Oct 052017
 
 October 5, 2017  Posted by at 8:41 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Juan Gris Guitar on a chair 1913

 

S&P 500 Poised To Lose $10 Trillion In Value (Pal.)
The Sum of All Fears: China Shadow Banking Hits $40 Trillion (DT)
EU Parliament Defends ‘Proportionate Force’ in Catalonia (RT)
Catalonia Chaos Begins to Squeeze Spain’s Financial Markets (DQ)
ECB To Banks: Set Aside More Cash For Bad Debt Amid €1 Trillion Problem (G.)
Investors Are Too Inured to Markets’ Repeated Records (DDMB)
Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds (Martens)
The Cost Of Not Understanding Sovereign Currencies (Bill Black)
Whose Bright Idea Was RussiaGate? (PCR)
Who Really Holds Power at the Fed (BBG)
Court Orders Trump Administration Reinstate Obama Emissions Rule (AP)
US Honeybee Queen Life Expectancy Halves In 10 Years (NatGeo)
Ancient Bristlecone Pine Forests Overwhelmed By Climate Change (LAT)
60% Of Global Biodiversity Loss Is Down To Meat-Based Diets (G.)
Are Space, Time, And Gravity All Just Illusions? (F.)

 

 

Just so you know.

S&P 500 Poised To Lose $10 Trillion In Value (Pal.)

The last two recessions were devastating for the S&P 500. The dot-com bubble during March 2000 to October 2002 saw the Index drop -49%, while the Global Credit Crisis from October 2007 to March 2009 saw an even greater drop of -57%. Since then, the S&P 500 has been on fire, gaining 250% and breaking record highs almost daily. As the old adage goes, “the bigger they are, the harder they fall”. If the S&P loses 57% in the next market crash, that would represent $10 trillion in value lost, and would take the Index down to 1,077. As the more cyclical sectors begin to decline, portfolio managers will begin to reallocate capital to more attractive sectors. As we noted in our previous write-up, Gold Stocks To Explode When The S&P Implodes, in the current bull market, the S&P is up 247%, while gold stocks are down -30%.

If the pattern holds, the succeeding bear market in the S&P will trigger a major gold rally, which we predict will continue into the next S&P bull. Portfolio managers will look for undervalued stocks in sectors considered safe havens. Gold stocks check all the boxes and a surge of capital will soon find its way into them. Using the materials sector as proxy to gold stocks, we saw in each of the last two bears the weighting of the sector increase. The total value drop was also less in terms of percentage compared to the overall market. We calculate inflows of $206 billion in 2000-2002, and $270 billion in 2007-2009. If the coming drop follows that of the recent recession, we can expect an inflow of at least $440 billion into gold stocks. That is a lot of money on the sidelines. And when it begins to pour in, gold stocks will explode.

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I’ve warned a thousand times on China’s shadow system. This is excellent from ‘Deep Throat’. As I’ve suggested, the shadow system is now bigger than the official one.

The Sum of All Fears: China Shadow Banking Hits $40 Trillion (DT)

Unfortunately, per the People’s Bank of China (PBOC), Shadow Bank lending has reversed course abruptly and skyrocketed since the 2015 McKinsey report. Nobody really knows how big China’s Shadow Bank ecosystem is, but the PBOC recently offered a rather shocking guess in their 2017 Financial Stability Report (pg.48). China’s Off-Balance-Sheet, un-regulated, “Shadow” loans have grown to nearly US $37 Trillion (RMB 252.3 Trillion) and have surpassed China’s US$34 Trillion, “On-Balance Sheet” bank assets as of the close of 2016. They also restated the 2015 numbers, increasing the 2015 figures to US$ 28 Trillion (RMB 189 Trillion), roughly doubling the 2015 figure.

Keep in mind, the PBOC estimating Non-Bank Shadow loans is a bit like the local Sheriff estimating “unreported financial crime”. He doesn’t have authority over the mechanics of the activity, lacks enforcement resources and therefore can’t do much about preventing the crime(s). Even if he had authority and resource, he’d have a hard time zeroing in on the metric….criminals generally don’t respond to surveys or self-report their schemes. Moreover, the Sheriff would have an incentive to under-estimate the problem and hope everything works out, since, at some point, someone is going to be held accountable. As history shows, and Chinese Bankers are well aware of this, financial scoundrels are normally exiled to horrific disgrace on a private tropical island with access to boatloads of Cayman Islands money…..so it goes.

Again, based solely on the usual, limited transparency inherent in PBOC reporting (good things are trumpeted and bad things are swept under the rug), a disclosure like this would indicate that the problem is potentially much larger than they are letting on. In the 2017 Financial Stability Report (an oxymoron if I’ve ever heard one) the PBOC restates the Shadow Bank Assets for 2014 and 2015 (as shown by the dotted line in the chart below). To my knowledge, no other major economy has ever experienced an acceleration anywhere near these levels of Non-Bank, Shadow debt relative to GDP, much less restated it in a gigantic “ooppps….our bad” buried in a couple of paragraphs in the bowels of a report. In China….they do things big. The bigger the better. The two Charts below, prepared by Capital Economics illustrate that we’ve apparently entered uncharted waters.

Although the fiercely independent citizens, politicians and bankers of Hong Kong and Singapore might disagree, we can generalize that the leverage in those economies (tall bars on the left of the chart) is inextricably linked to the Chinese financial system. If there were ever a potential “ground-zero” for a default-induced financial contagion Shang-Hong-apore would be it. Moreover, when we examine the PBOC/CE Charts above, it wouldn’t be much of a reach to conclude that Shadow/Non-Bank Credit has become an absolutely essential tool for keeping all of the financial balls in the air. [..] Jahangir Aziz and Haibin Zhu from JP Morgan said the debts of the state-owned entities (SOEs) have alone reached 90pc of GDP or $13.3 trillion. Nearly 60pc of new credit this year is being used to repay old loans. It takes four times as much new credit to generate a given amount of extra of GDP as it did a decade ago.

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The EU leadership doesn’t give a shit what Europeans think of them (they’re not elected). Wave bye bye.

EU Parliament Defends ‘Proportionate Force’ in Catalonia (RT)

EU member states have the right to use “proportionate” force to defend the rule of law, Frans Timmermans, European Commission First Vice President, said three days after hundreds were injured by Spanish police trying to stop an independence vote in Catalonia. “It is a duty for any government to uphold the rule of law, and this sometimes requires the proportionate use of force,” Timmermans told the European Parliament in Strasbourg during a debate on Catalonia. “Respect for the rule of law is not optional – it’s fundamental,” he said. An independence referendum was held in the relatively prosperous Spanish region of Catalonia on Sunday, despite Madrid labeling it “unconstitutional.” A brutal mass police crackdown during the vote saw over 800 people, including women and the elderly, injured in Barcelona and elsewhere across the region.

“If the law does not give you what you want, you can oppose the law, you can work to change the law, but you cannot ignore the law,” Timmermans said. For the EU, “it is fundamental that the constitutions of every one of our member states are upheld and respected,” he added. According to Timmermans, the Catalan regional government “has chosen to ignore the law in organizing the referendum of last Sunday.” The leader of the largest European Parliament group, the European People’s Party, Manfred Weber, has also decried the Catalan referendum as invalid during the debate. “Who leaves Spain, leaves the European Union,” including the eurozone and the single market, Webber warned the Catalan authorities.

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“..the Rajoy administration dispatched two military convoys to Barcelona today to beef up its coercive capabilities in the city..”

Catalonia Chaos Begins to Squeeze Spain’s Financial Markets (DQ)

Spain’s biggest political crisis of a generation, which has led to the complete breakdown of communication and understanding between its government in Madrid and the separatist region of Catalonia, is finally beginning to take its toll on the country’s financial markets. Spain’s benchmark index, the Ibex 35, slumped nearly 3% following its worst day of trading since the Brexit vote last June. Spain’s 10-year risk premium — the differential between the yield on its 10-year bonds and the yield on Germany’s 10-year bonds — soared to 129 basis points. And that’s despite the fact that the ECB continues to buy Spanish debt hand over fist. But it is the banks that have borne the brunt of the pain this week. On Monday, the first trading day after the independence referendum, they lost €4.84 billion in market value.

Over the past five trading days, shares of the two biggest Catalan-based banks, Caixabank and Banco de Sabadell, have plunged respectively, 9% and 13%. So tense is the situation that the CEOs of each bank felt compelled to release a statement today reassuring customers that they have all the means and tools necessary to protect their interests. Their contingency plans include the option of abandoning their base of operations in Catalonia and moving elsewhere — to Madrid in the case of Sabadell and Mallorca in the case of Caixabank. But it wasn’t just Catalan banks that were caught up in today’s rout. Important Spanish banks with somewhat less exposure to Catalonia also saw their shares plunge.

Santander, Spain’s only global systemically important bank, was down 3.8% on the day’s trading; BBVA, Spain’s second bank which has important operations in Catalonia after acquiring the failed saving bank Catalunya Caixa in 2015, fell 3.6%; and Bankia was also down 3.6%. Standard & Poor’s today put Catalonia’s credit rating — at B+/B, it’s already deep into junk — on review for a downgrade of one notch or more, “if we believed that escalating political tensions between Catalonia’s government and Spain’s central government could put in question the full and timely refinancing of Catalonia’s short-term debt instruments or undermine the effectiveness of the central government’s financial support to Catalonia.” The threat of default moves a step closer.

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$1 trillion and now they start counting?!

ECB To Banks: Set Aside More Cash For Bad Debt Amid €1 Trillion Problem (G.)

The ECB is attempting to put a lid on the near €1tn of bad debts stored in eurozone banks by asking lenders to be more prudent about the way they handle new customers falling behind on repayments. The Frankfurt-based institution issued guidance on Wednesday intended to stop a new pile of problem debts being built up inside eurozone banks by setting out how much cash it wanted lenders to set aside for bad debts incurred from January 2018. The measures are not applicable to the existing €1tn of bad debts, which are largely a legacy of Europe’s financial problems in the aftermath of the 2008 crash and languishing on the balance sheets of banks in countries such as Greece, Cyprus and Italy. The ECB wants lenders to set aside 100% of the value of an unsecured loan within two years and gives lenders seven years to put aside the full amount of a secured loan, such as a mortgage.

The aim is to set a formal guideline for how to tackle problem loans – known as non-performing loans (NPLs) – in contrast to the current situation where there are a variety of approaches across eurozone countries. Policymakers are concerned that bad debts inside banks not only weaken lenders but also make it difficult for them to grant more loans, which in turn can impede economic growth. But they are sensitive to announcing new measures that would make banks more cautious about issuing new loans or push up the cost of borrowing. Sharon Donnery, deputy governor of the Central Bank of Ireland, who presented the latest plan by the ECB to tackle bad debts, said: “We want to prevent a build-up of insufficiently covered NPLs in the future.” The new measures are not applicable to the existing stock of bad debts for which lenders have set aside 45% of the value of their problem loans, so if the new rules had been applied it could have led to multibillion-euro provisions for lenders.

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Who did that headline?

Investors Are Too Inured to Markets’ Repeated Records (DDMB)

After several boom-and-bust cycles it’s clear many investors have exhausted the term “bubble.” Instead, they will recall this cycle with another word: “record.” The question is: Will the memories be tinged with regret? The answer is an unequivocal “yes.” The stock market closes at a fresh high with such frequency it no longer triggers news flashes. The mirror image of these daily records is found in volatility, which has cascaded to record lows. The bond market, though, is where the real action has been since 2011. If the current pace of sales persists through the final quarter of this year, 2017 will mark the seventh consecutive year of record U.S. corporate bond issuance. In exchange, investors are extending issuers record lax lending terms and receiving near-record low returns. It is no longer uncommon for bonds to price at yields that are beneath an issuer’s leverage as gauged by debt as a multiple of earnings.

Moreover, three-quarters of loans sold into the $1 trillion leveraged loan market are of the “covenant-lite” variety, meaning they do not give investors protection against issuers loading themselves up with debt. Buyers have responded by pushing leveraged loan volumes up by more than half this year compared with 2016; issuance is on pace to surpass 2007’s record $534 billion. And while it isn’t at record lows, the yield spread over comparable Treasury bonds that investors receive for investment grade-rated credits has only been lower 20% of the time since 2000. In the case of high-yield credit, the spread has only been lower 14% of the time in the past 17 years.

The differentiating factor in the years 2004 through 2007, when spreads were at their tightest on record, is the relative dearth of securitization, a process by which pools of loans were divvied up into tranches engineered to disperse risk. Investors learned the hard way as the credit crisis unfolded that these “collateralized” vehicles did not perform as well as the underwriters advertised. And yet, while there’s no question the collateralized mortgage obligation, or CMO, hasn’t even flirted with a comeback, the same cannot be said of its cousin, the collateralized loan obligation. In September, CLO issuance volumes surpassed $82 billion, well past the $75 billion high end of what analysts had been forecasting for the full year. Volumes are running at twice last year’s pace and could easily surpass 2007’s record $89 billion level.

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Tax-free is not risk-free.

Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds (Martens)

There was likely a collective gasp at OppenheimerFunds Inc. yesterday when President Donald Trump made another of those market-moving pronouncements, telling Fox News that Puerto Rico’s debt would have to be wiped out. The President’s remarks suggested he thought the losers would be Wall Street banks. The President stated: “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” The reality is that a large percentage of Puerto Rico’s debt is held in tax-free municipal bonds and municipal bond mutual funds, owned not by Wall Street banks or tycoons, but by mom and pop investors seeking tax-free income.

(As a result of Congressional legislation, the interest on municipal bonds issued by the Commonwealth of Puerto Rico, its political subdivisions and public corporations, is not subject to Federal, state or local taxes. This has made the individual bonds and mutual funds particularly attractive in places like New York City and to residents of New York counties with high local taxes.) According to a semi-annual report made last month at the Securities and Exchange Commission, Oppenheimer Rochester Fund Municipals, a popular tax-free fund held by many New York investors, was sitting on a boatload of Puerto Rico municipal bonds as of June 30, 2017. The SEC filing shows over 100 different Puerto Rico bonds, issued by the Commonwealth and numerous other Puerto Rico issuers like the Puerto Rico Electric Power Authority and the Puerto Rico Sales Tax Financing Corp. (The fund, of course, holds a widely diversified portfolio of other bonds as well.)

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MMT.

The Cost Of Not Understanding Sovereign Currencies (Bill Black)

Jared Bernstein, Senior Fellow at the Centre on Budget and Policy Priorities and former chief economist to former Vice President Joe Biden, recently published an op ed in the New York Times entitled ‘Do Republicans Really Care About the Deficit?’. Republican elites, of course, have not really cared about federal budget deficits for decades. That is a good thing that Democrats should embrace in a bipartisan spirit. Bernstein, of course, is correct that the Republicans are hypocrites about federal budget deficits, pretending to care about them when the Democrats hold power and displaying their lack of any real care when Republicans hold power and the context is tax cuts for the wealthy.

Democrats display a similar hypocrisy. Even Democrats like Bernstein who know that the Republicans proposed expansion of the federal budget deficit through tax cuts is not a real economic problem are primed to attack Republican hypocrisy by falsely asserting that the Republican deficits would harm the Nation. Democrats should embrace honesty as the best policy and stop embracing the politically attractive pose of claiming to be the Party that “really cares” about the federal budget deficit. That politically attractive pose is not simply dishonest and financially illiterate, it is also a trap. The Republican and New Democrat deficit strategy is to force Democrats to make an endless series of “Sophie’s choices.” Choose which excellent program to kill in order to save (temporarily) another from the chopping block because we supposedly cannot afford to provide both.

Then repeat the process. The Republicans and New Democrats constantly, and falsely, claim that the federal government cannot afford to provide medical care availability that is routinely provided in most of Europe and Canada. It is a pure myth that the United States cannot afford to provide the safety net of Social Security, Medicare, and Medicaid. We need to start with first principles. In a nation with a sovereign currency like the United States, federal tax revenues do not fund federal expenditures. If that sentence, which is indisputably correct, strikes you as bizarre then it is a measure of the force of the propaganda you have been fed throughout your life. Today would be an excellent day to free yourself from the hold of that destructive lie.

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“There is nothing more reckless and irresponsible than convincing a nuclear power that you are going to attack. ”

Whose Bright Idea Was RussiaGate? (PCR)

The answer to the question in the title of this article is that Russiagate was created by CIA director John Brennan.The CIA started what is called Russiagate in order to prevent Trump from being able to normalize relations with Russia. The CIA and the military/security complex need an enemy in order to justify their huge budgets and unaccountable power. Russia has been assigned that role. The Democrats joined in as a way of attacking Trump. They hoped to have him tarnished as cooperating with Russia to steal the presidential election from Hillary and to have him impeached. I don’t think the Democrats have considered the consequence of further worsening the relations between the US and Russia.

Public Russia bashing pre-dates Trump. It has been going on privately in neoconservative circles for years, but appeared publicly during the Obama regime when Russia blocked Washington’s plans to invade Syria and to bomb Iran. Russia bashing became more intense when Washington’s coup in Ukraine failed to deliver Crimea. Washington had intended for the new Ukrainian regime to evict the Russians from their naval base on the Black Sea. This goal was frustrated when Crimea voted to rejoin Russia. The neoconservative ideology of US world hegemony requires the principal goal of US foreign policy to be to prevent the rise of other countries that can serve as a restraint on US unilateralism. This is the main basis for the hostility of US foreign policy toward Russia, and of course there also is the material interests of the military/security complex.

Russia bashing is much larger than merely Russiagate. The danger lies in Washington convincing Russia that Washington is planning a surprise attack on Russia. With US and NATO bases on Russia’s borders, efforts to arm Ukraine and to include Ukraine and Georgia in NATO provide more evidence that Washington is surrounding Russia for attack. There is nothing more reckless and irresponsible than convincing a nuclear power that you are going to attack. Washington is fully aware that there was no Russian interference in the presidential election or in the state elections. The military/security complex, the neoconservatives, and the Democratic Party are merely using the accusations to serve their own agendas. These selfish agendas are a dire threat to life on earth.

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Lots of changes.

Who Really Holds Power at the Fed (BBG)

To the casual observer, the Federal Open Market Committee September meeting in Washington might have looked like any other. But when San Francisco’s John Williams, Minneapolis’s Neel Kashkari, and the other regional Fed presidents took their seats at the big oval table, an historical anomaly glared back from the other side. In a rare alignment of events, the five voting presidents outweighed Board of Governors voters, who include Federal Reserve Chair Janet Yellen. It’s a gap that opened up earlier this year and which looks poised to persist, at least for the near future. This matters. There are 12 Fed presidents, chosen for five-year terms by their regional boards. The seven governors are appointed by the U.S. president and confirmed by the Senate for staggered 14-year terms.

Because of the retirement of Daniel Tarullo, the governor informally tasked with heading financial regulation, the Fed board has been down to four voters since May, and with Vice Chairman Stanley Fischer leaving, it’s possible the number could be down to three by the next FOMC meeting. It looks likely that Randal Quarles, Trump’s first nominee, could be confirmed before that, holding the Governors steady at four. The regional contingent, meanwhile, remains near full force, with only the Richmond Fed currently looking for a new president. At a time when the current occupant of the Oval Office could choose at least four new governors, the power of the regional presidents amounts to a stabilizing backbone and bastion of independence in an era of transition at the Fed. Yellen, Lael Brainard, and Jerome Powell are the holdouts on the board in Washington, and President Trump isn’t expected to reappoint Yellen when her term ends in February.

Thus it could fall to the Fed’s arcane system, born of populist angst, to protect monetary policy from massive upheaval. The current state of affairs underscores how this uniquely American setup, erected in stages beginning in the years before World War I, remains relevant a century later, even though many of the functional duties of the world’s most powerful central bank have changed. “The regional banks are a bizarre set of entities,” says Aaron Klein, a Brookings Institution fellow who studies the central bank. “In some ways the mission of the regional system is to bring in diverse viewpoints that challenge the political board.”

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“Prior to the rule, an estimated $100m in taxpayer-owned natural gas was wasted each year from oil and gas wells operating on public lands in New Mexico..”

Court Orders Trump Administration Reinstate Obama Emissions Rule (AP)

Rebuffing the Trump administration, a federal judge on Wednesday ordered the Interior Department to reinstate an Obama-era regulation aimed at restricting harmful methane emissions from oil and gas production on federal lands. The order by a judge in San Francisco came as the Interior Department moved to delay the rule until 2019, saying it was too burdensome to industry. The action followed an earlier effort by the department to postpone part of the rule set to take effect next year. US Magistrate Judge Elizabeth Laporte of the northern district of California said the department had failed to give a “reasoned explanation” for the changes and had not offered details why an earlier analysis by the Obama administration was faulty. She ordered the entire rule reinstated immediately.

The rule, finalized last November, forces energy companies to capture methane that’s burnt off or “flared” at drilling sites on public lands during production because it pollutes the environment. An estimated $330m a year in methane is wasted through leaks or intentional releases on federal lands, enough to power about 5m homes a year. Methane, the primary component of natural gas, is a leading contributor to global warming. It is far more potent at trapping heat than carbon dioxide but does not stay in the air as long. [..] Democratic senator Tom Udall from New Mexico said the methane rule provides badly needed revenue to states such as New Mexico for public education and other services.

Prior to the rule, an estimated $100m in taxpayer-owned natural gas was wasted each year from oil and gas wells operating on public lands in New Mexico, Udall said, adding that the rule has helped to reduce dangerous air pollution across the west, including a methane cloud the size of Delaware that hangs over the Four Corners region of New Mexico, Utah, Arizona and Colorado.

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What Happens If the Honeybees Disappear?

US Honeybee Queen Life Expectancy Halves In 10 Years (NatGeo)

A honeybee queen, when all is right in her world, should live for two to three years. But in the United States, beekeepers have seen that life span drop by more than half over the past decade, and researchers are trying to determine why. It’s one of many questions surrounding the mystery of honeybee mortality, a disturbing phenomenon that’s linked to a mix of factors, including parasites, pesticides, and habitat loss. Aside from making a delicious natural sweetener, honeybees—which are not native to the U.S.—also provide a crucial service to agriculture: pollination. From apples to almonds, many crops would suffer without honeybees. And while about 90% of beekeepers in this country are hobbyists, the majority of hives belong to large-scale, commercial operations, says North Carolina State University entomologist David Tarpy.

Colony collapse in general could be devastating to food production. So scientists are looking for alternatives. Most honeybees in the U.S. today are of Italian heritage and vulnerable to a pest called the varroa mite. But Russian bees are more resistant to it, and backyard beekeepers have had success with them. The problem, says Tarpy, is that Russian honeybees don’t make as much honey as their Italian counterparts and “aren’t as amenable” to the migratory nature of pollinating large-scale farms. Another option, says wildlife biologist Sam Droege of the U.S. Geological Survey, is to embrace the thousands of North American wild bee species, which are excellent pollinators, rarely sting, and are typically the size of a grain of rice. The drawback for some people is that none of the wild bee species produce honey. But, says Droege, “we can always get honey from other countries.”

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I’ve always been in awe of 5000 year old trees. They ‘saw’ the pyramids being built.

Ancient Bristlecone Pine Forests Overwhelmed By Climate Change (LAT)

For thousands of years, wind-whipped, twisted bristlecone pines have been clinging to existence on the arid, stony crests of eastern California’s White Mountains, in conditions inhospitable to most other life. Their growth rings provide a year-by-year account of the struggle to survive: It’s a tortuous cycle of dying off almost entirely, leaving only a few strips of bark that then continue to grow diagonally skyward or sideways along the ground. But the world’s oldest trees may never have experienced temperature increases as rapid as those of recent decades. The climatic changes have triggered a struggle for dominance, in very slow motion, between the ancient bristlecones and the younger limber pines that have been able to charge up-slope as conditions become warmer and wetter.

Scientists know that bristlecone pines will remain standing for centuries to come. But how will they cope with the intrusion of limber pines competing for sunlight, moisture, nutrients and room to grow? Which plants and animals will be first to adapt to niches in the increasingly diverse forests at elevations above 11,000 feet? [..] average ambient temperatures have risen nearly 2 degrees Fahrenheit in the last century, altering the precarious balance of life in the region long dominated by ancient bristlecone pines — regarded as symbols of longevity, strength and perseverance. “Whenever conditions change, there are winners and losers. And in this case, we won’t know the ultimate outcome for several thousand years,” Smithers said. “But some bristlecone pine forests could face a reduction in range if they’re crowded out … by limber pines moving into their turf.”

Bristlecone pines — named for their bottlebrush-like branches with short needles — are found in other parts of the semiarid Great Basin, which extends from California’s Sierra Nevada east to the Rockies. But the ones found in the White Mountains are the oldest. The slow growers are only about 25 feet tall and expand about 1 inch in diameter every 100 years. One of the oldest of the bunch is Methuselah, at about 4,768 years old. Its precise location is carefully guarded to avert vandalism.

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Animal feed.

60% Of Global Biodiversity Loss Is Down To Meat-Based Diets (G.)

The ongoing global appetite for meat is having a devastating impact on the environment driven by the production of crop-based feed for animals, a new report has warned. The vast scale of growing crops such as soy to rear chickens, pigs and other animals puts an enormous strain on natural resources leading to the wide-scale loss of land and species, according to the study from the conservation charity WWF. Intensive and industrial animal farming also results in less nutritious food, it reveals, highlighting that six intensively reared chickens today have the same amount of omega-3 as found in just one chicken in the 1970s.

The study entitled Appetite for Destruction launches on Thursday at the 2017 Extinction and Livestock Conference in London, in conjunction with Compassion in World Farming (CIFW), and warns of the vast amount of land needed to grow the crops used for animal feed and cites some of the world’s most vulnerable areas such as the Amazon, Congo Basin and the Himalayas. The report and conference come against a backdrop of alarming revelations of industrial farming. Last week a Guardian/ITV investigation showed chicken factory staff in the UK changing crucial food safety information. Protein-rich soy is now produced in such huge quantities that the average European consumes approximately 61kg each year, largely indirectly by eating animal products such as chicken, pork, salmon, cheese, milk and eggs.

In 2010, the British livestock industry needed an area the size of Yorkshire to produce the soy used in feed. But if global demand for meat grows as expected, the report says, soy production would need to increase by nearly 80% by 2050. “The world is consuming more animal protein than it needs and this is having a devastating effect on wildlife,” said Duncan Williamson, WWF food policy manager. “A staggering 60% of global biodiversity loss is down to the food we eat. We know a lot of people are aware that a meat-based diet has an impact on water and land, as well as causing greenhouse gas emissions, but few know the biggest issue of all comes from the crop-based feed the animals eat.”

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Author Ethan Siegel ends up being disappointed.

Are Space, Time, And Gravity All Just Illusions? (F.)

The Universe, as we know it, has a fundamental flaw staring us right in our faces, letting us know that our knowledge is incomplete. The four fundamental forces are described by two different and mutually incompatible frameworks: General Relativity for gravitation, and Quantum Field Theory for the electromagnetic and nuclear forces. Einstein’s theory on its own is just fine, describing how matter-and-energy relate to the curvature of space-and-time. Quantum field theories on their own are fine as well, describing how particles interact and experience forces. But where gravitational fields are strongest, and on the smallest of scales, we have no way of describing nature. The physics of our greatest theories breaks down. Under conventional circumstances, quantum field theory calculations are done in flat space, where spacetime isn’t curved.

We can do them in the curved space described by Einstein’s theory of gravity as well, although the calculations are far more difficult. This semi-classical approach gets us far, but it doesn’t get us everywhere. In particular, there are a few strong-field situations where we simply cannot obtain sensible answers using our current theories: • What happens to the gravitational field of an electron when it passes through a double slit? • What happens to the information of the particles that form a black hole, if the black hole’s eventual state is thermal radiation? • And what is the behavior of a gravitational field/force at and around a singularity? These questions all go unanswered without a quantum theory of gravity. The assumption we normally make is that there is a quantum theory of gravity, and we just haven’t found it yet.

Perhaps it’s string theory; perhaps it’s an alternative approach like loop quantum gravity, causal dynamical triangulations, or asymptotic safety. But since 2009, a new, exciting, and assumption-challenging approach has taken the scene by storm: the idea that gravity itself isn’t a real, fundamental force, but an illusory, emergent one. Pioneered by Erik Verlinde, the idea is that gravity emerges from a more fundamental phenomenon in the Universe, and that phenomenon is entropy. Sound waves emerge from molecular interactions; atoms emerge from quarks, gluons and electrons and the strong and electromagnetic interactions; planetary systems emerge from gravitation in General Relativity. But in the idea of entropic gravity — as well as some other scenarios (like qbits) — gravitation or even space and time themselves might emerge from other entities in a similar fashion.

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Sep 102017
 
 September 10, 2017  Posted by at 9:15 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Irma gets closer

 

‘The Most Catastrophic Storm Florida Has Ever Seen’ (G.)
Bahamians Freak Out As Hurricane Irma ‘Sucks Away’ Miles Of Ocean (RT)
Houston Residents Confront Officials Over Decision To Flood Neighborhoods (R.)
Stock, Flow or Impulse? (JPMi)
Signs, Signs, Everywhere A Sign (Roberts)
China Targets A $3 Trillion Shadow Banking Industry (R.)
China Studying When To Ban Sales Of Traditional Fuel Cars (R.)
How Democrats Learned To Stop Worrying And Love ‘Medicare For All’ (CNN)
Laughing on the Way to Armageddon (PCR)
Scotland and Wales Deliver Brexit Ultimatum To Theresa May (Ind.)
British Arms Sales To Repressive Regimes Soar To £5 Billion Since Election (G.)
Greek PM Vows Bailout Exit In 2018, Help For Workers, Youth (R.)
Greek Government Aims To Integrate Up To 30,000 Migrants (K.)
Astronomers Find Stars That Appear Older Than The Universe (F.)

 

 

But it looks like things could have been much worse. Still, do spare a prayer.

‘The Most Catastrophic Storm Florida Has Ever Seen’ (G.)

Florida faces the “most catastrophic” storm in its history as Hurricane Irma prepares to unleash devastating force on the state, including 120mph winds, life-threatening sea surges that could submerge buildings and an advance battery of tornadoes. “You need to leave – not tonight, not in an hour, right now,” Governor Rick Scott commanded in a press conference, 12 hours before the cyclone was expected to make landfall on Sunday morning. “This is the most catastrophic storm the state has ever seen.” The US national hurricane centre said in its 8pm Saturday update on Irma that “heavy squalls with embedded tornadoes” were already sweeping across south Florida. The US National Weather Service later said the first hurricane-force wind gust had been recorded in the Florida Keys, a low-lying island chain off the state’s southern coast.

Irma dropped to a category three hurricane but could regain its category four intensity as the bathtub-warm seawater of nearly 32C (90F) will enable the storm to build strength. It was forecast to hit the Keys first, then again near Cape Coral or Fort Myers, and then a third time near Tampa Bay on its path up Florida’s west coast. Weather stations in Marathon, a city in the Keys, reported sustained winds of 51mph (81kmh) with a gust to 71mph (115kmh) on Saturday night. In Florida’s south-west, officials expected sea surges as high as 15ft (4.5 metres), which can rapidly rise and fall. “Fifteen feet is devastating and will cover your house,” Scott said. “Do not think the storm is over when the wind slows down. The storm surge will rush in and it could kill you.” He said at least 76,000 people were without power as the 350 miles (560km) wide storm unleashes winds and rain on the state. Officials said the window for people in evacuation zones was shutting, with gas stations closing and bridges blocked off.

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Eerie.

Bahamians Freak Out As Hurricane Irma ‘Sucks Away’ Miles Of Ocean (RT)

Footage from the Irma-hit Bahamas freaked out social media users on Saturday as it emerged that seawater was missing from a bay as far as the eye could see. The scene turned out to be a rare natural occurrence tied to the outgoing hurricane. “I am in disbelief right now… This is Long Island, Bahamas and the ocean water is missing!!! That’s as far as they see,” @Kaydi_K wrote on Twitter. The eerie scene was shared over 50,000 times in one day and it spooked web users, many of whom suggested it resembled the sucking away of water before a tsunami. However, weather experts analyzing the scene put the blame on Hurricane Irma, which had just left a trail of destruction in the Caribbean and was about to land in Florida. The ominous-looking occurrence was in fact caused by a combination of low tide, low pressure and strong winds in the right direction, which literally pushed the water away from the long narrow bay. The phenomenon has been dubbed “reverse storm surge” by some of those explaining it online.

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“..homes may also be occupied by alligators, rodents and snakes due to the floods.”

Houston Residents Confront Officials Over Decision To Flood Neighborhoods (R.)

Angry Houston residents shouted at city officials on Saturday over decisions to intentionally flood certain neighborhoods during Hurricane Harvey, as they returned to homes that may have been contaminated by overflowing sewers. A town hall grew heated after City Council member Greg Travis, who represents parts of western Houston, told about 250 people that an Army Corps of Engineers official told him that certain gauges measuring water levels at the Buffalo Bayou – the city’s main waterway – failed due to a decision to release water from two municipal reservoirs to avoid an overflow. Travis’ words inflamed tensions at the town hall, held at the Westin Houston hotel, as the region struggled to recover from Hurricane Harvey, which dropped as much as 50 inches (127 cm) of rain in some areas along Texas’ Gulf Coast, triggering historic floods.

More than 450,000 people either still do not have safe drinking water or need to boil their water first. On Aug. 28, the Army Corps and the Harris County Flood Control District opened the Addicks and Barker reservoirs in western Houston to keep them from overflowing. They warned it would flood neighborhoods, some of which remained closed off two weeks later. Travis said the Army Corps official said they kept releasing water without knowing the extent of the flooding. “They didn’t understand that the bathtub effect was occurring,” he said. Residents attempting to return to flooded homes may have to contend with contaminated water and air because the city’s sewer systems overflowed during the floods. Fire chief Samuel Pena said people returning home should wear breathing masks and consider getting tetanus shots.

“We couldn’t survive the Corps – why should we rebuild?” Debora Kumbalek, who lives in Travis’ district in Houston, shouted during the town hall. Scattered heaps of discarded appliances, wallboard and mattresses can be still seen throughout the city of 2.7 million people, the nation’s fourth-largest. There were no representatives from the Army Corps at the town hall. The Corps released water at an intended maximum rate of 13,000 cubic feet (370 cubic meters) per second to keep those reservoirs from overflowing. However, preliminary data from the U.S. Geological Survey suggests that on at least two days, the average release rate exceeded that 13,000 level.

Many residents face lengthy rebuilding processes, and the majority do not have flood insurance. The Federal Emergency Management Administration will contribute a maximum of $33,000 per home in assistance to cover damages, a FEMA official said at the town hall, though for heavily flooded homes, damages will likely exceed that amount. Fire chief Pena said homes may also be occupied by alligators, rodents and snakes due to the floods.

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From JPMorgan. Central banks set prices for everything. But the impulse has turned negative.

Stock, Flow or Impulse? (JPMi)

Notwithstanding all the discussion of balance sheet reduction and tapering, the developed market central banks in aggregate are still very much in expansionary mode, with the G4 balance sheets still growing by more than $1 trillion per year on an annualized pace (see Chart). The strength of asset prices in the face of fundamental challenges serves as an enduring reminder for me of the importance of this positive QE flow. The link between QE flow and asset prices makes intuitive sense. The world’s stock of savings is held in two places: cash and everything else (“financial assets”). QE, by its nature, increases the supply of cash in the world, and simultaneously decreases the supply of non-cash financial assets, by removing government bonds, corporates, and in some cases equities from circulation.

Those securities are replaced in the financial system by cash of equivalent value. So, QE increases the ratio of cash to financial assets worldwide, and that ratio reflects the relative abundance or scarcity of cash available to purchase each unit of assets. QE’s influence on that ratio drives up the price of financial assets, all else equal. This rationale suggests that it is the flow of QE, i.e. the speed with which cash is injected and financial assets are removed, that influences the change in asset prices. Flow is positive, asset prices go up; flow is negative, asset prices go down. However, despite this simplicity (or maybe because of it) the relationship between balance sheets and asset prices is still a matter of intense debate.

Some clever analysis yields a compelling case that the impulse, rather than the flow, of global central bank balance sheets is likely to be the primary driver of asset prices. Whereas the “flow” of QE is the speed of balance sheet increase, the “impulse,” is its acceleration. If the speed of balance sheet growth is slowing down, impulse is negative. A carefully constructed dataset shows a remarkably good fit between QE impulse and change in spreads and stock prices. Unfortunately the fit is so good historically that it almost looks like data mining, and recently, there has been a material breakdown: global central bank QE impulse has already turned negative, most demonstrably back in Q2 of this year, and asset prices have continued to remain buoyant.

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Do low rates kill growth?

Signs, Signs, Everywhere A Sign (Roberts)

You don’t have to look very hard to see a rising number of signs that suggest the “Trump Trade” has come to its inevitable conclusion. Following the election, this past November the financial markets rallied sharply on the hopes of major policy reforms and legislative agenda coming out of Washington. Eleven months later, the markets are still waiting as the Administration has remained primarily embroiled in Washington politics with a divisive, Republican controlled, House and Senate. While there are still “hopes” the Administration will pass through tax reform, the failure to “rally the troops” to repeal the Affordable Care Act leaves permanent tax cuts an unlikely outcome. That hopeful outcome was further exacerbated with the deal cut between President Trump and leading Democrats to lift the debt ceiling and fund the Government through December.

That “deal” has effectively nullified any leverage the Republicans had to strong-arm a deal on taxes later this year. The markets are figuring it out as well. If you want to know where the economy is headed over the next few months, you don’t have to look much further than interest rates. Since interest rates are ultimately driven by the demand for credit, and that demand is driven by economic growth, their historical correlation is no surprise.

But like I said, if you want to know where GDP is going to be in the months ahead, keep a close watch on rates. I suspect, before year-end, we will see rates below 2.0%. As a reminder, this is why we have remained rampant bond bulls since 2013 despite the continuing calls for the end of the “bond bull market.” The 3-D’s (Demographics, Deflation & Debt) ensure that rates will remain low, and go lower, in the years to come. Think Japan.

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China’s too late.

China Targets A $3 Trillion Shadow Banking Industry (R.)

As a flood of unregulated cash swirls through the Chinese economy, Beijing has been taking aim at the trust companies whose unrestrained lending practices are worrying regulators. The trusts, at the heart of a vast shadow banking industry, are being pressured to step up compliance and background checks, and are being pushed towards greater transparency. But the fast-growing 20 trillion yuan ($3 trillion) industry, whose lending operations are cloaked behind opaque structures, will be tough to rein in, according to employees at some trusts. A regulatory sanction against one trust, Shanghai International Trust, and a legal case against another, National Trust, offer rare insights into the industry, and reveals just how hard it will be to police it. Shanghai Trust was fined 200,000 yuan for selling a product that violated leverage rules, according to a regulator’s notice in January.

Under these rules, property developers are only allowed to borrow up to three times their existing net assets. According to two people with direct knowledge of the case, an unknown sum was loaned by China Construction Bank through Shanghai Trust to Cinda Asset Management Company. Cinda then invested the cash. One of the sources said Cinda used the cash to acquire land, a sector rife with speculation that regulators have singled out as a “risky” destination for trust company loans. [..] The case against National Trust, which had revenue of 655 million yuan in 2016, involves wealth management products linked to the steel industry. The trust was sued in June this year by eight investors who allege it misrepresented the risks involved in products it sold them and failed to adequately assess the guarantor’s creditworthiness.

The trust skirted restrictions on loans to the steel industry by using the products to raise money to lend to a subsidiary of Bohai Steel Group, according to Tang Chunlin, a lawyer at Yingke Law Firm, who is representing the investors. The plaintiffs invested different sums in the wealth management products, which National Trust promised would deliver an annual return of over 9 percent. National Trust lent the money collected to a Bohai subsidiary, Tianjin Iron and Steel Group. National Trust has now defaulted on the product, according to Tang and Gongyu Zhou, one of the eight investors, because Tianjin Iron and Steel is unable to pay back its loan.The products were also illegally sold via third-party non-financial institutions, Tang and Zhou said.

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Let me guess. When lithium prices go to the moon?

China Studying When To Ban Sales Of Traditional Fuel Cars (R.)

China has begun studying when to ban the production and sale of cars using traditional fuels, the official Xinhua news agency reported, citing comments by the vice industry minister, who predicted “turbulent times” for automakers forced to adapt. Xin Guobin did not give details on when China, the world’s largest auto market, would implement such a ban. The UK and France have said they will ban new petrol and diesel cars from 2040. “Some countries have made a timeline for when to stop the production and sales of traditional fuel cars,” Xin, vice minister of the Ministry of Industry and Information Technology, was quoted as saying at an auto industry event in the city of Tianjin on Saturday. “The ministry has also started relevant research and will make such a timeline with relevant departments. Those measures will certainly bring profound changes for our car industry’s development,” he said.

To combat air pollution and close a competitive gap between its newer domestic automakers and their global rivals, China has set goals for electric and plug-in hybrid cars to make up at least a fifth of Chinese auto sales by 2025. Xin said the domestic auto industry faced “turbulent times” over the years to 2025 to make the switch towards new energy vehicles, and called on the country’s car makers to adapt to the challenge and adjust their strategies accordingly. Banning the sale of petrol- and diesel-powered cars would have a significant impact on oil demand in China, the world’s second-largest oil consumer. Last month, state oil major China National Petroleum Corp (CNPC) said China’s energy demand will peak by 2040, later than the previous forecast of 2035, as transportation fuel consumption rises through the middle of the century.

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As Hillary’s starting a book tour attacking Bernie, he’s gathering Democrats around him.

How Democrats Learned To Stop Worrying And Love ‘Medicare For All’ (CNN)

First, consider this: It’s the summer of 2019 and a dozen Democratic presidential candidates are gathered onstage for a debate somewhere in the Midwest. The network moderator concludes her introductions and tees up the opening question. “Who here tonight supports moving the United States toward a single-payer, or ‘Medicare for all,’ taxpayer-funded health care system?” Pause it there and rewind to January 2016 in Iowa. The caucuses are days away, and Hillary Clinton is fending off an unexpected challenge from Sen. Bernie Sanders. The discussion turns to single-payer, and Clinton balks. “People who have health emergencies can’t wait for us to have a theoretical debate about some better idea that will never, ever come to pass,” she tells voters in Des Moines, explaining her campaign’s focus on preserving and expanding Obamacare, while dismissing the progressive insurgent’s more ambitious pitch.

Go back even further now to the last contested Democratic primary before that, in 2008, and recall the lone and lonely voices in favor of single-payer care. They belonged to Ohio Rep. Dennis Kucinich and former Alaska Sen. Mike Gravel. The pair combined for a delegate haul of precisely nil. Back to the present – a decade on – and after a chaotic months-long push by Republicans to dismantle former President Barack Obama’s Affordable Care Act, the prospect of Sanders’ “Medicare-for-all” program has emerged as the hot-button centerpiece of the Democratic Party’s roiling public policy debate. After a summer that has seen so many of the party’s most ambitious officials and brightest prospects line up in vocal support of what was so recently a fringe cause, consider again how the single-payer question will be received on a Democratic debate stage. Here’s a hint: Expect to see a lot of hands.

[..] .. in mid-July, Sanders returned to Des Moines, Iowa, for the first time since the 2016 election to water the grassroots. “Our immediate test,” he said, was to defeat the Republican plan. “But as soon as we accomplish that, I will be introducing legislation which has gained more and more support all across this country, legislation for a Medicare for All, single-payer system.” Robert Becker, Sanders’ 2016 Iowa campaign director, was in the hall that day. Between cigarettes, and before his old boss arrived on the scene, Becker sat back and diagnosed the bubbling dynamic. “Every time Paul Ryan, or someone who is trying to dismantle the Affordable Care Act, steps to the podium and starts talking about insurance rates and premiums getting higher and higher and higher, they’re actually making an argument for a single-payer system,” he said. “You don’t hear people on Medicare and Medicaid complaining about their co-pays.”

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But the feeding frenzy will continue.

Laughing on the Way to Armageddon (PCR)

The United States shows the world such a ridiculous face that the world laughs at us. The latest spin on “Russia stole the election” is that Russia used Facebook to influence the election. The NPR women yesterday were breathless about it. We have been subjected to ten months of propaganda about Trump/Putin election interference and still not a scrap of evidence. It is past time to ask an unasked question: If there were evidence, what is the big deal? All sorts of interest groups try to influence election outcomes including foreign governments. Why is it OK for Israel to influence US elections but not for Russia to do so? Why do you think the armament industry, the energy industry, agribusiness, Wall Street and the banks, pharmaceutical companies, etc., etc., supply the huge sum of money to finance election campaigns if their intent is not to influence the election?

Why do editorial boards write editorials endorsing one candidate and damning another if they are not influencing the election? What is the difference between influencing the election and influencing the government? Washington is full of lobbyists of all descriptions, including lobbyists for foreign governments, working round the clock to influence the US government. It is safe to say that the least represented in the government are the citizens themselves who don’t have any lobbyists working for them. The orchestrated hysteria over “Russian influence” is even more absurd considering the reason Russia allegedly interfered in the election. Russia favored Trump because he was the peace candidate who promised to reduce the high tensions with Russia created by the Obama regime and its neocon nazis—Hillary Clinton, Victoria Nuland, Susan Rice, and Samantha Power.

What’s wrong with Russia preferring a peace candidate over a war candidate? The American people themselves preferred the peace candidate. So Russia agreed with the electorate. Those who don’t agree with the electorate are the warmongers—the military/security complex and the neocon nazis. These are democracy’s enemies who are trying to overturn the choice of the American people. It is not Russia that disrespects the choice of the American people; it is the utterly corrupt Democratic National Committee and its divisive Identity Politics, the military/security complex, and the presstitute media who are undermining democracy. I believe it is time to change the subject. The important question is who is it that is trying so hard to convince Americans that Russian influence prevails over us?

Do the idiots pushing this line realize how impotent this makes an alleged “superpower” look. How can we be the hegemonic power that the Zionist neocons say we are when Russia can decide who is the president of the United States? The US has a massive spy state that even intercepts the private cell phone conversations of the Chancellor of Germany, but his massive spy organization is unable to produce one scrap of evidence that the Russians conspired with Trump to steal the presidential election from Hillary. When will the imbeciles realize that when they make charges for which no evidence can be produced they make the United States look silly, foolish, incompetent, stupid beyond all belief?

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The UK needs a national government. Or else.

Scotland and Wales Deliver Brexit Ultimatum To Theresa May (Ind.)

Wales and Scotland will formally lay down a challenge to Theresa May’s Brexit plans this week, warning she risks a constitutional crisis if changes are not made. Governments in both nations are expected to officially submit documents confirming their intention to withhold consent for the Prime Minister’s approach to EU withdrawal unless it radically alters. Conservative ministers have admitted to The Independent that pushing on without their backing could hold up Brexit, while politicians outside England warn it will strain the UK at the seams. The devolved governments claim Ms May’s key piece of Brexit legislation will see London snatch authority over key policy areas and give Conservative ministers unacceptably-strong powers to meddle with other laws.

It comes as MPs are expected to approve the EU (Withdrawal) Bill at its first Commons hurdle on Monday, but the Prime Minister faces a rebellion later on because even Tories want changes to the same clauses that are angering leaders in Cardiff and Edinburgh. On Tuesday the Scottish and Welsh administrations will officially start their drive to force concessions, by submitting ‘legislative consent’ papers in their assemblies that set out how the bill must change. Welsh First Minister Carwyn Jones told The Independent Ms May’s bill will allow Whitehall to “hijack” powers during Brexit that should be passed to Cardiff. He said: “The UK Government is being rigid in its approach. It’s saying there is only one way. It’s acting as if it won a majority at the election in June. It didn’t.

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It needs a national conscience too.

British Arms Sales To Repressive Regimes Soar To £5 Billion Since Election (G.)

UK arms manufacturers have exported almost £5bn worth of weapons to countries that are judged to have repressive regimes in the 22 months since the Conservative party won the last election. The huge rise is largely down to a rise in orders from Saudi Arabia, but many other countries with controversial human rights records – including Azerbaijan, Kazakhstan, Venezuela and China – have also been major buyers. The revelation comes before the Defence and Security Equipment International arms fair at the Excel centre in east London, one of the largest shows of its kind in the world. Among countries invited to attend by the British government are Egypt, Qatar, Kenya, Bahrain and Saudi Arabia. Campaigners called on the government to end arms sales to the United Arab Emirates in light of its record on human rights.

They accused the government of negotiating trade deals to sell the Gulf state cyber surveillance technology which the UAE government uses to spy on its citizens, and weaponry which, they allege, has been used to commit war crimes in Yemen. The Saudis have historically been a major buyer of British-made weapons, but the rise in sales to other countries signals a shift in emphasis on the part of the government, which is keen to support the defence industry, which employs more than 55,000 people. Following the referendum on leaving the EU, the Defence & Security Organisation, the government body that promotes arms manufacturers to overseas buyers, was moved from UK Trade & Investment to the Department for International Trade. Shortly afterwards, it was announced that the international trade secretary, Liam Fox, would spearhead the push to promote the country’s military and security industries exports.

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What’s going to happen to Tsipras when Greeks find out he can’t deliver?

Greek PM Vows Bailout Exit In 2018, Help For Workers, Youth (R.)

Greece will exit successfully its bailout program in 2018 helped by strong growth, Prime Minister Alexis Tsipras said on Saturday, vowing to support workers, young Greeks and small businesses as the economy recovers. Addressing a Greek public worn out by austerity and skeptical after years of reform efforts have failed to fix the country’s woes, Tsipras said his leftist-led government would do whatever it takes to end lenders’ supervision next year. “The country, after eight whole years, will have exited bailouts and suffocating supervision. That’s our aim,” Tsipras said in his annual policy speech in the northern city of Thessaloniki. “We are determined to do everything we can.” Greece’s current international bailout, worth 86 billion euros, expires next year. Tsipras’ term ends a year later.

Tsipras said Athens would continue to outperform its fiscal targets and fight endemic tax evasion to create fiscal room for tax cuts that would alleviate the burden on businesses and households, long squeezed by the debt crisis. Greece has received about 260 billion euros in bailout aid from its eurozone partners and the International Monetary Fund since 2010 in return for draconian austerity which has wiped out a quarter of its output and cut tens of thousands of jobs. Unemployment stood at 21.2 percent in June, the euro zone’s highest, with young Greeks the hardest hit. Greece’s economy is expected to grow by about 2 percent in 2018, a sign that sacrifices are bearing fruit, Tsipras said outlining initiatives to boost employment and fight a brain drain.

A march of thousands of workers was largely peaceful outside the venue where he spoke. Tsipras said the state would give financial incentives to employers to hire more younger workers and spend 156 million euros to subsidize social security contributions of employers who will turn contractors into full-time staff. Unregistered work and contract jobs have increased during the debt crisis, as businesses are desperate to cut costs. The government will also pay 100 million euros to subsidize unpaid workers in struggling sectors and businesses, he said, promising to fight labor law violations.

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In a country that has no jobs for its own people.

Greek Government Aims To Integrate Up To 30,000 Migrants (K.)

Authorities are preparing measures to integrate between 25,000-30,000 asylum seekers who are not entitled to relocation under the existing European Union program, Migration Minister Yiannis Mouzalas has said. Speaking to Ta Nea newspaper over the weekend, Mouzalas said that a three-pronged scheme is under way to integrate newcomers, involving a new registration process and the issuing of tax identification and social security numbers; school enrolment for children; and access to the local labor market. Asked about Greece’s recent decision to take back a small number of asylum seekers in line with the EU’s so-called Dublin rules, Mouzalas said that Athens had only accepted returns “from countries who helped us by consenting to up to 17,000 relocations and 7,000 [family] reunions.”

The minister said that a new agreement is currently in the works because the Dublin system is “dead.” Meanwhile, more than 350 police officers took part in a pre-dawn operation on Saturday at the Moria camp on the Aegean island of Lesvos to transfer an unspecified number of migrants to the pre-deportation center. These individuals, who have all received a final rejection of their asylum application, will be returned to Turkey. Moria has been rocked by riots twice in recent weeks in protest at the slow pace of registration and asylum processing for certain nationalities, as well as crowded conditions.

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Interesting mystery. No answers so far.

Astronomers Find Stars That Appear Older Than The Universe (F.)

If you understand how stars work, you can observe the physical properties of one of them and extrapolate its age, and know when it had to have been born. Stars undergo a lot of changes as they age: their radius, luminosity, and temperature all evolve as they burn through their fuel. But a star’s lifespan, in general, is dependent on only two properties that it’s born with: its mass and its metallicity, which is the amount of elements heavier than hydrogen and helium present within. The oldest stars we’ve found in the Universe are nearly pristine, where almost 100% of what makes them up is the hydrogen and helium left over from the Big Bang. They come in at over 13 billion years old, with the oldest at 14.5 billion. And this is a big problem, because the Universe itself is only 13.8 billion years old.

You can’t very well have a star that’s older than the Universe itself; that would imply that the star existed before the Big Bang ever happened! Yet the Big Bang was the origin of the Universe as-we-know-it, where all the matter, energy, neutrinos, photons, antimatter, dark matter and even dark energy originated. Everything contained in our observable Universe came from that event, and everything we perceive today can be traced back to that origin in time. So the simplest explanation, that there are stars predating the Universe, must be ruled out. It’s also possible that we’ve got the age of the Universe wrong! The way we arrive at that figure is from precision measurements of the Universe on the largest scales.

By looking at a whole slew of features, including: • The density and temperature imperfections in the cosmic microwave background, left over from the Big Bang, • The clustering of stars and galaxies at present and going back billions of light years, • The Hubble expansion rate of the fabric of the Universe, • The history of star formation and galactic evolution, and many other sources, we’ve arrived at a very consistent picture of the Universe. It’s made up of 68% dark energy, 27% dark matter, 4.9% normal matter, about 0.1% neutrinos and 0.01% radiation, and is right around 13.8 billion years old. The uncertainty on the age figure is less than 100 million years, so even though it might be plausible that the Universe is slightly older-or-younger, it’s extraordinarily improbable to get up to 14.5 billion years.

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Aug 302017
 
 August 30, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

The Economy Minus Houston (Slate)
Harvey Didn’t Come Out Of The Blue (Naomi Klein)
The US Cities with the Biggest Housing Bubbles (WS)
“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)
China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)
Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)
The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)
US Defense Boost May Unravel Into a $65 Billion Cut (BBG)
England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)
UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)
We Need To Nationalise Google, Facebook and Amazon (G.)
As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)
Why Every European Country Has A Trump Or Sanders Candidate (Drake)

 

 

A huge number of people will not be able to rebuild, because they lack insurance. And in many cases, rebuilding on the same -flood prone- spot wouldn’t be a good idea to begin with. But where will the people go?

Time to stop talking about the damage to the economy, and focus on the people.

The Economy Minus Houston (Slate)

Houston, America’s fourth-largest city, has a massive, diversified economy. Sure, New Orleans sits near the mouth of the mighty Mississippi River and is an important entrepôt and site for export of raw materials, agricultural commodities chemicals, and petroleum products. But Houston is a larger, busier, and far more important node in the networked economy. Economies derive their power and influence from their connections to other cities, countries, and markets. And Houston is one of the more connected. It is one of the global capitals of the energy and energy services industries. Yes, there’s a degree to which consumption and other economic activity that is forestalled or foregone during a flood is consumption and economic activity deferred. And cleanup efforts tend to be additive to local economies. But in today’s economy, a lot of value can easily be destroyed very quickly.

With only a small portion of the housing stock carrying flood insurance, billions of dollars in property will simply be destroyed and not immediately replaced. People who get paid by the hour, or who work for themselves, won’t be able to make up for the income they’re losing a few weeks from now. Hotel rooms and airplane seats are perishable goods—once canceled, they can’t simply be rescheduled. Refineries won’t be able to make up all the time offline—they can’t run more than 24 hours per day. And given that supply chains rely on a huge number of shipments making their connections with precision, the disruption to the region’s shipping, trucking, and rail infrastructure will have far-reaching effects. If you’re a business in Oklahoma or New Mexico, there’s a pretty good chance the goods you are importing or exporting pass through the Port of Houston.

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Sorry, Naomi, but you can’t take individual events and blame them on cllmate change. The system is far too complex for that. We must stick to science, not lose ourselves in assumptions.

Harvey Didn’t Come Out Of The Blue (Naomi Klein)

Now is exactly the time to talk about climate change, and all the other systemic injustices — from racial profiling to economic austerity — that turn disasters like Harvey into human catastrophes. Turn on the coverage of the Hurricane Harvey and the Houston flooding and you’ll hear lots of talk about how unprecedented this kind of rainfall is. How no one saw it coming, so no one could adequately prepare. What you will hear very little about is why these kind of unprecedented, record-breaking weather events are happening with such regularity that “record-breaking” has become a meteorological cliche. In other words, you won’t hear much, if any, talk about climate change.

This, we are told, is out of a desire not to “politicize” a still unfolding human tragedy, which is an understandable impulse. But here’s the thing: every time we act as if an unprecedented weather event is hitting us out of the blue, as some sort of Act of God that no one foresaw, reporters are making a highly political decision. It’s a decision to spare feelings and avoid controversy at the expense of telling the truth, however difficult. Because the truth is that these events have long been predicted by climate scientists. Warmer oceans throw up more powerful storms. Higher sea levels mean those storms surge into places they never reached before. Hotter weather leads to extremes of precipitation: long dry periods interrupted by massive snow or rain dumps, rather than the steadier predictable patterns most of us grew up with.

The records being broken year after year — whether for drought, storm surges, wildfires, or just heat — are happening because the planet is markedly warmer than it has been since record-keeping began. Covering events like Harvey while ignoring those facts, failing to provide a platform to climate scientists who can make them plain, all while never mentioning President Donald Trump’s decision to withdraw from the Paris climate accords, fails in the most basic duty of journalism: to provide important facts and relevant context. It leaves the public with the false impression that these are disasters without root causes, which also means that nothing could have been done to prevent them (and that nothing can be done now to prevent them from getting much worse in the future).

It’s also worth noting that the Harvey coverage has been highly political since well before the storm made landfall. There has been endless talk about whether Trump was taking the storm seriously enough, endless speculation about whether this hurricane will be his “Katrina moment” and a great deal of (fair) point-scoring about how many Republicans voted against Sandy relief but have their hands out for Texas now. That’s politics being made out of a disaster — it’s just the kind of partisan politics that is fully inside the comfort zone of conventional media, politics that conveniently skirts the reality that placing the interests of fossil fuel companies ahead of the need for decisive pollution control has been a deeply bipartisan affair.

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Wolf Richter with a whole series of US cities, all with record new highs. How people can keep saying there is no bubble in the US, I don’t know.

The US Cities with the Biggest Housing Bubbles (WS)

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house. So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed). The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

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There is no easy way out for New Zealand.

“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call. “The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.” Prices across New Zealand have risen 34% the past three years, fanned by record immigration, historically low interest rates and a supply shortage.

That’s seen the portion of owner-occupied properties slump to 63% of the nation’s 1.8 million homes in the second quarter, down from a peak of 74% in the early 1990s. In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild. Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.” Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44% support in a poll published Aug. 17. Labour had 37% but could get across the line with the additional support of ally the Green Party, which had 4%, and New Zealand First, which got 10%.

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I think the estimates are still low.

China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report. By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates. “This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.” Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said. By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding.

Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges. [..] Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report. Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said.

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How is this NOT criminal intent? Where are the indictments?

Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)

A homeowner has filed a lawsuit accusing Wells Fargo of improperly charging thousands of customers nationwide to lock in interest rates when their mortgage applications were delayed. Filed on Monday in San Francisco federal court, the lawsuit said Wells Fargo managers pressured employees to blame homeowners for the delays, sometimes by falsely stating that paperwork was missing, so homeowners could be stuck with extra fees. Wells Fargo Spokesman Tom Goyda said the bank is reviewing past practices on rate lock extensions and will take steps for customers as appropriate. The lawsuit, which will request the court grant class action status, comes as Wells Fargo is trying to recover from a scandal last year when the bank was fined for opening accounts for customers without their authorization in order to boost sales figures.

Last month, a new lawsuit accused it of charging several hundred thousand borrowers for auto insurance they did not request. Monday’s lawsuit accuses the bank of violating state and federal consumer protection laws, including the U.S. Real Estate Settlement Procedures Act and the U.S. Truth in Lending Act. Earlier this month, Wells Fargo disclosed that the Consumer Financial Protection Bureau was investigating the fees the company charged to lock in interest rates for delayed mortgage loans. In a securities filing, the bank said it was working with regulators to see if customers had been harmed by the fees. Interest rate locks are guarantees by a lender to lock in a set interest rate, usually for several weeks, while a loan is processed. If the rate lock expires before a loan closes, lenders often cover the cost of extending the lock if the delay was their fault.

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Modi taking people’s incomes away. Reforms. Here’s thinking India is nowhere near ready for this.

The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)

India’s past and future are colliding in Anand Ghugre’s family jewelry shop in Mumbai. “We still operate the way my father did for 50 years,” said Ghugre, 52, explaining that transactions were typically in cash and were not always recorded. “For small jewelers and the unorganized sector, most of our sales happen through personal connections. Sometimes they don’t want bills, but the jewelers can’t say no to them.” That way of doing business is under threat as the world’s second-largest gold market faces Prime Minister Narendra Modi’s campaign to bring India’s informal economy to book. About three quarters of the estimated $45 billion of the precious metal that is traded in the country each year makes its way through thousands of family-run jewelry shops that have catered for centuries to the nation’s love of gold.

Modi’s financial reforms, including demonetization and a new goods and services tax, combined with a younger generation that shops online, may usher in a wave of takeovers and mergers by big state-wide and national chains as small shops are swallowed up or close. “The one story that we hear is that the business is becoming problematic for smaller jewelers,” said Chirag Sheth at London-based precious metals consultancy Metals Focus. “The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete.” Modi in November banned higher denomination notes to bring unaccounted cash back into the system and introduced tougher proof of identity for purchases, capped the amount of cash used in transactions and topped it off with the uniform goods and services tax last month.

An overhaul of the fragmented industry is also on the cards with the government said to be planning a new policy on gold that will bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Fixing quality standards and allowing supply chains to be easily tracked are ways to enhance trust.

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Well, we can’t have that, can we?

US Defense Boost May Unravel Into a $65 Billion Cut (BBG)

U.S. national security funding may be slashed by about $65 billion in January as lawmakers forge ahead with a spending plan that collides with a budget ceiling under a six-year-old law. A $614 billion bill passed by the U.S. House in H.R. 3219 is caught in a political vise: President Donald Trump and most lawmakers want to see increases in Pentagon spending, yet that intention isn’t backed up by an agreement to undo the 2011 Budget Control Act. Without another budget agreement in place, the Defense Department faces automatic across-the-board cuts of 9% to 10% starting in mid-January, according to Chris Sherwood, a Pentagon spokesman. That’s about $65 billion, the Congressional Budget Office estimates.

Enforcement of the act’s caps are returning for the coming fiscal year that begins Oct. 1 after they were adjusted in fiscal 2016 and 2017 for discretionary domestic and national security spending. That was the third time since the act passed that the limits were adjusted, in those cases for both defense and domestic discretionary spending. Trump wants to cut domestic spending while adding to defense, a proposal opposed by Democrats and many Republicans. If the mandatory cuts go ahead, they would be leveled across thousands of Pentagon programs. The White House would have the option of exempting military personnel funds from the automatic cuts, known as sequestration. Such cuts are likely because all of the pending congressional defense bills so far propose busting the cap of $549 billion in national security spending for fiscal year 2018, or $522 billion for the Pentagon alone.

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Cameron and Osborne and May have gutted the entire country.

England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)

Fire services in England have lost more than a quarter of their specialist fire safety staff since 2011, a Guardian investigation has found. Fire safety officers carry out inspections of high-risk buildings to ensure they comply with safety legislation and take action against landlords where buildings are found to be unsafe. Figures released to the Guardian under the Freedom of Information Act showed the number of specialist staff in 26 fire services had fallen from 924 to 680, a loss of 244 officers between 2011 and 2017. Between 2011 and 2016, the government reduced its funding for fire services by between 26% and 39%, according to the National Audit Office, which in turn resulted in a 17% average real-terms reduction in spending power.

Warren Spencer, a fire safety lawyer, said the figures showed a “clear culture of complacency” about fire safety. “The government has tended to take the view that fewer people are dying in fires, fires occur less frequently, and therefore there’s no need to invest in fire prevention. So there’s been a total brain drain in fire safety knowledge and many experienced specialist officers have left the force,” he said. “But fire safety officers have been saying to me for years that one day, there would be a big fire in a multiple occupancy building, which would make everyone sit up and take notice of the lack of fire safety provision. Tragically, that’s what happened at Grenfell Tower.”

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As dividends keep being paid out.

UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)

The combined pension deficit of FTSE 350 companies has risen to £62bn, accounting for 70% of their profits. The deficit as a proportion of profits recorded for 2016 is higher than at any time since the financial crisis, following a £12bn rise since 2015. The 25% increase came in a second year of comparatively low profit for UK publicly listed companies. The deficit is the gap between the expected liabilities of pension commitments and the funds that companies hold to pay for pensions. While many have set aside billions in recent years, a trend towards rising life expectancy, combined with lower expectations for returns on investment, has put more pressure on pension schemes and seen the deficit grow. Actuaries have warned that even a slight fall in bond yields would see the pension deficit of the plcs outstrip their aggregate profits by 2019.

The figures, in a report from the actuarial consultancy Barnett Waddingham, show the deficit has risen sharply as a proportion of profits in the past five years, from 25% of the £214bn pre-tax profits of the FTSE 350 in 2011. Even in the aftermath of the financial crisis in 2009, the deficit was lower at 60%. For 21 plcs, the pensions shortfall is more than 10% of their value, which Barnett Waddingham described as alarming. However, the actuaries said recent data suggesting years of austerity had seen gains in UK life expectancy grind to a halt could provide “welcome respite for companies”. It showed that after a century in which the rate of increase in life expectancy had accelerated, the average age of death was levelling off at 79 for men and 83 for women.

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A discussion that must take place. But the political climate doesn’t lean towards nationalization. Besides, how do you nationalize companies that operate in many dozens of countries?

We Need To Nationalise Google, Facebook and Amazon (G.)

At the heart of platform capitalism is a drive to extract more data in order to survive. One way is to get people to stay on your platform longer. Facebook is a master at using all sorts of behavioural techniques to foster addictions to its service: how many of us scroll absentmindedly through Facebook, barely aware of it? Another way is to expand the apparatus of extraction. This helps to explain why Google, ostensibly a search engine company, is moving into the consumer internet of things (Home/Nest), self-driving cars (Waymo), virtual reality (Daydream/Cardboard), and all sorts of other personal services. Each of these is another rich source of data for the company, and another point of leverage over their competitors.

Others have simply bought up smaller companies: Facebook has swallowed Instagram ($1bn), WhatsApp ($19bn), and Oculus ($2bn), while investing in drone-based internet, e-commerce and payment services. It has even developed a tool that warns when a start-up is becoming popular and a possible threat. Google itself is among the most prolific acquirers of new companies, at some stages purchasing a new venture every week. The picture that emerges is of increasingly sprawling empires designed to vacuum up as much data as possible. But here we get to the real endgame: artificial intelligence (or, less glamorously, machine learning). Some enjoy speculating about wild futures involving a Terminator-style Skynet, but the more realistic challenges of AI are far closer.

In the past few years, every major platform company has turned its focus to investing in this field. As the head of corporate development at Google recently said, “We’re definitely AI first.” All the dynamics of platforms are amplified once AI enters the equation: the insatiable appetite for data, and the winner-takes-all momentum of network effects. And there is a virtuous cycle here: more data means better machine learning, which means better services and more users, which means more data. Currently Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.

What’s the answer? We’ve only begun to grasp the problem, but in the past, natural monopolies like utilities and railways that enjoy huge economies of scale and serve the common good have been prime candidates for public ownership. The solution to our newfangled monopoly problem lies in this sort of age-old fix, updated for our digital age. It would mean taking back control over the internet and our digital infrastructure, instead of allowing them to be run in the pursuit of profit and power. Tinkering with minor regulations while AI firms amass power won’t do. If we don’t take over today’s platform monopolies, we risk letting them own and control the basic infrastructure of 21st-century society.

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Of course the headline said “populists”… Fixed that.

As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)

“Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. The populist Five Star Movement “has imposed the issue on national politics. The mainstream parties are being forced to play catch-up.” Five Star is a fast-growing group fueled by anger at the old political class. Three years ago the movement rode economic concerns to power in Livorno, ending 70 years of rule by the Communists and other left-leaning parties. The new mayor, a former engineer named Filippo Nogarin, introduced a €500 ($590) monthly subsidy to the disadvantaged. That idea is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority.

A basic income can “give people back their dignity,” Grillo’s blog declared in April. “The current government is ignoring millions of families in difficulty.” The Five Star program echoes universal basic income schemes being considered around the world. Finland in January started an experiment in which 2,000 unemployed people receive a stipend of €560 per month. And the Canadian province of Ontario this summer began trials in three cities in which individuals can get almost C$17,000 ($13,600) per year. Five Star’s version would give Italians below the poverty line as much as €780 a month. Recipients must perform several hours of community service each week and actively seek work, and they’d be cut off after rejecting three job offers. Five Star says the plan would cost €17 billion a year, funded in part by spending cuts as well as tax hikes on banks, insurance companies, and gambling.

Opinion polls show Five Star neck and neck with the Democratic Party, led by ex-Premier Matteo Renzi, and a center-right bloc including Forza Italia, the party of former Premier Silvio Berlusconi. To keep Five Star from dominating the debate, Prime Minister Paolo Gentiloni, a Renzi ally, has approved a less ambitious plan he calls “the first universal tool against poverty.” The scheme, dubbed “inclusion income,” would give 1.7 million people as much as €485 a month as long as they’re actively seeking work, at a cost of about €2 billion a year. With industrial output down by about 25% from 2008 to 2013 in Italy’s worst postwar recession, either plan could be helpful, says Giuseppe Di Taranto, a professor of economic history at Rome’s Luiss University. “We lost lots of jobs, and poverty has risen so much that we’ve got to experiment.”

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More of the same. But the anti-EU, anti-globalization mood is obvious: “77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union.” While Macron and Merkel are planning a lot more EU. And claiming that the EU is doing fine.

Why Every European Country Has A Trump Or Sanders Candidate (Drake)

As a result of the methods used to promote globalization, the consequences for the West have been tragic. Work is becoming increasingly uncertain and insecure, or it is in the process of disappearing altogether. It would take Veblen’s talents for social satire, which are unsurpassed in all of American literature, to depict with the essential exactitude of artistic synthesis how far the United States has fallen away from democratic grace, the country’s dramatically widening gap between the haves and the have-nots being what it is. Clearly, we are on the wrong course. What the robotics revolution, now at an incipient stage, will do to further diminish opportunities for Western peoples to work can be easily imagined, if the economic imperative of corporate capitalism is the rule to go by.

The same desolating trends can be seen in Europe, where people increasingly regard the European Union as a Trojan horse. The economic elites and their political front-men responsible for this image-challenged contraption lose public support with each new poll. The people by and large blame the European Union and the other accessories of globalization for their worsening standard of living. When informed by the establishment media that thanks to globalization Europe has never been more prosperous and peaceful, Europeans in historic numbers are reacting with disbelief. Their deepening sense of betrayal propels the surge of populism that defines the politics of Europe today. Arguments long-settled in favor of deregulation, liberalization, open borders, and other globalization watchwords have been reopened.

The constituency is growing for a politics that puts the well-being of Europeans first. Political measures calling for the protection of European jobs and cultures have gained a following unforeseen prior to 2008. In Italy, for example, 77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union. 64% of them expressed hostility toward it. Eight Italian businesses out of 10 can find nothing positive to say about the European Union. It is seen to be a creature of the banks and the big financial houses. As public relations disasters go, this one has unfolded on an epic scale as the underlying populations, long left out of consideration by the economic elites, have begun to sense the fate their masters have in store for them.

Leaving underlying populations out of consideration was a special feature of the planning that went into globalization. They have been voiceless. In America, Trump gave them a voice, and they responded to him with their political support. It did not matter that he came before them without a plan for their deliverance. That he came to them at all mattered. He understood the depth of the anger and alienation in America against a status quo personified by his opponent, Hillary Clinton, whose repeated and munificently rewarded speeches before the captains of finance on Wall Street effectively branded her as the safe candidate for all who wanted to leave existing economic arrangements fundamentally undisturbed.

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Aug 282017
 
 August 28, 2017  Posted by at 9:01 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Lou Reed New York City 1966

 

Harvey’s Cost Reaches Catastrophe: Only 15% Of Homes Have Flood Insurance (BBG)
Gasoline Surges, Oil Holds Near $48 as Harvey Shuts Refineries (BBG)
Mammoth Flood Disaster in Houston: More Rain Yet to Come (WU)
The Coming Collapse Of China’s Ponzi Scheme Economy (SCMP)
What’s Driving The Growth In US ‘Shadow Banking’ (CBR)
Volatility Makes a Comeback (Rickards)
YouTube “Economically Censors” Ron Paul (ZH)
Should The Rich Be Taxed More? (G.)
The West’s Wealth Is Based On Slavery. Reparations Should Be Paid (G.)
Danone Sends 5,000 Cows to Siberia in Quest for Cheaper Milk (BBG)

 

 

The real tragedy takes place below the surface. Sort of literally. Much more rain to come.

Harvey’s Cost Reaches Catastrophe: Only 15% Of Homes Have Flood Insurance (BBG)

Hurricane Harvey’s second act across southern Texas is turning into an economic catastrophe – with damages likely to stretch into tens of billions of dollars and an unusually large share of victims lacking adequate insurance, according to early estimates. Harvey’s cost could mount to $24 billion when including the impact of relentless flooding on the labor force, power grid, transportation and other elements that support the region’s energy sector, Chuck Watson, a disaster modeler with Enki Research, said by phone on Sunday. That would place it among the top eight hurricanes to ever strike the U.S. “A historic event is currently unfolding in Texas,” Aon wrote in an alert to clients. “It will take weeks until the full scope and magnitude of the damage is realized,” and already it’s clear that “an abnormally high portion of economic damage caused by flooding will not be covered,” the insurance broker said.

[..] Most people with flood insurance buy policies backed by the federal government’s National Flood Insurance Program. As of April, less than one-sixth of homes in Houston’s Harris County had federal coverage, according to Aon. That would leave more than 1 million homes unprotected in the county. Coverage rates are similar in neighboring areas. Many cars also will be totaled. “A lot of these people are going to be in very serious financial situations,” said Loretta Worters, a spokeswoman for the Insurance Information Institute. “Most people who are living in these areas do not have flood insurance. They may be able to collect some grants from the government, but there are not a lot, usually they’re very limited. There are no-interest to low-interest loans, but you have to pay them back.”

The federal program itself is already struggling with $25 billion of debt. The existing program is set to expire on Sept. 30 and is up for review in Congress, which ends its recess Sept. 5. Costs still will likely soar for insurance companies and their reinsurers, biting into earnings. As Harvey bore down on the coastline Friday, William Blair, a securities firm that tracks the industry, said the storm could theoretically inflict $25 billion of insured losses if it landed as a “large category 3 hurricane.” Policyholder-owned State Farm Mutual Automobile Insurance has the largest share in the market for home coverage in Texas, followed by Allstate, which is publicly traded. William Blair estimated that, in that scenario, Allstate could incur $500 million of pretax catastrophe losses, shaving 89 cents off of earnings per share.

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Most shutdowns so far are precautionary. But…

Gasoline Surges, Oil Holds Near $48 as Harvey Shuts Refineries (BBG)

Gasoline surged to the highest in two years and oil was steady as flooding from Tropical Storm Harvey inundated refining centers along the Texas coast, shutting more than 10% of U.S. fuel-making capacity. Motor fuel prices rose as much as 6.8%, while oil held gains near $48 a barrel. Harvey, the strongest storm to hit the U.S. since 2004, made landfall as a hurricane Friday, flooding cities and shutting plants able to process some 2.26 million barrels of oil a day. Pipelines were closed, potentially stranding some crude in West Texas and starving New York Harbor of gasoline. Gasoline prices are going to continue to rise this week as we expect another three days of rain in the Houston area,” Andy Lipow, president of consultant Lipow Oil in Houston, said by phone.

“With pipeline operators beginning to shut down their crude oil and refined product infrastructure, I expect to see further curtailment of refinery operations. A spike in gasoline and diesel prices will drag up crude oil prices.” Oil has traded this month in the tightest range since February as investors weigh rising global supply against output cuts by members of OPEC and its allies. As Harvey led to widespread flooding, Shell shut its Deer Park plant, while Magellan Midstream suspended its inbound and outbound refined products and crude pipeline transportation services in the Houston area. Gasoline for September delivery climbed as much as 11.33 cents to $1.7799 a gallon on the New York Mercantile Exchange, the highest intraday price for a front-month contract since July 2015.

It traded at $1.7621 at 12:36 p.m. in Hong Kong. West Texas Intermediate oil for October delivery fell 16 cents to $47.71 a barrel after advancing 0.9% on Friday. Brent crude’s premium to WTI widened to the largest in two years with the global benchmark trading at as much as $4.96 above the U.S. marker. Brent for October settlement gained 18 cents, or 0.3%, to $52.59 a barrel on the London-based ICE Futures Europe exchange.

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Waether Underground is probably the best source.

Mammoth Flood Disaster in Houston: More Rain Yet to Come (WU)

Harvey’s winds are expected to remain modest, and it could become a tropical depression at any point, but winds are not the problem here. The NOAA/NWS National Hurricane Center now predicts that Harvey will inch its way into the Gulf of Mexico—though just barely—by Monday night, then arc northeast and make a second landfall just west of Houston on Wednesday. The 12Z GFS and 00Z European model runs agree on a general northward motion for Harvey across eastern Texas, beginning around midweek. At this point it may make little difference whether Harvey stays just inland or moves just offshore, since rainbands would continue to be funneled toward Houston either way. The fine-scale particulars of this outlook may shift over time, but the overall message is consistent: Harvey will be a devastating rainmaking presence in southeast Texas for days to come.

Harvey’s circulation is located in a near-ideal spot for funneling vast amounts of moisture from the Gulf of Mexico toward the upper Texas coast. Here, converging winds at low levels have been concentrating the moisture into north-south-oriented bands of intense thunderstorms with torrential rain. Since Harvey is barely moving, these bands are creeping only slowly eastward as individual cells race north along them—a “training” set-up that is common in major flood events. Mesoscale models, our best guidance for short-term, small-scale behavior of thunderstorms, show little sign of relief for southeast Texas anytime soon. Convection-resolving mesoscale models, which have a tight enough resolution to depict individual thunderstorms, are an invaluable tool in situations like this. The mesoscale nested NAM model predicts that 20” – 30” of additional rainfall is likely through Tuesday across the Houston metro area, with even larger totals at some points.

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Hmm. But what if China manages to unload all its overcapacity on the Belt Road, and makes other countries pay?

The Coming Collapse Of China’s Ponzi Scheme Economy (SCMP)

Friends who have a greater interest than I do in reading the tea leaves in Beijing tell me that the emphasis in relations with Hong Kong from now on will be on one country rather than two systems. I think this phrases things the wrong way. The one country bit was never in issue. What they actually mean to say is that Beijing’s system of state command of the economy will become dominant and Hong Kong’s more freewheeling system will fade away. I don’t think it will happen. In my view human society is so dynamic that no command system can last long in charge of an economy. Attempts at this particular form of hubris inevitably end in either war or financial crisis. For the Soviet Union it was financial crisis. I think the same fate awaits Beijing.

Consider crude steel production, a test-tube example of how command economies get it wrong. In the mainland this stood in June at an all time monthly record of 73 million tonnes, five times the total production in all of Europe. Steel was recently targeted for a reduction in capacity but then a regime of easy money intended to help the industry overcome a difficult period of contraction instead stimulated production. It has happened across the mainland’s rust belt industries. Why is so much steel needed? Simple. It is needed to build more steel mills so as to build more shipyards, ports, railways and bridges so that more ships can be built to carry more iron ore to more ports and thence along more rails and bridges to more steel mills so as to build more shipyards, ports, railways …

What we have here, in short, is a giant Ponzi scheme. In a Ponzi scheme you pay out the winnings of the first entrants with what others later pay into it. As long as it keeps growing everything is fine. When it stops growing it collapses. In this case you justify production with demand based purely on more production. As long as you keep pushing production up everything looks fine. At its peak in 2014 China turned out 30 times more cement than the United States, and the latest production figures are only a smidgen less than 2014’s.

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What do you think? A good sign? It isn’t in China….

What’s Driving The Growth In US ‘Shadow Banking’ (CBR)

In the wake of the 2007–10 financial crisis, there’s been sizeable growth of “shadow banking”— companies without banking charters entering lines of business traditionally associated with deposit-taking banks. Hedge funds that make direct loans to midsize businesses, online mortgage originators, peer-to-peer lending platforms, and payday lenders have all been on the rise. What’s behind this? According to Chicago Booth’s Gregor Matvos, Booth PhD candidate Greg Buchak, Columbia’s Tomasz Piskorski, and Stanford’s Amit Seru, much of the growth is due to regulations that have pushed banks out of traditional lending businesses. The researchers also attribute some growth to online technology that has lowered the barrier to entry in markets where lenders once needed networks of physical branches to have any hope of building business.

The researchers focus on the US residential lending market, the largest consumer loan market in the country—and the market that drew the most attention from regulators after 2008. Between 2007 and 2015, shadow banks nearly tripled their market share, from 14% to 38%. They gained the most in the Federal Housing Administration (FHA) mortgage market, which serves lower-quality borrowers and is where shadow banks’ share rose from 20% to 75%. Traditional banks retreated from sectors of the mortgage market where the regulatory burden grew the most, the researchers note. Traditional banks have been particularly hindered by rules that increased monitoring of balance-sheet holdings and constrained what banks could hold in their own accounts.

Their retreat helped shadow banking succeed in the riskier FHA market and in more-traditional, conforming mortgages. The researchers also separated shadow banks into those that did and didn’t originate loans online. During the study period, lenders that originated loans online (fintech lenders) saw market share rise from 4% to 13%—but that remains less than half of the shadow-banking sector.

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Super spikes.

Volatility Makes a Comeback (Rickards)

Volatility has languished near all-time lows for months on end. That’s about to change. For almost a year, one of the most profitable trading strategies has been to sell volatility. Since the election of Donald Trump stocks have been a one-way bet. They almost always go up, and have hit record highs day after day. The strategy of selling volatility has been so profitable that promoters tout it to investors as a source of “steady, low-risk income.” Nothing could be further from the truth. Yes, sellers of volatility have made steady profits the past year. But the strategy is extremely risky and you could lose all of your profits in a single bad day. Think of this strategy as betting your life’s savings on red at a roulette table. If the wheel comes up red, you double your money. But if you keep playing eventually the wheel will come up black and you’ll lose everything.

That’s what it’s like to sell volatility. It feels good for a while, but eventually a black swan appears like the black number on the roulette wheel, and the sellers get wiped out. I focus on the shocks and unexpected events that others don’t see. Right now looks like one of those highly favorable windows when the purchase of volatility is the right move. You could collect huge winnings as the short sellers scramble to cover their bets before they are wiped out completely. The chart below shows a 20-year history of volatility spikes. You can observe long periods of relatively low volatility such as 2004 to 2007, and 2013 to mid-2015, but these are inevitably followed by volatility super-spikes. During these super-spikes the sellers of volatility are crushed, sometimes to the point of bankruptcy because they can’t cover their bets.

The period from mid-2015 to late 2016 saw some brief volatility spikes associated with the Chinese devaluation (August and December 2015), Brexit (June 23, 2016) and the election of Donald Trump (Nov. 8, 2016). But, none of these spikes reached the super-spike levels of 2008 – 2012. In short, we have been on a volatility holiday. Volatility is historically low and has remained so for an unusually long period of time. The sellers of volatility have been collecting “steady income,” yet this is really just a winning streak at the volatility casino. The wheel of fortune is about to turn and luck is about to run out for the sellers. It will soon be time for the buyers of volatility to collect their winnings, big time.

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Sliding scales. One step before large tech is declared utility?!

YouTube “Economically Censors” Ron Paul (ZH)

Former US Congressman Ron Paul has joined a growing list of independent political journalists and commentators who’re being economically punished by YouTube despite producing videos that routinely receive hundreds of thousands of views. In a tweet published Saturday, Wikileaks founder Julian Assange tweeted a screenshot of Paul’s “Liberty Report” page showing that his videos had been labeled “not suitable” for all advertisers by YouTube’s content arbiters. Assange claims that Paul was being punished for speaking out about President Donald Trump’s decision to increase the number of US troops in Afghanistan, after Paul published a video on the subject earlier this week. The notion that YouTube would want to economically punish a former US Congressman for sharing his views on US foreign policy – a topic that he is unequivocally qualified to speak about – is absurd.

Furthermore, the “review requested” marking on one of Paul’s videos reveals that they were initially flagged by users before YouTube’s moderators confirmed that the videos were unsuitable for a broad audience. Other political commentators who’ve been censored by YouTube include Paul Joseph Watson and Tim Black – both ostensibly for sharing political views that differ from the mainstream neo-liberal ideology favored by the Silicon Valley elite. Last week, Google – another Alphabet Inc. company – briefly banned Salil Mehta, an adjunct professor at Columbia and Georgetown who teaches probability and data science, from using its service, freezing his accounts without providing an explanation. He was later allowed to return to the service. Conservative journalist Lauren Southern spoke out about YouTube’s drive to stifle politically divergent journalists and commentators during an interview with the Daily Caller.

“I think it would be insane to suggest there’s not an active effort to censor conservative and independent views,” said Southern. “Considering most of Silicon Valley participate in the censorship of alleged ‘hate speech,’ diversity hiring and inclusivity committees. Their entire model is based around a far left outline. There’s no merit hiring, there’s no support of free speech and there certainly is not an equal representation of political views at these companies.” Of course, Google isn’t the only Silicon Valley company that’s enamored with censorship. Facebook has promised to eradicate “fake news,” which, by its definition, includes political content that falls outside of the mainstream. Still, economically punishing a former US Congressman and medical doctor is a new low in Silicon Valley’s campaign to stamp out dissent.

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The most prosperous times of our societies coincide with the highest tax levels for the rich.

Should The Rich Be Taxed More? (G.)

The past four decades have been extremely kind to those at the top. They have seen their incomes grow faster than the rest of the population and hold a far bigger share of wealth in the form of property and financial investments than the rest of the population. Over the years a bigger slice of national income has gone to capital at the expense of labour, and the rich have been the beneficiaries of that, because they are more likely to own shares and expensive houses. The trend has been particularly strong in the US, where labour’s share of income has fallen from a recent peak of 57% at the end of Bill Clinton’s presidency to 53% by 2015. The Gini coefficient – a measure of inequality – has been steadily rising since 1970 and is now at levels normally seen in developing rather than advanced economies.

Hatgioannides, Karanassou and Sala seek to take account of these profound changes in the distribution of income and wealth. They do so by dividing the average income tax rate of a particular slice of the US population by the%age of national income commanded by that same group and by their share of wealth. They then look at whether by this measure – the fiscal inequality coefficient – the US tax system has become more or less progressive over time. The findings show quite clearly that it has become less progressive. In terms of income, the poorest 99% of the US population paid nine times as much income tax as the richest 1%, both when John F Kennedy was president in the early 1960s and when Ronald Reagan beat Jimmy Carter in the 1980 race for the White House. By 2014, they paid 21 times as much.

Similarly, the bottom 99.9% in the US paid 28 times as much tax as the elite 0.1% in the early 1960s and the early 1980s, but by 2014 they were paying 76 times as much. The same trend applies – although it is not pronounced – when income tax is divided by the share of wealth. The bottom 99% paid 22 times as much income tax as the wealthiest 1% in 1980 but were paying 47 times as much in 2014. The bottom 99.9% paid 58 times as much income tax as the top 0.1% before the onset of Reaganomics; by 2014 they were paying 175 times as much. [..] As the authors note, since 1980, economic policy making has been dominated by the idea that deregulation, less generous welfare and tax cuts will stimulate higher investment, higher productivity, higher growth and higher living standards for all. None of this has occurred and, what’s more, the social mobility in the decades after the second world war has been thrown into reverse. The great American dream – the notion that anybody can strike it rich – is dead.

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They won’t be.

The West’s Wealth Is Based On Slavery. Reparations Should Be Paid (G.)

Malcolm X explained that “if you stick a knife in my back nine inches and pull it out six inches, that’s not progress. If you pull it all the way out, that’s not progress. The progress comes from healing the wound that the blow made”. Instead of attempting to fix the damage, we are completely unable to progress on issues of equality because countries such as Britain “won’t even admit the knife is there”. It is the height of delusion to think that the impact of slavery ended with emancipation, or that empire was absolved by the charade of independence being bestowed on the former colonies.

[..]It is not just governments that owe a debt; some of the biggest institutions and corporations built their wealth on slavery. Lloyds of London is one of Britain’s most successful companies and its roots lie in insuring the merchant trade in the 17th century. The fact that this was the slave trade has already led to civil action being taken by African Americans in New York. The church, many of the biggest banks, much of the ironworks industry and port cities gorged themselves on the profits from human flesh. It is clear that it would be just to pay reparations, and it is also possible to calculate the amount that Britain and other nations owe. A lot of work has been done in the United States to determine the damages owed to African Americans. The figure owed comes to far more than the “forty acres and a mule” that were promised to some African Americans who fought in the civil war.

The latest calculations from researchers estimates that for unpaid labour, taking into account interest and inflation, African Americans are owed anywhere between $5.9tn and $14.2tn. It would not be prohibitively complicated to work out the debts owed by the western powers, or the companies that enriched themselves off exploitation. The obviousness of the issue is such that a federation of Caribbean countries (Caricom) is now demanding reparations, as is the Movement for Black Lives in America and Pan-Afrikan Reparations Coalition in Europe. In many ways the calls for reparatory justice do not take go far enough. Caricom includes a demand to cancel third world debt, and the Movement for Black Lives for free tuition for African Americans.

Both of these are examples of removing the knife from our backs, rather than healing the wound. Third world debt was an unjust mechanism for maintaining colonial economic control and; allowing free access to a deeply problematic school system will not eradicate the impacts of centuries of oppression. In order to have racial justice we need to hit the reset button and have the west account for the wealth stolen and devastation caused. Nothing short of a massive transfer of wealth from the developed to the underdeveloped world, and to the descendants of slavery and colonialism in the west, can heal the deep wounds inflicted.

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Cows to Qatar, cown to SIberia: the new backpackers?!

Danone Sends 5,000 Cows to Siberia in Quest for Cheaper Milk (BBG)

President Vladimir Putin’s ban on European Union cheese imports has driven up milk prices in Russia by so much that French yogurt maker Danone is transporting almost 5,000 cows to a farm in Siberia to ensure it has an affordable supply. The Holstein cows are traveling as many as 2,800 miles (4,500 kilometers) in trucks from the Netherlands and Germany, boosting the herd on a farm near the city of Tyumen, according to Charlie Cappetti, head of Danone’s Russian unit. That should protect the company from the increase in raw milk prices, which are up 14% this year, he said. “Milk prices have been going up steadily,” Cappetti said in an interview in Moscow. “That puts products such as yogurt under pressure.” While the French dairy company doesn’t normally invest in agriculture, it made an exception for Russia.

After Putin’s ban on dairy imports took hold in 2014, demand for milk surged as local cheesemakers rushed to replace French camembert and Italian pecorino. That has exacerbated the inflationary effects of the ruble’s weakness. Danone invested in the 60-hectare (150-acre) farm with local producer Damate, Cappetti said. The first cows started to provide milk for Danone in May, and a final shipment of cattle is due to arrive in September. “We hope that Russian milk inflation will slow down next year,” the executive said. The difference between supply and demand is narrowing as new milk is coming to the market, including from the Siberian farm. While easing milk inflation may help the Russian dairy market rebound in volume terms, Danone isn’t expecting a fast economic recovery in the country, according to Cappetti. Sales in Russia have been growing in line with inflation in the first half and should rise in 2018, he said.

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Aug 062017
 
 August 6, 2017  Posted by at 8:26 am Finance Tagged with: , , , , , , , , ,  7 Responses »
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Giorgio de Chirico Piazza d’Italia 1913

 

The Bursting of the China Credit Bubble (Crescat)
The Swamp Is So Undrainable It Will End Up Making Mincemeat Of Trump (Stockman)
How The Trump Administration Broke The State Department (FP)
Have Smartphones Destroyed a Generation? (Atl.)
Amazon Isn’t The No. 1 Villain In Retail Sector’s Demise (Katsenelson)
On The Beach (John Pilger)
Merkel Is Kowtowing To The German Car Industry (Spiegel)
North Korea Sanctions Bring Nuclear Issue To ‘Critical Phase’, Says China (G.)
What If Every Government Paid Off Its National Debt? (Connelly)
Are Greek Capital Controls Easing? (K.)
More People Live Inside This Circle Than Outside It (WEF)
Is Global Ocean Circulation Collapsing? (Forbes)

 

 

A tour de force PDF by private firm Crescat on China and its potential influence on the world of finance. It echoes a longtime theme of mine: China’s shadow banking sector could bring it all down.

The Bursting of the China Credit Bubble (Crescat)

History has proven that credit bubbles always burst. China by far is the biggest credit bubble in the world today. We layout the proof herein. There are many indicators signaling that the bursting of the China credit bubble is imminent, which we also enumerate. The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world. The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to GDP in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia.

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion. Post the 2008 global financial crisis, the world’s central bankers have kept interest rates low and delivered just the right amount of quantitative easing in aggregate to levitate global debt, equity, and real estate valuations to the highest they have ever been relative to income.

Across all sectors of the world economy: household, corporate, government, and financial, the world’s aggregate debt relative to its collective GDP (gross world product) is the highest it has ever been. Central banks have pumped up the valuation of equities too. The S&P 500 has a cyclically adjusted P/E of almost 30 versus a median of 16, exceeded only in 1929 and the 2000 tech bubble. The US markets are also in a valuation bubble because US-owned financial assets have never been more richly valued relative to income as we show below. The picture is equally frothy if we include real estate, also at record valuations to income. China’s capital outflow spillover from its credit bubble has driven up real estate valuations around the world.

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“And then the Donald will be gone, and well before August 2018, too…”

The Swamp Is So Undrainable It Will End Up Making Mincemeat Of Trump (Stockman)

What will be the trigger that finally sends the establishment after Trump? Ultimately, the hammer of fiscal crisis and a crashing stock market will break any remaining loyalty of the GOP elders as they smell the 2018 elections turning into a replay of the rout of 1974. And then the Donald will be gone, and well before August 2018, too. I told an audience in Vancouver last Friday that it could happen by February. The bottom line is that the Swamp is so undrainable that it will end up making mincemeat of Donald Trump. Needless to say, the ultimate causes of his demise are anchored deep in the failing status quo. America is so addicted to war, debt and central bank driven false prosperity that even the most resourceful and focused challenger would be taken down by its sheer inertia.

But the Donald is so undisciplined, naïve, out-of-touch, thin-skinned, unfocused and megalomaniacal that he is making it far easier for the Swamp critters than they deserve. To a very considerable extent, in fact, he is filling out his own bill of indictment. Moreover, he is totally clueless about how to manage his presidency or cope with the circling long knives of the Deep State which are hell bent on removing him from office. Accordingly, the single most important thing to know about the present risk environment is that it is extreme and unprecedented. In essence, the Donald is the ultimate bull in an exceedingly fragile China shop — and an already badly wounded one at that. So it is no understatement to suggest that the S&P 500 at 2470 and the Dow at 22,000 is about as fragile as the “market” has ever been.

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Is Trump trying the drain the swamp anyway? Or Tillerson? Foreign Policy can’t quite decide on the latter. But these lines, intended as positives, sort of say it all:

“..the legacy of decades of American diplomacy is at risk..”, or this one: “I used to wake up every morning with a vision about how to do the work to make the world a better place..”

How The Trump Administration Broke The State Department (FP)

Employees at the State Department couldn’t help but notice the stacks of cubicles lined up in the corridor of the seventh floor. For diplomats at the department, it was the latest sign of the “empire” being built by Secretary of State Rex Tillerson’s top aides. The cubicles are needed to accommodate dozens of outsiders being hired to work in a dramatically expanded front office that is supposed to advise Tillerson on policy. Foreign service officers see this expansion as a “parallel department” that could effectively shut off the secretary and his advisors from the career employees in the rest of the building. The new hires, several State officials told Foreign Policy, will be working for the policy planning staff, a small office set up in 1947 to provide strategic advice to the secretary that typically has about 20-25 people on its payroll.

One senior State Department official and one recently retired diplomat told FP that Tillerson has plans to double or perhaps triple its size, even as he proposes a sweeping reorganization and drastic cuts to the State Department workforce. Veterans of the U.S. diplomatic corps say the expanding front office is part of an unprecedented assault on the State Department: A hostile White House is slashing its budget, the rank and file are cut off from a detached leader, and morale has plunged to historic lows. They say President Donald Trump and his administration dismiss, undermine, or don’t bother to understand the work they perform and that the legacy of decades of American diplomacy is at risk.

By failing to fill numerous senior positions across the State Department, promulgating often incoherent policies, and systematically shutting out career foreign service officers from decision-making, the Trump administration is undercutting U.S. diplomacy and jeopardizing America’s leadership role in the world, according to more than three dozen current and former diplomats interviewed by FP. “I used to wake up every morning with a vision about how to do the work to make the world a better place,” said one State Department official, who spoke on condition of anonymity for fear of retaliation. “It’s pretty demoralizing if you are committed to making progress. I now spend most of my days thinking about the morass. There is no vision.”

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Interesting, but it can’t be just one generation.

Have Smartphones Destroyed a Generation? (Atl.)

The more I pored over yearly surveys of teen attitudes and behaviors, and the more I talked with young people like Athena, the clearer it became that theirs is a generation shaped by the smartphone and by the concomitant rise of social media. I call them iGen. Born between 1995 and 2012, members of this generation are growing up with smartphones, have an Instagram account before they start high school, and do not remember a time before the internet. The Millennials grew up with the web as well, but it wasn’t ever-present in their lives, at hand at all times, day and night. iGen’s oldest members were early adolescents when the iPhone was introduced, in 2007, and high-school students when the iPad entered the scene, in 2010. A 2017 survey of more than 5,000 American teens found that three out of four owned an iPhone.

The advent of the smartphone and its cousin the tablet was followed quickly by hand-wringing about the deleterious effects of “screen time.” But the impact of these devices has not been fully appreciated, and goes far beyond the usual concerns about curtailed attention spans. The arrival of the smartphone has radically changed every aspect of teenagers’ lives, from the nature of their social interactions to their mental health. These changes have affected young people in every corner of the nation and in every type of household. The trends appear among teens poor and rich; of every ethnic background; in cities, suburbs, and small towns. Where there are cell towers, there are teens living their lives on their smartphone. To those of us who fondly recall a more analog adolescence, this may seem foreign and troubling.

The aim of generational study, however, is not to succumb to nostalgia for the way things used to be; it’s to understand how they are now. Some generational changes are positive, some are negative, and many are both. More comfortable in their bedrooms than in a car or at a party, today’s teens are physically safer than teens have ever been. They’re markedly less likely to get into a car accident and, having less of a taste for alcohol than their predecessors, are less susceptible to drinking’s attendant ills. Psychologically, however, they are more vulnerable than Millennials were: Rates of teen depression and suicide have skyrocketed since 2011. It’s not an exaggeration to describe iGen as being on the brink of the worst mental-health crisis in decades. Much of this deterioration can be traced to their phones.

Even when a seismic event—a war, a technological leap, a free concert in the mud—plays an outsize role in shaping a group of young people, no single factor ever defines a generation. Parenting styles continue to change, as do school curricula and culture, and these things matter. But the twin rise of the smartphone and social media has caused an earthquake of a magnitude we’ve not seen in a very long time, if ever. There is compelling evidence that the devices we’ve placed in young people’s hands are having profound effects on their lives—and making them seriously unhappy.

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More on the iPhone.

Amazon Isn’t The No. 1 Villain In Retail Sector’s Demise (Katsenelson)

Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter. Jeff Bezos and Amazon get most of the credit, but this credit is misplaced. Today, online sales represent only 8.5% of total retail sales. Amazon, at $80 billion in sales, accounts only for 1.5% of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion. Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales. Our consumption needs and preferences have changed significantly. Ten years ago we spent a pittance on cellphones.

Today Apple sells roughly $100 billion worth of i-goods in the U.S., and about two-thirds of those sales are iPhones. Apple’s U.S. market share is about 44%, thus the total smart mobile phone market in the U.S. is $150 billion a year. Add spending on smartphone accessories (cases, cables, glass protectors, etc.) and we are probably looking at $200 billion total spending a year on smartphones and accessories. Ten years ago (before the introduction of the iPhone) smartphone sales were close to zero. Nokia was the king of dumb phones, with sales in the U.S. in 2006 of $4 billion. The total dumb cellphone handset market in the U.S. in 2006 was probably closer to $10 billion. Consumer income has not changed much since 2006, thus over the last 10 years $190 billion in consumer spending was diverted toward mobile phones.

It gets more interesting. In 2006 a cellphone was a luxury only affordable by adults, but today 7-year-olds have iPhones. Our phone bill per household more than doubled over the last decade. Not to bore you with too many data points, but Verizon’s wireless’s revenue in 2006 was $38 billion. Fast-forward 10 years and it is $89 billion – a $51 billion increase. Verizon’s market share is about 30%, thus the total spending increase on wireless services is close to $150 billion. Between phones and their services, this is $340 billion that will not be spent on T-shirts and shoes. But we are not done. The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at our discretionary dollars. Health-care spending in the U.S. is $3.3 trillion, and just 3% of that figure is almost $100 billion.

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“A lobotomy is performed on each generation. Facts are removed. History is excised and replaced by what Time magazine calls “an eternal present”.”

On The Beach (John Pilger)

“This is the way the world ends; Not with a bang but a whimper”. These lines from T.S. Eliot’s poem The Hollow Men appear at the beginning of Nevil Shute’s novel On the Beach, which left me close to tears. The endorsements on the cover said the same. Published in 1957 at the height of the Cold War when too many writers were silent or cowed, it is a masterpiece. At first the language suggests a genteel relic; yet nothing I have read on nuclear war is as unyielding in its warning. No book is more urgent. Some readers will remember the black and white Hollywood film starring Gregory Peck as the US Navy commander who takes his submarine to Australia to await the silent, formless spectre descending on the last of the living world.

I read On the Beach for the first time the other day, finishing it as the US Congress passed a law to wage economic war on Russia, the world’s second most lethal nuclear power. There was no justification for this insane vote, except the promise of plunder. The “sanctions” are aimed at Europe, too, mainly Germany, which depends on Russian natural gas and on European companies that do legitimate business with Russia. In what passed for debate on Capitol Hill, the more garrulous senators left no doubt that the embargo was designed to force Europe to import expensive American gas. Their main aim seems to be war – real war. No provocation as extreme can suggest anything else. They seem to crave it, even though Americans have little idea what war is. The Civil War of 1861-5 was the last on their mainland. War is what the United States does to others.

The only nation to have used nuclear weapons against human beings, they have since destroyed scores of governments, many of them democracies, and laid to waste whole societies – the million deaths in Iraq were a fraction of the carnage in Indo-China, which President Reagan called “a noble cause” and President Obama revised as the tragedy of an “exceptional people”. He was not referring to the Vietnamese. Filming last year at the Lincoln Memorial in Washington, I overheard a National Parks Service guide lecturing a school party of young teenagers. “Listen up,” he said. “We lost 58,000 young soldiers in Vietnam, and they died defending your freedom.” At a stroke, the truth was inverted. No freedom was defended. Freedom was destroyed. A peasant country was invaded and millions of its people were killed, maimed, dispossessed, poisoned; 60,000 of the invaders took their own lives. Listen up, indeed.

A lobotomy is performed on each generation. Facts are removed. History is excised and replaced by what Time magazine calls “an eternal present”. Harold Pinter described this as “manipulation of power worldwide, while masquerading as a force for universal good, a brilliant, even witty, highly successful act of hypnosis [which meant] that it never happened. Nothing ever happened. Even while it was happening it wasn’t happening. It didn’t matter. It was of no interest.”

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Original tile: “‘Made in Germany’ Label Badly Damaged By Car Scandal”. But the power politics behind it are far more revealing.

Merkel Is Kowtowing To The German Car Industry (Spiegel)

Since the days of former Chancellor Gerhard Schröder, who served from 1998 to 2005, Germany’s leaders have been nicknamed the “Auto Chancellor” for their close ties to the industry. Schröder felt he was a patron of the industry. And Merkel, his successor, was quick to see the connection between maintaining close ties to the key industry and staying in power. On Sept. 23, 2008, she spoke to workers at a Volkswagen factory. “The German government stands behind VW. VW is a great piece of Germany.” The sheer mass of 18,000 workers seemed to awe her. She had likely never spoken in front of that many people at one time. She said she would travel home with the feeling that many workers at Volkswagen wanted “Germany to be doing well.” Observers of the chancellor say that visit to Wolfsburg had a deep impact on Merkel.

A short time later, as the world faced a major economic crisis, she gave employees and executives at Germany’s car companies a gift worth billions of euros in the form of government subsidies that saved jobs and kept the floor from falling out on the industry. The unsavory symbiosis between the government, the industry and the lobbying groups – and the revolving door of personnel moving between them – seems to be the root of the evil. This ensures that the industry has influence and access, and assures employees money and access to the career ladder. It can also cause a bit of head-scratching. A public servant who is supposed to one day passionately fight for the good of the people, is suddenly ready to contribute to their systematic poisoning only a moment later.

Former German Transportation Minister Matthias Wissmann, who served as a member of Merkel’s cabinet and is also a friend, sticks out. Today he’s the president of the German Association of the Automotive Industry (VDA). All he has to do to get the chancellor’s attention is send her a text message on his mobile phone. Merkel’s former chief of staff at the national headquarters of her conservative Christian Democratic Union (CDU) party, Michael Jansen, now works at Volkswagen as the head of the VW’s Berlin office, which conducts the company’s lobbying. A few months ago, carmaker Opel’s chief lobbyist, Joachim Koschnicke, left his job to join the CDU’s election campaign team. All have showered the federal government with emails and letters in recent years to ensure that their companies’ interests are fulfilled.

In May 2013, VDA head Wissmann wrote to “Dear Angela” that she should try to hinder the European Commission’s “excessive” proposals on CO2 targets. VW lobbyist Jansen also wrote to the Chancellery in July 2015 that, on the issue of “air quality/diesel,” the industry’s proposals should be given the “greatest possible consideration.” When he was still an Opel lobbyist, Joachim Koschnicke warned the head of the KBA when approval was delayed for a new Opel model that without it, there would be “potential effects on our business operations.” He said it jeopardized production at five plants and that the “negative effects would be dramatic in every aspect.” And then there’s Eckart von Klaeden, who served as minister of state in the Chancellery from 2009 to 2013 and has since served as head of global external affairs at Daimler.

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How far will China go?

North Korea Sanctions Bring Nuclear Issue To ‘Critical Phase’, Says China (G.)

The situation on the Korean peninsula is entering “a very critical phase”, China has warned after new United Nations sanctions targeting Pyongyang were announced following its recent intercontinental ballistic missile test. Speaking in Manila before a regional security summit, China’s foreign minister, Wang Yi, said the sanctions had been designed “to efficiently, or more efficiently, block North Korea’s nuclear missile development”. “Sanctions are needed but not the ultimate goal,” Wang added. “The purpose is to pull the peninsula nuclear issue back to the negotiating table, and to seek a final solution to realise the peninsula denuclearisation and long-term stability through negotiations.” “After the resolution is passed, the situation on the peninsula will enter a very critical phase,” Wang warned, according to China’s state broadcaster CGTN.

“We urge all parties to judge and act with responsibility in order to prevent tensions from escalating.” Wang met his North Korean counterpart, Ri Yong Ho, on Sunday who reportedly smiled continuously as he shook the Chinese official’s hand. According to Reuters, journalists were not given access to a meeting between the two men. On Saturday Nikki Haley, the US ambassador to the United Nations, said “further action is required” against North Korea. Earlier, National Security Adviser HR McMaster said Donald Trump had been “deeply briefed” on recent missile tests carried out by Pyongyang, and said the US would do “everything we can to to pressure this regime” while seeking to avoid “a very costly war”. Haley spoke to the UN security council after the 15-member body imposed the new sanctions against North Korea, in response to its two long-range missiles tests in July.

“We should not fool ourselves into thinking we have solved the problem,” Haley said. “Not even close. The North Korean threat has not left us, it is rapidly growing more dangerous. Further action is required. The United States is taking and will continue to take prudent defensive measures to protect ourselves and our allies.” Washington would continue annual military exercises with South Korea, Haley said. The UN-approved sanctions include a ban on exports worth more than $1bn, a huge bite out of North Korea’s total exports, valued at $3bn last year. Countries are also banned from giving any additional permits to North Korean laborers – another source of money for the regime of Kim Jong-un – and all new joint ventures with North Korean companies and foreign investment in existing ones are banned.

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“The national debt is actually the government’s savings account..”

What If Every Government Paid Off Its National Debt? (Connelly)

There were six times in US history in which budget surpluses were achieved for long enough to retire a significant amount of debt. Five of those were followed by depressions, the last of which culminated in the Great Depression of the 1930s. The last time America ran a significant budget surplus (about 2.5 years) was under President Clinton. The 2002 recession is a direct result of Clinton’s 1999 surplus which forced the domestic private sector into deficit. Consumer spending fell, unemployment rose and a recession occurred. The economy crashed first in 2000 and then onwards into the Great Recession that began in 2007. “But reducing or retiring the debt isn’t what caused the economic downturns,” says economist, Ellis Winningham. “It was the surpluses that caused it. Simply put, you cannot operate an economy with no money in it.”

So why have we convinced ourselves that government debt is the mother of all evil? That somehow, if the government is in surplus, our bank accounts will automatically improve? In fact, as we shall see, the precise opposite is what would probably happen. Anyone who has ever been chased by a debt collector has come to associate the word ‘debt’ as necessarily scary, bad and to be avoided. If you are a household, this is likely to be true. But debt has an entirely different meaning for governments. To whom is the national debt owed? That would be us: the people. But this truth has been avoided in favour of eliciting a pavlovian response based entirely on the principle that a government budget is the same as that of a household.

“People think that public debt is like a household debt, hence, they buy into the neoliberal nonsense about the government going ‘bankrupt’ and then it’s financial armageddon and we will all die,” says Winningham. “It’s total nonsense. The public debt is just a bunch of savings accounts that pay interest. “People think it will improve their lives because they believe that the government’s debt is their debt. In reality, the government’s debt is the private sector’s asset.” In truth, there is no such thing as the national debt beyond a rhetorical device used to scare the public into submission. In the US, the National Debt is the sum-total of all US dollars ever issued by the Federal Government, from the nation’s founding up until this very moment, that have never been taxed away by the Federal Government.

“From around the 1790’s until today, 2017, the US government has issued, after taxes, $18 trillion dollars for everyone in the non-government sector to use,” says Winningham. “In fact, the national debt has been around for over 170 years now, so at some point, you’re going to have to start understanding that it is not an actual problem. “Further, you need to start understanding that when you accuse Obama, or Bush, or Trump of adding to the national debt, you’re actually accusing them of adding US dollars to the US economy. Or, more precisely, you’re accusing them of adding US dollars to our national savings.” Put simply, The National Debt is the country’s total exports minus the country’s total imports, and isn’t an actual debt at all, but a “balance of trade”.

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A giant sleight of hand: ..new measures that are billed as easing the capital controls but which will in fact reduce the annual amount of cash bank clients can withdraw

Are Greek Capital Controls Easing? (K.)

The government is gearing up to launch new measures that are billed as easing the capital controls but which will in fact reduce the annual amount of cash bank clients can withdraw. As of September 1, when the new measures come into force, citizens will be able to withdraw a total of 1,800 euros per month. When the controls were first introduced in July 2015, Greeks could only withdraw €60 a day, 365 days a year, but since then they have been allowed to carry that amount forward up to a period of two weeks, giving them a €840 limit every 14 days (fixed, from midnight Friday to midnight two weeks later). That will remain the case until the end of August.

The extension of the cumulative withdrawal period may facilitate transactions, but on an annual basis the total amount a bank customer can withdraw will fall from €21,840 (€840 x 26 two-week periods) to €21,600 (€1,800 x 12 months). Greeks could in fact withdraw more money per year on the original limit of €60 per day, totaling €21,900 a year, as that avoided the fixed-two-week-period problem. In other words the “easing” of restrictions has resulted in curtailing people’s withdrawal limit by €300 per annum, for the right to transfer a withdrawal to another day or week. Bank sources tell Kathimerini it is a positive move that will strengthen confidence, make transactions easier and boost the economy.

The new measures will also affect withdrawals in foreign currency in Greece and the use of Greek debit cards for withdrawals abroad. As of September 1 any recipients of money forwarded from abroad will be able to withdraw 50% of the amount without any restrictions. Companies will also be able to open an account at a credit institution by creating a new customer ID regardless of whether they already have another account there. Farmers, who have not been allowed to open bank accounts since the controls started, will finally be allowed to (provided they do not have one already). Employees will be further able to open a new salary account at a different bank to the one at which they are already a client or if their new employer pays their salary at another lender.

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Perspective.

More People Live Inside This Circle Than Outside It (WEF)


Circle centred on 106.6° East, 26.6° North, projected using GMT, created by BCMM – Brilliant Maps

While the map looks surprising at first glance, it shouldn’t really once you consider it contains all or most of the world’s most populous countries: China, India, Indonesia (fourth), Pakistan (sixth), Bangladesh (seventh) and Japan (tenth). And according to the World Population Prospects 2017, a recently updated UN report, the world population will hit a staggering 9.8 billion by 2050. China (with currently 1.4 billion inhabitants) and India (with currently 1.3 billion inhabitants) will remain the two most populous countries, and Nigeria will overtake the United States to become the third-most populous country in the world.

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Not a new theme at all, the Gulfstream, so why present it as somehow new without any new evidence? Nice map though.

Is Global Ocean Circulation Collapsing? (Forbes)

Scientists have long known about the anomalous “warming hole” in the North Atlantic Ocean, an area immune to warming of Earth’s oceans. This cool zone in the North Atlantic Ocean appears to be associated with a slowdown in the Atlantic Meridional Overturning Circulation (AMOC), one of the key drivers in global ocean circulation. A recent study published in Nature outlines research by a team of Yale University and University of Southhampton scientists. The team found evidence that Arctic ice loss is potentially negatively impacting the planet’s largest ocean circulation system. While scientists do have some analogs as to how this may impact the world, we will be largely in uncharted territory. AMOC is one of the largest current systems in the Atlantic Ocean and the world. Generally speaking, it transports warm and salty water northward from the tropics to South and East of Greenland.

This warm water cools to ambient water temperature then sinks as it is saltier and thus denser than the relatively more fresh surrounding water. The dense mass of water sinks to the base of the North Atlantic Ocean and is pushed south along the abyss of the Atlantic Ocean. This process whereby water is transported into the Northern Atlantic Ocean acts to distribute ocean water globally. What’s more important, and the basis for concern of many scientists is this mechanism is one of the most efficient ways Earth transports heat from the tropics to the northern latitudes. The warm water transported from the tropics to the North Atlantic releases heat to the atmosphere, playing a key role in warming of western Europe. You likely have heard of one of the more popular components of the AMOC, the Gulf Stream which brings warm tropical water to the western coasts of Europe.

Evidence is growing that the comparatively cold zone within the Northern Atlantic could be due to a slowdown of this global ocean water circulation. Hence, a slowdown in the planet’s ability to transfer heat from the tropics to the northern latitudes. The cold zone could be due to melting of ice in the Arctic and Greenland. This would cause a cold fresh water cap over the North Atlantic, inhibiting sinking of salty tropical waters. This would in effect slow down the global circulation and hinder the transport of warm tropical waters north. Melting of the Arctic sea ice has rapidly increased in the recent decades. Satellite image records indicate that September Arctic sea ice is 30% less today than it was in 1979. This trend of increased sea ice melting during summer months does not appear to be slowing. Hence, indications are that we will see a continued weakening of the global ocean circulation system.

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Jul 272017
 
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Hieronymus Bosch St. Jerome in Prayer 1482

 

Fed Says Balance-Sheet Unwind to Start ‘Relatively Soon’ (BBG)
Time Flies for Draghi and the Bumblebees (BBG)
The Greater Moderation (DDMB)
Thursday Is the ‘Day From Hell’ for Europe’s Stock Watchers (BBG)
Market Hype Triggers ‘New Major Warning’ Sign For Stocks (CNBC)
Financialization and Risk Asymmetry (CHS)
China’s Banks Now Stable, ‘Shadow’ Banking Less Threatening – Moody’s (CNBC)
Investor Howard Marks Says Bitcoin Is A ‘Pyramid Scheme’ (CNBC)
German Business Lobby Urges EU Action Against New US Sanctions On Russia (RT)
Macron Unleashes a Decade of Italian Anger (BBG)
Sweden Leaks Details Of Almost All Of Its Citizens (Ind.)
Armageddon Is Two and One-half Minutes Away (PCR)
Half Our Bodies’ Atoms ‘Formed Beyond The Milky Way’ (G.)

 

 

Far too much power. And then you get inane stuff like: Fed Chair Janet Yellen has allowed the labor market to strengthen .. That means exactly nothing at all.

Fed Says Balance-Sheet Unwind to Start ‘Relatively Soon’ (BBG)

Federal Reserve officials said they would begin running off their $4.5 trillion balance sheet “relatively soon” and left their benchmark policy rate unchanged as they assess progress toward their inflation goal. The start of balance-sheet normalization – possibly as soon as September – is another policy milestone in an economic recovery now in its ninth year. The Fed bought trillions of dollars of securities to lower long-term borrowing costs after cutting the main interest rate to zero in December 2008. “Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington. “Household spending and business fixed investment have continued to expand.”

Fed watchers had anticipated that the inclusion of the term “relatively soon” would signal the central bank could announce the timing of the balance-sheet reduction program at its next meeting, scheduled for Sept. 19-20. U.S. stocks rose slightly and 10-year Treasury yields fell following the Fed’s statement. “I expect an announcement of the onset of the balance-sheet reduction at the conclusion of the September meeting, effective on the first of October,” Carl Tannenbaum, chief economist at Northern Trust Corp. in Chicago, said after Wednesday’s statement. U.S. central bankers have raised the benchmark policy rate four times since they began removing emergency policy in December 2015, and project another increase before the end of this year.

In June, the FOMC outlined gradually rising runoff caps for maturing Treasuries and mortgage-related securities, and said the program would start “this year.” Fed Chair Janet Yellen has allowed the labor market to strengthen while inflation has remained lower than the 2% goal of officials, with price pressures declining in recent months. The target range for the benchmark federal funds rate was held at 1% to 1.25%. The FOMC said it’s “monitoring inflation developments closely.”

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Also far too much power. It’s crazy to see the man’s babytalk endanger entire societies.

Time Flies for Draghi and the Bumblebees (BBG)

Five years ago today, Mario Draghi was talking about bumblebees. The European Central Bank president’s speech in London on July 26, 2012, became instantly famous because of his pledge to do “whatever it takes” to save the euro. But for all the power and clarity of that phrase, he started his remarks more obliquely. “The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now — and I think people ask “how come?”– probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis.”

At the time, the currency bloc was being buffeted by soaring bond yields in peripheral nations as speculators bet the union’s fundamental flaws would rip it apart. Draghi’s answer was to state unequivocally that the immediate crisis fell under the ECB’s responsibility and he would deal with it. “The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” That pledge was followed by a program to buy the debt of stressed countries in return for structural reforms, and in that respect the words alone proved to be enough. Yield spreads collapsed even though the program has never been tapped.

The bumblebee metaphor tends to be forgotten, but Draghi’s point was this: even with many national governments and more than a dozen different languages dividing the labor force, the single currency can fly. He went further though, saying that it would fly better if European governments overhaul their economies and work more closely together. On that point, the ECB has less reason to be satisfied with the past five years. The institution has since become the regional banking supervisor but European-level integration has otherwise largely stalled, and Draghi has repeatedly lamented the sluggish pace of national economic reforms.

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“The last great central banker that we had in the last 110 years other than Volcker was J.P. Morgan. The difference is, when Morgan tried to contain the 1907 crisis, he wasn’t using zeros and ones of imaginary computer money; he was using his own capital.”

The Greater Moderation (DDMB)

In late June, the recently retired Robert Rodriguez, a 33-year veteran of the markets, sat down for a lengthy interview with Advisor Perspectives (linked here). Among his many accolades, Rodriguez carries the unique distinction of being crowned Morningstar Manager of the Year for his outstanding management of both equity and bond funds. He likens the current era to that of the nine years ended 1951, a period during which the Fed and Treasury held interest rates at artificially low levels to finance World War II. His main concern today is that price discovery has been so distorted by the Fed that the stage is set for a ‘perfect storm.’ His personal allocation to equities is at the lowest level since 1971. The combination of meteorological forces to bring on said storm, you ask? It may well be an act of God, an earthquake. It could just as easily be a geopolitical tremor the system cannot absorb; it’s easy enough to name a handful of potential aggressors.

Or history may simply rhyme with the unrelenting shock waves that catalyzed the subprime mortgage crisis, coupled per chance with a plain vanilla recession. We may simply and slowly wake to the realization that the assumptions we’ve used to delude ourselves into buying the most expensive credit markets in the history of mankind are built on so much quicksand. The point is panics do not randomly come to pass; they must be shocked into existence as was the case in advance of 1907 and 2007. One of Rodriguez’s observations struck a raw nerve for yours truly, who prides herself on being a reformed central banker: “The last great central banker that we had in the last 110 years other than Volcker was J.P. Morgan. The difference is, when Morgan tried to contain the 1907 crisis, he wasn’t using zeros and ones of imaginary computer money; he was using his own capital.”

It is only fair and true to honor history and add that Morgan’s efforts rescued depositors. Income inequality in the years that followed 1907 declined before resuming its ascent to its prior peak, reached at the climax of the Roaring Twenties. The Fed’s intrusions since 2007, built on the false premise of a fanciful wealth effect concocted using models that have no place in the real world, have accomplished the opposite. Income inequality has not only grown in the aftermath of The Great Financial Crisis and throughout The Greater Moderation; it has long since smashed through its former 1927 record and kept rising. The Fed’s actions have not saved the little guy; they’ve skewered him.

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Oh so busy with no price discovery.

Thursday Is the ‘Day From Hell’ for Europe’s Stock Watchers (BBG)

If you think your Thursday looks bad, spare a thought for James Edwardes Jones. The RBC analyst is bracing for what he calls the busiest earnings day he’s experienced in about 20 years covering the consumer-goods industry. Edwardes Jones plans to arrive at RBC Europe’s London offices along the River Thames about the time the world’s largest brewer, Anheuser-Busch InBev, reports results at 6 a.m. local time. Fifteen minutes later he has Nestle, followed by Danone at 6:30. Then come Diageo and British American Tobacco, along with a trading update from Britvic, all before the morning team meeting at 7:15 a.m. Next up are calls with executives of some of those companies at 8 a.m., 9:30 a.m., 1 p.m. and 2 p.m. Edwardes Jones has client notes to write before his final set of results from L’Oreal SA at 5 p.m. – 11 hours after the first batch.

Other retail or consumer-goods companies reporting Thursday include French grocer Casino, U.K. bookmaker Ladbrokes Coral and Paris-based luxury conglomerate Kering. “There has never been a day like that,” Edwardes Jones said. His recipe for getting through the day: “Maybe a quadruple espresso.” Across London’s financial district, analysts are readying themselves for what Martin Deboo at Jefferies called a “day from hell”: a bumper earnings session in which European companies worth more than $3 trillion are set to report results, according to data compiled by Bloomberg.

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Everyone still thinks they’ll be able to get out in time.

Market Hype Triggers ‘New Major Warning’ Sign For Stocks (CNBC)

With a fresh round of record-breaking highs in the stock market has come a surge in investor optimism, and that eventually could create problems. Bullishness in the most recent Investors Intelligence survey hit 60.2%, the highest level since late February. The survey comes from editors of market newsletters and thus provides a snapshot of what professional investors are thinking. Elevated levels of optimism often coincide with market dips. The last time the II survey hit this level, the S&P 500 proceeded to fall nearly 3%. John Gray, editor at II, cautions that the big spread between bulls and bears, who are at just 16.5%, is an indicator of potential danger ahead. “The latest sentiment is not encouraging for the rest of the year as markets rarely fulfill expectations,” Gray wrote.

“This is a new major warning calling for defensive measures to protect profits, renewing the same signal from earlier this year.” While there’s been plenty of talk in the market about elevated levels that could trigger a correction — or a 10% drop — II respondents don’t see it happening. Expectations for a correction dipped to 23.3% of respondents. By comparison, the correction reading was at a comparatively lofty 34% prior to the November presidential election — just before the market surged on hopes that President Donald Trump would usher in a new pro-business era in Washington. Since hitting the most recent bottom earlier in July, the market has been on what is just the latest leg higher. Defying expectations that stocks could see limited gains this year, the S&P 500 has climbed 10.6% on strength in tech, materials, health care and discretionary stocks.

Among the sampling of newsletter sentiment that II cited was a warning from Bert Dohmen’s Wellington Letter, which said the Fed could thwart the rally. “As long as Fed officials talk about hiking rates, it will enhance concerns about the Fed producing a recession,” Dohmen wrote. “We interpret each rate hike as another nail in the coffin for an economic recovery.” Ten of the last 13 Fed rate-hiking cycles ended with recession. Dohmen said that could be the case again, though he did not advocate that investors panic. “We are seeing warning signs, but not enough to run for the hills just yet. We have said for a number of months that the final phase in the bull market should be a noticeable spurt to the upside, forcing all skeptics into the market,” he wrote. “We haven’t seen that yet.”

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The opposite of skin in the game.

Financialization and Risk Asymmetry (CHS)

One of the most pernicious consequences of financialization is the shifting of risk from the top of the wealth-power pyramid to the bottom: those who benefit the most from financialization’s leveraged, speculative credit bubbles protect themselves from losses while those at the bottom of the pyramid (the bottom 99.5%) face the full fury of financialization’s formidable risk. Longtime correspondent Chad D. and I recently exchanged emails exploring how the higher debt loads and higher interest payments of financialization inhibits people at the bottom of the wealth-power pyramid (i.e. debt-serfs) from taking risks such as starting a small business. But this is only one serving of financialization’s toxic banquet of risk-related consequences.

Chad summarized how those at the apex of the wealth-power pyramid protect themselves from risk and losses. At the top levels of the pyramid, members in those groups collect way more interest than they pay out and at the very top, they get a ton of interest and pay little to none. The people at the top can take all sorts of risk, because of this dynamic and further, they also usually have a heavy influence on the financial/political machinery, so they get bailed out by taxpayers when their investments go bad. In addition, because their influence extends to the criminal justice system, they are able to commit fraud and at the same time neutralize regulators and prosecutors, thereby escaping any ramifications from their excessive risk taking and in many cases massive fraud.

As Chad observed, the wealthy own the income streams from debt (bonds, etc.), while everyone else owes the interest and principal due on debt. As this chart shows, the wealthy own business equity and financial securities and have a modest slice of debt. The bottom 90% owe most of the debt, and their primary asset is the family home– an asset that doesn’t generate income while it generates interest income for those who own the mortgage. In other words, it’s less an investment than a form of consumption– especially when the current housing bubble deflates.

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Moody’s is smoking the good stuff. What utter nonsense.

China’s Banks Now Stable, ‘Shadow’ Banking Less Threatening – Moody’s (CNBC)

Moody’s Investors Service no longer takes a negative view on China’s banking system, raising its outlook to stable on Thursday as concerns over so-called shadow banking eased. “The government’s adoption of more coordinated policy measures to curb shadow banking will help mitigate asset risks for banks, and address some key imbalances in the financial system,” Yulia Wan, a Moody’s banking analyst, said in a statement on Thursday. Shadow banking is a broad category of banking-like services from non-traditional players; it can include loans from non-financial companies as well as investment products. It is outside the bounds of normal banking regulation, so it largely goes unregulated.

Earlier this month, Moody’s had noted that actions on shadow-banking had included the central bank changing its monetary policy setting in the last quarter of 2016 to “moderate neutral” from “moderate,” which raised market funding costs and refinancing risks for banks, reducing the return from supporting long-term investments with short-term market funds. In March and April, the China Banking Regulatory Commission also requested banks test whether their interbank liabilities would exceed the regulatory ceiling at one-third of total liabilities. Moodys’ noted in the Thursday report that there were signs of declines in outstanding wealth management products issued by the mainland’s banks and fewer investments in loans and receivables among the 26 listed banks.

But it added that profit growth would be limited by continued pressure on net interest margins and slower fee-income growth on higher funding costs and stricter shadow-banking regulations. [..] “Overall delinquency rates will stabilize as corporate profit continues to recover, helped by stable and solid economic growth, steady commodity prices and a slower increase in corporate leverage,” the Moody’s statement said.

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In the present evironment, there’s no need to consider underlying value. Everything’s just a big leveraged bet on the Fed.

Investor Howard Marks Says Bitcoin Is A ‘Pyramid Scheme’ (CNBC)

Howard Marks, one of the most respected value investors out there, starkly warned his clients to avoid high-flying digital currencies. “In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it,” Marks wrote in the investor letter Wednesday. Ethereum cryptocurrency is up more than 2,300% year to date through Wednesday, while bitcoin is up nearly 160% this year, according to data from industry website CoinDesk.

The co-chairman of Oaktree Capital is famous for his prescient investment memos, which predicted the financial crisis and the dotcom bubble implosion. The manager then went on to compare cryptocurrencies to the Tulip mania of 1637, the South Sea bubble of 1720 and the internet bubble of 1999. “Serious investing consists of buying things because the price is attractive relative to intrinsic value,” he wrote. “Speculation, on the other hand, occurs when people buy something without any consideration of its underlying value or the appropriateness of its price.”

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“There are suspicions the US government is introducing the new sanctions against Russia to boost exports of American natural gas to the European market.”

German Business Lobby Urges EU Action Against New US Sanctions On Russia (RT)

A US move to expand sanctions against Russia may have an adverse impact on Europe’s energy security, hurt the German economy, and appears to favor American firms, says Volker Treier, chief economist at the German Chambers of Commerce and Industry (DIHK). Treier has urged European authorities to address the new round of anti-Russian sanctions approved by the US House of Representatives on Tuesday. “The European Commission now must make efforts to shed light on the current situation, as well as resist the exterritorial effect of new US penalties. We get the impression the US pursues their own economic interests”, he told in an interview with TASS.

“If German firms are banned from participating in gas pipeline enterprises, very important projects in the energy supply security sector can be halted. In that case, the German economy will be discernibly influenced,” Treier said. The future of the Nord Stream-2 natural gas pipeline project from Russia to Germany is of particular concern to Europeans. Roughly a third of the European Union’s natural gas supply still comes from Russia. The proposed expansion would double the existing pipeline’s capacity and make Germany EU’s main energy hub. There are suspicions the US government is introducing the new sanctions against Russia to boost exports of American natural gas to the European market.

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What is happening to Italy’s sovereignty? And what do Italians think about that?

Macron Unleashes a Decade of Italian Anger (BBG)

The 2006 World Cup final should have been a triumph for Italians, but all people remember now is the iconic French soccer captain Zinedine Zidane headbutting an opponent in the last minutes. The controversy overshadowed much of the glory for the winning team that night and the subsequent carping of French fans convinced many Italians that their bigger, richer neighbor will never give them the respect they deserve, whether the field is sports, business or politics. That resentment burst into the open on Wednesday when Finance Minister Bruno Le Maire said France is ready to nationalize the STX shipyard in Saint-Nazaire if its would-be Italian buyer Fincantieri SpA doesn’t accept his government’s conditions. Fincantieri stock plunged as much as 13% and Italian ministers erupted.

Italian Finance Minister Pier Carlo Padoan said there’s “no reason” why Fincantieri should accept only a minority stake and his colleague Carlo Calenda, in charge of economic development, told Ansa newswire that Italy is ready to walk away from the deal after Le Maire changed terms already agreed with the previous administration, citing the need to protect a key national asset from foreign influence. The Italians have struggled to accept that rationale, given STX’s previous owner was Korean. President Emmanuel Macron’s June election victory may have reinvigorated the Franco-German relationship at the heart of the European Union. But ties with Italy, the continent’s No. 3 economy, are going from bad to worse, suggesting that competition for jobs, security, and indeed glory, could quickly dampen hopes for tighter EU cooperation.

“This situation is not good for business and not good for European integration,” Alessandro Ungaro, a security and defense analyst at Rome’s Institute for International Affairs, said in a phone interview. “We were hoping for a more market-friendly and pro-European stance, but they’re rejecting a European ally and reasonable industrial project in favor of a possible nationalization.” Italian officials were already smarting when they woke up on Wednesday. The previous day Macron had snubbed their Prime Minister Paolo Gentiloni by leaving him out of peace talks in Paris with Libyan Prime Minister Fayez al-Serraj and Khalifa Haftar, leader of the country’s powerful eastern-based military force. Italy sees Libya, its former colony, as its sphere of influence. Privately many Italian officials blame French meddling for contributing to the collapse of the North African country’s institutions.

[..] On Wednesday, Italy’s front pages were filled with anger at the French. “Macron’s blitz overshadows Italy,” said La Stampa, later adding on its website, “Italy and France head for naval battle.” Il Messaggero went with “Libya deal without Italy.” In response, Gentiloni invited the Libyan leader al-Serraj to Rome and held his own press conference on television to reassert his influence. “This is getting a bit childish,” said Sofia Ventura, a professor of politics at the University of Bologna, whose father is Italian and mother is French. “The problem is individual countries are looking after their interests and not really keeping with the European spirit. Among the bigger nations, Italy is weaker, it can’t fully compete.”

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IBM doesn’t look good either, I would say. Government ministers may not have the know-how, but IBM personnel does.

Sweden Leaks Details Of Almost All Of Its Citizens (Ind.)

Sweden appears to have accidentally leaked the details of almost all of its citizens. And now it’s getting worse. The brewing scandal – based around a leak that actually happened in 2015 but only emerged last week – could see prominent members of Sweden’s government removed from their post. The leak allowed unvetted IT workers in other countries to see the details of people registered in Swedish government and police databases. It happened after the government looked to outsource data held by the Transport Agency, but did so in a way that allowed that information to be available to almost anyone, critics have claimed. The opposition is seeking to boot out the ministers of infrastructure, defence and the interior – Anna Johansson, Peter Hultqvist and Anders Ygeman, respectively – for their role in outsourcing IT-services for the Swedish Transport Agency in 2015.

The minority government has said that contract process – won by IBM Sweden – was speeded up, bypassing some laws and internal procedures in a manner that may have led to people abroad, handling servers with sensitive materials. Prime Minister Stefan Lofven said on Monday his country and its citizens were exposed to risks by potential leaks as a result of the contract. The centre right opposition Alliance, comprising the Moderate, Centre, Liberal and Christian Democrat parties, has taken aim at the three ministers. “It is obvious (they) have neglected their responsibility. They have not taken action to protect Sweden’s safety”, Centre party leader Annie Loof told a news conference.

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“America has failed itself and the world.”

Armageddon Is Two and One-half Minutes Away (PCR)

Are you ready to die? You and I are going to die and not from old age, because our fellow Americans are so stupid, ignorant, and brainwashed that they believe the lies that are leading us to our certain destruction. This is what the Atomic Scientists tell us. And they are right. Can you comprehend the absurdity? President Trump is under full-scale attack from the military/security complex, the US presstitute media, the Democratic Party, and from many Republicans, such as Republican Senator from South Carolina Lindsey Graham and Republican Senator from Arizona John McCain simply because President Trump wants to reduce the dangerous tensions between the two major nuclear powers. What explains the total lack of concern for their own lives on the part of the populations in South Carolina and Arizona who send to the Senate and keep sending to the Senate two morons determined to provoke war between the US and Russia?

It should send shivers up your spine that you can ask this same question about all 50 states, and almost all congressional districts. You can ask the same question about the bordello known as “the American media.” There will be no one alive to post or to read the headlines of the war that they are helping to promote. The United States and the rest of the world with it along with all life on earth are being sent to their graves by the total failure of American leadership. What is wrong with Americans that they cannot understand that any “leader” who provokes war with a major nuclear power should be instantly institutionalized as criminally insane? Why do Americans sit night after night in front of the TV absorbing lies that commit them beyond all doubt to their deaths? America has failed itself and the world.

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We are stardust from far away.

Half Our Bodies’ Atoms ‘Formed Beyond The Milky Way’ (G.)

Nearly half of the atoms that make up our bodies may have formed beyond the Milky Way and travelled to the solar system on intergalactic winds driven by giant exploding stars, astronomers claim. The dramatic conclusion emerges from computer simulations that reveal how galaxies grow over aeons by absorbing huge amounts of material that is blasted out of neighbouring galaxies when stars explode at the end of their lives. Powerful supernova explosions can fling trillions of tonnes of atoms into space with such ferocity that they escape their home galaxy’s gravitational pull and fall towards larger neighbours in enormous clouds that travel at hundreds of kilometres per second.

Astronomers have long known that elements forged in stars can travel from one galaxy to another, but the latest research is the first to reveal that up to half of the material in the Milky Way and similar-sized galaxies can arrive from smaller galactic neighbours. Much of the hydrogen and helium that falls into galaxies forms new stars, while heavier elements, themselves created in stars and dispersed in the violent detonations, become the raw material for building comets and asteroids, planets and life. “Science is very useful for finding our place in the universe,” said Daniel Anglés-Alcázar, an astronomer at Northwestern University in Evanston, Illinois. “In some sense we are extragalactic visitors or immigrants in what we think of as our galaxy.”

The researchers ran supercomputer simulations to watch what happened as galaxies evolved over billions of years. They noticed that as stars exploded in smaller galaxies, the blasts ejected clouds of elements that fell into neighbouring, larger galaxies. The Milky Way absorbs about one sun’s-worth of extragalactic material every year. “The surprising thing is that galactic winds contribute significantly more material than we thought,” said Anglés-Alcázar. “In terms of research in galaxy evolution, we’re very excited about these results. It’s a new mode of galaxy growth we’ve not considered before.” The simulations showed that elements carried on intergalactic winds could travel a million light years before settling in a new galaxy, according to a report in the Monthly Notices of the Royal Astronomical Society.

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Jul 052017
 
 July 5, 2017  Posted by at 11:14 am Finance Tagged with: , , , , , , ,  4 Responses »
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Fred Lyon Golden Gate Bridge painter 1947

We Have Fixed Issues That Caused Financial Crisis, Says Mark Carney (G.)
David Cameron Says People Who Oppose Austerity Are ‘Selfish’ (Ind.)
Judge To Review Ban On Prosecuting Tony Blair For Iraq War (G.)
The Grenfell Inquiry Will Be A Stitch-Up. Here’s Why (Monbiot)
Foreigners Account for Just 4.7% of Home Sales in Toronto Region (BBG)
China’s $162 Billion of Dealmaker Debt Raises Alarm
China’s Shadow Banking Lacks Sufficient Regulation: Central Bank (R.)
Arab States To Deliver Verdict On Qatar As Compromise Elusive (R.)
Why Do We Think Poor People Are Poor Because Of Their Own Bad Choices? (G.)
Austrian Troops To Control Migrants On Italy Border (R.)

 

 

Oh come on, get real. Heard that a million times before. This is insulting. Are people really stupid enough to believe Carney? Is he? Hell yeah. Well, here’s what Carney’s predecessor at the BOE, Mervyn King, said in 2007.

We Have Fixed Issues That Caused Financial Crisis, Says Mark Carney (G.)

Fundamental reforms undertaken since the US sub-prime mortgage market triggered the deepest global recession since the second world war have created a safer, simpler and fairer financial system, Mark Carney has said. With the 10th anniversary of the financial crisis next month, Carney said the world’s biggest banks were stronger, misconduct was being tackled, and the toxic forms of shadow banking were no longer a threat. Carney, as well as being governor of the Bank of England, is chairman of the Financial Stability Board, a body created by the G20 group of developed and developing nations in 2009 to recommend ways of remedying the flaws in the system highlighted by the crash.

In a letter to G20 leaders before their meeting in Hamburg later this week, Carney said: “A decade after the start of the global financial crisis, G20 reforms are building a safer, simpler and fairer financial system. The largest banks are considerably stronger, more liquid and more focused.” The FSB chairman said there were still issues to be addressed, such as the risks posed by developments in financial technology (fintech) and the increased vulnerability of digital systems to cyber-attack. But at a press conference in London on Monday, Carney said: “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.” The financial crisis of 2007 began in the US mortgage market but rapidly went global as it emerged that banks and unregulated shadow banks were massively exposed in the market for derivatives and did not have enough capital when losses started to mount.

Public anger towards the financial system grew when the biggest banks were bailed out by taxpayers because they were deemed “too big to fail”. Carney said in his letter: “The largest banks are required to have as much as 10 times more of the highest quality capital than before the crisis and are subject to greater market discipline as a consequence of globally agreed standards to resolve too-big-to-fail entities. “A decade ago, many large banks were woefully undercapitalised, with complex business models that relied on the goodwill of markets and, ultimately, taxpayers. A decade on, the largest banks have raised more than $1.5tn of capital, and all major internationally active banks meet minimum risk-based capital and leverage ratio requirements well in advance of the deadline.”

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Austerity is not about money, that has nothing to do with it. It’s about power, pure and simple.

David Cameron Says People Who Oppose Austerity Are ‘Selfish’ (Ind.)

David Cameron has intervened in the Cabinet row over easing up on austerity by attacking “selfish” politicians demanding higher spending. The former Prime Minister sided with Chancellor Philip Hammond by arguing it would be wrong to bow to growing public pressure and “let spending and borrowing rip”. A string of senior Tories, including Boris Johnson and Michael Gove, have called for the lifting of the one per cent pay cap on awards to millions of public sector workers. But Mr Cameron, speaking to a business conference in South Korea, said: “The opponents of so-called austerity couch their arguments in a way that make them sound generous and compassionate. “They seek to paint the supporters of sound finances as selfish or uncaring. The exact reverse is true. “Giving up on sound finances isn’t being generous, it’s being selfish: spending money today that you may need tomorrow.”

In addition to the row over the pay cap, Education Secretary Justine Greening is pushing for a £1bn cash injection to end school funding cuts. New demands for higher spending added to the pressures on Mr Hammond today, as councils warned they faced a £5.8bn funding gap by the end of the decade. Meanwhile, the Chancellor used a speech to business leaders last night to urge his colleagues to join a “grown-up debate” about how to pay for higher spending. Mr Hammond acknowledged the public was “weary” of austerity, but insisted “we must hold our nerve” and not simply borrow more. Paul Johnson, director of the respected Institute for Fiscal Studies, said “political discipline seems to have fallen apart” in the Cabinet. Alistair Darling, the former Labour Chancellor, said the sight of Cabinet ministers publicly criticising the Chancellor over public sector pay made the Government appear “shambolic”.

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Don’t get your hopes up.

Judge To Review Ban On Prosecuting Tony Blair For Iraq War (G.)

The most senior judge in England and Wales will hear a case attempting to overturn a ban on prosecuting Tony Blair over the Iraq war, the Guardian has learned. A private criminal prosecution against the former Labour prime minister was blocked in 2016 by Westminster magistrates court when it was ruled Blair would have immunity from any criminal charges. But that ruling by the district judge, Michael Snow, will be reviewed on Wednesday before the lord chief justice, Lord Thomas of Cwmgiedd, and Mr Justice Ouseley. The current attorney general, Jeremy Wright QC, wants the block on proceedings upheld. He will have a barrister in court to try to stop the attempted private prosecution. The hearing follows a decision by the high court in May, which has not previously been reported.

Then a high court judge said those wanting to prosecute Blair could have a hearing to seek permission for a court order allowing their case to go to the next stage. The judge in that case also said the attorney general could formally join in the case. Blair caused controversy when prime minister in deciding to take Britain into the invasion of Iraq in 2003, which was led by the US and sparked huge opposition. The private prosecution seeks a war crimes trial in a British court of Blair, the foreign secretary in 2003, Jack Straw, and Lord Goldsmith, the attorney general at the time the government was deciding to join the invasion of Iraq. The case seeks their prosecution for the crime of aggression. The attorney general in written submissions for Wednesday’s hearing says such an offence does not exist in English law, a claim which is disputed.

The private prosecution attempt is based on the findings of last year’s Chilcot report into the decision by Blair to join the invasion of Iraq, which is criticised, under the false pretext that Saddam Hussein’s regime had weapons of mass destruction. After the Chilcot report was released some families of British service personnel who lost their lives in Iraq said they wanted Blair prosecuted in the courts. This attempt at a private prosecution is brought by Gen Abdul-Wahid Shannan ar-Ribat, former chief of staff of the Iraqi army who is now living in exile. His lawyers are Michael Mansfield QC and Imran Khan, who acted for the family of Stephen Lawrence. In November 2016, a British court ruled against an application to bring a private prosecution. A district judge at Westminster magistrates court ruled Blair had immunity from prosecution over the Iraq war and that any case could also “involve details being disclosed under the Official Secrets Act”.

At the hearing at the Royal Courts of Justice in central London, lawyers for the attorney general will argue that the crime of aggression, while existing in international law, has never been included into English law by parliament. But the government’s stance appears to be undermined by Goldsmith. In his 2003 memo on the legality of the Iraq war, Goldsmith appeared to concede the key point of those now seeking his prosecution. “Aggression is a crime under customary international law which automatically forms part of domestic law,” he wrote.

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Britain is one scary place. I’m reminded of Travis Bickle: “Someday a real rain will come and wipe this scum off the streets.”

The Grenfell Inquiry Will Be A Stitch-Up. Here’s Why (Monbiot)

We don’t allow defendants in court cases to select the charges on which they will be tried. So why should the government set the terms of a public inquiry into its own failings? We don’t allow criminal suspects to vet the trial judge. Why should the government approve the inquiry’s chair? Even before the public inquiry into the Grenfell Tower disaster has begun, it looks like a stitch-up, its initial terms of reference set so narrowly that government policy remains outside the frame. An inquiry that honours the dead would investigate the wider causes of this crime. It would examine a governing ideology that sees torching public protections as a sacred duty. Let me give you an example. On the morning of 14 June, as the tower blazed, an organisation called the Red Tape Initiative convened for its prearranged discussion about building regulations.

One of the organisation’s tasks was to consider whether rules determining the fire resistance of cladding materials should be removed for the sake of construction industry profits. Please bear with me while I explain what this initiative is and who runs it, as it’s a perfect cameo of British politics. It’s a government-backed body, established “to grasp the opportunities” that Brexit offers to cut “red tape” – a disparaging term for public protections. It’s chaired by the Conservative MP Sir Oliver Letwin, who has claimed that “the call to minimise risk is a call for a cowardly society”. It is a forum in which exceedingly wealthy people help decide which protections should be stripped away from lesser beings.

Among the members of its advisory panel are Charles Moore, who was editor of the Daily Telegraph and the chair of an organisation called Policy Exchange. He was also best man at Letwin’s wedding. Sitting beside him is Archie Norman, the former chief executive of Asda and the founder of Policy Exchange. He was once Conservative MP for Tunbridge Wells – and was succeeded in that seat by Greg Clark, the minister who now provides government support for the Red Tape Initiative. Until he became environment secretary, Michael Gove was also a member of the Red Tape Initiative panel. Oh, and he was appointed by Norman as the first chairman of Policy Exchange. (He was replaced by Moore.) Policy Exchange also supplied two of Letwin’s staff in the Conservative policy unit that he used to run.

Policy Exchange is a neoliberal lobby group funded by dark money, that seeks to tear down regulations. The Red Tape Initiative’s management board consists of Letwin, Baroness Rock and Lord Marland. Baroness Rock is a childhood friend of the former Tory chancellor George Osborne, and is married to the wealthy financier Caspar Rock. Marland is a multimillionaire businessman who owns a house and four flats in London, “various properties in Salisbury”, three apartments in France and two apartments in Switzerland. In other words, the Red Tape Initiative is a representative cross-section of the British public. In no sense is it a self-serving clique of old chums, insulated from hazard by their extreme wealth, whose role is to decide whether other people (colloquially known as “cowards”) should be exposed to risk.

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“Ontario’s strong housing market is a reflection of our growing economy,” Charles Sousa, the province’s minister of finance, said..

Foreigners Account for Just 4.7% of Home Sales in Toronto Region (BBG)

The Ontario government said overseas buyers accounted for just 4.7% of home purchases in the Toronto area over a recent one-month period. The new data is in line with other surveys, signaling that foreigners haven’t been major drivers of real estate prices in one of Canada’s most expensive markets. Non-residents bought about 860 properties between April 24 to May 26 in the so-called greater golden horseshoe region of Ontario which includes Toronto, Hamilton and Peterborough, the province said in a statement Tuesday. The finance and housing ministries began compiling the figures as part of a new housing plan announced in April meant to make homes more affordable and accessible for Canadian residents. One of the measures included a 15% levy as of April 21 on foreign investors buying residential property in Toronto and nearby cities.

“Ontario’s strong housing market is a reflection of our growing economy,” Charles Sousa, the province’s minister of finance, said in a statement. “While this is great news for the province, the resulting increase in speculative purchases and a spike in home prices created affordability challenges for many and posed a risk to the market.” Toronto is the latest Canadian city to target non-resident buyers, who are often accused of driving up the price of homes by using them as an investments. Prices and sales in the city had been on a tear until early this year, prompting some to point to non-resident factors as a source of the heat. Vancouver last year imposed a 15% foreign buyer tax that preceded a slowdown of sales and price growth, though it was short-lived as the market picks up speed again. Both cities followed the lead by Australia, which forces offshore buyers to purchase through a separate buying program.

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Buying the world with monopoly money.

China’s $162 Billion of Dealmaker Debt Raises Alarm

China struck deal after deal to acquire companies abroad over the last few years. Now the bill is coming due. The nation’s top corporate dealmakers, including HNA and Fosun International, must pay off the equivalent of at least $11.5 billion in bonds and loans by the end of 2018 – a feat now complicated by government efforts to rein in their aggressive rush overseas. That figure represents just a fraction of the total debt of 1.1 trillion yuan ($162 billion) that the Chinese companies have reported as they projected their money and influence around the world with a record number of acquisitions. The size of their obligations – and whether they will be able to shoulder them – has begun to worry global banks and investors now that Beijing has pressed companies to dial back their ambitions abroad.

“Those companies the banking regulator is checking on have very high financing demand for M&A activities,” said Xia Le, chief Asia economist at BBVA in Hong Kong. “But banks will heighten their risk control when lending to them going forward, which could increase their funding costs and hurt the pace of their expansion.” The moves threaten to end an era of easy access to money for the firms. People familiar with the matter said last month that China Banking Regulatory Commission asked some banks to provide information on overseas loans to HNA, Fosun, Anbang Insurance and Dalian Wanda. Yields on some bonds issued by the firms jumped. The CBRC is examining examples of acquisitions gone awry to assess potential risks to the financial sector, people familiar also said. To be sure, the companies, which are among the biggest private-sector firms in China, are sitting on a cash pile that they can tap to meet upcoming debt deadlines. They have more than 400 billion yuan of cash and cash equivalents…

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Too late now, boys.

China’s Shadow Banking Lacks Sufficient Regulation: Central Bank (R.)

China’s central bank said on Tuesday the shadow banking sector lacks sufficient regulation and the bank would give more prominence to financial risk controls. Compared with traditional bank lending, the opaque nature of shadow banking products make it easier for them to bypass regulatory requirements and provide credit to restricted areas, the People’s Bank of China said in its annual China Financial Stability Report released online. The central bank will increase supervision over the rapidly growing asset management industry to curb shadow banking risks, it said. Since the first quarter, the PBOC has included banks’ off-the-balance-sheet wealth management products in its examination of broad credit in its Macro Prudential Assessment (MPA) risk-tool.

The world’s second-largest economy faces major challenges, including excess industrial capacity, sluggish growth, high corporate leverage, mounting local government debt, property bubbles in some regions, and the deterioration of banking assets, the PBOC said in its report. As the economy still faces relatively big downward pressures, the bank pledged to create a favourable monetary and financial environment for the development of the real economy this year. The central bank also said it would strengthen coordination with other financial regulators to fend off systemic financial risks.

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Still can’t help wondering about the timing of this. Why now? What changed?

Arab States To Deliver Verdict On Qatar As Compromise Elusive (R.)

Arab states that have imposed sanctions on Qatar, accusing it of links to terrorism, were due to meet in Cairo on Wednesday to consider Doha’s response to a stiff ultimatum, but settlement of the dispute seemed far off. The editor of the Abu Dhabi government linked al-Ittihad newspaper wrote in an editorial that Qatar was “walking alone in its dreams and illusions, far away from its Gulf Arab brothers”. Foreign ministers of Saudi Arabia, the United Arab Emirates, Egypt and Bahrain will consider whether to escalate, or less likely abandon, the boycott imposed on Qatar last month that has rattled a key oil-producing region and unnerved strategic Western allies. Qatar faces further isolation and possible expulsion from the Gulf Cooperation Council (GCC) if its response to a list of demands made nearly two weeks ago is not deemed satisfactory.

The Arab countries have demanded Qatar curtail its support for the Muslim Brotherhood, shut down the pan-Arab al Jazeera TV channel, close down a Turkish base and downgrade its ties with regional arch-rival Iran. They view Qatar’s independent diplomatic stances and support for 2011 “Arab Spring” uprisings as support for terrorism and a dangerous breaking of ranks – charges Doha vigorously denies. Qatar has countered that the Arab countries want to curb free speech and take over its foreign policy, saying their 13 demands are so harsh they were made to be rejected. The gas-rich state had raised its international profile dramatically in recent years, drawing on huge gas revenues, and developed its economy with ambitious infrastructure projects. It is due to host the soccer world cup in 2022.

Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said at a joint news conference with his German counterpart on Tuesday that its response was “given in goodwill and good initiative for a constructive solution”, but insisted that Doha would not compromise on its sovereignty. Gulf officials have said the demands are not negotiable, signaling more sanctions are possible, including “parting ways” with Doha – a suggestion it may be ejected from the GCC, a regional economic and security cooperation body founded in 1981. “A Gulf national may be obliged to prepare psychologically for his Gulf to be without Qatar,” the editor of the Abu Dhabi al-Ittihad newspaper said.

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The topic deserves better treatment than this.

Why Do We Think Poor People Are Poor Because Of Their Own Bad Choices? (G.)

Cecilia Mo thought she knew all about growing up poor when she began teaching at Thomas Jefferson senior high school in south Los Angeles. As a child, she remembered standing in line, holding a free lunch ticket. But it turned out that Mo could still be shocked by poverty and violence – especially after a 13-year-old student called her in obvious panic. He had just seen his cousin get shot in his front yard. For Mo, hard work and a good education took her to Harvard and Stanford. But when she saw just how much chaos and violence her LA students faced, she recognized how lucky she had been growing up with educated parents and a safe, if financially stretched, home. Now, as an assistant professor of public policy and education at Vanderbilt University, Mo studies how to get upper-class Americans to recognize the advantages they have.

She is among a group of scholars trying to understand how rich and poor alike justify inequality. What these academics are finding is that the American dream is being used to rationalize a national nightmare. It all starts with the psychology concept known as the “fundamental attribution error”. This is a natural tendency to see the behavior of others as being determined by their character – while excusing our own behavior based on circumstances. For example, if an unexpected medical emergency bankrupts you, you view yourself as a victim of bad fortune – while seeing other bankruptcy court clients as spendthrifts who carelessly had too many lattes. Or, if you’re unemployed, you recognize the hard effort you put into seeking work – but view others in the same situation as useless slackers. Their history and circumstances are invisible from your perspective.

Here’s what has gone wrong: hard work and a good education used to be a sure bet for upward mobility in the US – at least among some groups of people. Americans born in the 1940s had a 90% chance of doing better economically than their parents did – but those born in the 1980s have only 50/50 odds of doing so.

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Oh yes, the EU will fail yet.

A comment on Twitter: “The last time Austria had tanks on the Italian border it lost Trent and Trieste.”

Austrian Troops To Control Migrants On Italy Border (R.)

Austria is planning to impose border controls and possibly deploy troops to cut the number of migrants crossing from Italy, defense officials said, drawing a warning from Rome and reigniting a row over Europe’s handling of the refugee crisis. Tensions between European Union countries over how to share the burden of migrants flared in 2015 when hundreds of thousands, many fleeing wars in Africa and the Middle East, began arriving in EU territory, mainly via Greece, and headed for Germany, Austria and other nearby affluent states. Austria took in more than 1 percent of its population in asylum seekers at the time, which helped increase support for the far-right Freedom Party. Keen to avoid another influx, it said it would introduce controls at the busy Brenner Pass border crossing with Italy if one materialized there.

That has not yet happened but Italy recently asked other EU countries to help it cope with a surge in migrants reaching its southern Mediterranean shores from Africa, raising concern in Austria that many will soon show up at its border with Italy. That is a political hot potato in Austria, where a parliamentary election is scheduled in October with immigration shaping up as a central issue. Austrian Defence Minister Hans Peter Doskozil told the mass-circulation Kronen Zeitung in an interview published on Tuesday that he expected restrictions would be introduced along the Alpine boundary with Italy “very soon”. Other Austrian officials, including Interior Minister Wolfgang Sobotka, who oversees crossings like Brenner, said there was currently no reason to introduce controls and Austria remained vigilant, a stance Vienna has repeated for the past year.

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Jun 062017
 
 June 6, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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Pablo Picasso Les femmes d’Alger 1955

 

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

 

 

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

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

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

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

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

Read more …

Kiwis flipping birds.

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

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

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

Read more …

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

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

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

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

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

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

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

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

Read more …

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

How The Intercept Outed Reality Winner (ErrataS)

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

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

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

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

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

This produces the following result:

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

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

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

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

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

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

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China runs out of collateral.

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

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

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

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

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This thing has been developing over decades.

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

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

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

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

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

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

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

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So is Britain’s political model.

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

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

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

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

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More cuts are being prepared.

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

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

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

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

Earnings vs. Profits & The Bull Market (Roberts)

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

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

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

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

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

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

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

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

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Please let it stop.

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

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

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

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

The Euro’s Future Demands Trust (K.)

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

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

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

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

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

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

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

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

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Jun 012017
 
 June 1, 2017  Posted by at 9:45 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Ted Russell James Baldwin and Bob Dylan 1963

 

America Is Racing Toward Peak Polarization (NYMag)
US Middle Class Is Now The Company Store Class (Michael Hudson)
Theresa May’s Lead Slashed To Record Low Of Three Points In New Poll (Ind.)
Does Theresa May Pass The Turing Test? (PH)
Terror In Britain: What Did The Prime Minister Know? (John Pilger)
UK Policymakers Face A Dilemma Over Public’s Slowing Demand For Credit (G.)
UK Comes Bottom Of G7 Growth League, Canada Takes Lead (G.)
Europe May Finally Rethink NATO Costs (McGovern)
NATO Allies Can Spend More Money, More Wisely (BBG)
Oil Prices Crushed As Traders Bet Against OPEC, Russia (CNBC)
Fitch Warns Baidu Faces “Default Risk” Due To Growing Shadow Banking Business (ZH)

 

 

Very true of course, but what’s this worth coming from a polarized view?

America Is Racing Toward Peak Polarization (NYMag)

There is a venerable, centrist point of view that partisan polarization is a function of Washington’s warring politicians, who inflate artificial differences into causes for political war. Out there in the country, it is thought, Americans simply want politicians to come together and work out sensible, centrist policies. Whatever this gospel’s general applicability, it is increasingly clear that in the era of Donald Trump it’s The People who are even more polarized than their representatives in Washington. A new poll from Morning Consult for Politico has this jarring news: after the president’s first overseas trip, his job approval ratings rose. But so, too, did the percentage of Americans who want impeachment proceedings against him to begin post-haste.

Indeed, we are rapidly approaching the point where Americans are basically divided between those who think the president’s doing a good job (45% at present), and those who think he should be removed from office before his first term ends (43% at present). Unsurprisingly, these sentiments closely match partisan preferences. According to this same poll, 82% of self-identified Republicans approve of Trump’s job performance, 46% of them strongly. 79% of self-identified Democrats disapprove of Trump’s job performance, 65% of them strongly. These grassroots Americans are really, really at odds. That becomes even more obvious when the possibility of impeachment is introduced. Seventy-one% of Democrats want Congress to initiate impeachment proceedings.

Over half of these impeachment supporters say he’s unfit to serve, whether or not he has committed an impeachable offense. 76% of Republicans oppose the idea. For all the talk about anti-Trump Republicans and moderate Democrats, the truth is there is not a lot of support out there for anything other than the highly partisan approach Trump and the congressional GOP have taken this year, and for what some Democrats have called “the resistance.”

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Empty bags can get heavy.

US Middle Class Is Now The Company Store Class (Michael Hudson)

Students usually don’t think of themselves as a class. They seem “pre-class,” because they have not yet entered the labor force. They can only hope to become part of the middle class after they graduate. And that means becoming a wage earner – what impolitely is called the working class. But as soon as they take out a student debt, they become part of the economy. They are in this sense a debtor class. But to be a debtor, one needs a means to pay – and the student’s means to pay is out of the wages and salaries they may earn after they graduate. And after all, the reason most students get an education is so that they can qualify for a middle-class job. The middle class in America consists of the widening sector of the working class that qualifies for bank loans – not merely usurious short-term payday loans, but a lifetime of debt.

So the middle class today is a debtor class. Shedding crocodile tears for the slow growth of U.S. employment in the post-2008 doldrums (the “permanent Obama economy” in which only the banks were bailed out, not the economy), the financial class views the role industry and the economy at large as being to pay its employees enough so that they can take on an exponentially rising volume of debt. Interest and fees (late fees and penalties now yield credit card companies more than they receive in interest charges) are soaring, leaving the economy of goods and services languishing. Although money and banking textbooks say that all interest (and fees) are a compensation for risk, any banker who actually takes a risk is quickly fired. Banks don’t take risks. That’s what the governments are for. (Socializing the risk, privatizing the profits.)

Anticipating that the U.S. economy may be unable to recover under the weight of the junk mortgages and other bad debts that the Obama administration left on the books in 2008, banks insisted that the government guarantee all student debt. They also insisted that the government guarantees the financial gold-mine buried in such indebtedness: the late fees that accumulate. So whether students actually succeed in becoming wage-earners or not, the banks will receive payments in today’s emerging fictitious “as if” economy. The government will pay the banks “as if” there is actually a recovery. And if there were to be a recovery, then it would mean that the banks were taking a risk – a big enough risk to justify the high interest rates charge on student loans.

This is simply a replay of what banks have negotiated for real estate mortgage lending. Students who do succeed in getting a job hope to start a family, or at least joining the middle class. The most typical criterion of middle-class life in today’s world (apart from having a college education) is to own a home. But almost nobody can buy a home without getting a mortgage. And the price of such a mortgage is to pay up to 43% of one’s income for thirty years, that is, one’s prospective working life (in today’s as-if world that assumes full employment, not just a gig economy).

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Boy, is she doing a bad job. Calling an election and not showing up. And yeah, we get it: if she would show up, numbers would be even worse. On Twitter: “A Ladbrokes customer in Chelsea has just had £2,000 at 100/1 for Boris Johnson to be PM on July 1st. #GE2017

Theresa May’s Lead Slashed To Record Low Of Three Points In New Poll (Ind.)

Labour is closing the gap with Tories and now stands just three points from Theresa May’s party, a new YouGov poll shows. The poll, commissioned by The Times, found the Conservative lead has slipped dramatically in recent weeks and is now within the margin of error. The figures show the Conservatives on 42 points but Labour are close behind on 39. Meanwhile, the Liberal Democrats are struggling to maintain the momentum of their “fightback” as they slip to just 7% vote share. The poll points to a remarkable change in fortunes for the Tories, which had a 24-point lead over Labour when the snap general election was called in April. Ms May has struggled in recent weeks after she was forced into an embarrassing U-turn over plans to reform social care in the party’s manifesto.

The party said elderly people who needed care will be able to put off playing for it until after their deaths so they could potentially stay in their own home for as long as possible. But critics said this would unfairly penalise people who suffer a slow decline from illnesses like dementia, over people who die suddenly and can then leave their estate to their children. Ms May has faced criticism for refusing to to engage with voters, especially after she declined to take part in televised debates. During the debate, Green party leader Caroline Lucas said: “You don’t call a general election and say it is the most important election in her lifetime and then not even be bothered to debate the issues at hand.” She added: “I think the first rule of leadership is to show up.”

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Fitting comment on Twitter to the original title “Three minutes of nothing”: “Does this pass the Turing test?”

Does Theresa May Pass The Turing Test? (PH)

Before 8.30am today, I had never interviewed a Prime Minister. Heading back to the office to transcribe my encounter with Theresa May at Plymouth’s fish market, I couldn’t be certain that had changed. To start with, it was quite an exciting experience. We got the call late on Tuesday night, and the visit was kept totally secret until her arrival. We waited in the drizzle as she chatted with fishermen and nodded earnestly at nets and buckets, leopard print heels click-clacking on the harbour floor. ired-looking campaign managers hurried back and forth, mulling over our request for a filmed interview which had been denied on her previous visit. Then suddenly we were on. I had a list of four questions, all on local issues, carefully prepared with the help of my newsroom colleagues.

Two visits in six weeks to one of the country’s most marginal constituencies – is she getting worried?

May: “I’m very clear that this is a crucial election for this country.”

Plymouth is feeling the effects of military cuts. Will she guarantee to protect the city from further pain?

May: “I’m very clear that Plymouth has a proud record of connection with the armed forces.”

How will your Brexit plan make Plymouth better off?

May: “I think there is a better future ahead for Plymouth and for the whole of the UK.”

Will you promise to sort out our transport links?

May: “I’m very clear that connectivity is hugely important for Plymouth and the South West generally.”

I was pleased to have secured the interview and happy to have squeezed all my points in. But no sooner had the ministerial car pulled away from Sutton Harbour than I began to feel a bit deflated. If the ultimate job of a journalist is to get answers, I had failed. Should I have stopped her and demanded she be more specific? Could I have gone full angry Paxman, or brought the interview to an abrupt close in protest? Back at the office, we scratched our heads and wondered what the top line was. She had and given me absolutely nothing. It was like a postmodern version of Radio 4’s Just A Minute. I pictured Nicholas Parsons in the chair: “The next topic is how Plymouth will be affected by Brexit, military cuts and transport meltdown. Theresa, you have three minutes to talk without clarity, candour or transparency. Your time starts now.”

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No, Theresa May in reality is not so funny or innocent.

Terror In Britain: What Did The Prime Minister Know? (John Pilger)

The unsayable in Britain’s general election campaign is this. The causes of the Manchester atrocity, in which 22 mostly young people were murdered by a jihadist, are being suppressed to protect the secrets of British foreign policy. Critical questions – such as why the security service MI5 maintained terrorist “assets” in Manchester and why the government did not warn the public of the threat in their midst – remain unanswered, deflected by the promise of an internal “review”. The alleged suicide bomber, Salman Abedi, was part of an extremist group, the Libyan Islamic Fighting Group, that thrived in Manchester and was cultivated and used by MI5 for more than 20 years. The LIFG is proscribed by Britain as a terrorist organisation which seeks a “hardline Islamic state” in Libya and “is part of the wider global Islamist extremist movement, as inspired by al-Qaida”.

The “smoking gun” is that when Theresa May was Home Secretary, LIFG jihadists were allowed to travel unhindered across Europe and encouraged to engage in “battle”: first to remove Mu’ammar Gadaffi in Libya, then to join al-Qaida affiliated groups in Syria. Last year, the FBI reportedly placed Abedi on a “terrorist watch list” and warned MI5 that his group was looking for a “political target” in Britain. Why wasn’t he apprehended and the network around him prevented from planning and executing the atrocity on 22 May? These questions arise because of an FBI leak that demolished the “lone wolf” spin in the wake of the 22 May attack – thus, the panicky, uncharacteristic outrage directed at Washington from London and Donald Trump’s apology.

The Manchester atrocity lifts the rock of British foreign policy to reveal its Faustian alliance with extreme Islam, especially the sect known as Wahhabism or Salafism, whose principal custodian and banker is the oil kingdom of Saudi Arabia, Britain’s biggest weapons customer. This imperial marriage reaches back to the Second World War and the early days of the Muslim Brotherhood in Egypt. The aim of British policy was to stop pan-Arabism: Arab states developing a modern secularism, asserting their independence from the imperial west and controlling their resources. The creation of a rapacious Israel was meant to expedite this. Pan-Arabism has since been crushed; the goal now is division and conquest.

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“The BoE has busted a gut to keep the mortgage market afloat with one scheme after another to subsidise everything from deposits to the lenders themselves. It must have been upsetting to see a fall in approvals for house purchases in April for the third month in a row.”

UK Policymakers Face A Dilemma Over Public’s Slowing Demand For Credit (G.)

As the election on 8 June nears, the debate has intensified over how much Britain’s frothy cappuccino-drinking economy can cope without endless dollops of interest-free credit. Financial regulators are worried about it. So are the debt charity workers who pick up the pieces when the debt merry-go-round grinds to a halt. And they should be worried. Many of the biggest, shiniest new cars zipping round UK streets would still be sitting on the garage forecourt without ultra cheap credit deals that rival mortgages for their rock-bottom rates. On the high street, shops have in recent years relied more heavily on consumers using their credit cards for big purchases. Back in 2014 these shoppers could avoid paying the 18.9% interest commonly applied to credit card balances and use the two, even three-year interest-free period many card operators allow.

As we know from recent experience, when debt bubbles burst, they hit everyone and drag the economy down into recession. The Bank of England’s most recent data for April shows that the mania for borrowing last year and the year before has paused somewhat since January. That should be seen as good news. Net mortgage lending is down at levels seen a year ago while unsecured borrowing on credit cards and loans has stabilised at a growth rate of of just over 10% a year. But not everybody at the Bank of England will be content to see consumers putting their credit cards in a drawer. The economists attached to the BoE’s interest rate-setting committee know the economy runs on debt. To adapt a well-known first world war poster, they know Britain needs borrowers. If a reminder of this basic economic rule was needed, it was made clear earlier this month when the latest UK GDP figures appeared.

The relative lack of borrowing in the first three months of the year coincided with a dive in GDP growth from 0.7% in the final quarter of 2016 to 0.2% in the first quarter of this year. The BoE has busted a gut to keep the mortgage market afloat with one scheme after another to subsidise everything from deposits to the lenders themselves. It must have been upsetting to see a fall in approvals for house purchases in April for the third month in a row. Now there are signs that the credit habit is returning as almost zero interest rates work their magic again, Easter’s spending is out of the way and wage rises are being outpaced by inflation. Analysts say GDP growth in Q2 will be higher for this very reason. Is that a return of consumer confidence with shoppers shrugging off the election, they ask? Or is it, as the debt charities suspect, cash-strapped consumers rolling over their debts and taking out a bit more credit just to get by?

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Yes, if you can’t get people to go deeper into debt, your growth shrinks. That’s economics these days.

UK Comes Bottom Of G7 Growth League, Canada Takes Lead (G.)

The UK has slumped to the bottom of the league table of advanced economies after Canada registered stellar growth in the first three months of the year. Canada was the final member of the G7 to report its growth figures, which confirmed the UK as officially the joint worst performing member so far this year. The announcement marked a significant decline for the UK economy, which a year ago was outshining Germany, the US and Japan. In February it was announced that Germany had pipped the UK as the fastest-growing G7 nation during 2016 by 10 basis points. However, the latest figures for Canada, which showed that growth accelerated to 0.9% in the first quarter, putting it top of the G7 performers, has left Britain languishing alongside Italy at the bottom of the table.

Germany is in second spot at 0.6%, followed by Japan with 0.5%, France 0.4% and the US at 0.3%. The UK and Italy are then level on growth of just 0.2%. The sluggish expansion in the first quarter provides the latest evidence that the early resilience to the EU referendum result last June is now wearing off as higher inflation puts consumers under pressure. Prices have been increasing since the Brexit vote because the referendum result sent the pound sharply lower and has raised the cost of imports to the UK. That higher inflation has hit household budgets and dented the main driver of UK growth, consumer spending. The Bank of England said earlier this month that it expected GDP growth would edge up marginally to 1.9% for 2017 from 1.8% in 2016. But it warned that living standards would fall this year because inflation would be higher than pay growth.

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NATO needs enemies or it will disappear.

Europe May Finally Rethink NATO Costs (McGovern)

President Donald Trump’s politically incorrect behavior at the gathering of NATO leaders in Brussels on Thursday could, in its own circuitous way, spotlight an existential threat to the alliance. Yes, that threat is Russia, but not in the customary sense in which Westerners have been taught to fear the Russian bear. It is a Russia too clever to rise to the bait – a Russia patient enough to wait for the Brussels bureaucrats and generals to fall of their own weight, pushed by financial exigencies in many NATO countries. At that point it will become possible to see through the West’s alarmist propaganda. It will also become more difficult to stoke artificial fears that Russia, for reasons known only to NATO war planners and neoconservative pundits, will attack NATO. As long as Russian hardliners do not push President Vladimir Putin aside, Moscow will continue to reject its assigned role as bête noire.

First a request: Let me ask those of you who believe Russia is planning to invade Europe to put down the New York Times for a minute or two. Take a deep cleansing breath, and try to be open to the possibility that heightened tensions in Europe are, rather, largely a result of the ineluctable expansion of NATO eastward over the quarter-century since the Berlin Wall fell in 1989. Actually, NATO has doubled in size, despite a U.S. quid-pro-quo promise in early 1990 to Russian leader Mikhail Gorbachev in early 1990 not to expand NATO “one inch” to the east of Germany. The quid required of Russia was acquiescence to a reunited Germany within NATO and withdrawal of the 300,000-plus Russian troops stationed in East Germany.

The US reneged on its quo side of the bargain as the NATO alliance added country after country east of Germany with eyes on even more – while Russia was not strong enough to stop NATO expansion until February 2014 when, as it turned out, NATO’s eyes finally proved too big for its stomach. A U.S.-led coup d’etat overthrew elected President Viktor Yanukovych and installed new, handpicked leaders in Kiev who favored NATO membership. That crossed Russia’s red line; it was determined – and at that point able – to react strongly, and it did.

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No, Bloomberg, spending more is not an answer to any serious question.

NATO Allies Can Spend More Money, More Wisely (BBG)

If Donald Trump and Barack Obama agree on something, does that mean it’s true? In the case of Europe’s woeful support of its collective defense, yes: Member states need to contribute their “fair share” toward the North Atlantic Treaty Organization, a phrase both men used in speeches in European capitals. The question is what “fair share” means. Instead of measuring how much member nations spend on their defense, NATO should pay more attention to how they spend it. The current definition – members are expected to spend at least 2% of GDP on defense – is both misleading and unfair. Currently, only four European members meet the alliance’s target and things are going the wrong direction. Across Europe, including non-NATO members, military spending as a percentage of GDP has dropped by almost 9% in the last five years.

But some kinds of military spending are better than others. Money for major training exercises, or transport planes and helicopters for airlift operations, is far more valuable than lots of spending on ill-equipped troops in glorified jobs programs. Spending on national defense is always going to reflect national priorities. That said, better coordination among member nations can bolster both their security and the alliance’s. A wealthy nation may want some shiny new fighter jets, but the collective defense may be better served by more prosaic equipment such as refueling tankers. To their credit, not only have the alliance’s newer members such as the Baltic States been paying up, they’ve been helpful in buying what NATO most needs. Arriving at a consensus as to what constitutes useful spending among 28 separate militaries would be contentious and difficult, to put it mildly. It would still be a useful exercise.

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Flip flop. Up down.

Oil Prices Crushed As Traders Bet Against OPEC, Russia (CNBC)

The oil market has serious doubts that the production deal between OPEC and Russia is sufficient enough to bring the world oil market back into balance, against a potential wave of new supply. As a result, traders appeared to be adding to short positions, as crude fell sharply Wednesday morning, analysts said. The decline in oil prices was triggered by news that Libya had increased its production to a three-year high of 827,000 barrels a day. “The game of chicken between them and the market is back on again,” said John Kilduff, partner at Again Capital. West Texas Intermediate crude for July settled off 2.7%, at $48.32 per barrel after briefly breaking $48. Brent, the international benchmark, dipped temporarily below the psychological $50 for the first time in two weeks, and was down 3% at $50.66 in afternoon trading.

Last week, Saudi Arabia and other members of OPEC agreed with Russia and other producers to extend their agreement to cut back output by 1.8 million barrels a day for another nine months. But market expectations had been hinging on the idea that producers would take even more barrels off the market because of the overhang of supply. Oil plunged 5% last Thursday, after the announcement. “The meeting was much more of a failure than people realize because of what wasn’t achieved. There are no caps on production for Libya, or Nigeria, or Iran,” said Kilduff. Libya has shipped an average of 500,000 barrels per day of oil so far this year, up from 300,000 per day last year. Production reached 800,000 barrels per day earlier this month.

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“Shadow bank run” is a good way to put it. I’ve been warning about Chinese shadown banking for years, and I haven’t been wrong. Baidu is a search engine, for pete’s sake… which “does not need to set aside large capital against potential defaults on its WMPs”… Beijing facilitates the shadows, and they in turn lend into the economy what Beijing’s state banks can’t do without raising bright red alarms.

Fitch Warns Baidu Faces “Default Risk” Due To Growing Shadow Banking Business (ZH)

Less than a week after Moody’s downgraded China’s sovereign credit rating, prompting an unprecedented currency response by the PBOC which as noted earlier resumed its crusade against Yuan shorts by sending CNH overnight deposit rates as high as 65%, on Wednesday another rating agency, Fitch, took aim at what many consider the weakest link in China’s financial system: the nearly $9 trillion in shadow banking “assets”, of which roughly $4 billion are Wealth Management Products. Just as surprising was the target of Fitch’s wrath: none other than China’s tech giant Baidu, which Fitch put on “negative watch” warning that the company’s financial services division faced increased risk of default as a result of its growing reliance on shadow banking in general and Wealth Management Products (WMPs) in particlar.

As reported previously, China’s popular WMPs offer a higher yielding alternative to conventional financial instruments by bundling together investments into money market bonds, corporate loans and many other products, all of which are usually a mystery to the buyer. As of 2016, China had nearly 30 trillion yuan outstanding in WMPs. Baidu, China’s dominant search engine, has not been immune to the scramble for funding optionality provided by shadow banking alternatives, and has been getting into the WMP game by rapidly expanding its Financial Services Group, which Fitch says is increasing Baidu’s overall business risk. While Baidu is not under obligation to pay the returned target on these products, a failure could be potentially damaging to Baidu’s reputation, Fitch warned.

As with Chinese banks, Baidu does not need to set aside large capital against potential defaults on its WMPs … WMPs have become an alternative form of financing for projects or investments that would not qualify for bank loans,” Fitch said. This could lead to an increased risk of default or “shadow bank run”, since many of the bundled assets are of poor quality and would not qualify for bank loans. The WMP warning from Fitch came less than two weeks after Moody’s also put Baidu’s corporate debt on watch for a potential downgrade. WMPs have been behind the staggering surge in total assets of Baidu’s Financial Services Group, which have more than doubled to CNY25 billion in the period ended April 2017.

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May 142017
 
 May 14, 2017  Posted by at 9:39 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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Henri Matisse Sorrow of the King 1952

 

US Says Trump ‘Can’t Imagine Russia Pleased’ With North Korea Missile (R.)
Macron Takes Office As French President (AFP)
Tech Companies Have Become Monopolies, Drag On Economic Growth (AT)
‘We Can’t Do Brexit With Half The Brexiteers Outside The Tent’ (G.)
Schaeuble Says Financial Transfers In Euro Zone Are Necessary (R.)
Ireland Is World’s Fourth-Largest Shadow Banking Hub (ITimes)
London Home Raffled For £3.75m Bought With Right-to-Buy in 2014 For £360k (G.)
Media Blackout On The DNC Lawsuit Proves That It Is Nuclear (Med.)
Patriotism And Conscience: The Edward Snowden Affair (LibR)
Worried About ‘Wannacry’? You Should Have Listened To Julian Assange (Duran)
Steve Keen Defines A Production Function Based On Energy (Res.)
The Rise Of Rentiers And The Destruction Of The Middle Class (Ev)
The Economic School You’ve Never Heard Of (EpT)
The Future of Work, Robotization, and Capitalism’s Useless Jobs (Bregman)
US Much Women More Likely To Die In Childbirth Than 25 Years Ago (ProP)
Africa’s New Slave Trade (G.)

 

 

A more or less subtle way of trying to drag Putin into the situation.

US Says Trump ‘Can’t Imagine Russia Pleased’ With North Korea Missile (R.)

U.S. President Donald Trump “cannot imagine Russia is pleased” with North Korea’s latest missile test on Sunday, as it landed closer to Russia than to Japan, the White House said in a statement. “With the missile impacting so close to Russian soil – in fact, closer to Russia than to Japan – the President cannot imagine that Russia is pleased,” the White House said in its statement. The launch served as a call for all nations to implement stronger sanctions against reclusive North Korea, the White House added.

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Macron takes office in a strange kind of void. On Monday he will appoint a prime minister, and on Tuesday a cabinet. But his party has zero seats in parliament, so what can they do? Whether they can win a majority in the June elections is very much up for grabs. They may wind up needing -and using- support from the Socialist party that was burned down in the presidential elections.

Macron Takes Office As French President (AFP)

Emmanuel Macron becomes France’s youngest ever president on Sunday, taking over from Socialist Francois Hollande in a solemn ceremony. [..] The new president faces a host of daunting challenges including tackling stubbornly high unemployment, fighting Islamist-inspired violence and uniting a deeply divided country. Socialist Hollande’s five years in power were plagued by a sluggish economy and bloody terror attacks that killed more than 230 people and he leaves office after a single term. The 64-year-old launched Macron’s political career, plucking him from the world of investment banking to be an advisor and then his economy minister. “I am not handing over power to a political opponent, it’s far simpler,” Hollande said on Thursday.

Macron’s first week will be busy. On Monday, he is expected to reveal the closely-guarded name of his prime minister, before flying to Berlin to meet German Chancellor Angela Merkel. It is virtually a rite of passage for French leaders to make their first European trip to meet the leader of the other half of the so-called “motor” of the EU. Pro-EU Macron wants to push for closer cooperation to help the bloc overcome the imminent departure of Britain, another of its most powerful members. He intends to press for the creation of a parliament and budget for the eurozone. Merkel welcomed Macron’s decisive 32-point victory over Le Pen, saying he carried “the hopes of millions of French people and also many in Germany and across Europe”. In June, Macron faces what the French media are calling a “third round of the presidential election” when the country elects a new parliament in a two-round vote. The new president needs an outright majority to be able to enact his ambitious reform agenda.

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A huge global problem.

Tech Companies Have Become Monopolies, Drag On Economic Growth (AT)

Once upon a time the US stock market had disruptive challengers changing the economic landscape – Apple, Google, Cisco, Intel and a half dozen other upstarts. The same companies are there, but they have morphed from the equivalent of Luke Skywalker to Jabba the Hut. Tech companies used to be aggressive growth stocks, the kind that young people bought for long-range gain, while retirees stuck to less-volatile instruments like utility stocks. The world officially went topsy-turvy this year, when the volatility of tech stocks fell below the volatility of utility stocks. The graph shows the implied volatility of options on the S&P tech sector ETF (ticker XLK) vs. the implied volatility of options on the S&P utilities sector (XLU). Options on volatile stocks cost more than options on stable stocks, because volatility increases the likelihood of a payout.

Implied volatility is backed out of the prices of traded options, and reflects investor expectations about future stability. Why would investors expect less volatility from tech stocks than from utilities? Because they are utilities, that is, utilities with neither debt nor regulation. Power, water and sewer companies charge a stable fee to a predictable base of customers. They borrow heavily to build facilities, and are subject to public regulation, such that changes in interest rates and public policy can affect their value. Historically, though, they were widow-and-orphan stocks, the least risky sector of the equity market. In the disruptive days of the 1990s tech boom, the volatility of the S&P technology subsector was two to three times the VIX index. Today the implied volatility of XLK, the tech sector ETF, is actually lower than the VIX. The tech companies have brought down the overall level of market volatility.

Tech companies now sit atop a virtual toll booth and impose a charge on a myriad of transactions. Like water and power companies, they have monopolies, although these monopolies are driven by the price of infrastructure and the network effect. Google has the Internet-advertising monopoly. Microsoft has the personal computer software monopoly. Amazon has the Internet sales monopoly. Facebook has the targeted advertising monopoly. And Apple has the oddest monopoly of all: it is the vehicle by which customers assert their individuality by overpaying the largest-capitalization company in the world. [..] They’re all tech companies, and each dominates its corner of the industry: Google has an 88% market share in search advertising, Facebook (and its subsidiaries Instagram, WhatsApp and Messenger) owns 77% of mobile social traffic and Amazon has a 74% share in the e-book market. In classic economic terms, all three are monopolies.”

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“One Brexiter said: “There is no way to unpick Brexit that doesn’t involve civil war. “

Problem 1: Rich people trying to buy seats.

Problem 2: Both left and right across Europe want to “Love Europe Not the EU”. But the EU rules.

‘We Can’t Do Brexit With Half The Brexiteers Outside The Tent’ (G.)

As an investor in a Premier League football club and a collector of steam locomotives, Jeremy Hosking is used to expensive pursuits. The multimillionaire asset manager is under no illusions that his offer to fund well in excess of 100 local campaigns to unseat pro-Remain MPs could prove to be another. “This is going to stretch the bank’s ability to send out cheque books in a timely manner,” he says. “There is going to be a lot of ink involved.” Hosking has already spent in pursuit of securing Britain’s departure from the European Union shows his dedication to the cause. He gave about £1.7m to Vote Leave and even set up his own poster campaign, Brexit Express, as the referendum approached. Now the Crystal Palace co-owner wants to safeguard the result by funding Tory candidates trying to gain seats where most voters backed Brexit. He will do so through his Brexit Express campaign.

“For me, it is a long-running issue about sovereignty and the transfer of power,” he says. “It wouldn’t matter so much if the EU was constitutionalised properly, but one of the great things about being a democracy is we can boot the government out every five years, but we couldn’t boot out the EU. “A lot of the Remainers I know were really reformers – they held their nose and voted Remain in much the same way we are suggesting that traditional Labour voters should on this occasion hold their nose and vote Tory.” Hosking’s project is testing perhaps the most pertinent question posed by this election. Will the political fissure created by the EU referendum convince voters to abandon their traditional affiliations and back a party that more closely represents their views on Brexit?

The candidates eligible for his money must meet two simple tests. They must be a Conservative candidate trying to unseat an opposition MP that backed Remain. They must also be contesting a seat where most voters are believed to have voted in favour of Brexit. His team has come up with a list of 138 constituencies that they think fit the bill. All will be eligible for donations of up to £5,000 each. While there are some Lib Dems, SNP and Plaid Cymru-held seats on the list, the campaign is aimed overwhelmingly at Tories trying to win Labour-held seats in the north and the Midlands. There is a string of such seats that the Tories have a chance of winning. They include Coventry South, Bury South, Dewsbury, Gedling, Halifax and Bishop Auckland – a seat that has returned a Labour MP since 1935.

Hosking says that while Theresa May was not his “number one choice” as leader, he believes she is handling the Brexit issue well so far. He also believes that a cohort of Tory MPs from Brexit-supporting Labour seats could be key in safeguarding the referendum result and prevent any “backsliding”. “We need all the Brexiteers on the same side,” he says. “We can’t do this Brexit thing with half the Brexiteers outside the tent. “The thinking is, it would be strange if the Conservative party was dusting off inveterate Remainers to fight these seats… the Conservative party is more Brexit-orientated than it was a year ago.” Unlike some Brexiteers, Hosking knows there could be some bumpy times ahead. “We need the best team and you need the army fully equipped and as big as possible,” he says.

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He contradicts mis own words with impunity and of course doesn’t get called on it.

Schaeuble Says Financial Transfers In Euro Zone Are Necessary (R.)

German Finance Minister Wolfgang Schaeuble told a magazine he shared French president-elect Emmanuel Macron’s view that financial transfers from richer to poorer states are necessary within the euro zone. Macron, who is due to meet with German Chancellor Angela Merkel in Berlin on Monday, has promised to press ahead with closer European integration. Asked whether Macron was right in believing Europe and the euro zone need a “transfer union”, Schaeuble told Germany’s Der Spiegel magazine: “You can’t build a community of states of varying strengths without a certain balance.” “That’s reflected in the European budget and bailout programmes, for example, and that’s why there are net contributors and net recipients in Europe. A union can’t exist if the stronger members don’t vouch for the weaker ones,” he added in an interview to be published Saturday.

Some conservatives around Merkel worry the euro zone could develop into a “transfer union” in which Germany is asked to pay for struggling states that resist reforms. Schaeuble, a veteran member of Merkel’s party, said if countries wanted to make Europe stronger, it was necessary for each individual country to become stronger first – including France and Italy but also Germany. Schaeuble also signaled he would not object if the European Commission gave its blessing to possible French budget deficits: “It’s up to the European Commission to design the budget rules.” He added: “The German government and I have never objected to a ruling of the Commission on how the deficits of countries like France should be judged.” The European Commission estimates France’s deficit will be 3% of GDP this year, from 2.9% previously forecast, and 3.2% in 2018 from the previous forecast of 3.1%. EU rules say countries should keep their deficits below 3% of GDP.

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Not very useful without solid China data.

Ireland Is World’s Fourth-Largest Shadow Banking Hub (ITimes)

Ireland is home to the world’s fourth-largest “shadow banking” industry, with $2.2 trillion of nonbanking financial assets based in funds, special-purpose vehicles and other little-understood entities in Dublin’s IFSC, according to a report published on Tuesday. The figure equates to almost eight times the size of the Irish economy, as measured by GDP. The US has the world’s largest shadow-banking sector, with $13.8 trillion of assets as of 2015, according to the latest annual review of the sector by the Basel-based Financial Stability Board (FSB) as it searches for potential risks in the increasingly complex world of international finance. The Cayman Islands, which has taken part in the FSB study for first time, is the second-largest, at $4.3 trillion, followed by Japan, at $3.2 trillion.

The G20 major industrialised and emerging economies gave the FSB the job in 2010 of keeping track of the expanding world of financial activities that take place outside of mainstream banks, given the role that the sector played in the 2008 global financial crisis. The key concern is that, as central banks have clamped down on excessive risk-taking in the banking sector in the wake of the 2008 financial crisis, lenders might extend their use of shadow banking to escape the claws of regulators. “Market-based finance provides important diversification of the founding resources which support the real economy,” said Mark Carney, governor of the Bank of England and chairman of the FSB on the release of the latest report.

[..] The FSB said China, which ranked third with Ireland in the last report, published in late 2015, didn’t file data on time to be included in its narrow definition of shadow-banking activities that pose potential risks to global finance. Luxembourg, Ireland’s main rival in nonbanking financial activities in Europe, has not yet taken part in the annual survey. Nonbank financing provides a valuable alternative to bank funding and helps support economic activity, according to the FSB, adding that it can provide a “welcome” alternative supply of credit and provides “healthy competition for banks”.

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Where would we be without bubbles?

London Home Raffled For £3.75m Bought With Right-to-Buy in 2014 For £360k (G.)

A homeowner who tried to raise £3.75m by raffling her home online bought the property three years ago using the controversial right-to-buy scheme, and paid just £360,000. Renu Qadri, who lives in the house in Hardy Road, in south east London’s Blackheath, launched an online raffle on May 7. The dedicated website offered tickets for £5 each, with payments via Paypal. The stated aim was to sell 750,000 tickets, netting her £3.75m. A ticket picked at random would then win the property, including some of the furniture and £12,000 of “lead crystal chandeliers”. The raffle was halted on Thursday after advice from the homeowner’s local council, Greenwich, over “potential” breaches of Gambling Commission rules.

The website was taken down and replaced with a statement that said: “Ticket holders, please be advised that unfortunately we have been contacted by the local council informing us we will no longer be able to continue with this draw. Therefore we will be closing the site and all tickets holders will receive a full refund within 28 days. The five-bedroom flat is still on the market, however, and listed on property portal Rightmove for £1.25m. The owner, who is believed to have lived there since 2002, bought the property under the Government’s right-to-buy scheme three years ago, according to documents lodged with the Land Registry. It is understood that at the time it was valued at £460,000. Land Registry records confirm, however, that the price paid was £360,000, indicating the buyers benefited from a £100,000 right-to-buy discount. This is just under the maximum discount available through the scheme, which in London is currently £104,900.

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The media are too busy attacking Trump.

Media Blackout On The DNC Lawsuit Proves That It Is Nuclear (Med.)

I had the privilege of interviewing my newest personal hero yesterday, attorney Elizabeth Lee Beck, about her legal team’s fraud case against the Democratic National Committee. One of the many useful insights that this straight-shooting mom on fire brought to light during our conversation was her story about a time she reached out to New York Times reporter Michael Barbaro to get some help cracking through the deep, dark media blackout on this extremely important case. Barbaro had previously interviewed Beck and featured her in a front-page story not long ago, so she had every reason to try and contact him. What happened next? “The little piss head blocks me,” Beck said. Why is a journalist for the New York Times blocking a potential source from contacting him? Why is the mainstream media refusing to go anywhere near a legal case that has heavy implications for the future of American democracy?

You already know the answer to this deep down, whether you’re the kind of person who turns and faces reality or the kind of person who dissociates from reality at all costs while watching Samantha Bee and chugging cough syrup on the sofa. The function of the mass media is not to inform the American public of important things that are happening in their country, it is to turn attention away from the important things that are happening in their country and to keep them sleepy and compliant. The DNC lawsuit is one of the greatest threats to America’s power establishment right now, but only if people know about it. If the corporate media were to advance this story with even a fraction of the intensity that they’re advancing their xenophobic anti-Russia nonsense, they’d start waking up the sleeping masses to the fact that there is nothing resembling democracy happening in America at all.

And the DNC’s own lawyers have indeed made it abundantly clear to anyone who’s been listening that there is no democracy in America. You cannot make the case that you are not required to provide real primary elections in a rigidly-enforced two-party system and still say that democracy is happening to any extent within your nation. Being forced to choose between two establishment-selected corporatists is not democracy, and this revolutionary lawsuit has been showing in no uncertain terms that this is exactly what is happening both in practice and in theory. In order to say that there is any sort of democratic process in America at all, there would have to either be a way to run viable independent and third-party candidates, or the people would have to be able to determine who the candidates will be for the two parties that they are permitted to choose from. Currently neither of those things is happening.

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I’ve said it before: in Assange, Snowden, Manning etc., America -and the west- “persecutes, prosecutes, vilifies, condemns, exiles, or murders” its finest.

Patriotism And Conscience: The Edward Snowden Affair (LibR)

Here’s the point: If the NSA were to be abolished today and if Congress were to order all of its documents and records to be released immediately to the public, nothing would happen to the United States. Nothing! The same holds true for the CIA and the military-industrial complex. If all their files and records were to be suddenly disclosed to the people of the world, America would continue to exist as a country. It would not fall into the ocean, and the federal government would continue to operate. In fact, full disclosure of all of the illegal and immoral actions that the U.S. national-security establishment has engaged in during the past 70 years of its existence would be the greatest and healthiest thing that could ever happen to the United States.

Full disclosure of such secrets would be an antiseptic that would help cleanse the federal government and the country of many of the long-lasting stains that the national-security establishment has inflicted on it — an antiseptic that might finally begin to restore trust and confidence in the federal government among the American people. To be sure, the secrecy is always alleged to be justified by “national security,” the two most important words in any nation whose government is a national-security state. But what does that term mean? It has no objective meaning at all. It’s just a bogus term designed to keep nefarious and illegal actions secret. But heaven help those who reveal those secrets to others. They will be persecuted, prosecuted, vilified, condemned, exiled, or murdered. Nothing matters more to a national-security state than the protection of its secrets.

Those who reveal them must be made examples to anyone else who contemplates doing the same thing. In the process, conscience is suspended and stultified. It has no role in a national-security state. Individual citizens are expected to place their deep and abiding trust in the national-security establishment and to unconditionally defer to its judgment and expertise. Its job is to protect “national security” and that’s all that people need to know. Sometimes that entails illegal activity, such as murder, torture, and kidnapping, but that’s just the way it is. What’s important, they say, is that the national-security establishment is on the job, a perpetual sentinel for freedom, protecting “national security.”

Imagine that Edward Snowden voluntarily returned to the United States for trial. Do you think he would be given the opportunity at trial to show why he disclosed the NSA’s illegal and nefarious surveillance schemes? Do you think he would be entitled to argue that he was simply following the dictates of his conscience when he chose to reveal that information to the American people and the world?

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“Perhaps in order to save money, governments should also use prop-planes from the 1940s to conduct recon missions? ”

Worried About ‘Wannacry’? You Should Have Listened To Julian Assange (Duran)

A widespread computer virus attack known as ‘WannaCry’ has been compromising computers with obsolete operating systems across the world. This should be the opening sentence of just about every article on this subject, but unfortunately it is not. The virus does not attack modern computer operating systems, it is designed to attack the Windows XP operating system that is so old, it was likely used in offices in the World Trade Center prior to September 11 2001, when the buildings collapsed. Windows XP was first released on 25 August, 2001. A child born on the release date of Windows XP is now on the verge of his or her 17th birthday. Feeling old yet? The fact of the matter is that governments and businesses around the world should not only feel old, they should feel humiliated and disgraced.

With the amount of money governments tax individuals and private entities, it is beyond belief that government organisations ranging from some computers in the Russian Interior Ministry to virtually all computers in Britain’s National Health Service, should be using an operating system so obsolete that its manufacturer, Microsoft, no longer supports it and hasn’t done for some time. Perhaps in order to save money, governments should also use prop-planes from the 1940s to conduct recon missions? The scathing reality of this attack is that Julian Assange warned both private and public sectors to be on guard against known vulnerabilities in such systems, vulnerabilities Wikileaks helped to expose. Assange even offered to help companies to get their digital security up to date. The fact that Assange’s plea fell on deaf ears must bring further shame to all those impacted by the ‘WannaCry’ attacks who refused to listen to Assange and get with the times.

[..] if only governments and mega-corporations took precautions to ensure actual safety measures were in place, rather than engaging in bogus fear-mongering in order to conceal their own incompetence and lack of modern technology, the people that such bodies are supposed to protect would be safe rather than misled and exposed to threats. The blame for today’s attack can and should be equally shared by the hackers themselves and by those who patently ignored the warnings of Julian Assange, who advised the wider world to get clever, get secure and get modern upon the release of Vault 7 by Wikileaks. When there is a wolf at your door, it is unwise to blame the person pointing out the presence of the hungry wolf. Those who attack Julian Assange for pointing out the wolf of un-secured computer systems are doing just that.

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How many people know and understand that the economic models on which all current policies are based entirely ignore both credit and energy in our economies? How crazy is that?

Steve Keen Defines A Production Function Based On Energy (Res.)

Professor Steve Keen may be the first mainstream economist to address a fatal flaw in economic theory: omitting or minimizing the role of energy. Keen has developed a production formula incorporating energy, not as one factor of production along with capital and labor, but as the indispensable flow activating both. “Labor without energy is a corpse” says Keen; “Capital without energy is a sculpture.” Keen was one of twenty or so economists who made a credible prediction of the 2008-9 crisis, which government economists in the US and abroad declared “unpredictable” – after it blindsided them.

His work draws on contemporary economic theory and generates real-world predictions. He’s the sort of economist who financial commentators, investors and even government economists listen to; folks who haven’t heard of Daly’s steady state economy, Odum’s energy flow analysis of the ecosystem-economy, or Hall’s EROI “cheese slicer” model. Keen’s model implies that economic production is measurable in energy units, as Odum and others argued. Wealth is “nothing but the food, conveniences and pleasures of life,” as the earliest economists recognized. But it results from useful work, which can be measured in kilocalories. (To us weight watchers, just “calories.”) Here is his fundamental equation (the only one here, I promise):

To test his model against real data, Keen correlated its results with historical statistics of US GDP, and then compared correlations of GDP with the key terms individually. Over 40-odd years of data, his function correlated 0.79 with US GDP. The correlations with employment (Labor) alone and energy consumption (E) alone were much lower, at 0.60 and 0.59 respectively. His model might have correlated better if applied to a closed economic system, such as the entire world, or the US prior to 1970, if good data were available. Most of the useful work that supports Americans today is performed in the Far East or in the engines of container ships, and the energy inputs are considerable. Introducing his test data, Keen remarked that government statistics showing minimal unemployment were “just nonsense”. He presented a measure of employment instead. “They ask what Trump is complaining about- here’s what he’s complaining about..” (This was back in November.)

Presenting a chart of industrial energy consumption 1960-present, Keen remarked on the on the long decline since the 1979 peak, his latest values showing consumption comparable to 1967-8. Partly the result of increased efficiency, he said, but also “..becoming intractable because we are moving from highly efficient oil and coal to much less efficient wind and solar.” (Efficiency as energy output per unit of energy input.) I don’t think I’m overstating to say that Keen’s model marks a breakthrough in mainstream economics, though Keen describes it as merely “..the beginnings of a decent equation to explain the role of energy in production.”..demonstrating that wealth is “..fundamentally created by the exploitation of free energy, as the Physiocrats argued two centuries ago.” For those who discount any economic reasoning not expressed in calculus, Keen’s work opens an access to the wisdom of the Physiocrats. Maybe that of Daly, Odum and Hall as well.

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Time to organize. Or keep losing.

The Rise Of Rentiers And The Destruction Of The Middle Class (Ev)

The facts about the decline of the American middle class are increasingly familiar, though startling nonetheless. After growing almost continuously since World War II, U.S. median income stagnated at the end of the 1980s and then, beginning in 2000, declined 11%. Middle-class incomes today are no higher in real terms than they were in 1987. Much of the debt that caused the crisis was accumulated by the middle class as people tried to compensate for stagnant incomes by mortgaging up their homes and running up their credit cards. Then the debt bubble burst and the median family lost nearly $50,000, or 40% of its net wealth, from 2007 to 2010. For the typical middle-class family, the crisis wiped out 18 years of savings and investment. With too much debt before the crisis and their modest savings hammered by the downturn, many middle-class baby boomers are facing a major decline in living standards as they age.

On the other side of the generational divide, this will be the first cohort in modern American history whose children will quite possibly be poorer than their parents. So what do the rise of rentier capitalism and the hollowing out of America’s middle class have to do with each other? It is too simple to say that one directly caused the other. But they are more tightly linked than might be expected. The usual explanations for the woes of the American middle class point to big tectonic forces—namely globalization and technological change. At a superficial level this argument is correct—competition from low-wage countries has depressed wage growth in certain sectors, and technology has eliminated some manufacturing and middle-management jobs. But what this analysis leaves out is what we didn’t do—we didn’t make the long-term investments that would have helped us better adapt to these tectonic shifts.

One of the great historical strengths of both American capitalism and the American political system has been their adaptability. When the Industrial Revolution threatened America’s largely agricultural economy, America adapted and went one better, leapfrogging European industrial production by the early twentieth century. When industrialization then unbalanced America’s political system and strained its social fabric, Teddy Roosevelt unleashed a wave of political and social innovation, busting up trusts and introducing protections for consumers and workers. In the depths of the Depression, another Roosevelt responded with rural electrification, the creation of Social Security, and financial regulation that kept the system stable for 70 years. When the Soviet Union challenged America in the Cold War, we made massive investments in technology, education, and the National Highway System. The benefits of these innovations and investments flowed broadly in American society, not least to the middle class.

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Austrian school.

The Economic School You’ve Never Heard Of (EpT)

Economics was once tasked with describing how man manages the world’s scarce resources, a process far older than economics as a science. But it has morphed into a field that blames the individual and reality for not measuring up to its theories, and then uses the coercive power of the state in an attempt to shape individuals and reality according to its ends. The Austrian school of economics, the once dominant school of economic thought at the turn of the 19th century, focuses on the individual—and his or her actions and motivations—to explain economic life. It derives its name from the many scholars from Austria who developed 19th-century classic liberalism into a coherent explanation of economic life.

“Economics is in reality very simple. It functions in the same way that it did thousands of years ago. People come together to voluntarily engage in commerce with one another for their mutual benefit. People specialize and divide work among themselves to advance their condition,” writes modern Austrian economist Philipp Bagus in his book “Blind Robbery!” A bedrock principle of this understanding is that exchange should occur voluntarily and not under the coercion of the state or any other party. If exchange is voluntary, the individual or company must offer something of value if it wants to obtain something of value. This premise encourages innovative, creative, and productive behavior. It also forces individuals to think about what their fellow humans may appreciate or need. Every decision to allocate capital and labor needs to stand the test of reason, argument, and negotiation.

On aggregate, this decision-making process is much more elaborate and prudent than any central planning decision, which must use force to compel its subjects. “Production is directed either by profit-seeking businessmen or by the decisions of a director to whom supreme and exclusive power is entrusted. . . . The question is: Who should be master, the consumers or the director?” Austrian school economist Ludwig von Mises (1881-1973) writes in his book “Human Action.” This approach to economics can do without the complex mathematical models of the current schools because it admits that perfection doesn’t exist. There is no equilibrium. Things aren’t perfect, but the best possible solution to economic problems will be found by private individuals acting voluntarily, each assessing new situations for themselves.

“This is precisely what the price system does under competition, and which no other system even promises to accomplish. It enables entrepreneurs, by watching the movement of comparatively few prices, as an engineer watches the hands of a few dials, to adjust their activities to those of their fellows,” Nobel laureate Friedrich von Hayek wrote in his 1944 classic “The Road to Serfdom.”

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How any people are still happy in their work? Why do they volunteer to work for others?

The Future of Work, Robotization, and Capitalism’s Useless Jobs (Bregman)

I admit, we’ve heard it all before. Employees have been worrying about the rising tide of automation for 200 years now, and for 200 years employers have been assuring them that new jobs will naturally materialize to take their place. After all, if you look at the year 1800, some 74% of all Americans were farmers, whereas by 1900 this figure was down to 31%, and by 2000 to a mere 3%. Yet this hasn’t led to mass unemployment. In 1930, the famous economist John Maynard Keynes was predicting that we’d all be working just 15-hour weeks by the year 2030. Yet, since the 1980s, work has only been taking up more of our time, bringing waves of burnouts and stress in its wake. Meanwhile, the crux of the issue isn’t even being discussed. The real question we should be asking ourselves is: what actually constitutes “work” in this day and age?

In a 2013 survey of 12,000 professionals by the Harvard Business Review, half said they felt their job had no “meaning and significance,” and an equal number were unable to relate to their company’s mission, while another poll among 230,000 employees in 142 countries showed that only 13% of workers actually like their job. A recent poll among Brits revealed that as many as 37% think they have a job that is utterly useless. They have, what anthropologist David Graeber refers to as, “bullshit jobs”. On paper, these jobs sound fantastic. And yet there are scores of successful professionals with imposing LinkedIn profiles and impressive salaries who nevertheless go home every evening grumbling that their work serves no purpose.

Let’s get one thing clear though: I’m not talking about the sanitation workers, the teachers, and the nurses of the world. If these people were to go on strike, we’d have an instant state of emergency on our hands. No, I’m talking about the growing armies of consultants, bankers, tax advisors, managers, and others who earn their money in strategic trans-sector peer-to-peer meetings to brainstorm the value-add on co-creation in the network society. Or something to that effect. So, will there still be enough jobs for everyone a few decades from now? Anybody who fears mass unemployment underestimates capitalism’s extraordinary ability to generate new bullshit jobs. If we want to really reap the rewards of the huge technological advances made in recent decades (and of the advancing robots), then we need to radically rethink our definition of “work.”

It starts with an age-old question: what is the meaning of life? Most people would say the meaning of life is to make the world a little more beautiful, or nicer, or more interesting. But how? These days, our main answer to that is: through work. Our definition of work, however, is incredibly narrow. Only the work that generates money is allowed to count toward GDP. Little wonder, then, that we have organized education around feeding as many people as possible in bite-size flexible parcels into the employment establishment. Yet what happens when a growing proportion of people deemed successful by the measure of our knowledge economy say their work is pointless? That’s one of the biggest taboos of our times. Our whole system of finding meaning could dissolve like a puff of smoke.

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Painful. 3rd world.

US Much Women More Likely To Die In Childbirth Than 25 Years Ago (ProP)

The ability to protect the health of mothers and babies in childbirth is a basic measure of a society’s development. Yet every year in the U.S., 700 to 900 women die from pregnancy or childbirth-related causes, and some 65,000 nearly die — by many measures, the worst record in the developed world. American women are more than three times as likely as Canadian women to die in the maternal period (defined by the Centers for Disease Control as the start of pregnancy to one year after delivery or termination), six times as likely to die as Scandinavians. In every other wealthy country, and many less affluent ones, maternal mortality rates have been falling; in Great Britain, the journal Lancet recently noted, the rate has declined so dramatically that “a man is more likely to die while his partner is pregnant than she is.”

But in the U.S., maternal deaths increased from 2000 to 2014. In a recent analysis by the CDC Foundation, nearly 60% of such deaths were preventable. While maternal mortality is significantly more common among African Americans, low-income women and in rural areas, pregnancy and childbirth complications kill women of every race and ethnicity, education and income level, in every part of the U.S. [..] The reasons for higher maternal mortality in the U.S. are manifold. New mothers are older than they used to be, with more complex medical histories. Half of pregnancies in the U.S. are unplanned, so many women don’t address chronic health issues beforehand. Greater prevalence of C-sections leads to more life-threatening complications. The fragmented health system makes it harder for new mothers, especially those without good insurance, to get the care they need. Confusion about how to recognize worrisome symptoms and treat obstetric emergencies makes caregivers more prone to error.

Yet the worsening U.S. maternal mortality numbers contrast sharply with the impressive progress in saving babies’ lives. Infant mortality has fallen to its lowest point in history, the CDC reports, reflecting 50 years of efforts by the public health community to prevent birth defects, reduce preterm birth and improve outcomes for very premature infants. The number of babies who die annually in the U.S. — about 23,000 in 2014 — still greatly exceeds the number of expectant and new mothers who die, but the ratio is narrowing. The divergent trends for mothers and babies highlight a theme that has emerged repeatedly in ProPublica’s and NPR’s reporting. In recent decades, under the assumption that it had conquered maternal mortality, the American medical system has focused more on fetal and infant safety and survival than on the mother’s health and well-being.

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Everybody in the west is responsible for this. Our governments willfully create the chaos that generates it.

Africa’s New Slave Trade (G.)

The dangers of attempting to cross the Mediterranean to Europe, in overcrowded, unseaworthy vessels, have been highlighted by a series of desperate rescue missions and thousands of deaths at sea in recent years. Last week, at least 245 people were killed by shipwrecks, bringing the toll for this year alone to 1,300. Less well-known are the dangers of Libya itself for migrants fleeing poverty across West Africa. The country’s slide into chaos following the 2011 death of dictator Muammar Gaddafi and the collapse of the government have made it a breeding ground for crime and exploitation. Two rival governments, an Isis franchise and countless local militias competing for control of a vast, sparsely populated territory awash in weapons, have allowed traffickers to flourish, checked only by the activities of their criminal rivals.

Last year, more than 180,000 refugees arrived in Italy, the vast majority of them through Libya, according to UN agency the International Organisation for Migration (IOM). That number is forecast to top 200,000 this year – and these people form a lucrative source of income for militias and mafias who control Libya’s roads and trafficking networks. Migrants who managed to reach Europe from Libya have long told of being kidnapped by smugglers, who would then torture them to extort cash as they waited for boats. But in recent years this abuse has developed into a modern-day slave trade – plied along routes once used by slaving caravans – that has engulfed tens of thousands of lives.

The new slave traders operate with such impunity that, survivors say, some victims are being sold in public markets. Most, however, see their lives and liberty auctioned off in private. “They took people and put them in the street, under a sign that said ‘for sale’,” said Shamsuddin Jibril, 27, from Cameroon, who twice saw men traded publicly in the streets of the central Libyan town of Sabha, once famous as the home of a young Gaddafi, but now known for violence and brutality. “They tied their hands just like in the former slave trade, and they drove them here in the back of a Toyota Hilux. There were maybe five or seven of them.”

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