operation?

Read more …

“..it’s unclear whether we will land back in something like the mid-nineteenth century, or go full-bore medieval, or worse.”

The Big Contraction – An Interview With Jim Kunstler

We’ve been sowing the seeds for our predicament since the end of World War II. You might even call this process “The Victory Disease.” In practical terms it represents sets of poor decisions with accelerating bad consequences. For instance, the collective decision to suburbanize the nation. This was not a conspiracy. It was consistent with my new theory of history, which is Things happen because they seem like a good idea at the time. In 1952 we had plenty of oil and the ability to make a lot of cars, which were fun, fun, fun! And we turned our war production expertise into the mass production of single family houses built on cheap land outside the cities. But the result now is that we’re stuck in a living arrangement with no future, the greatest misallocation of resources in the history of the world.

Another bad choice was to offshore most of our industry. Seemed like a good idea at the time; now you have a citizenry broadly impoverished, immiserated, and politically inflamed. Of course, one must also consider the possibility that industrial society was a historic interlude with a beginning, middle, and end, and that we are closer to the end of the story than the middle. It was, after all, a pure product of the fossil fuel bonanza, which is also coming to an end (with no plausible replacement in view.) I don’t view all this as the end of the world, or of civilization, per se, but we’re certainly in for a big re-set of the terms for remaining civilized. I’ve tried to outline where this is all going in my four-book series of the “World Made By Hand” novels, set in the near future.

If we’re lucky, we can fall back to sets of less complex social and economic arrangements, but it’s unclear whether we will land back in something like the mid-nineteenth century, or go full-bore medieval, or worse. One thing we can be sure of: the situation we face is one of comprehensive discontinuity — a lot of things just stop, beginning with financial arrangements and long-distance supply lines of resources and finished goods. Then it depends whether we can respond by reorganizing life locally in this nation at a finer scale — if it even remains a unified nation. Anyway, implicit in this kind of discontinuity is the possibility for disorder. We don’t know how that will go, and how we come through it depends on the degree of disorder.

Read more …

At some point I can see this turning into a Free Mandela kind of movement.

Julian Assange Waits For Ecuador’s Election To Decide His Future (G.)

For Ecuador’s 15 million inhabitants, Sunday’s presidential election runoff will pose a fundamental question: whether to continue with a leftwing government that has reduced poverty but also brought environmental destruction and authoritarian censorship, or to take a chance on a pro-business banker who promises economic growth but is accused of siphoning money to offshore accounts. But they are not the only ones for whom the result will be critically important. Thousands of miles away, in the country’s tiny embassy in central London, Julian Assange will be watching closely to see if his four and a half years of cramped asylum could be coming to an abrupt, enforced end. Guillermo Lasso, the businessman and leading opposition candidate, has vowed that if he wins, the WikiLeaks founder’s time in the embassy will be up.

Lasso has said he would “cordially ask Señor Assange to leave within 30 days of assuming a mandate”, because his presence in the Knightsbridge embassy was a burden on Ecuadorian taxpayers. His government opponent, Lenin Moreno, has said Assange would remain welcome, albeit with conditions. “We will always be alert and ask Mr Assange to show respect in his declarations regarding our brotherly and friendly countries,” Moreno said. The most recent polling showed Moreno at least four percentage points ahead of his rival, though earlier polls had Lasso in the lead, and many analysts caution that the results are within the margin of error. Could this weekend really trigger the beginning of the end for Assange’s extraordinary central London refuge? Neither Lasso’s victory, nor precisely what he would do if he won, are certain (he later softened his position to say Assange’s status would be “reviewed”).

Read more …

Nov 212016
 
 November 21, 2016  Posted by at 9:56 am Finance Tagged with: , , , , , , , , , , ,  


NPC Fordson tractor exposition at Camp Meigs, Washington DC 1922

Japan Exports Drop 13th Month By 10.3%, Imports Down 22nd Month By 16.5% (WSJ)
Negative Rates Are Failing to Halt Savings Obsession in Europe (BBG)
More Than 1 in 3 European Workers Have Difficulty Making Ends Meet (ETUC)
Now it Begins to Unravel (WS)
Former UBS, Credit Suisse CEO: “A Recession Is Sometimes Necessary” (ZH)
Big Shock In France’s Presidential Election As Sarkozy Eliminated (BBG)
The EU’s New Bomb Is Ticking in the Netherlands (WSJ)
APEC Summit Closes With Call for More Globalization, Free Trade (AP)
Obama Says World Leaders Want To Move Forward With TPP (AFP)
The Grey Champion Assumes Command – Part 1 (Quinn)
The Silver Lining In This Disaster: Clinton & Co Are Finally Gone (G.)
Disaffected Rust Belt Voters Embraced Trump. They Had No Other Hope (G.)
Tsipras Ready To Give In On Labor Reform To Ensure Debt Relief (Kath.)

 

 

With trade growth goes globalization.

Japan Exports Drop 13th Month By 10.3%, Imports Down 22nd Month By 16.5% (WSJ)

Japanese exports extended their losses to a 13th straight month in October, indicating that the world’s third-largest economy has yet to regain full fitness despite better-than-expected growth in the third quarter. Exports fell 10.3% from a year earlier in October to 5.870 trillion yen, figures released Monday by the Ministry of Finance showed. The reading came in worse than a 9.4% drop forecast by economists polled by WSJ. Exports decreased 6.9% in September. Despite the grim monthly figures, exports appear to be in better shape than in the spring, when Japan’s manufacturers were being buffeted by worries over a Chinese slowdown and other headwinds from abroad. Government estimates released last week showed that Japan’s economy grew 2.2% from the previous quarter in the July-September period, beating economists’ expectations.

Exports were stronger than in the previous three months. The near-term prospects for exports have also improved after Donald Trump’s victory of U.S. presidential election put the yen’s previous uptrend in reversal. The finance ministry said export volumes for October fell 1.4% from their year-earlier levels. That marked the first fall in three months. But seasonally adjusted month-on-month figures showed exports increased 1.6%. Imports declined 16.5% on year in October to Y5.374 trillion, the 22nd consecutive month of contraction, the ministry said. Japan’s trade balance came to Y496.2 billion in surplus, according to the data. Economists polled by the Nikkei expected a surplus of Y610.0 billion.

Read more …

Anything reported as a ‘savings obsession’ can be filed under ‘fake news’. It takes this article a while to get to it, but then it does: “About 44% of all Europeans were unable to pay at least one bill on time during the last 12 months, mainly because of a lack of money..” Combine that with the accounting practice of filing ‘paying off debts’ under ‘saving’, and you know what’s really happening.

Negative Rates Are Failing to Halt Savings Obsession in Europe (BBG)

After years of turbo-driven central bank stimulus, most Europeans still want to leave their spare cash in savings accounts, even if those accounts pay zero interest. That’s the finding of a survey by Europe’s biggest debt collector, Stockholm-based Intrum Justitia AB. “After the financial crisis, people have felt a need – even if they have small means – to create some kind of security,” CEO Mikael Ericson said in an interview in Stockholm on Nov. 16. “It can’t be that people save in a bank account because of the fantastic returns, so it must be about a sense of security, having money in the bank.” Some 69% of Europeans put their savings into bank accounts, according to Intrum Justitia’s European Consumer Payment Report.

The survey is based on feedback gathered in September and covers about 21,000 people in 21 countries. The survey also shows that 26% of Europeans prefer keeping their surplus funds in cash, while 16% hold stocks. Only 14% turn to investment funds, 8% invest in real estate and 8% in bonds. In Denmark and Sweden, where central bank benchmark rates are negative, almost 80% of people put their surplus cash in bank accounts. In France, the U.K. and the Netherlands, the figure is above 80%. [..] The survey also revealed how financially fragile many Europeans continue to be almost half a decade after the region’s debt crisis. About 44% of all Europeans were unable to pay at least one bill on time during the last 12 months, mainly because of a lack of money, the survey found. Greece was worst, with 76% of households failing to pay on time.

Read more …

Yeah. Savings Obsession. Sure.

More Than 1 in 3 European Workers Have Difficulty Making Ends Meet (ETUC)

According to the European Working Conditions Survey launched today more than one third of workers report some or great difficulty in making ends meet. This is the reality behind the rosier picture painted by the European Foundation for the Improvement of Living and Working Conditions which highlights an “increasingly skilled workforce, largely satisfied with work”. However, the study also reveals that • A shocking 1 in 5 workers “has a poor quality job with disadvantageous job quality features and job holders …. reporting an unsatisfactory experience of working life.” • Only 1 in 4 workers have “a smooth running job where most dimensions of job quality are satisfactory”.

Luca Visentini, General Secretary of the European Trade Union Confederation said “European workers are struggling to make ends meet. Work no longer assures a decent life. Is it any wonder that more and more voters are losing their faith in “the European Union and mainstream political parties? ”These results only strengthen the ETUC’s determination to fight for more public investment to create quality jobs, and for a pay rise for European workers to tackle poverty and drive economic recovery for all. Economic policies that result in 1 in 3 workers struggling to make ends meet are fundamentally wrong and must be radically changed.” “These are deeply worrying results that cannot be hidden by claiming that the world of work is increasingly complex. The survey actually shows that work is unsatisfactory or unrewarding for far too many workers.”

“The picture painted by the European Working Conditions Survey of widespread poverty in improving working conditions highlights the need for a comprehensive approach to tackle inequality across Europe. Improvements in labour markets and working conditions are modest and uneven at best; what’s more, these are being wiped out by spiralling costs of housing and austerity policies that drive insecurity for workers and their families.”

Read more …

“Debt is good” is just another way of saying “Greed is good”.

Now it Begins to Unravel (WS)

Debt is good. More debt is better. Funding consumer spending with debt is even better – that’s what economists have been preaching – because the consumed goods and services are gone after having been added to GDP, while the debt, which GDP ignores, remains until it is paid off with future earnings, or until it blows up. Corporations too have gone on a borrowing binge. Unlike consumers, they have no intention of paying off their debts. They issue new debt and use the proceeds to pay off maturing debts. Funding share-buybacks and dividends with debt is ideal. It’s called “unlocking value.” Debt must always grow. For that purpose, the Fed has manipulated interest rates to rock bottom. Actually paying off and reducing debt has the dreadful moniker, bandied about during the Financial Crisis, “deleveraging.”

It’s synonymous with “The End of the World.” At the institutional level, “debt” is replaced with more politically correct “leverage.” More leverage is better. Particularly if you can borrow short-term at near zero cost and bet the proceeds on risky illiquid long-term assets, such as real estate, or on securities that become illiquid without notice. Derivatives are part of this institutional equation. The notional value of derivatives in the US banking system is $190 trillion, according to the Office of the Comptroller of the Currency. Four banks hold over 90% of them: JP Morgan ($53 trillion), Citibank ($52 trillion), Goldman ($44 trillion), and Bank of America ($26 trillion). Over 75% of those derivative contracts are interest rate products, such as swaps.

With them, heavily leveraged institutional investors that borrow short-term to invest in illiquid long-term assets hedge against interest rate movements. But Treasury yields and mortgage rates have moved violently in recent weeks, and someone is out some big money. These credit bubbles always unravel to the greatest surprise of those institutions and their economists. When they unravel, the above “End-of-the-World” scenario of orderly deleveraging turns into forced deleveraging, which can get messy. Assets that had previously been taken for granted are either repriced or just evaporate. But they’d been pledged as collateral. Suddenly, the collateral no longer exists….

Read more …

“..the Swiss National Bank’s balance sheet now accounts for 100% of GDP. Japan is also 100%, but mainly invested in its own state paper. The ECB and the Fed are 30%.”

Former UBS, Credit Suisse CEO: “A Recession Is Sometimes Necessary” (ZH)

Remember when bashing central banks and predicting financial collapse as a result of monetary manipulation and intervention was considered “fake news” within the “serious” financial community, disseminated by fringe blogs? Good times. In an interview with Swiss Sonntags Blick titled appropriately enough “A Recession Is Sometimes Necessary”, the former CEO of UBS and Credit Suisse, Oswald Grübel, lashed out by criticizing the growing strength of central banks and their ‘supremacy over the markets and other banks’. He claimed that the use of negative interest rates and huge positive balance sheets represent ‘weapons of mass destruction’. He calls for an end to the use of negative interest rates. Sounding more like a “tinfoil” blog than the former CEO of the two largest Swiss banks, Grübel warned that central banks have “crossed the point of no return” which will ultimately “end in a crash.”

Joining Deutsche Bank in slamming NIRP, Grubel said that banks are losing hundreds of millions of francs each year to negative interest rates paid to central banks. Worse, he warned that central banks will eventually lose their credibility in the markets but that this could take 10 years or more, at which point it will “all end in a crash.” What happens then? The former CEO believes that the final outcome will be wholesale financial nationalization: “after that all banks could belong to the state” Grubel also the doubted the wisdom of the Swiss National Bank’s balance sheet: “the Swiss National Bank’s balance sheet now accounts for 100% of GDP. Japan is also 100%, but mainly invested in its own state paper. The ECB and the Fed are 30%. Switzerland is far, far, far ahead. Is that wise?”

Grübel also touched on a point we have made ever since 2010 when we said that in a world of unprecedented political polarity, politicians now control the world almost exclusively through monetary policy, to wit: “After the financial crisis, politics has taken power in the banking sector: It has bound the banks into a regulatory corset and now they can no longer move. Politicians have told central banks: now you determine what is going on with the economy.” What are the implications of this power shift? “Previously, the risk was distributed to thousands of banks. They had to pay for their mistakes. The risk lay with the shareholders. Today, more and more the state carries the risk.” Which, of course, is another word for taxpayers. In other words, the next crash will be one where central – not commercial – banks are failing, and the one left with the bill will once again be the ordinary person in the street.

In a tangent, Grübel gave his thoughts on what makes a man rich: “rich is a man when he goes to bed in a carefree manner and wakes up without care.” He is then asked if, by that definition, a billionaire is rich to which he replied: “No. Money has little to do with wealth. The real rich are carefree. Those who are healthy, are not dependent. The greatest wealth is independence.”

Read more …

“..the winner will be favorite to become president in May..”. Really? Then why am I thinking Le Pen is the favorite?

Big Shock In France’s Presidential Election As Sarkozy Eliminated (BBG)

Former Prime Minister Francois Fillon, the new front-runner in France’s 2017 presidential election, is offering voters an economic-policy revolution inspired by Margaret Thatcher. Fillon, 62, vaulted from third position in most polls to win the first round of the Republican primary by 16 percentage points from the veteran Alain Juppe on Sunday with the most free-market platform among the seven candidates. They’ll face each other again in next Sunday’s runoff and the winner will be favorite to become president in May 2017. The lifelong politician is pledging to lengthen the work week to 39 hours from 35, to increase the retirement age to 65 and add immigration quotas. He’s vowed to eliminate half a million public-sector jobs and cut spending by €100 billion over his five years in office.

And he proposes a €40 billion tax-cut for companies and a constitutional ban on planned budget deficits. “Who is Fillon? The classic conservative, right-wing candidate,” Bruno Cautres, a political scientist at the Sciences Po Institute in Paris, said in an interview. “He wants a deep reform of the French model: shrinking the role of the state and cutting the welfare system.” Compared with the brash style of former boss, Nicolas Sarkozy, Fillon has a more low-key approach but he makes a virtue of telling it straight. When he took office as premier in 2007, he shocked even Sarkozy by announcing that France was a bankrupt state. Today he’s promising to reverse that, just like his role model when she became U.K. prime minister in 1979.

Read more …

Europe and the scourge of direct democracy.

The EU’s New Bomb Is Ticking in the Netherlands (WSJ)

If the European dream is to die, it may be the Netherlands that delivers the fatal blow. The Dutch general election in March is shaping up to be a defining moment for the European project. The risk to the EU doesn’t come from Geert Wilders, the leader of anti-EU, anti-immigration Party for Freedom. He is well ahead in the polls and looks destined to benefit from many of the social and economic factors that paved the way for the Brexit and Trump revolts. But the vagaries of the Dutch political system make it highly unlikely that Mr. Wilders will find his way into government. As things stand, he is predicted to win just 29 out of the 150 seats in the new parliament, and mainstream parties seem certain to shun him as a coalition partner. In an increasingly fragmented Dutch political landscape, most observers agree that the likely outcome of the election is a coalition of four or five center-right and center-left parties.

Instead, the risk to the EU comes instead from a new generation of Dutch euroskeptics who are less divisive and concerned about immigration but more focused on questions of sovereignty—and utterly committed to the destruction of the EU. Its leading figures are Thierry Baudet and Jan Roos, who have close links to British euroskeptics. They have already scored one significant success: In 2015, they persuaded the Dutch parliament to adopt a law that requires the government to hold a referendum on any law if 300,000 citizens request it. They then took advantage of this law at the first opportunity to secure a vote that rejected the EU’s proposed trade and economic pact with Ukraine, which Brussels saw as a vital step in supporting a strategically important neighbor. This referendum law is a potential bomb under the EU, as both Dutch politicians and Brussels officials are well aware.

Mr. Baudet believes he now has the means to block any steps the EU might seek to take to deepen European integration or stabilize the eurozone if they require Dutch legislation. This could potentially include aid to troubled Southern European countries such as Greece and Italy, rendering the eurozone unworkable. Indeed, the Dutch government gave a further boost to Mr. Baudet and his allies when it agreed to accept the outcome of the Ukraine referendum if turnout was above 30%, even though it was under no legal obligation to do so. This was a major concession to the euroskeptics, as became clear when strong turnout among their highly motivated supporters lifted overall turnout to 31%. With Mr. Wilders’s party, currently polling above 25%, and both Mr. Baudet and Mr. Roos having launched their own parties, Dutch euroskeptics are confident they will be able to reach the 30% threshold in future referendums.

Read more …

Do they mean things would have been even worse without free trade? (if they do, let them say so): “..the benefits of trade and open markets need to be communicated to the wider public more effectively, emphasizing how trade promotes innovation, employment and higher living standards.”

APEC Summit Closes With Call for More Globalization, Free Trade (AP)

Leaders of 21 Asia-Pacific nations ended their annual summit Sunday with a call to resist protectionism amid signs of increased free-trade skepticism, highlighted by the victory of Donald Trump in the U.S. presidential election. The Asia Pacific Economic Cooperation forum also closed with a joint pledge to work toward a sweeping new free trade agreement that would include all 21 members as a path to “sustainable, balanced and inclusive growth,” despite the political climate. “We reaffirm our commitment to keep our markets open and to fight against all forms of protectionism,” the leaders of the APEC nations said in a joint statement. APEC noted the “rising skepticism over trade” amid an uneven recovery since the financial crisis and said that “the benefits of trade and open markets need to be communicated to the wider public more effectively, emphasizing how trade promotes innovation, employment and higher living standards.”

Speaking to journalists at the conclusion of the summit, Peruvian President Pedro Pablo Kuczynski said the main obstacle to free trade agreements in Asia and around the world is the frustration felt by those left behind by globalization. “Protectionism in reality is a reflection of tough economic conditions,” said Kuczynski, the meeting’s host. Referring to Brexit and Trump’s election win in the U.S., he said those results highlighted the backlash against globalization in former industrial regions in the U.S. and Britain that contrasts with support for trade in more-prosperous urban areas and developing countries. “This is an important point in recent economic history because of the outcome of various elections in very important countries that have reflected an anti-trade, anti-openness feeling,” he said.

Read more …

Fuhget about it.

Obama Says World Leaders Want To Move Forward With TPP (AFP)

US President Barack Obama said Sunday that leaders from across the Asia-Pacific have decided to move ahead with a trade deal opposed by his successor Donald Trump. “Our partners made clear they want to move forward with TPP,” Obama said at a press conference after meeting leaders in Peru. “They would like to move forward with the United States.” It is unclear whether there is any future for the TPP, a vast, arduously negotiated agreement between 12 countries that are currently at different stages of ratifying it. It does not include China. Trump campaigned against the proposal as a “terrible deal” that would “rape” the United States by sending American jobs to countries with cheaper labor.

The agreement must by ratified in the US Congress – which will remain in the hands of Trump’s Republican allies when the billionaire mogul takes office on January 20. Without the United States, it cannot be implemented in its current form. However, some have suggested Trump could negotiate a number of changes and then claim credit for turning the deal around. Obama defended the increasing integration of the global economy at the close of his final foreign visit as president – a trade summit held against the backdrop of rising protectionist sentiment in the United States and Europe, seen in both Trump’s win and Britain’s “Brexit” vote. He said that “historic gains in prosperity” thanks to globalization had been muddied by a growing gap “between the rich and everyone else.” “That can reverberate through our politics,” he said.

Read more …

Jim Quinn’s longtime series on the Fourth Turning continues. A problem might be that you can’t really know who’s who until afterwards. Maybe Mike Pence will turn out to be the real grey champion, or someone as yet unknown.

The Grey Champion Assumes Command – Part 1 (Quinn)

In September 2015 I wrote a five part article called Fourth Turning: Crisis of Trust. In Part 2 of that article I pondered who might emerge as the Grey Champion, leading the country during the second half of this Fourth Turning Crisis. I had the above pictures of Franklin, Lincoln, and FDR, along with a flaming question mark. The question has been answered. Donald J. Trump is the Grey Champion. When I wrote that article, only one GOP debate had taken place. There were eleven more to go. Trump was viewed by the establishment as a joke, ridiculed by the propaganda media, and disdained by the GOP and Democrats. I was still skeptical of his seriousness and desire to go the distance, but I attempted to view his candidacy through the lens of the Fourth Turning. I was convinced the mood of the country turning against the establishment could lead to his elevation to the presidency. I was definitely in the minority at the time:

“Until three months ago the 2016 presidential election was in control of the establishment. The Party was putting forth their chosen crony capitalist figureheads – Jeb Bush and Hillary Clinton. They are hand-picked known controllable entities who will not upset the existing corrupt system. They are equally acceptable to Goldman Sachs, the Federal Reserve, the military industrial complex, the sickcare industry, mega-corporate America, the moneyed interests, and the never changing government apparatchiks. The one party system is designed to give the appearance of choice, while in reality there is no difference between the policies of the two heads of one party and their candidate products. But now Donald Trump has stormed onto the scene from the reality TV world to tell the establishment – You’re Fired!!!”

Strauss and Howe wrote their prophetic tome two decades ago. [..] They did not know which events or which people would catalyze this Fourth Turning. But they knew the mood change in the country would be driven by the predictable generational alignment which occurs every eighty years. “Soon after the catalyst, a national election will produce a sweeping political realignment, as one faction or coalition capitalizes on a new public demand for decisive action. Republicans, Democrats, or perhaps a new party will decisively win the long partisan tug of war. This new regime will enthrone itself for the duration of the Crisis. Regardless of its ideology, that new leadership will assert public authority and demand private sacrifice. Where leaders had once been inclined to alleviate societal pressures, they will now aggravate them to command the nation’s attention. The regeneracy will be solidly under way.” – Strauss & Howe – The Fourth Turning

Read more …

“This is a revolutionary moment. We must not allow them to shift the blame on to voters. This is their failure, decades in the making.”

The Silver Lining In This Disaster: Clinton & Co Are Finally Gone (G.)

Hillary Clinton has given us back our freedom. Only such a crushing defeat could break the chains that bound us to the New Democrat elites. The defeat was the result of decades of moving the Democratic party – the party of FDR – away from what it once was and should have remained: a party that represents workers. All workers. For three decades they have kept us in line with threats of a Republican monster-president should we stay home on election day. Election day has come and passed, and many did stay home. And instead of bowing out gracefully and accepting responsibility for their defeat, they have already started blaming it largely on racist hordes of rural Americans. That explanation conveniently shifts blame away from themselves, and avoids any tough questions about where the party has failed.

In a capitalist democracy, the party of the left has one essential reason for existing: to speak for the working class. Capitalist democracies have tended towards two major parties. One, which acts in the interest of the capitalist class – the business owners, the entrepreneurs, the professionals – ensuring their efforts and the risks they took were fairly rewarded. The other party represented workers, unions and later on other groups that made up the working class, including women and oppressed minorities. This delicate balance ended in the 1990s. Many blame Reagan and Thatcher for destroying unions and unfettering corporations. I don’t. In the 1990s, a New Left arose in the English-speaking world: Bill Clinton’s New Democrats and Tony Blair’s New Labour. Instead of a balancing act, Clinton and Blair presided over an equally aggressive “new centrist” dismantling of the laws that protected workers and the poor.

[..] .. let us be as clear about this electoral defeat as possible, because the New Democratic elite will try to pin their failure, and keep their jobs, by blaming this largely on racism, sexism – and FBI director Comey. This is an extremely dangerous conclusion to draw from this election. So here is our silver lining. This is a revolutionary moment. We must not allow them to shift the blame on to voters. This is their failure, decades in the making. And their failure is our chance to regroup. To clean house in the Democratic party, to retire the old elite and to empower a new generation of FDR Democrats, who look out for the working class – the whole working class.

Read more …

What happens when you think the economy means the rich.

Disaffected Rust Belt Voters Embraced Trump. They Had No Other Hope (G.)

The industrial midwest is the vast sweep, from western Pennsylvania through eastern Iowa, that drove the American economy for nearly a century. The great industrial cities, such as Chicago and Detroit, led the way, but it spread into hundreds of small towns and cities – from the steel mills of Ohio to the auto parts factories of Michigan and Wisconsin and the appliance makers of Iowa and Illinois. This was Hillary Clinton’s blue wall, the states she had to win to become president. Of the 11 swing states that decided the election, five – Pennsylvania, Ohio, Michigan, Wisconsin and Iowa – lie in this battered old industrial heartland. If, as expected, Trump’s lead in Michigan holds, she lost them all. How did it happen? There are many reasons. The Clinton team barely campaigned there and in Wisconsin until it was too late.

Misogyny played a role. So did Clinton’s personal unpopularity and the relatively low turnout. But the real reason is that the industrial era created this region and gave a good middle-class way of life to the people who worked there. That economy began to vanish 40 years ago, moving first to the sun belt and then Mexico, before finally China. The good jobs that were left increasingly went to robots. Factories closed. So did the stores and bars and schools around them. The brightest kids fled to universities and then to the cities – to New York or Chicago or the state capital. Those left behind worked two or three non-union jobs just to stay afloat. Families broke up. Drug use increased. Life spans shortened. And nobody seemed to care – until Trump. But does he really? Who knows? He said he did.

His tirades – against trade, against elites, against Obamacare, against immigrants, against the Clintons – sounded like unhinged rants in cities and on campuses, which never took him seriously. In the old industrial zones and withering farm towns, he echoed their own resentments. Mitt Romney couldn’t do this; neither could John McCain. But Trump did, and so they embraced him. Why was this such a surprise? It’s impossible to overstate the alienation between the two Americas, between the global citizens and the global left-behinds, between the great cities that run the nation’s economy and media, and the hinterland that feels not only cheated but, worse, disrespected.

Read more …

Tsipras goes from one blunder to the next. Still, as long as he’s there, the streets are quiet, amazingly quiet for a society that’s under such economic fire. But he is soon going to be voted out in favor of someone, anyone, who will then see things get much worse in the streets. A smouldering powder keg.

Tsipras Ready To Give In On Labor Reform To Ensure Debt Relief (Kath.)

Prime Minister Alexis Tsipras is prepared to make further concessions to Greece’s creditors in tough negotiations that are currently under way to ensure that there is no delay in launching crucial talks on relief for the country’s debt burden, Kathimerini understands. According to sources, Tsipras and his key ministers are ready to give in to calls by foreign auditors for more flexibility in the crucial area of labor laws. The government has already agreed to put off its demands for the restoration of collective wage bargaining, a key pledge of leftist SYRIZA before it came to power last year. It is unclear to what degree the Greek side is willing to concede on other issues – such as calls by foreign officials for facilitating mass layoffs for struggling employers and making it harder for unions to call strikes.

A source at the Labor Ministry said over the weekend that the Greek side has submitted its proposals for changes to labor laws and is awaiting the reaction of foreign officials. Tsipras is said to be set on a strategy of withdrawal despite the risks. The key danger is that cohesion in the ranks of leftist SYRIZA, which has already been tested by a series of concessions to foreign creditors, is further compromised, weakening the beleaguered coalition. The other risk is that the further concessions may boost the lead of conservative New Democracy over SYRIZA in opinion polls, which is already significant, thereby enhancing the sense that SYRIZA’s coalition with the right-wing Independent Greeks is on its way out.

Read more …

Oct 112016
 
 October 11, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 11 2016


NPC Grand Palace shoe shining parlor, Washington DC 1921

“How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)
7 in 10 Americans Have Less Than $1,000 In Savings (MF)
After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)
S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)
The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)
Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)
‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)
Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)
Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)
Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)
Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)
Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)
Britain’s Nuclear Cover-Up (NYT)

 

 

Titans of finance gather and sulk.

“How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)

Mary Callahan Erdoes, one of JPMorgan Chase’s most senior executives, summed up her industry’s mood like this: “There is no excitement,” she told throngs of bankers gathered in Washington. “There is a lot of handwringing.” Again and again, speakers at the Institute of International Finance’s three-day meeting in Washington, which wrapped up Saturday, bemoaned the inability of central banks to rev up economic growth, as well as the drag of tougher regulations and the looming impact of Brexit. Concerns over Deutsche Bank’s mounting legal costs deepened the gloom. Slow growth is leaving companies little reason to expand, fueling the public’s frustration and giving rise to extreme political views and nationalism, said Erdoes, 49, who runs JPMorgan’s asset-management operations.

Low interest rates – instead of better fiscal stimulus – are taking a toll on the entire system, she said. “We had a very smart economist at JPMorgan ask me the following question: How do you have capitalism without any cost of capital? And therein lies the problem.” [..] Goldman Sachs President Gary Cohn called the world’s central banks an “ineffective cartel,” as actions in Europe and Japan lead to negative rates and hamstring other policy makers. The outlook for low growth is long-term, he said. “I don’t see this changing,” Cohn said Friday. “We keep saying we’re getting closer to the end, but I don’t think we’re getting closer to the end.”

Read more …

I’m not sure how one writes an article like this and completely fails to mention that for millions of Americans, it’s not a matter of bad saving habits, but of spending everything on the basics.

7 in 10 Americans Have Less Than $1,000 In Savings (MF)

The U.S. is often referred to as the land of economic opportunity. Apparently, it’s also the land of consumption and “spend everything you’ve got.” We don’t have to look far for confirmation that Americans are generally poor savers. Every month the St. Louis Federal Reserve releases data on personal household savings rates. In July 2016, the personal savings rate was just 5.7%. Comparatively, personal savings rates in the U.S. 50 years ago were double where they are today, and nearly all developed countries have a higher personal savings rate than the United States. In other words, Americans are saving less of their income than they should be — the recommendation is to save between 10% and 15% of your annual income — and they’re being forced to do more with less in terms of investing.

However, new data emerged this week from personal-finance news website GoBankingRates that shows just how dire Americans’ savings habits really are. Last year, GoBankingRates surveyed more than 5,000 Americans only to uncover that 62% of them had less than $1,000 in savings. Last month GoBankingRates again posed the question to Americans of how much they had in their savings account, only this time it asked 7,052 people. The result? Nearly seven in 10 Americans (69%) had less than $1,000 in their savings account. Breaking the survey data down a bit further, we find that 34% of Americans don’t have a dime in their savings account, while another 35% have less than $1,000. Of the remaining survey-takers, 11% have between $1,000 and $4,999, 4% have between $5,000 and $9,999, and 15% have more than $10,000.

Furthermore, even though lower-income adults struggle with saving money more than middle- and upper-income folks, no income group did particularly well. Some 29% of adults earning more than $150,000 a year, and 44% making between $100,000 and $149,999, had less than $1,000 in savings. Comparatively, 73% of the lowest income adults (those earnings $24,999 or less annually) had less than $1,000 in their savings account. There was even minimal difference between multiple generations of Americans. From seniors aged 65 and up to young millennials aged 18 to 24, between 62% and 72% of Americans had less than $1,000 in a savings account.

Read more …

Great little piece by Wolf Richter.

After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)

Over the past few days, the Diamond Producers Association launched its first new ad campaign in five years after watching retail sales of diamond jewelry slow down, as Millennials built on the habit pioneered by prior generations of delaying or not even thinking about marriage, and thus not being sufficiently enthusiastic about buying diamond engagement rings. The campaign, according to Adweek, is designed to motivate Millennials “to commemorate their ‘real,’ honest relationships with diamonds, even if marriage isn’t part of the equation.” Mother New York, the agency behind the campaign, spent months interviewing millennials, according to Quartz, and learned that they associated diamonds with a “fairytale love story that wasn’t relevant to them.”

So the premium jewelry industry, seeing future profits at risk, needs to do something about that. A year ago, it was Wall Street – specifically Goldman Sachs – that did a lot of hand-wringing about millennials. “They don’t trust the stock market,” Goldman Sachs determined in a survey. Only 18% thought that the stock market was “the best way to save for the future.” It’s a big deal for Wall Street because millennials are now the largest US generation. There are 75 million of them. They’re supposed to be the future source of big bonuses. Wall Street needs to figure out how to get to their money. The older ones have seen the market soar, collapse, re-soar, re-collapse, re-soar…. They’ve seen the Fed’s gyrations to re-inflate stocks. They grew up with scandals and manipulations, high-frequency trading, dark pools, and spoofing.

They’ve seen hard-working people get wiped out and wealthy people get bailed out. Maybe they’d rather not mess with that infernal machine. And today, the Los Angeles Times added more fuel. “They’re known for bouncing around jobs, delaying marriage, and holing up in their parents’ basements,” it mused. Everyone wants to know why millennials don’t follow the script. Brick-and-mortar retailers have been complaining about them for years, with increasing intensity, and a slew of specialty chains have gone bankrupt, a true fiasco for the industry, even as online retailers are laughing all the way to the bank. “For starters, millennials are not big spenders, at least not in the traditional sense,” the Times said. Yet most of them spend every dime they earn, those that have decent jobs. But much of that spending goes toward their student-loan burden and housing.

Read more …

Trying to fit human behavior into triangles.

S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)

The S&P 500 is moving fast toward an impending breakout that could be bad news for investors. “And it’s gonna be big, by all accounts,” said Carter Braxton Worth, a technical analyst at research firm Cornerstone Macro. The S&P 500 has been trading within a “symmetrical triangle” on a number of time scales, as the index traced out a pattern of rising lows and falling highs. Since the upper and lower boundary lines are narrowing to a point, it’s just a matter of time before the S&P 500 breaks above or below one of them. “It is a circumstance where buyers and sellers are matched off so evenly that purchases being made by those who like a particular security are in the same order of magnitude as the selling being done by those who dislike the security,” Worth wrote in a note to clients.

His research suggests that the resolution of these standoffs is usually “aggressive,” with the index moving past the declining or rising trendlines “in a meaningful way.” Many technicians believe triangles represent continuation patterns, or periods of pause in a bigger trend, which means they should eventually be resolved in the direction of the preceding trend. In the S&P 500’s case, that would mean a big rally is coming. But Worth said that based on his interpretation of the charts, the S&P 500’s triangle looks more like a reversal pattern. “We believe the current formation is a setup for a move lower,” Worth said.

Read more …

Hoping that just this once it’s different.

The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)

Beset by lending curbs and bubble-esque prices, first-time home buyers in Australia are turning to a rapidly growing source of finance: The Bank of Mom and Dad. More parents are taking advantage of record-low interest rates to refinance their properties and help their grown-up kids onto the housing ladder amid sky-rocketing house values. Digital Finance Analytics estimates the number of Aussies getting help from their parents has soared to more than half of first-home buyers from just 3% six years ago. Australia’s housing rally has favored baby-boomers and locked out youth, compounding an inter-generational shift of wealth.

As the number of bank loans to first-time buyers dwindles, the average slice of cash handed to them by parents has almost quadrupled in the past six years, DFA says. The downside: a market that the Reserve Bank of Australia is already wary of may get further inflated. First-time buyers are “being infected by the notion that property is about wealth building, rather than somewhere to live,” said Martin North, Principal at DFA. That “may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels.” [..] The boom is turning some homes into cash dispensers. More than two thirds of owners that refinanced houses worth more than A$750,000 did so to extract capital for reasons including helping their kids. Near the start of 2010, the average helping hand from parents was about A$23,000; today, it’s more than A$80,000.

Read more …

“..they don’t have a strong willingness to hold the yuan due to depreciation expectations..” Does that rhyme with the SDR basket thing?

Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)

China’s currency outflows may be bigger than they look, with Goldman Sachs warning that a rising amount of capital is exiting the country in yuan rather than in dollars. While the nation’s foreign-exchange reserves have stabilized and lenders’ net foreign-exchange purchases for clients have fallen close to a one-year low, official data show that $27.7 billion in yuan payments left China in August. That’s compared with a monthly average of $4.4 billion in the five years through 2014. Such large cross-border moves can’t be explained by market-driven factors and need to be taken into account when measuring currency outflows, according to MK Tang, Hong Kong-based senior China economist at Goldman Sachs.

Any sign of increased capital outflows could disturb a recent calm in China’s foreign-exchange market, adding to pressure from a potential Federal Reserve interest-rate increase and denting the yuan’s image as the world’s newest global reserve currency. The yuan fell to a six-year low on Monday, adding to outflow pressures. “There is some window guidance from the central bank that limits companies’ dollar conversion onshore, so they need to move the money overseas in yuan,” said Harrison Hu, chief Greater China economist at RBS in Singapore. “But they don’t have a strong willingness to hold the yuan due to depreciation expectations, so they sell it to offshore banks. This pressures the offshore yuan’s exchange rate.”

[..] Goldman Sachs started including yuan funds in its analysis of outflows in July, after noting that cross-border movement of the currency masked actual pressures. The bank estimates that 56% and 87% of outflows took place through the offshore yuan market in July and August, respectively.

Read more …

Do read the whole thing for a good history lesson.

‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)

In 2000 when Putin was elected president, he publically promoted security and economic cooperation with Europe and the United States. After 9/11, he offered real assistance to Washington. The United States accepted the Russian help, but continued its anti-Russian policies. Putin extended his hand to the west, but on the basis of five kopeks for five kopeks. This was a Soviet policy of the interwar years. It did not work then and it does not work now. In 2007 Putin spoke frankly at the Munich conference on Security Policy about overbearing US behaviour. The “colour revolutions” in Georgia and the Ukraine, for example, and the Anglo-American war of aggression against Iraq raised Russian concerns. US government officials did not appreciate Putin’s truth-telling which went against their standard narrative about «exceptionalist» America and altruistic foreign policies to promote «democracy».

Then in 2008 came the Georgian attack on South Ossetia and the successful Russian riposte which crushed the Georgian army. It’s been all down-hill since then. Libya, Syria, Ukraine, Yemen are all victims of US aggression or that of its vassals. The United States engineered and bankrolled a fascist coup d’état in Kiev and has attempted to do the same in Syria reverting to their “Afghan policy” of bankrolling, supplying and supporting a Wahhabi proxy war of aggression against Syria. Backing fascists on the one hand and Islamist terrorists on the other, the United States has plumbed the depths of malevolence. President Putin and Russian foreign minister Sergei Lavrov have made important concessions, to persuade the US government to avert catastrophe in the Middle East and Europe.

To no avail, five kopeks for five kopeks is not an offer the United States understands. Assymetrical advantages is what Washington expects. One cannot reproach the Russian government for trying to negotiate with the United States, but this policy has not worked in the Ukraine or Syria. Russian support of the legitimate government in Damascus has exposed the US-led war of aggression and exposed its strategy of supporting Al-Qaeda, Daesh, and their various Wahhabi iterations against the Syrian government. US Russophobia is redoubled by Putin’s exposure of American support for Islamist fundamentalists and by Russia’s successful, up to now, thwarting of US aggression. Who does Putin think he is? From my observations, I would reply that President Putin is a plain-spoken Russian statesman, with the support of the Russian people behind him.

For five kopeks against five kopeks, he will work with the United States and its vassals, no matter how malevolent they have been, if they adopt less destructive policies. Unfortunately, recent events suggest that the United States has no intention of doing so. After one hundred years of almost uninterrupted western hostility, no one should be under any illusions. So then, the question is “Why do they hate us so?” Because President Putin wants to build a strong, prosperous, independent Russian state in a multi-polar world. Because the Russian people cannot be bullied and will defend their country tenaciously. “Go tell all in foreign lands that Russia lives!» Prince Aleksandr Nevskii declared in the 13th century: «Those who come to us in peace will be welcome as a guest. But those who come to us sword in hand will die by the sword! On that Russia stands and forever will we stand!”

Read more …

Yeah, Daniel Hannan has lots of stuff wrong with him. But Britain must have this conversation regardless of that. I picked this piece up on Twitter, with this accompanying comment: “No aspect of Brexit is Remain voters’ fault in any way, or to any extent at all.” I don’t know if that was meant sarcastically, but I would certainly hope so. Without that conversation things can only get worse. Remainers must try harder to understand why Brexit happened. If nothing else, I would think they’re at least ‘guilty’ of not seeing it coming. And perhaps also of seeing Brexit as the problem, not a mere symptom.

Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)

Shortly after the EU referendum, several thousand young people marched through London demanding a rerun. I happened to be sitting next to three of them on a train as I travelled into the capital that morning. They evidently recognised me right away as an Evil Tory Leaver, but we were past Clapham Junction before one of them plucked up the courage to talk to me. “Are you Daniel Hannan? I just wanted to say that what you’ve done is terrible. We’re not a racist country. You’ve taken away our future.” “Is that so? Out of interest, can you tell me who the President of the European Commission is?” “No. What’s that got to do with it?” “Can you name a single European Commissioner, come to that? Do you know what our budget contribution will be this year? Or what the difference is between a Directive and a Regulation?”

She was affronted by the questions. So were her two friends with their “I [heart] EU” placards. They weren’t interested in details. For them, it was about values. Are you a decent, internationalist, compassionate person? Or are you a selfish bigot? Let’s leave aside the fact that no one would ever vote on any ballot paper for a “selfish bigot” option. Their determination to approach the issue in terms of character, rather than cost-benefit, explains why they were so upset – and why, even now, some Remain voters struggle to accept the outcome. In my experience, the 48% who voted Remain fall into two categories. There are those who were making a judgement as to where Britain’s best options lay. They could see that the is EU flawed.

They were well aware of the corruption, the lack of democracy, the slow growth. But they took the view that, on balance, the disruption of leaving would outweigh the gains. These people, by and large, now want to make a success of things, and are keen to maximise our opportunities. Then there were those like my companions on South West Trains, for whom the issue was not financial but somehow moral. For them, the EU wasn’t the grubby and self-interested body that exists in reality; rather, it was a symbol of something better and purer, an embodiment of the dream of peace among nations. They never heard, because they never wanted to hear, the democratic or economic arguments against membership. As far as they were concerned, the only possible reason for voting Leave was chauvinism.

Read more …

“Euro Area Looks to Help on Debt” sounds like the epitomy of cynicism. The Eurogroup withheld €1.7 billion, to Greece’s surprise, because it wanted to assess A) whether a June payment was fully used to pay off third parties, and B) whether the government had squeezed its people enough (reforms). The delay is convenient for Brussels because it also delays debt restructuring talks once again, for the umpteenth time. And without those talks, the IMF won’t commit. Rinse and repeat.

Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)

The euro area authorized a €1.1 billion payment to Greece and signaled a further €1.7 billion would follow this month, saying the region’s most indebted nation has made progress in overhauling its economy. The green light, given by euro-area finance ministers on Monday in Luxembourg, removes a hurdle on Greece’s path to debt relief on which Prime Minister Alexis Tsipras has staked part of his political future. The country had to fulfill 15 conditions on matters such as selling state assets and improving bank governance to get the first payout.

It “was unanimously decided that Greece had completed the 15 milestones, so we can proceed to the €1.1 billion disbursement,” Greek Finance Minister Euclid Tsakalotos told reporters after the meeting, saying the talks produced a “very good” outcome for his country. The delay in getting an endorsement for the remaining sum, which is tied to the clearing of arrears, is merely “technical,” he said. Greece, in its third bailout since 2010, is struggling to right an economy that is poised to undergo its eighth annual contraction in the past nine years. A second review of the country’s rescue program will pave the way for a possible restructuring of Greece’s debt, which the IMF says is a necessary condition for its future involvement.

Read more …

This feels like a military coup, a chapter straight out of the Shock Doctrine. Stocks go up because people’s lives go down.

Glenn Greenwald on Twitter: “Brazil’s lower House- in the face of negative growth- just voted to amend the Constitution to ban spending increases for 20 years..” “This extreme austerity in Brazil – enabled by impeachment- is being imposed in world’s 7th largest economy, 5th most populous country (200m). ”

Nomi Prins on Twitter: “Brazil’s coup was about advancing western speculative market access & squashing domestic population needs – for decades…bastards.”

Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)

The Ibovespa rose to a two-year high and the real gained as commodities advanced and as expectations mounted that lawmakers will approve a bill to cap spending, a key measure in President Michel Temer’s plan to trim a budget deficit and rebuild confidence in Brazil. The benchmark equity index rose 0.9% and the currency climbed 0.5% Monday in Sao Paulo. [..] Brazilian stocks have gained 75% in dollar terms this year and the real has strengthened 24%, the best performances in the world, on bets that a new government would be able to pull the country out of its worst recession in a century.

Temer, who formally replaced impeached former President Dilma Rousseff in August, said the administration should have enough votes to drive through a budget bill Monday that’s seen as a vital first step toward his economic reforms. The proposal to amend the Constitution to set limits on government spending for as long as 20 years must be approved by at least three-fifths of both chambers of Congress. “The market is very optimistic over this legislation,” said Paulo Figueiredo, an economist at FN Capital in Petropolis, Brazil. “New bets on local assets depend a lot on the signals that will come from this vote.”

Read more …

Bubble?!

Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)

Global investment in clean energy fell to the lowest in more than three years as demand for new renewable energy sources slumped in China, Japan and Europe. Third-quarter spending was $42.4 billion, down 43% from the same period last year and the lowest since the $41.8 billion reported in the first quarter of 2013, Bloomberg New Energy Finance said in a report Monday. Financing for large solar and wind energy plants sank as governments cut incentives for clean energy and costs declined, said Michael Liebreich at the London-based research company. Total investment for this year is on track to be “well below” last year’s record of $348.5 billion, according to New Energy Finance.

The third-quarter numbers “are worryingly low even compared to the subdued trend we saw” in the first two quarters, Liebreich said in a statement. “Key markets such as China and Japan are pausing for a deep breath.” Part of the reason for the steep decline in the quarter was a slowdown following strong spending in the first half of the year on offshore wind. Investors poured $20.1 billion into European offshore wind farms in the first and second quarters, “a runaway record,” according to Abraham Louw, an analyst for energy economics with New Energy Finance. That was followed by a “summer lull,” with $2.4 billion in spending in the third quarter.

Read more …

So much for that.

Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)

Igor Sechin, Russia’s most influential oil executive and the head of Kremlin energy champion Rosneft, said his company will not cut or freeze oil production as part of a possible agreement with OPEC. His comments underline how difficult it is for Russia to get its oil companies to freeze or cut output as part of a potential deal with OPEC designed to support oil prices. President Vladimir Putin told an energy congress on Monday that Russia was ready to join the proposed OPEC cap, but did not provide any details. “Why should we do it?” Sechin, known for his anti-OPEC position, told Reuters in Istanbul on Monday evening, when asked if Rosneft, which accounts for 40% of Russia’s total crude oil output, might cap its own output.

Sechin said he doubted that some OPEC countries, such as Iran, Saudi Arabia and Venezuela would cut their output either, saying that an increase in oil prices above $50 per barrel would make shale oil projects in the United States profitable. There have been several attempts in the past for Russia and OPEC to join forces to stabilize oil markets. Those efforts have never come to pass however. Oil prices surged on Monday after Putin’s comments amid hopes that a two-year price slide could be halted.

Read more …

Uglee!!!

Britain’s Nuclear Cover-Up (NYT)

Last month, the British government signed off on what might be the most controversial and least promising plan for a nuclear power station in a generation. Why did it do this? Because the project isn’t just about energy: It’s also a stealth initiative to bolster Britain’s nuclear deterrent. For years, the British government has been promoting a plan to build two so-called European Pressurized Reactors (EPR) at Hinkley Point C, in southwest England. It estimates that the facility will produce about 7% of the nation’s total electricity from 2025, the year it is expected to be completed. The EPR’s designer, Areva, claims that the reactor is reliable, efficient and so safe that it could withstand a collision with an airliner.

But the project is staggeringly expensive: It will cost more than $22 billion to build and bring online. And it isn’t clear that the EPR technology is viable. No working version of the reactor exists. The two EPR projects that are furthest along — one in Finland, the other in France — are many years behind schedule, have hemorrhaged billions of dollars and are beset by major safety issues. The first casting of certain components for the Hinkley Point C reactors left serious metallurgical flaws in the pressure vessel that holds the reactor core. In 2014, the Cambridge University nuclear engineer Tony Roulstone declared the EPR design “unconstructable.”

The lead builder of the EPR, the French utility company Electricité de France, faced a mutiny this year: Its unions fought the Hinkley Point project, fearing it might bring down the company. E.D.F.’s chief financial officer has resigned, arguing that it would put too much strain on the company’s balance sheet. But the British government continues to act as though it wants the Hinkley project to proceed at almost any price. In return for covering about one-third of the costs, the Chinese state-run company China General Nuclear Power Corporation will take about one-third ownership in the project. (A subsidiary of E.D.F. owns the rest.) The British government has also provisionally agreed to let China build a yet-untested Chinese-designed reactor in Bradwell-on-Sea, northeast of London, later.

[..] The British government has [..] guaranteed that investors in the Hinkley project will get $115 per megawatt-hour over 35 years. This is approximately twice the price of electricity today [..]. If the market price of electricity falls below that rate, a government company is contractually bound to cover the difference — with the extra cost passed on to consumers. Price forecasts have dropped since the deal was struck: This summer the government, revising estimates, said differential payments owed under the contract could reach nearly $37 billion. If the Hinkley plan seems outrageous, that’s because it only makes sense if one considers its connection to Britain’s military projects — especially Trident, a roving fleet of armed nuclear submarines, which is outdated and needs upgrading.

Read more …

Jun 222016
 
 June 22, 2016  Posted by at 8:16 am Finance Tagged with: , , , , , , ,  


Harris&Ewing Painless Dentist, Washington, DC 1918

Nervy Global Investors Revisit 1930s Playbook (R.)
Fed Warns of Commercial Real Estate Bubble (BBG)
Federal Reserve Says US Stocks Have Gotten Expensive (MW)
Amsterdam Housing Market Is Overheating (BBG)
ECB Balance Sheet Hits Record High -With Stocks At 18-Month Lows- (ZH)
Some 66 Million Americans Have ‘Zero’ Emergency Savings (MW)
Increase In Refugees Reaching Aegean Islands Fuels Concern (Kath.)

Not a bad article, but it is really simple. 1) Centralization stops when growth does, 2) The only thing that’s really been growing for years is debt, and 3) You can’t borrow or buy growth.

Nervy Global Investors Revisit 1930s Playbook (R.)

Global investors are once again dusting off studies of the 1930s as fears of protectionism, nationalism and a retreat of globalization, sharpened by this week’s Brexit referendum, escalate anew. With markets on tenterhooks over Thursday’s “too close to call” vote on Britain’s future in the EU, the damage an exit vote would deal business activity and world commerce is amplified by the precarious state of the global economy and its inability to absorb any left-field political shocks. As such, the Brexit vote will not be an open-and-shut case regardless of the outcome. Broader worries about global trade, frail growth and dwindling investment returns have festered since the banking shock of 2007/08 and have mounted this year.

Stalling trade growth has already led the world economy to the brink of recession for the second time in a decade, with growth now hovering just above the 2.0-2.5% level most economists say is needed to keep per capita world output stable. Three-month averages for growth of world trade volumes through March this year have turned negative compared with the prior three months, according to the Dutch government statistics body widely cited as the arbiter of global trade data. And it’s not a seasonal blip. Last year saw the biggest drop in imports and exports since 2009 and their average annual growth of 3% over the intervening seven years was itself half that of the 25 years before, according to Swiss asset manager Pictet. 2016 is set to be the fifth sub-par year in row.

A study published by the Centre For Economic Policy Research shows this paltry pace of trade growth is also below the 4.2% average for the past 200 years. Foreign direct investment growth of 2% of world output is also at its lowest since the 1990s, while the hangover from the credit crunch has seen annual growth rates in cross-border bank lending grind to a halt from some 10% in the decade to 2008.

Read more …

First you blow a bubble, then you warn against it. Without using the term ‘bubble’, of course.

Fed Warns of Commercial Real Estate Bubble (BBG)

The Federal Reserve warned that prices in the commercial real-estate market may have run up too far too fast. Valuations in commercial real estate “appear increasingly vulnerable to negative shocks, as CRE prices have continued to outpace rental income,” the Fed said in its semiannual Monetary Policy Report to Congress. The Fed noted that prices exceed their pre-crisis peaks by some measures. The Fed included a special section on financial stability risks in the report, which accompanies Chair Janet Yellen’s testimony. The report said that even given “moderate’’ financial vulnerabilities, risks of external shocks, such as the U.K.’s possible exit from the European Union, pose stability risks. The report also highlighted issues related to credit exposures to the energy sector, money-market mutual funds and stock valuations.

The central bank said price-to-earnings ratios on a forward-looking basis for stocks have increased to a level “well above” their median for the past 30 years. “Although equity valuations do not appear to be rich relative to Treasury yields, equity prices are vulnerable to rises in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth,” the Fed said. The Fed said “some structural vulnerabilities are expected to persist” in money-market mutual funds even after Securities and Exchange Commission reforms go fully into effect in October. “Leverage for the non-financial corporate sector has stayed elevated and indicators of corporate credit quality, though still solid overall, continued to show signs of deterioration for lower-rated firms, especially in the energy sector,” the Fed said in its report. Strong U.S. bank capital positions contributed to the resilience of the financial system, the Fed said.

Read more …

Real estate bubble, stocks bubble: the Fed ia aware of all.

Federal Reserve Says US Stocks Have Gotten Expensive (MW)

Even the Federal Reserve is weighing in on valuations in the U.S. stock market. In its monetary policy report submitted to the Congress ahead of Federal Reserve Chairwoman Janet Yellen’s testimony, the central bank acknowledges that stock values have grown somewhat richer since the beginning of 2016. Here’s how they put it: “Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades. Although equity valuations do not appear to be rich relative to Treasury yields, equity prices are vulnerable to rises in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth.”

The S&P 500 closed higher Tuesday, up 0.3% at 2,088 and it appears investors are shrugging off both the testimony and the report on valuations. Of course, not everyone views the Fed as an authority on stock values and some analysts and traders disagree with the notion that equities have gotten pricey. “No one looks to the Fed as a chief market strategist and markets have their own dynamics on valuing stocks,” said Quincy Krosby at Prudential Financial. In Crosby’s opinion “stocks are fully valued at these levels.” She says “what investors want to hear is whether companies’ earnings will start improving. Whether the Fed decides that stocks are undervalued or overvalued does not have an impact on prices.”

Wall Street tends to turn to the U.S. central bank for clues about the pace of interest-rate increases, the health of the labor market and to get a gauge on inflation. It’s rare that it offers specifics on sectors or assets but it isn’t totally unprecedented. Back in 2014, Yellen said valuations for technology stocks were stretched in her congressional testimony, resulting in a selloff in social-media names, which were booming at the time. Going back to mid-1990s, former Fed Chairman Alan Greenspan sounded the alarm on tech stocks too. But his famous “irrational exuberance” comments didn’t pop the tech bubble when he delivered them in 1996. It would take another four years before the air rushed out.

Read more …

The perversity of low rates.

Amsterdam Housing Market Is Overheating (BBG)

It’s getting hot in the Amsterdam property market. The Netherlands, the nation of tulipmania almost 400 years ago, saw prices in its capital city surge almost 21% in the first quarter. While the blame partly falls on a simple supply-and-demand imbalance, the signs are pointing to a potential squeeze. In London, by comparison, government data show prices rose about 14% from a year earlier, according to Savills Plc. In a market where almost half of properties are owned by non-profit corporations, mainly for social housing, there’s just not enough coming on to the market to satisfy buyers. After falling about 14% in five years, prices have rebounded recently and are now above pre-crisis levels.

“The Amsterdam housing market shows signs of overheating,” said Frans Schilder, who studies housing policy in the economics department at the University of Amsterdam. “The prices are absurd but I don’t expect them to fall in the near future.” Any houses coming up for sale in the Amsterdam region are scooped up immediately. The supply shortage is a hangover from the financial crisis, which restrained new building and led to more families choosing to remain in the city, as it was harder to sell properties at a profit. In the first quarter of 2016, all houses that came on the market were sold, nearly half for more than the asking price. The asking price for an average house rose 5% from a month ago in May while it was up 26% from a year earlier, the Dutch bureau of statistics said Tuesday.

Read more …

Imbalance sheet.

ECB Balance Sheet Hits Record High -With Stocks At 18-Month Lows- (ZH)

Draghi, we have a problem.

The European Central Bank's balance sheet has reached a new record high this week – surpassing the chaotic expansion peak in 2012 – as Mario Draghi prepares to unleash TLTRO-II, which will definitely increase this time (just like LTRO and NIRP didn't!)

"Fool me once" in 2011/12 but not in 2015/16.

Given the utter failure to create any 'real' economic gains via the expansion of the ECB balance sheet, the plunge in stock prices (and thus crushing the trickle-down wealth-creation mandate) leaves Draghi in the same boat as Yellen – utterly impotent.

 

Which is ironic because this is what Draghi just said…

  • *DRAGHI SAYS ECB ACTION PUT RECOVERY ON MORE SOLID FOOTING
  • *DRAGHI SAYS GROWTH, INFLATION WOULD BE LOWER WITHOUT ECB ACTION

Though we'll never know, can you imagine just how bad things are in reality?

Read more …

Excuse me? “Accumulating emergency savings requires establishing the habit.”

Some 66 Million Americans Have ‘Zero’ Emergency Savings (MW)

Around 28% of U.S. adults have saved “zero dollars” for an emergency, according to a survey released Tuesday of 1,000 U.S. adults by personal savings website Bankrate.com carried out by Princeton Survey Research Associates International, a polling firm. When extrapolated for the entire 234.6 million U.S. adult population, that’s equivalent to 66 million people. That’s down from 29% last year, but up from 24% in five years ago. Another 28% of adults have saved enough money to last six months, up from 22% from last year and a six-year high; 18% had some emergency savings, but not enough for six months. Generation Xers are in the worst position of all generations: 33% of 36- to 51-year-olds haven’t saved anything for an emergency.

Millions of Americans are struggling with student loans, medical bills and other debts, experts say, and although Central bankers hiked their short-term interest rate target last December to a range of 0.25% to 0.50% from near-zero, that’s still a small return for savings left in bank accounts. Many investors are behaving like another imminent rate hike is highly unlikely, MarketWatch columnist Jeff Reeves wrote this month. “Expenses grow faster than many Americans can save during the home-buying, family-raising years,” says Greg McBride, chief financial analyst at Bankrate.com. “Accumulating emergency savings requires establishing the habit.”

Read more …

Slowly going very wrong – again.

Increase In Refugees Reaching Aegean Islands Fuels Concern (Kath.)

The influx of would-be migrants into Greece from neighboring Turkey is decisively on the increase following several months during which the flow had been staunched thanks to a European Union deal with Ankara to crack down on people smuggling. Over the long weekend, 270 migrants arrived on Greek islands in the eastern Aegean while arrivals in the first 20 days of June came to 981. The renewed influx is putting increased pressure on reception facilities on the islands, which according to local authorities are already full. Meanwhile, Greek committees are continuing to process hundreds of asylum applications. Greek authorities have rejected dozens of these applications, of which 70 were upheld by appeal committees that ruled Turkey is an “unsafe country” to send migrants back to.

In an apparent bid to curb the number of rulings upholding appeals, the government passed a legislative amendment last week which removes the representative of the Hellenic League for Human Rights from the appeal committees, which feature two judges and a representative of the United Nations refugee agency. The HLHR rapped the government for changing the composition of the committees instead of applying pressure to ensure that Turkey becomes a safe country to make migrant returns viable. In a related development the UN revealed on Tuesday that the number of people displaced from their homes due to conflict and persecution last year exceeded 60 million for the first time since the organization was founded in 1945.

Read more …

May 092016
 
 May 9, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , , ,  


DPC Broad Street lunch carts, New York 1906

Iron Ore in Free Fall (BBG)
Dollar Jump Catches Traders Short in One More Currency Calamity (BBG)
China Stocks Plunge Again As Hopes For Economic Recovery Fade (R.)
China Continues to Prop Up Ailing Factories, Adding to Global Glut (WSJ)
Government Policies Make China Prone To Asset Bubbles (Balding)
Even China’s Party Mouthpiece Is Warning About Debt (BBG)
Saudi Aramco Plans London Listing But Doubts Grow On $2.5 Trillion Claim (AEP)
Oil Discoveries Slump To 60-Year Low (FT)
Negative Rates Hit Global Shipping Market (BBG)
Draghi, Schäuble And The High Cost Of Germany’s Savings Culture (Münchau)
The Folly Of German Economic Policy (Coppola)
Turkey Economic A-Team Down to Last Man as Erdogan Exerts Power (BBG)
UK’s Nationwide Raises Home Loan Age Limit To 85 Years (BBC)
The End of American Meritocracy (Luce)
Panama Papers Allege New Zealand Prime Place For Rich To Hide Money (R.)
Greek Lawmakers Pass Painful Reforms To Attain Fiscal Targets (R.)
Greece Keeps Wary Eye On Turkey Border Violations (Kath.)

Well that’s a surprise….

Iron Ore in Free Fall (BBG)

Iron ore’s in free fall. Futures in Asia plummeted after port stockpiles in China expanded to the highest in more than a year following moves by local authorities to quell speculation in raw-material futures. The SGX AsiaClear contract for June settlement tumbled 9.1% to $50.50 a metric ton at 1:24 p.m. in Singapore, while futures in Dalian sank 7.1%, retreating alongside contracts for steel and coking coal. The benchmark Metal Bulletin price for 62% content spot ore in Qingdao plunged 12% last week for the worst loss since 2011. Iron ore is falling back to Earth after an unprecedented wave of speculation in China, triggered by signs the economy was stabilizing, helped to hoist benchmark prices to the highest in 15 months.

The jump prompted regulatory authorities and exchanges to team up to quell the excesses, while banks including Brazil’s Itau Unibanco warned the price gains weren’t justified in an oversupplied market. Data on Friday showed port holdings have expanded to almost 100 million tons. [..] Inventories held at ports across China increased 1.4% to 99.85 million tons last week to the highest since March 2015, according to data from Shanghai Steelhome Information. The holdings have expanded 7.3% this year after rising for five of the past six weeks.

Read more …

Really, that was a surpsie too?

Dollar Jump Catches Traders Short in One More Currency Calamity (BBG)

Just when investors thought they’d finally made a good call in the currency market, the dollar’s advance messed it up. The U.S. currency on Friday capped its best week all year versus major peers, shortly after hedge funds finally switched to betting on dollar declines, known as going short. That’s not the only wrong move foreign-exchange managers have made this year – an index tracking their returns shows they’ve failed to turn a profit in 2016. Many of the assumptions traders made at the start of the year turned out to be misguided. Anticipated Federal Reserve interest-rate increases have failed to materialize, creating less policy divergence between the U.S. and its counterparts. And though investors were right to speculate the pound would tumble in the run-up to next month’s EU referendum, it’s recovered since.

“It’s been a very challenging year in the currency market given the lack of solid fundamental themes and the difficulties for some market-consensus trades which haven’t worked,” said Chris Chapman at Manulife Asset Management. “A lot of people were expecting a lower euro, lower yen and higher dollar, but the market moves have so far been against those expectations.” The lack of profit comes at a difficult time for the foreign-exchange market. Banks including Morgan Stanley, Barclays and Societe Generale have cut traders from their currency desks as they grapple with a 20% drop in volumes in the past 18 months amid increasing automation. And it’s not just currency trading that’s suffering: global stocks are headed for a second straight year of losses, following a rout in January and February that wiped out as much as $9 trillion.

Read more …

Yeah, sure, a recovery bought with debt. We do it all the time.

China Stocks Plunge Again As Hopes For Economic Recovery Fade (R.)

China stocks fell sharply again on Monday, reaching eight-month lows, as investors saw hopes for a strong economic recovery fade and worried about fresh regulatory curbs on speculation. Following the market’s nearly 3% slump on Friday, China’s blue-chip CSI300 fell 2.1%, to 3,065.62, while the Shanghai Composite lost 2.8%, to 2,832.11 points. China April trade data, released on Sunday, doused investor hopes of a sustainable economic recovery, with both exports and imports falling more than expected. Recovery hopes were further dimmed by an article on Monday in the People’s Daily, the Communist Party’s mouthpiece.

It cited an “authoritative source” saying China’s economic trend will be “L-shaped”, rather than “U-shaped”, and definitely not “V-shaped”, but the government will not use excessive investment or rapid credit expansion to stimulate growth. Shares fell across the board, but selling concentrated in relatively expensive small caps amid fears of fresh regulatory crackdown on speculation. China’s securities regulator said on Friday that the valuation gap between the domestic and overseas market and speculation on “shell” companies – firms used for backdoor listings – merited attention. An index tracking raw material shares tumbled nearly 5% as China’s commodity prices continued to fall amid a government crackdown on speculative trading.

Read more …

Where do they store all the stuff?

China Continues to Prop Up Ailing Factories, Adding to Global Glut (WSJ)

China is doubling down on efforts to keep unprofitable factories afloat despite for years pledging to curb excess capacity, adding to a glut of basic materials flooding the global economy. The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere. China’s continuing aid for unneeded factories is triggering a sharp rise in trade disputes and protectionist sentiment, especially in the U.S., where trade has emerged as one of the pivotal issues in the U.S. presidential election. According to a Wall Street Journal analysis of Chinese public companies, Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies.

Recipients include steelmakers, coal miners, solar-panel manufacturers, and other producers of other goods including copper and chemicals. One beneficiary, Aluminum Corp. of China, or Chalco, said in October one of its units would shut down a roughly 500,000-ton-per-year smelter in the far-western Gansu region as it struggled to make profits. Executives prepped for thousands of layoffs. Then Gansu officials slashed the plant’s electricity bill by 30%, employees say, and the factory was saved. Although a portion of capacity was taken offline, most is operational. “We’re in full production now with 380,000 tons of capacity,” said Fei Zhongchang, a company sales manager.

In Europe, workers have joined protests against Chinese steel imports. Australia has investigated dumping of products including solar panels and steel and India has raised import taxes on steel after a surge of cheap Chinese goods. The U.S. launched seven new investigations into alleged dumping or government subsidies involving Chinese goods in the first three months of this year, more than the same period of any other year dating back to at least 2003, government data show. Earlier this year, the U.S. Commerce Department slapped preliminary import duties of 266% on imported Chinese cold-rolled steel. The decision came after U.S. Steel lost $1.5 billion last year, closed its last blast furnace in the South and laid off thousands of workers, blaming China.

Late last month , U.S. Steel filed a trade complaint against China at the International Trade Commission, alleging price fixing, trans-shipment via third countries to avoid duties and cyber-espionage to loot technology off U.S. Steel computers. China’s Commerce Ministry has urged U.S. authorities to reject the complaint, and said allegations of intellectual property infringement “are completely without factual basis.” China says it isn’t guilty of dumping—or selling a product at a loss in order to gain market share—and calls U.S. and EU measures and investigations forms of protectionism. It says it has mothballed factories and intends to cut more, with plans to lay off up to 1.8 million steel and coal workers.

Read more …

Goodness, Gracious, Great Ball of Money.

Government Policies Make China Prone To Asset Bubbles (Balding)

Chinese markets have rarely looked more like Vegas casinos. In recent weeks, investors have driven up trading volumes in China to astronomical levels, betting on everything from rebar to eggs. China traded enough steel in one day last month to build 178,082 Eiffel Towers and enough cotton to make at least one pair of jeans for every person on the planet. These commodity markets aren’t gyrating purely because Chinese are inveterate gamblers. Government policies have made China especially prone to asset bubbles. Even as some of those bubbles are carefully deflated, new ones are sure to emerge unless the policies themselves change. The issue is surplus liquidity – what’s been described as China’s “great ball of money,” which bounces from asset class to asset class as if in a pinball machine.

Even Chinese leaders acknowledge it was their effort to fend off the 2009 global financial crisis that allowed that pile of money to grow to epic proportions. By now, credit and money growth has far outstripped any good opportunities for investment in China’s real economy, which is hobbled by excess capacity. And the mismatch is getting worse: Total social financing, China’s broadest measure of lending, grew nearly four times as fast as nominal GDP last year. Money doesn’t sit still; all this increased liquidity is flooding into real estate and financial assets. Last summer, that led to the boom-and-bust of the Shanghai stock market. Now it’s driving up property prices in top cities – Shenzhen real estate is up more than 50% in the past year – to levels higher than in any U.S. metropolis other than New York. Yet rather than retreating, the government is doubling down on its strategy.

In January, soon after drafting a new five-year plan that focused in part on the need to shrink industries such as steel and coal, the government eased credit yet again, boosting loan growth by 67% in January and 43% through the first quarter. The money was meant to – and did – buy an uptick in GDP growth. But it’s also gone into new loans to zombie companies as well as speculation in the commodity and bond markets. Officials have also maintained their firm grip on the economy, thus encouraging investors to focus on government statements, rather than economic fundamentals, when deciding where to put their money. Prior to the stock market peak in July 2015, top leaders were actively talking up the virtues of equities and boasting of how high the Shanghai index could go. More recently, they’ve extolled the virtues of home ownership and lowered down-payment requirements for some homebuyers.

Read more …

Same function as US two-party mouthpieces.

Even China’s Party Mouthpiece Is Warning About Debt (BBG)

China’s leading Communist Party mouthpiece acknowledged the risks of a build-up of debt that is worrying the world and said the nation needed to face up to its nonperforming loans. High leverage is the “original sin” that leads to risks in the foreign-exchange market, stocks, bonds, real estate and bank credit, the People’s Daily said in a full-page interview with an unnamed “authoritative person” starting on page one and filling the second page on Monday. China should put deleveraging ahead of short-term growth and drop the “fantasy” of stimulating the economy through monetary easing, the person was cited as saying. The nation needs to be proactive in dealing with rising bad loans, rather than delaying or hiding them, the report said.

“Overall, the report suggests to us that future policy easing may be more cautious and that the government may try to hasten the pace of reform,” said Zhao Yang at Nomura in Hong Kong. Similar commentaries have had a “large impact” in the past, the analyst said in a note. The pace of China’s accumulation of debt and dwindling economic returns on each unit of credit have fueled concern that the nation is set for either a financial crisis or a Japanese-style growth slump. The Bank for International Settlements warned late last year of an increased risk of a banking crisis in China in coming years. Brokerage CLSA was the latest to sound an alarm, saying on Friday that the nation’s true level of nonperforming loans may be at least nine times higher than the official numbers, suggesting potential losses of at least $1 trillion.

“A tree cannot grow up to the sky – high leverage will definitely lead to high risks,” the person was cited as saying. “Any mishandling will lead to systemic financial risks, negative economic growth, or even have households’ savings evaporate. That’s deadly.”

Read more …

The value of reserves expressed in dollars. Not pretty: “..any purchase of Aramco is an option play on a future oil boom.”

Saudi Aramco Plans London Listing But Doubts Grow On $2.5 Trillion Claim (AEP)

Saudi Arabia is planning a three-way foreign listing in London, Hong Kong, and New York for the record-smashing privatisation of its $2.5 trillion oil giant Aramco, anchored on a triad of interlocking ties with three foreign energy companies. The Saudi authorities hope to entice ExxonMobil, China’s Sinopec, and potentially BP, into taking strategic stakes, offering them long-term access to upstream operations in return for cutting-edge technology or refinery deals, according to sources close to Saudi thinking. The moves come amid a profound shake-up of the kingdom’s energy strategy, with the dismissal of veteran oil minister Ali al-Naimi over the weekend. Aramco chief Khalid al-Falih will take over, though there may not be immediate changes to Opec policy.

The Aramco sale is planned as soon as 2017 or 2018 and would in theory be five times larger than any IPO in history, a huge prize for the London Stock Exchange. Shares will be listed in Riyadh but the internal Saudi market is too small to absorb such a colossus, responsible for a ninth of global oil supply. Prince Mohammad bin Salman, Saudi Arabia’s deputy crown prince and de facto ruler, says Aramco will sell 5pc of its equity, valuing the shares at $100bn to $150bn. The vast IPO is the spearhead of his “2030 Vision” to break the country’s “addiction” to oil and diversify, using the proceeds for an investment spree covering everything from car plants to weapons production, petrochemicals, and tourism. “We will not allow our country ever to be at the mercy of commodity price volatility,” he says.

The 31-year-old prince aims to clear away a clutter of subsidies, pushing through a Thatcherite shake-up of what still remains a medieval economic structure. The plans draw on a McKinsey report, “Beyond Oil”, which warned that the kingdom is heading for bankruptcy if it fails to grasp the nettle. London’s hopes for the IPO may have increased with the election of Sadiq Khan as London’s first Muslim mayor, extensively covered in the Saudi media. It underscores Britain’s tolerant outlook at a time when attitudes are hardening in the US. While the Saudis are shocked by the anti-Muslim rhetoric of Donald Trump, they are more disturbed by legislation in Congress that would let survivors of the 9/11 terrorist attacks file lawsuits for damages against Saudi Arabia. Mr Al Falih told the Economist that an Aramco listing in New York would open the country to “frivolous lawsuits”, a hint that the Saudis may eschew the city altogether and concentrate on London and Hong Kong.

[..] Aramco funds the Saudi state, paying for a sprawling bureaucracy and a cradle-to-grave welfare system that keeps a lid on dissent. It also funds the prince’s military ambitions and a war in Yemen. Saudi defence spending was the world’s third highest last year. Robin Mills from Qamar Energy said the market value of Aramco is probably just $250bn to $400bn, given that the state creams off a royalty rate of 20pc and tax of 85pc. Saudi officials insist that a fair deal could be found for shareholder dividends, even though the Saudi constitution stipulates that Aramco’s 260bn barrels of estimated reserves belong to the kingdom. In a sense, any purchase of Aramco is an option play on a future oil boom. At current prices there would be no money for dividends: the Saudi state is consuming all the revenue, and burning through more than $100bn a year in foreign exchange.

Read more …

No, there will be no supply shortfall in 2035. Economic reality will make sure of that. In 20 years, the world will be a whole different place.

Oil Discoveries Slump To 60-Year Low (FT)

Discoveries of new oil reserves have dropped to their lowest level for more than 60 years, pointing to potential supply shortages in the next decade. Oil explorers found 2.8bn barrels of crude and related liquids last year, according to IHS, a consultancy. This is the lowest annual volume recorded since 1954, reflecting a slowdown in exploration activity as hard-pressed oil companies seek to conserve cash. Most of the new reserves that have been found are offshore in deep water, where oilfields take an of average seven years to bring into production, so the declining rate of exploration success points to reduced supplies from the mid-2020s. The dwindling rate of discoveries does not mean that the world is running out of oil; in recent years most of the increase in global production has come from existing fields, not new finds, according to Wood Mackenzie.

But if the rate of oil discoveries does not improve, it will create a shortfall in global supplies of about 4.5m barrels per day by 2035, Wood Mackenzie said. That could mean higher oil prices, and make the world more reliant on onshore oilfields where the resource base is already known, such as US shale. Paal Kibsgaard, chief executive of Schlumberger, the world’s largest oil services company, told analysts last month: “The magnitude of the E&P [exploration and production] investment cuts are now so severe that it can only accelerate production decline and the consequent upward movement in [the] oil price.” The slump in oil and gas prices since the summer of 2014 has forced deep cuts in spending across the industry. Exploration has been particularly vulnerable because it does not offer a short-term pay-off.

ConocoPhillips is giving up offshore exploration altogether, and Chevron and other companies are cutting back sharply. The industry’s spending on exploring and appraising new reserves will fall from $95bn in 2014 to an expected $41bn this year, and is likely to drop again next year, according to Wood Mackenzie. There also has been a predominance of gas, rather than oil, in recent finds. In spite of the decline in activity, the total combined volume of oil and gas discovered last year rose slightly, but the proportion of oil dropped from about 35% in 2014 to about 23% in 2015.

Read more …

Think anyone recognizes the demise of world trade yet? Or is the bias still too strong?

Negative Rates Hit Global Shipping Market (BBG)

The owner of the world’s biggest shipping line says negative interest rates are hurting the industry by delaying the consolidation wave so badly needed. The monetary policy environment “means that consolidation will be much slower because it’s easy for banks to keep weak shipping companies above water,” Nils Smedegaard Andersen, CEO of A.P. Moeller-Maersk, said in an interview. It’s the latest example of how negative interest rates are distorting markets and potentially even slowing growth. The policy has so far had limited success in reviving inflation while money managers in countries with negative rates are warning of the risk of asset price bubbles. With the unintended consequences potentially including a slower global shipping recovery, questions as to the policy’s efficacy are bound to persist.

“Politicians aren’t making the reforms that are needed and are leaving it to the monetary policy makers to solve the economic problems that many countries face with low competitiveness and low investment levels,” Andersen said. A reliance on cheap finance in container shipping has led to “many negative effects,” he said. The shipping industry doesn’t have the buffers to deal with more hurdles. Container lines are “staring at a terrible 2016,” with a slowdown in global trade volumes, low freight rates and overcapacity, Drewry Maritime Equity Research said in a report last month. It estimates the industry will lose $6 billion this year. Hanjin Shipping, South Korea’s biggest container carrier and the world’s no. 8, is in the middle of a debt restructuring. Its banks on Wednesday agreed on the terms on condition that all creditors, including corporate bond holders, join the plan.

Hanjin shares have slumped 41% this year, compared with a 0.8% gain for the benchmark Kospi index. Maersk surged 6.4% as of the close of trading Wednesday in Copenhagen, bringing the stock to a 3.1% gain this year. Thursday and Friday were holidays in Denmark. Global shipping lines are increasingly forming alliances to help cut costs and underpin freight rates. Last month, CMA CGM SA and three other major lines signed a preliminary agreement to form a new group called Ocean Alliance, which could become the second biggest after Maersk Line’s partnership with Mediterranean Shipping Co. “We’re satisfied with our current position within our alliance,” Andersen said. “But if a container line were to come up for sale – with the right profile and also at the right price – we would consider it. We are, after all, businessmen.”

Read more …

Germany stands accused of the causing euro crisis. Something tells me Schäuble doesn’t agree.

Draghi, Schäuble And The High Cost Of Germany’s Savings Culture (Münchau)

Right now the biggest problem for Mario Draghi is not Greece. It is Germany. Last week the president of the European Central Bank hit back at Berlin’s criticism of his loose interest rate policies by pointing out that Germany’s persistent current account surplus is one of the main causes. The furious reaction he faced says much about the faultlines in Europe’s economic debate. Low interest rates and Germany’s current account surplus are the poisonous twins of the eurozone economy. The surplus caused low rates, as Mr Draghi rightly says. But it is also true that low interest rates have increased the German current account surplus through the devaluation of the euro in the past year. A cheaper currency makes German goods and services more competitive outside the eurozone. The more pertinent of the two interpretations is Mr Draghi’s.

By insisting on austerity during the eurozone crisis, and failing to raise investment spending at home, Berlin was instrumental in depressing aggregate demand at home and in the eurozone at large. The eurozone’s long depression caused a fall in inflation below the target rate of just under 2%. The ECB response has been to cut short-term rates to negative levels and buy financial assets. If German fiscal policy had been neutral during that period, the ECB’s job would have been easier. It would have been able to achieve its inflation target and would not have had to cut rates by as much. Berlin views the current account surplus simply as a reflection of Germany’s superior competitiveness. This is an economically illiterate view – or rather it deliberately deflects from the real problem.

If Germany had its own currency and a floating exchange rate, the current account imbalance would have mostly disappeared. Even in a monetary union, a large imbalance would not matter if the union was politically integrated and had a common fiscal policy. But imbalances matter in the monetary union we have, one without redistribution and reinsurance systems. It is no coincidence Germany rejects these redistribution mechanisms. This is how it maximises its current account surplus. It constitutes an implicit policy goal. In the long run, I cannot see how this is in Germany’s interests. Wolfgang Schäuble, finance minister, was right to say that low rates are driving voters to Alternative for Germany, an anti-euro and anti-immigrant party. Only it was not the ECB’s fault.

Read more …

There’s just one way out of this, because Germany won’t change policy: Greece, Italy et al must leave the euro.

The Folly Of German Economic Policy (Coppola)

In his latest blogpost, the economist Michael Pettis is severely critical of European economic policies, especially those of Germany, saying that they are “among the most irresponsible in modern history”. He is not alone. Wolfgang Munchau, writing in the FT, lays the blame for the Eurozone’s protracted depression firmly at Berlin’s door: “[..]Berlin was instrumental in depressing aggregate demand at home and in the eurozone at large. [..] If German fiscal policy had been neutral [..] the ECB’s job would have been easier. It would have been able to achieve its inflation target and would not have had to cut rates by as much.”

Unsurprisingly, Berlin does not agree. For German finance minister Wolfgang Schaueble, German economic policy is a model that other countries should adopt. Even the enormous current account surplus is a sign of Germany’s production strength and export competitiveness. It is to be celebrated, not criticized. However, Berlin’s view is not shared by some Eurozone policymakers. In a recent speech to German policymakers, ECB chief Mario Draghi observed that low rates of return are due to an imbalance between saving and investment:

“The forces at play are fairly intuitive: if there is an excess of saving, then savers are competing with each other to find somebody willing to borrow their funds. That will drive interest rates lower. At the same time, if the economic return on investment has fallen, for instance due to lower productivity growth, then entrepreneurs will only be willing to borrow at commensurately lower rates. On both counts, it is structural factors that have lowered the real return on investment. And since we operate in a global capital market, this has exerted downward pressure on returns on savings everywhere.”

And Germany’s current account surplus is a significant contributory factor to low interest rates: “The role of Asian economies in this story has been well-documented, for instance in the “global savings glut” thesis. But today the euro area is also a protagonist. We have a current account surplus over 3% of GDP, and our largest economy, Germany, has had a surplus above 5% of GDP for almost a decade.” The gap between Germany’s domestic saving and investment can be clearly seen on this chart from the IMF . The chart only goes to 2012, but the gap has if anything widened since. Currently, it stands at about 8% of GDP:

Read more …

Luckily, he’s our best friend…

Turkey Economic A-Team Down to Last Man as Erdogan Exerts Power (BBG)

Turkish Deputy Prime Minister Mehmet Simsek is the last man standing from the team feted by investors as the driving force behind the nation’s rapid growth years. One-by-one, President Recep Tayyip Erdogan is removing the AK Party policy makers whose focus on balancing budgets, taming inflation and fiscal stability led to average growth of 5% over 13 years to 2015. His handpicked prime minister, Ahmet Davutoglu, decided to step down on Thursday, ending a power struggle over management of the economy and Erdogan’s efforts to add executive power to his traditionally ceremonial office. Like Davutoglu, former Merrill Lynch strategist Simsek has defended the kind of orthodox monetary policy that so riles Erdogan, specifically the use of high interest rates to curb inflation.

Erdogan argues that lower borrowing costs and subsequent faster growth would more effectively slow price gains, and with Davutoglu gone, there may be little to insulate Simsek from pressure to fall into line. That may spell the end to an unspoken truce between Erdogan and investors, who tolerated his quest for more power as long as people trusted by markets like Simsek ran the economy. “There would be no AK Party economic miracle without this team of capable technocrats,” said Tim Ash at Nomura in London. “The concern now is that without these individuals, and with a coterie of untested economic policy advisers around Erdogan, Turkey will be very vulnerable to market pressure.”

Read more …

Perverse incentives.“Why pay off the mortgage at at all?” ” [..] why worry about paying it off when you are alive?”

UK’s Nationwide Raises Home Loan Age Limit To 85 Years (BBC)

Nationwide is raising its age limit for people paying off mortgages by 10 years to 85, in the latest sign of the impact of rising house prices on buyers. The building society said the increase was due to “growing demand”, and the limit would be in force from July. It means a 60-year-old could take out a 25-year mortgage as long as they prove they can afford the repayments. The move comes as Halifax increases its age limit for mortgages from 75 to 80 from Monday. There have been calls for the industry to do more to help older buyers after tougher mortgage checks, introduced in the wake of the financial crisis, have made it harder for middle-aged people to get a home loan. Rising house prices have exacerbated the issue, with many people not able to afford to buy their first home until they are in their thirties or forties.

Nationwide said the new age limit would apply to existing customers for all its standard mortgages, but the maximum loan size would be £150,000, and could be no greater than 60% of the property value. “Access to the mainstream market has been a challenge for older customers, resulting in their needs going unfulfilled. This measure helps to address these needs in a prudent, controlled manner,” said Nationwide head of mortgages Henry Jordan. Tom McPhail, head of pensions research at Hargreaves Lansdown, told the BBC the change could shake up the mortgage market. “Why pay off the mortgage at at all?” he said on Radio 5 Live. “As long as the value of the property is there to meet the liability in the future, why worry about paying it off when you are alive?” he added.

Read more …

“.. two sides of a debased coin.”

The End of American Meritocracy (Luce)

What is in a word? When it is packed with as much moral zeal as “meritocracy”, the answer is a lot. A meritocrat owes his success to effort and talent. Luck has nothing to do with it — or so he tells himself. He shares his view with everyone else, including those too slow or indolent to follow his example. Things only go wrong when the others dispute it. Now magnify that to a nation of 320m people — one that prides itself on being a meritocracy. Imagine that between a half and two-thirds of its people, depending on how the question is framed, disagree. They believe the system’s divisions are self-perpetuating. They used not to think that way. Imagine, also, that the meritocrats are too enamoured of their just rewards to see it. The fact that they are split — one group calling itself Democratic, the other Republican — is detail.

They are two sides of a debased coin. Sooner or later something will give. An exaggeration? Financial Times readers might be inclined to think so. The fact that Donald Trump has completed a hostile takeover of one of those groups — the Republicans — is a shock to everyone, including, I suspect, the property billionaire himself. The rest should not be a surprise. Since the late 1960s both parties, in different ways, have turned a blind eye to the economic interests of the middle class. In 1972 the McGovern-Fraser Commission revamped the Democratic party’s rules for selecting its nominee after the disastrous 1968 convention in Chicago. The overhaul changed the party’s course. It included obligatory seats for women, ethnic minorities and young people — but left out working males altogether.

“We aren’t going to let these Camelot Harvard-Berkeley types take over our party,” said the head of the AFL-CIO, the largest American union federation. That is precisely what happened. Democrats cemented the shift from a class-based party to an ethnic coalition by enshrining affirmative action for non-whites. Getting a leg up to university, the ultimate meritocratic vehicle, was based on your skin colour rather than your economic situation. Unsurprisingly, swaths of the white middle class turned Republican. Forty years on, many Democrats, not least Bernie Sanders’ supporters, are suffering buyer’s remorse. Before he became president, Barack Obama argued it would be fairer to base affirmative action on income not colour. “My daughters should probably be treated by any admissions officer as folks who are pretty advantaged,” he said.

Last week it was announced that Malia Obama had been accepted into Harvard, her father’s alma mater. About a third of legacy applicants, those whose parent attended, are accepted into Harvard. No one suggests she is not deserving of her place. However, there are plenty of lower-income black and white children who do not benefit from the advantages Malia Obama or Chelsea Clinton (Stanford and Oxford) had from birth.

Read more …

Would this surpsrise anyone?

Panama Papers Allege New Zealand Prime Place For Rich To Hide Money (R.)

New Zealand is at the heart of a tangled web of shelf companies and trusts that are being used by wealthy Latin Americans to channel funds around the world, according to a report on Monday based on leaks of the so-called Panama Papers. Local media has analyzed more than 61,000 documents relating to New Zealand that are part of the massive leak of offshore data from Mossack Fonseca, a Panama-based law firm. The papers have shone spotlight on how the world’s rich take advantage of offshore tax regimes. Mossack Fonseca ramped up its interest in using New Zealand as one of its new jurisdictions in 2013, actively promoting the South Pacific nation as a good place to do business due to its tax-free status, high levels of confidentiality and legal security, according to a joint report by Radio New Zealand, TVNZ and investigative journalist Nicky Hager.

Mossack Fonseca’s main contact in New Zealand was allegedly Robert Thompson, co-founder and director of accountant firm Bentleys New Zealand, the registered office of Mossack Fonseca New Zealand, according to the report. Thompson was listed in more than 4,500 Panama paper documents, the report said. Thompson said in his experience, the use of trusts for tax evasion was not common and his firm did not assist people to illegally hide assets. “I think the assumption that all New Zealand foreign trusts are being used for illegitimate purposes is unfounded and based largely on ignorance,” Thompson was quoted as saying by Radio New Zealand. [..] Prime Minister John Key dismissed concerns that international tax avoidance was rife in New Zealand. “New Zealand is barely ever mentioned, it’s a footnote,” Key told TVNZ in reference to the Panama Papers.

Read more …

There’s no way protests are not going to intensify going forward. Is Tsipras is ousted, you just watch.

Greek Lawmakers Pass Painful Reforms To Attain Fiscal Targets (R.)

Greece’s parliament on early Monday passed a package of unpopular pension and tax reforms that the country’s leftist-led government hopes will persuade official creditors to unlock bailout cash. The measures aim to ensure Greece will attain savings to meet an agreed 3.5% budget surplus target before interest payments in 2018, helping it to regain bond market access and render its debt load sustainable. The vote was a test of the ruling coalition’s cohesion, given its wafer-thin majority of three lawmakers in the 300-seat parliament. All of the coalition’s 153 lawmakers voted in favor. Athens wants to boost tax revenues and slash pension spending to reduce the drain on the budget, hoping impressed creditors will unlock aid. But Germany and the IMF remain deadlocked over the terms of country’s bailout plan.

Prime Minister Alexis Tsipras’ government drew fire from the political opposition during the debate on grounds the pension cuts and tax hikes will prove recessionary, dealing another blow to a population fatigued by years of austerity. “Mr. Prime Minister, you promised hope and turned it into despair,” said Fofi Gennimata, leader of the opposition PASOK socialists, who see the package as the bill for Tsipras’ failed push to roll back austerity in last year’s clash with lenders which set back the economy and triggered capital controls. Tsipras’ government was re-elected in September on promises to ease the pain of austerity for the poor and protect pensions after he was forced to sign up to a new bailout in July to keep the country in the euro zone.

The package aims to generate savings equal to 3% of GDP and contemplates raising income tax for high earners and lowering tax-free thresholds. It increases a so-called ‘solidarity tax’ – which goes straight into state coffers – and introduces a national pension of €384 a month after 20 years of work, phases out a benefit for poor pensioners and recalculates pensions. Finance Minister Euclid Tsakalotos defended the reforms, saying lower pension replacement rates will affect the rich and not the poor. He heads to Brussels on Monday to face a Eurogroup meeting, seeking to conclude a key bailout review. “Our word is a contract. We have done what we promised and hence the IMF and Germany must provide a solution that is feasible, a solution for the debt that will open a clear horizon for investors,” Tsakalotos told lawmakers.

Read more …

Erdogan will make sure there’s more of this.

Greece Keeps Wary Eye On Turkey Border Violations (Kath.)

Turkey’s continuing violations of Greek air space and waters could lead to a spike in bilateral tensions or to a “serious accident,” Greek Defense Minister Panos Kammenos told Kathimerini’s Sunday edition, adding that NATO’s naval patrols in the area can strengthen the country’s position regarding Ankara’s expansionist policies. Asked about the spate of Greek air space violations and transgressions of the Athens Flight Information Region (FIR) by Turkish fighter jets in recent weeks, Kammenos denounced the trend as propaganda aimed at domestic consumption. “Greece knows there are forces [in Turkey] that want to create tension and, perhaps, cause a serious incident or an accident,” said Kammenos, who is also the leader of SYRIZA’s right-wing coalition partner, Independent Greeks.

“Greece will not be dragged into actions that might undermine its rights,” he said, adding that he had recently spoken to NATO Secretary-General Jens Stoltenberg, asking that the transatlantic alliance take action against Turkish hostility. Meanwhile, the minister rejected criticism that NATO’s Aegean mission, aimed at curbing migrant crossings, had strengthened Ankara’s hand in questioning Greece’s sovereign rights, deeming that NATO states, and more importantly those who are also EU members, now had firsthand experience of Turkish provocations. Kammenos referred to a recent incident in the Aegean whereby a Turkish torpedo boat allegedly executed maneuvers in close proximity to a Dutch frigate deployed in the NATO mission. “This dangerous incident has been recorded and included in the Dutch captain’s report to NATO,” he said.

Read more …