Apr 092018
 
 April 9, 2018  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , , ,  


Andreas Feininger Production B-17 heavy bomber 1942

 

Syria and Russia Accuse Israel Of Missile Attack On Syrian Regime Airbase (G.)
Stocks To Retest Correction Lows As Easy Money Disappears – Boockvar (CNBC)
Albert Edwards On The Next Recession: S&P Below 666 (ZH)
Bad Omen for Markets From First Signs of Yield Curve Inversion
Trump’s Trade War Threatens Central Bank ‘Put’ – Deutsche (BBG)
China Is Studying Yuan Devaluation as a Tool in Trade Spat (BBG)
YouTube Illegally Collects Data On Children – Child Protection Groups (G.)
Number Of UK Buy-to-Let Landlords Reaches Record High (Ind.)
Public Backs Fresh Referendum On ‘Final Say’ On Terms Of Brexit Deal (Ind.)
Murderers & Thieves Sold Out America – Gerald Celente (USAW)
Shell Predicted Dangers Of Fossil Fuels And Climate Change In 1980s (Ind.)
Indigenous People Are Being Displaced Again – By Gentrification (Latimore)
Fish Populations In Great Barrier Reef Collapse After Bleaching Events (Ind.)

 

 

I don’t want TAE to be about warfare, but this situation is getting so absurd it’s starting to feel dangerous. Don’t believe the narrative.

Syria and Russia Accuse Israel Of Missile Attack On Syrian Regime Airbase (G.)

Israeli war planes have bombed a Syrian regime airbase east of the city of Homs, the Russian and Syrian military have said. The Russian military said that two Israeli F-15 war planes carried out the strikes from Lebanese air space, and that Syrian air defence systems shot down five of eight missiles fired. Asked about the Russian statement, an Israeli military spokesman said he had no immediate comment. Syrian state TV reported loud explosions near the T-4 airfield in the desert east of Homs in the early hours of Monday. State TV initially reported that the attack was “most likely” American, a claim the Pentagon has denied.

Video footage on social media in Lebanon showed aircraft or missiles flying low over the country, apparently heading east towards Syria. At least 14 people, mostly Iranians or members of Iran-backed groups, were killed, the UK-based Syrian Observatory for Human Rights monitoring group said. Donald Trump warned on Sunday that the regime and its backers would pay a “high price” for the use of chemical weapons in the attack on rebel-held Douma that killed 42 people, but the Pentagon denied US forces were involved in Monday’s strikes. “However, we continue to closely watch the situation and support the ongoing diplomatic efforts to hold those who use chemical weapons, in Syria and otherwise, accountable,” a Pentagon spokesman said.

Separately, the White House put out an account of a telephone conversation between Trump and Emmanuel Macron, in which the US and French presidents “agreed to exchange information on the nature of the attacks and coordinate a strong, joint response”. Macron has said chemical weapons attacks in Syria would cross a “red line” for France and that French forces would strike if the regime was proven to have been involved. However, the French army denied responsibility for Monday’s attack.

Read more …

When the easy money goes, everything follows.

Stocks To Retest Correction Lows As Easy Money Disappears – Boockvar (CNBC)

He’s a Wall Street bear who sees more monster market moves coming — with the majority of them leaving stocks deep in the red. The Bleakley Advisory Group’s Peter Boockvar warns there’s more trouble brewing, because the era of easy money is ending, thanks to global central banks hiking borrowing costs. And as fears intensify over a trade war, Boockvar expects a solution to the tariff issue will eventually come at the expense of rising rates. “We could get that resumption of higher interest rates which would then concern the markets, and then retest the [S&P 500 Index] 2500-ish type lows,” the firm’s chief investment officer told CNBC’s “Futures Now” last week.

“We’re late cycle in the market. We’re late cycle in the economy, and you have an intensification in a tightening of monetary policy,” he said. Boockvar, a CNBC contributor, blamed the end of quantitative easing in the United States and Europe for increasing sell-off risks. “We’re a step closer to them wanting to take away negative interest rates. But there are still trillions of dollars of global bonds that have negative yielding rates,” he added. “So, it’s this rate environment that I think is becoming more of a headwind. That really is my main concern.” He doesn’t believe the situation will abate any time soon. Boockvar contended the 10-Year Treasury yield will push back toward 3 percent — preventing the S&P 500 from cracking above its Jan. 26 record high anytime soon.

Read more …

Barron’s interview with Albert Edwards via ZH, who add a little David Rosenberg intro:

Albert Edwards On The Next Recession: S&P Below 666 (ZH)

The Fed generally tightens rates until something breaks. David Rosenberg points out that since 1950 there have been 13 Fed tightening cycles, and 10 of them ended in recession (while the others have often ended in emerging market blow-ups, like the 1994 Mexican peso crisis). Surging delinquency and charge-off rates for smaller banks suggest the breaking point for the economy may come sooner than the Fed and bulls expect.

What happens to stocks during the next recession? The Federal Reserve managed to short-circuit this derating process. In 2011, when quantitative easing, or QE, really kicked in, equity re-engaged with bond yields and P/Es expanded. Like an artificial stimulant, QE inflated all asset prices away from fundamental value and from where they would otherwise have gone. We haven’t seen the lows in bond yields. In the next recession, bond yields in the U.S. will go negative and converge with those in Germany and Japan. The forward U.S. P/E bottomed at about 10.5 times in March 2009 on trough earnings. That was lower than the previous recession.

In the next recession, I would expect the P/E to bottom at about seven times, a lower low with earnings about 30% lower because of the recession. That would put the S&P lower than the 666 low of the previous crash, versus 2671 Thursday afternoon. If a recession unfolds, easy monetary policy won’t stop the market from collapsing. It will play itself out.

When will the recession hit: The Conference Board’s leading indicators look OK for now. What’s different is that problems in the real economy aren’t being reflected in the stock and bond markets. What we may see is the reverse: The stock market and parts of the credit markets collapse and cause problems in the real economy. If confidence collapses because the equity market collapses, then a recession unfolds.

Will the US be hit harder than Japan and Europe in the next bear market? It should be. Traditionally, if the U.S. goes down 20%, the German Dax, though it is cheaper, would tend to go down a little more. Maybe this time it won’t. Japan is the one market we do like now on a long-term basis, and one of the reasons is the buildup of U.S. corporate debt during these past few years. The big bubble is U.S. corporate debt. In contrast, Japan’s corporate debt is collapsing. Over half of its companies have more cash than debt. When the Fed buys U.S. Treasuries, it pulls down all yields. There has been demand for yield, so investors look at corporate bonds as an alternative. Companies have been very keen to issue them, and they have used the money to buy back stock or as a way to enrich management. This is the way QE has washed through the system here.

Read more …

“..rising expectations of a Fed policy mistake.. We could argue that mistake is 10 years old by now.

Bad Omen for Markets From First Signs of Yield Curve Inversion

The forward curve of a closely watched proxy for the Federal Reserve’s policy rate has slightly inverted, signaling investors are either pricing in a mistake from central bankers or end-of-cycle dynamics, according to JPMorgan Chase. The inversion of the one-month U.S. overnight indexed swap rate implies some expectation of a lower Fed policy rate after the first quarter of 2020, the bank’s strategists including Nikolaos Panigirtzoglou, wrote in a note Friday. “An inversion at the front end of the U.S. curve is a significant market development, not least because it occurs rather rarely,” they said. “It is also generally perceived as a bad omen for risky markets.”

The negative market signal comes as investors grapple with higher short term borrowing costs, which have risen in the U.S. to levels unseen since the financial crisis. While the strategists admit it is difficult to discern which of the two explanations for the curve inversion carries more weight, flow data suggests it is more likely to be rising expectations of a Fed policy mistake.

Read more …

No, Bloomberg, we know that China can’t dump Treasuries. The “end of Chimerica” sounds poetic though.

Trump’s Trade War Threatens Central Bank ‘Put’ – Deutsche (BBG)

A breakdown in the relationship between dollar weakness and Asian central bank intervention poses a risk to Treasuries, stocks and all risky assets, according to Deutsche Bank. Attempts by the Trump administration to clamp down on currency manipulation have limited the ability of central banks across the region to buy U.S. assets when the dollar weakens, and dampen the appreciation of their currencies, strategist Alan Ruskin write in a note Friday. These purchases have historically limited the greenback’s downside and acted as a “put” on Treasury market weakness, he wrote. Such central bank puts are usually associated with successive Federal Reserve chairs willing to support the wider market with loose monetary policy.

While such puts have been a continuous focus for investors, markets now risk overlooking other sources of central bank support that may be slipping as the U.S.’s “synergistic relationship with China,” comes to an end, according to Ruskin. “It is not a coincidence that in this recent period of dollar weakness, Treasury bonds were also soft,” he said. “Historically, foreign central banks of sizable current account surplus countries like China, Taiwan, Korea and Thailand would have been intervening.” According to the strategist, the “end of Chimerica” means American current account deficits are no longer financed to the same degree by Asian central bank reserve recycling of corresponding trade surpluses. That reduction in demand for Treasuries from foreign reserves is coming at a time when U.S. fiscal supply is set to increase dramatically, putting extra pressure on the country’s bond market.

Read more …

This is more likely. Risky for China though, but there must be plans to shore up domestic firms.

China Is Studying Yuan Devaluation as a Tool in Trade Spat (BBG)

China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country’s leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide. Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part of the analysis looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China depreciates the yuan to offset the impact of any trade deal that curbs exports. The analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders, the people said.

The yuan erased early gains on Monday, weakening 0.1 percent to 6.3110 per dollar in onshore trading at 3:32 p.m. local time. While Trump regularly bashed China on the campaign trail for keeping its currency artificially weak, the yuan has gained about 9 percent against the greenback since he took office as China’s economic growth stabilized, the government clamped down on capital outflows and fears of a credit crisis receded. The Chinese currency touched the strongest level since August 2015 last month and has remained steady in recent weeks despite an escalation of trade tensions between the world’s two largest economies.

While a weaker yuan could help President Xi Jinping shore up China’s export industries in the event of widespread tariffs in the U.S., a devaluation comes with plenty of risks. It would make it easier for Trump to follow through on his threat to brand China a currency manipulator, make it more difficult for Chinese companies to service their mountain of offshore debt, and undermine recent efforts by the government to move toward a more market-oriented exchange rate system. It would also expose China to the risk of local financial-market volatility, something authorities have worked hard to subdue in recent years.

When China unexpectedly devalued the yuan by about 2 percent in August 2015, the move sent shock-waves through global markets. “Is it in their interest to devalue yuan? It’s probably unwise,” said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets Hong Kong Ltd. “Because if they use devaluation as a weapon, it could hurt China more than the U.S. The currency stability has helped to create a macro stability. If that’s gone, it could destabilize markets, and things would look like 2015 again.”

Read more …

No really, it’s everywhere. What they can do, they will.

YouTube Illegally Collects Data On Children – Child Protection Groups (G.)

A coalition of 23 child advocacy, consumer and privacy groups have filed a complaint with the US Federal Trade Commission alleging that Google is violating child protection laws by collecting personal data of and advertising to those aged under 13. The group, which includes the Campaign for a Commercial-Free Childhood (CCFC), the Center for Digital Democracy and 21 other organisations, alleges that despite Google claiming that YouTube is only for those aged 13 and above, it knows that children under that age use the site. The group states that Google collects personal information on children under 13 such as location, device identifiers and phone numbers and tracks them across different websites and services without first gaining parental consent as required by the US Children’s Online Privacy Protection Act (Coppa).

The coalition urges the FTC to investigate and sanction Google for its alleged violations. “For years, Google has abdicated its responsibility to kids and families by disingenuously claiming YouTube — a site rife with popular cartoons, nursery rhymes, and toy ads — is not for children under 13,” said Josh Golin, executive director of the CCFC. “Google profits immensely by delivering ads to kids and must comply with Coppa. It’s time for the FTC to hold Google accountable for its illegal data collection and advertising practices.”

The group claims that YouTube is the most popular online platform for children in the US, used by about 80% of children aged six to 12 years old. Google has a dedicated app for children called YouTube Kids that was released in 2015 and is designed to show appropriate content and ads to children. It also recently took action to hire thousands of moderators to review content on the wider YouTube after widespread criticism that it allows violent and offensive content to flourish, including disturrbing children’s content and child abuse videos.

Read more …

Bizarro housing.

Number Of UK Buy-to-Let Landlords Reaches Record High (Ind.)

The number of buy-to-let investors in the UK rose to a record high of 2.5 million in the latest tax year, new research shows. The increase of 5% on the previous year comes despite the introduction of a host of extra taxes and regulations on the sector. In recent years, the government has brought in a 3% Stamp Duty levy, new stress tests for home loans, and ended mortgage interest tax relief. The number of landlords has increased 27% in the past five years, up from 1.97 million in 2011-12, research by London-focused estate agent Ludlow Thompson found.

Landlords now own an average of 1.8 buy-to-let properties each – a figure that has risen for the fifth consecutive year. The data suggests that landlords continue to see residential property, especially in London, as a strong investment, despite signs that house price growth has stalled or even gone into reverse in some areas in the last year. Investors have seen annual returns of almost 10% since 2000, Ludlow Thompson said. Chairman Stephen Ludlow said the rising number of landlords shows the enduring appeal of investing in buy-to-let. “The long-term picture for the buy-to-let market remains strong,” he said.

Read more …

No chance of a second vote for now. But that may change yet.

Public Backs Fresh Referendum On ‘Final Say’ On Terms Of Brexit Deal (Ind.)

Support is growing for a fresh referendum on the final Brexit deal, according to a new poll showing the public back the idea for the first time. The survey found that 44% of people want a vote on the exit terms secured by Theresa May, amid continued uncertainty over the withdrawal agreement. That is a clear eight points ahead of the 36% who reject a further referendum, the research conducted for the anti-Brexit Best for Britain group showed. The group pointed to evidence that “Brexit is sharpening the British public’s minds” and called for MPs to respond to the people’s growing desire for a “final say”.

The referendum would be held on the details of the deal the prime minister must strike by the autumn – on both the planned transition period and a “framework” for a permanent trade and security relationship. Eloise Todd, Best for Britain’s chief executive, said voters should be allowed to choose between the details of the future on offer outside the EU, or staying inside the bloc. “Now there is a decisive majority in favour of a final say for the people of our country on the terms of Brexit. This poll is a turning point moment,” she said. “The only democratic way to finish this process is to make sure the people of this country – not MPs across Europe – have the final say, giving them an informed choice on the two options available to them: the deal the government brings back and our current terms.

Read more …

Celente rants are always good.

Murderers & Thieves Sold Out America – Gerald Celente (USAW)

Renowned trends researcher Gerald Celente says the trade war President Trump is starting against China must be fought for America to survive. Celente explains, “We have lost 3.5 million jobs (to China). Some 70,000 manufacturing plants have closed. Why would anybody be fighting Trump to do a reversal of us being in a merchandise trade deficit of $365 billion? Tell me any two people that would do business with each other and one side takes a huge loss and keeps taking it. . . So, why would people argue and fight and bring down the markets because Trump wants to bring back jobs and readjust a trade deficit that, by any standard, is destroying the nation?” Who’s to blame for the lopsided trade deficits destroying the middle class of America?

Look no further than the politicians and corporations buying them off. Celente charges, “They sold us out. The European companies and the American companies sold us out, and the people fighting Trump are also the big retailers because they’ve got their slave labor making their stuff over there. They bring it back here and mark up the price, and they make more money. If they have to pay our people to do that work, they have to pay them a living wage and they can’t make enough profit. That’s who is fighting us. . You go back to our top trend in 2017, and it was China was going to be the leader in AI (artificial intelligence) now and beyond, and that is exactly what happened. All the corporations have sold us out. . . .The murderers and the thieves sold out America.”

Celente thinks the odds are there will not be a financial crash in 2018 “because they are repatriating all that dough from overseas at a very low tax rate and because of the tax cuts from 35% to 21%. These are the facts. In the first three months of this year, there have been more stock buybacks and mergers and acquisitions activity than ever before in this short period of time because of all that cheap money going back into the corporations. That’s what’s keeping the markets up.”

Read more …

Shell’s political power will shield it.

Shell Predicted Dangers Of Fossil Fuels And Climate Change In 1980s (Ind.)

Oil giant Shell was aware of the consequences of climate change, and the role fossil fuels were playing in it, as far back as 1988, documents unearthed by a Dutch news organisation have revealed. They include a calculation that the oil company’s products alone were responsible for 4% of total global carbon emissions in 1984. They also predict that changes to sea levels and weather would be “larger than any that have occurred over the past 12,000 years”. As a result, the documents foresee impacts on living standards, food supplies and other major social, political and economic consequences.

In The Greenhouse Effect, a 1988 internal report by Shell scientists, the authors warned that “by the time the global warming becomes detectable it could be too late to take effective countermeasures to reduce the effects or even to stabilise the situation”. They also acknowledged that many experts predicted an increase in global temperature would be detectable by the end of the century. They went on to state that a “forward-looking approach by the energy industry is clearly desirable”, adding: “With the very long time scales involved, it would be tempting for society to wait until then before doing anything. “The potential implications for the world are, however, so large that policy options need to be considered much earlier. And the energy industry needs to consider how it should play its part.”

Read more …

Money trumps history.

Indigenous People Are Being Displaced Again – By Gentrification (Latimore)

It is symptomatic of the colonial-settler prerogative that has sought to eliminate the offensive presence of the natives from any profitable territory. In 21st-century Australia, the “dispersal” that began with European invasion continues through the gentrification of city suburbs where Indigenous identities persist. In the colonial argot of the 19th century, dispersal euphemistically described a bloody practice of massacre and forced dispossession of First Nations peoples, often performed as punishment for perceived theft, or any other form of resistance to the colonisers more generally. In the early and mid-20th century, blackfullas were forcibly coerced into government reserves most commonly known as “missions”.

The overarching intent of these “protection” policies was to ensure the dissolution of First Nations culture and traditional governance structures, pushing mob to develop from “their former primitive state to the standards of the white man”, as the Aboriginal Protection Board said in 1935. When the missions began to be disbanded after the second world war, it forced significant Indigenous migration from the bush to towns and cities, where we repopulated places like Fitzroy, Brisbane’s West End and particularly Redfern in great numbers. This 1950s policy of “assimilation” was essentially a state-sanctioned experiment to force Indigenous people to give up their beliefs and traditions as they adapted to urban life.

[..] Yet the place of blackfullas in Australia’s cities is under threat. Faced with rapid gentrification and associated rental and ownership price hikes, urban Indigenous populations continue to relocate to the outer suburbs, where cheaper housing is usually located. The trend could be viewed as a contemporary iteration of the dispersals of the past – decidedly less bloody, though equally impelled by capitalistic imperatives.

Read more …

Logic.

Fish Populations In Great Barrier Reef Collapse After Bleaching Events (Ind.)

The coral bleaching events that have devastated the Great Barrier Reef in recent years have also taken their toll on the region’s fish population, according to a new study. While rising temperatures on the reef killed nearly all the coral in some sections, the effects on the wider marine community have been less clear. Now, scientists have begun to establish the long-term effects of bleaching events on the Great Barrier Reef’s fish population. This work is essential for researchers trying to understand what will happen to coral reef ecosystems as global warming makes mass bleaching events more frequent. “The widespread impacts of heat stress on corals have been the subject of much discussion both within and outside the research community,” said PhD student Laura Richardson of the ARC Centre of Excellence for Coral Reef Studies.

“We are learning that some corals are more sensitive to heat stress than others, but reef fishes also vary in their response to these disturbances.” Ms Richardson and her collaborators studied reefs in the northern section of the Great Barrier Reef, where around two-thirds of corals were killed in the 2016 bleaching event that followed a global heatwave. The researchers found there were “winners” and “losers” among the fish species on the reef, but overall there was a significant decline in the variety of species following bleaching. Their results were published in the journal Global Change Biology. “Prior to the 2016 mass bleaching event, we observed significant variation in the number of fish species, total fish abundance and functional diversity among different fish communities,” said co-author Dr Andrew Hoey.

“Six months after the bleaching event, however, this variation was almost entirely lost.” Predictably, the scientists noted that fish with intimate associations with corals suffered severe losses. Butterflyfish, which feed on corals, faced the steepest declines. In response to the looming threat of coral bleaching, scientists have called for “radical interventions” to save the world’s reefs. Some have suggested that more than 90% of corals could die by 2050 at the current rate of global warming.

Read more …

Feb 132018
 
 February 13, 2018  Posted by at 3:46 pm Finance Tagged with: , , , , , , , , , , ,  


Frank Larson Chrysler reflection, 42nd Street near 5th Ave, New York 1950s

 

Update: Dutch Foreign Minister Halbe Zijlstra resigned at 5pm local time, before the parliamentary debate could take place. But that still leaves Rutte in place with his own version of “when it gets serious, you have to lie”.

 

 

There will be a parliamentary debate in Holland (the Netherlands) today about abject lies about Russia and Vladimir Putin that its Foreign Minister, Halbe Zijlstra, has been telling the country for a few years now. Zijlstra is supposed to fly to Russia tomorrow to meet with his Russian peer, Sergey Lavrov. One would suppose Zijlstra will be fired later today, if only to prevent such a meeting from taking place, but that is by no means a given.

Here’s what happened: in 2006, there was a ‘conference’ in Putin’s dacha outside of Moscow. Zijlstra worked for Shell at the time at a lower level. Later, he has pretended he way present at a meeting with Putin in which the latter supposedly talked about his dreams for a ‘Greater Russia’.

Now, Zijlstra has revealed he was not at that meeting. He claimed ‘a source’ was there and told him about it, and he had wanted to protect the source and therefore pretended he himself was present. That source, then-Shell CEO Jeroen van der Veer, not only never asked for any such protection, he also sent an email to paper De Volkskrant saying that Zijlstra had ‘misinterpreted’ the story Van der Veer had told him (a diplomatic word for he lied).

Putin never talked about ambitions for a Greater Russia, and never said Kazachstan was ‘nice to have’. Zijlstra made that all up. There had been mention of Greater Russia, but in a nostalgic, historical manner. And now Van der Veer, undoubtedly much to his chagrin, gets dragged into this entire false tale.

Because the entire Dutch government, longtime Prime Minister Mark Rutte first and most of all, has said Zijlstra’s lies were somehow acceptable because the ‘inhoud’ (tenor, content, narrative) of his story was true. That is to say, Rutte claims that Putin does indeed dream of land-grabbing, of invading Ukraine, the Baltic States etc.

 

It doesn’t matter if you have no proof of something (see the painfully botched MH17 investigation), and neither does it matter if you just make the whole thing up. The only thing that matters in Holland is that you stick to the narrative. Which, there is no other way to look at it, is fully unproven and entirely made up.

This makes the government of Holland (a NATO member), and certainly Rutte, a danger to world peace. Therefore, Rutte has to go along with Zijlstra. Because he not only condones the latter’s lies and fantasies, maintained in his days as Foreign Minister, Rutte himself also makes claim after claim based on no proof at all. Or at least nothing he has ever revealed.

Holland should never have chaired the MH17 investigation, because it was its main victim (2/3 of the near 300 who died in the plane crash had Dutch passports). In the 3,5 years since the tragedy, not an ounce of evidence has ever been published by the investigators that proves Russia was the culprit. But claims to that end have been freely made over the entire period.

Fro his Putin-bashing, then-Dutch Foreign Minister Frans Timmermans got himself a cushy job as second to EU head Jean-Claude Juncker (and yes, Juncker’s “when it gets serious, you have to lie” comes to mind in the Zijlstra thing). Timmermans, like then-US Secretary of State Joe Biden, wasted no time in fingering Russia as the perpetrator. They both made this claim within minutes. Again, without any proof.

 

None of this is a specific Dutch issue. The western world, led by the US, has created an atmosphere and a narrative in which it’s deemed acceptable to lie about Russia, about Vladimir Putin, about Russian hackers, and about connections Americans and western Europeans who don’t abide by the narrative, have to Russia and everything connected with it.

And well, they are right in one sense: there is a pattern here. The Russiagate investigations in the US into ties of Trump associates with Russians, like the Dutch investigation into MH17, continue ad infinitum without producing a sliver of proof.

Various and multiple claims pertaining to alleged Russian actions in Crimea, Ukraine, Syria etc. have come up hollow. Indeed, what actions Russia has undertaken are largely in response to American and EU ‘provocation’.

And yes, all this plays out against the backdrop of the military-industrial complex that hides behind the identity of NATO, an organization without a reason to exist even since the Berlin wall came down (the wall has now been gone longer than it ever existed). NATO is a convenient entity for the entirety of the western arms industry, and the neocons that still hold sway in various of its member-nations, to publicize its fear-mongering anti-Russia messages from.

Those messages keep being duly publicized by mainstream media. The Russian Foreign Ministry issued a statement today in which it said “bilateral relations with Holland are being overshadowed by an unparalleled anti-Russia campaign in Dutch media.”

“Holland accuses Russia of spreading disinformation (fake news). People in the Dutch government keep on making such unfunded claims.” Dutch media readily and uncritically disperse the idea that Russian authorities are obsessed with the creation of a Great Russia. How is that not an example of fake news?”

 

Holland would be crazy to let Zijlstra go to Moscow tomorrow to talk to Lavrov. But, given what has already been said, one can only conclude that the country is indeed crazy. Or at the very least its government is. Still, even if parliament today decides that Zijlstra must leave his post, chances that they’ll send Rutte packing as well are zero.

Even though as prime minster he’s publicly stated that his Foreign Minister telling outright lies about another country is no problem as long as he stays with the narrative that said country is a threat, a narrative for which apparently no evidence must ever be presented.

At the next EU meeting Rutte is more likely to be hailed for his stance, because the narrative is that of the entire EU, of Brussels, Berlin and Paris. And NATO.

Will this episode wake up the Dutch people? Fat chance. They will focus on Zijlstra, and probably clamor for him to leave, and then go about their daily job of feeding their readers and watchers their, as Moscow puts it, “unparralleled anti-Russia campaign.”

People like Rutte and Merkel do a very good job of showing us that Europeans have more to fear from their own governments than they do of Putin. But nobody is listening. Because their media have become as much of an echo chamber as the US MSM.

Still, make no mistake: what Rutte tells his people is that he cannot be trusted. That there are things more important than the truth: the narrative. This means they will never again be able to trust him to tell them the truth. He just said so himself.

 

 

Feb 282017
 
 February 28, 2017  Posted by at 10:29 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle February 28 2017


Ben Shahn L.F. Kitts general store in Maynardville, Tennessee 1935

 

A Hole in the Head (Jim Kunstler)
Trump’s Fed Can Start a Central Bank Revolution (BBG)
Trump Puts Final Touches on Speech Focusing on Economy, Defense (BBG)
Number Of Distressed US Retailers At Highest Level Since Great Recession (MW)
The Housing Crisis (Renegade)
China’s Continuing Credit Boom (NYFed)
ADB Says Emerging Asia Infrastructure Needs $26 Trillion by 2030 (BBG)
Greece Said to Expect Revised Bailout Proposal for Tuesday Talks
French Court Probes Leave Le Pen Unscathed as Fillon Bid Falters (BBG)
Shell 1991 Film Warned Of Climate Change Danger (G.)
Britain’s Child Migrant Program: Why 130,000 Children Were Shipped Abroad (G.)
Slavery Claims As UK Child Sex Abuse Inquiry Opens (AFP)

 

 

Theory vs practice is a worthy discussion….

A Hole in the Head (Jim Kunstler)

We need a new civil war like we need a hole in the head. But that’s just it: America has a hole in its head. It’s the place formerly known as The Center. It didn’t hold. It was the place where people of differing views could rely on each other to behave reasonably around a touchstone called the National Interest. That abandoned place is now cordoned off, a Chernobyl of the mind, where figures on each side of the political margin fear to even sojourn, let alone occupy, lest they go radioactive. Anyway, the old parties at each side of the political transect, are melting down in equivalent fugues of delusion, rage, and impotence — as predicted here through the election year of 2016. They can’t make anything good happen in the National Interest.

They can’t control the runaway rackets that they engineered in legislation, policy, and practice under the dominion of each party, by turns, going back to Lyndon B. Johnson, and so they have driven themselves and each other insane. Trump and Hillary perfectly embodied the climactic stage of each party before their final mutual sprint to collapse. Both had more than a tinge of the psychopath. Trump is the bluff that the Republicans called on themselves, having jettisoned anything identifiable as coherent principles translatable to useful action. Hillary was an American Lady Macbeth attempting to pull off the ultimate inside job by any means necessary, her wickedness so plain to see that even the voters picked up on it. These two are the old parties’ revenge on each other, and on themselves, for decades of bad choices and bad faith.

[..] Something like this has happened before in US history and it may be cyclical. The former Princeton University professor and President, Woodrow Wilson, dragged America into the First World War, which killed over 53,000 Americans (as many as Vietnam) in only eighteen months. He promulgated the Red Scare, a bit of hysteria not unlike the Race and Gender Phobia Accusation Fest on the Left today. Professor Wilson was also responsible for creating the Federal Reserve and all the mischief it has entailed, especially the loss of over 90% of the dollar’s value since 1913. Wilson, the perfect IYI of that day.

The reaction to Wilson was Warren Gamaliel Harding, the hard-drinking, card-playing Ohio Main Street boob picked in the notorious “smoke-filled room” of the 1920 GOP convention. He invoked a return to “normalcy,” which was not even a word (try normality), and was laughed at as we now laugh at Trump for his idiotic utterances such as “win bigly” (or is that big league?). Harding is also known for confessing in a letter: “I am not fit for this office and should never have been here.” Yet, in his brief term (died in office, 1923), Harding navigated the country successfully through a fierce post-World War One depression simply by not resorting to government intervention.

Read more …

… also when it comes to the Fed.

Trump’s Fed Can Start a Central Bank Revolution (BBG)

President Donald Trump will select three members of the Federal Reserve board during his term in office, including a replacement chair for Janet Yellen when her appointment expires early next year. He should seize the chance to refresh the Fed with faces from the business community, adding executives to the roster of PhD economists who currently run monetary policy in most of the world. The Fed appointments come at a key juncture in U.S. economic policy, one that makes business knowhow an even more valuable commodity for a rate-setter than usual. Trump’s fiscal policies will set a new backdrop for the monetary policy environment, given his intention to cut personal and business tax rates and boost investment in the nation’s infrastructure.

So appointing executives to the Fed who’ve had to take fiscal and monetary policy into account when making decisions on where and when to build new factories or make other capital expenditure decisions makes sense. Torsten Slok, the chief international economist for Deutsche Bank, sent around a chart last week showing how the composition of the Fed has become increasingly focused on PhD economists: It’s little wonder that in this populist age central bank independence is under attack. As Bloomberg News reported on Monday, the rise of populism is putting pressure on central banks as “institutions stuffed with unelected technocrats wielding the power to affect the economic fate of millions.” Leavening the boards of policy makers with executives who’ve made hiring and firing decisions and have helped build companies would be a way to address the perception that decisions about borrowing costs are made in ivory towers by economists who’ve all read the same textbooks but don’t inhabit the same world as the people they’re supposed to serve.

Read more …

Entertainment 2017-style.

Trump Puts Final Touches on Speech Focusing on Economy, Defense (BBG)

President Donald Trump was still working Monday evening on the final touches of an address to Congress that will focus on economic opportunity and national security, administration officials said. The officials, who briefed reporters on the eve of the address on the condition of anonymity, said the speech will offer a vision of where Trump wants to take the country as well as an early accounting of campaign promises he has already delivered on through executive actions such as the U.S. withdrawal from the Trans-Pacific Partnership trade agreement. They declined to say whether the president would offer more concrete proposals on major goals, such as rebuilding U.S. infrastructure, rewriting the tax code and replacing the Obamacare health plan.

Trump’s speech comes as the new president tries to stabilize his administration after a turbulent start marked by struggles implementing an initial flurry of executive orders and a controversy over contacts between Trump advisers and Russian officials that led to the resignation of his national security adviser. While Trump’s inauguration speech offered a gloomy portrait of an America racked by violence and economic decay, White House press secretary Sean Spicer said earlier Monday that the address to Congress will strive for an optimistic vision focused on “the renewal of the American spirit.”

Surveys show a deep partisan divide over the president’s performance. A Wall Street Journal/NBC News poll released Monday showed Trump’s approval rating at 44% – a record low for a new president. But 85% of Republicans see Trump favorably, versus just 9% of Democrats. National security was the key theme of an early glimpse of the budget the White House offered on Monday. Administration officials said the president’s first budget would seek to boost defense spending by $54 billion – offset by an equivalent cut from other discretionary spending.

Read more …

How to kill a city part 827.

Number Of Distressed US Retailers At Highest Level Since Great Recession (MW)

The number of U.S. retailers ranked at the most-distressed level of the credit-rating spectrum has more than tripled since the Great Recession of 2008-2009 and is heading toward record levels in the next five years, Moody’s Investors Service said Monday. The rating agency is the latest to weigh in on the state of the sector, and has 19 names in its retail and apparel portfolio, 14% of which are now trading at Caa/Ca. That’s deep into speculative, or “junk,” territory. It’s also a percentage close to the 16% considered distressed during the 2008/2009 period, said a Moody’s report led by retail analyst Charles O’Shea. The rise is part of a wider trend affecting sectors across Moody’s coverage that has retail replacing oil and gas as the most-troubled industry.

Retailers are in the midst of a secular shift to online sales led by juggernaut Amazon.com and that’s forcing many of them to spend heavily on their e-commerce operations. At the same time, mall traffic has slowed dramatically as consumer behavior changes, forcing many to discount heavily, hurting profit margins. The 19 issuers on Moody’s list have more than $3.7 billion of debt maturing in the next five years, with about 30% of that total coming due by the end of 2018. The number is even higher when private credit is included. “While credit markets continue to provide ready access for companies spanning the rating spectrum—allowing many to proactively refinance debt and bolster balance sheets—that could change abruptly if market conditions or investor sentiment shift,” said O’Shea.

Read more …

How to kill a city part 828.

The Housing Crisis (Renegade)

Why is UK housing now so out of reach for so many people? Yes, property has been a safe bet, but we ask what are the economic risks and the social side effects of ever-increasing house prices? Host Ross Ashcroft is joined by Dr Rebecca Ross and economist Professor Steve Keen.

Read more …

These numbers are beyond fantasy.

China’s Continuing Credit Boom (NYFed)

Debt in China has increased dramatically in recent years, accounting for roughly one-half of all new credit created globally since 2005. The country’s share of total global credit is nearly 25%, up from 5% ten years ago. By some measures (as documented below), China’s credit boom has reached the point where countries typically encounter financial stress, which could spill over to international markets given the size of the Chinese economy. To better understand the associated risks, it is important to examine the drivers of China’s expansion in credit, the increasing complexity of its financial system, and evidence that its supply of credit may be growing more rapidly than reported. Note, however, that there are several features of China’s financial system that reduce the threat of a financial disruption.

Nonfinancial debt in China has increased from roughly $3 trillion at the end of 2005 to nearly $22 trillion, while banking system assets have increased sixfold over the same period to over 300% of GDP. In 2016 alone, credit outstanding increased by more than $3 trillion, with the pace of growth still roughly twice that of nominal GDP. As a result, the “credit-to-GDP gap”—the difference between the debt-to-GDP ratio and its long-run trend—has reached almost 30 percentage points. The international experience suggests that such a rapid buildup is often followed by stress in domestic banking systems. Roughly one-third of boom cases end up in financial crises and another third precede extended periods of below-trend economic growth.

As seen in the chart below, rising nonfinancial sector debt was driven initially by a surge in corporate borrowing in response to the global financial crisis. This additional debt was comprised mostly of medium- and long-term corporate loans related to infrastructure and property projects.

Read more …

Better start printing then.

ADB Says Emerging Asia Infrastructure Needs $26 Trillion by 2030 (BBG)

Asia’s infrastructure race is just getting started. Emerging economies across the region will need to invest as much as $26 trillion on building everything from transport networks to clean water through 2030 to maintain growth, eradicate poverty and offset climate change. That’s according to an Asian Development Bank report released Tuesday that highlights the need for massive construction and upgrading of public works and for much greater private sector investment. Leaving out spending to mitigate climate change, some $22.6 trillion will still be needed over the same period, the ADB said. Big-ticket investment of $14.7 trillion is needed for power, $8.4 trillion for transport, $2.3 trillion for telecommunication costs and $800 billion for water and sanitation, adjusted for climate change.

The bulk of infrastructure work is needed in East Asia, which accounts for 61% of the ADB estimate. As a percentage of GDP, the Pacific leads all other sub regions needing investment valued at 9.1% of GDP, followed by South Asia at 8.8%. The new projection of a $1.7 trillion annual infrastructure need, adjusted for climate change, is more than double the $750 billion that the Manila-based development bank estimated in 2009–though the latest report looks at 45 of the ADB’s developing members compared with 32 last time and uses 2015 prices compared to 2008 ones.

Read more …

Hard to see how this sadistic play can survive the various elections.

Greece Said to Expect Revised Bailout Proposal for Tuesday Talks

Greece’s auditors are pulling together a list of policies the country needs to implement to unlock additional bailout funds as they prepare for the resumption of talks with Athens on Tuesday, two people familiar with the matter said. Greece has asked European lenders for a draft Supplemental Memorandum of Understanding and the IMF for a Memorandum of Economic and Financial Policies as it braces for details of creditor demands, the people said, declining to be identified as negotiations between the two sides aren’t public. The government expects an accord in March or early April, but the scale of pending issues raises concerns they may be politically hard to sell at home, they said.

Greek Prime Minister Alexis Tsipras’s government last Monday agreed to legislate structural reforms demanded by the IMF that will lower the threshold of tax-free income and amend the pension system by 2019, effectively crossing what it had once characterized as a red line. The government says the deal won’t increase austerity since the new legislation will include stimulus measures in addition to belt-tightening reforms. Tsipras told lawmakers on Friday that the bailout review can be completed by March 20 when euro–area finance ministers are set to meet in Brussels. It could drag on to the next Eurogroup meeting on April 7th given the number of outstanding issues that need to be resolved, the people said. Greece is looking for a “global deal” by May that would also include potential decisions on medium-term debt-relief measures and the inclusion of Greek bonds in the ECB’s debt-purchase program.

Read more …

Because Fillon is the establishment.

French Court Probes Leave Le Pen Unscathed as Fillon Bid Falters (BBG)

Prosecutors’ interventions in the French election have so far done more damage to the establishment’s one-time champion than the nationalist firebrand vowing to overthrow the system. The Republican Francois Fillon and National Front leader Marine Le Pen both say the criminal probes they face are political plots against them, but it’s only Fillon, a church-going 62-year-old former prime minister, who has been set back by the allegations. Le Pen’s suspected misuse of her allowance from the European Parliament hasn’t hurt her at all. “The National Fronts is seen as persecuted by the system so their supporters think that if everyone else has gotten rich of the system, it’s good for them to get some of that money back,” said Jean-Yves Camus, a political scientist linked to the Jean Jaures research institute.

“Fillon tried to use the conspiracy angle but it doesn’t work because he’s from the system.” On Tuesday, a committee of lawmakers in Brussels will consider a request from the French courts to strip Le Pen of her parliamentary immunity over two separate cases of defamation and publishing violent images of Islamic State killings on Twitter. The committee is due to release its recommendations to the EU parliament next week, and the full chamber will vote on the issue later in March. Le Pen is battling a range of mainstream politicians asking for one more chance to address voters’ concerns about lackluster economic growth and the perceived threat of immigration and terrorism. Instead, she’s offering voters a chance to upend the status quo by putting up border controls, stopping mass immigration and pulling out of the euro.

Read more …

This is a surprise to anyone?

Shell 1991 Film Warned Of Climate Change Danger (G.)

The oil giant Shell issued a stark warning of the catastrophic risks of climate change more than a quarter of century ago in a prescient 1991 film that has been rediscovered. However, since then the company has invested heavily in highly polluting oil reserves and helped lobby against climate action, leading to accusations that Shell knew the grave risks of global warming but did not act accordingly. Shell’s 28-minute film, called Climate of Concern, was made for public viewing, particularly in schools and universities. It warned of extreme weather, floods, famines and climate refugees as fossil fuel burning warmed the world. The serious warning was “endorsed by a uniquely broad consensus of scientists in their report to the United Nations at the end of 1990”, the film noted.

“If the weather machine were to be wound up to such new levels of energy, no country would remain unaffected,” it says. “Global warming is not yet certain, but many think that to wait for final proof would be irresponsible. Action now is seen as the only safe insurance.” A separate 1986 report, marked “confidential” and also seen by the Guardian, notes the large uncertainties in climate science at the time but nonetheless states: “The changes may be the greatest in recorded history.” The predictions in the 1991 film for temperature and sea level rises and their impacts were remarkably accurate, according to scientists, and Shell was one of the first major oil companies to accept the reality and dangers of climate change.

But, despite this early and clear-eyed view of the risks of global warming, Shell invested many billions of dollars in highly polluting tar sand operations and on exploration in the Arctic. It also cited fracking as a “future opportunity” in 2016, despite its own 1998 data showing exploitation of unconventional oil and gas was incompatible with climate goals.

Read more …

What nation kicks out its own children…

Britain’s Child Migrant Program: Why 130,000 Children Were Shipped Abroad (G.)

More than 130,000 children were sent to a “better life” in former colonies, mainly Australia and Canada, from the 1920s to 1970s under the child migrant programme. The children, aged between three and 14, were almost invariably from deprived backgrounds and already in some form of social or charitable care. It was believed, they would lead happier lives. Charities such as Barnardo’s and the Fairbridge Society, the Anglican and Catholic churches and local authorities helped with the organisation of the emigration. Once there, the children were often told they were orphans to better facilitate their fresh start. The parents – many of them single mothers forced to give up their child for adoption because of poverty or social stigma – believed this was giving them best chance in life, though often did not have details of where their offspring were sent to.

The reality, for some of those children, was a childhood of servitude and hard labour at foster homes: on remote farms, at state-run orphanages and church-run institutions. They were often separated from siblings. Some were subjected to physical and sexual abuse. In 2010, the then prime minister, Gordon Brown, issued an official apology, expressing regret for the “misguided” programme, and telling the Commons: “To all those former child migrants and their families … we are truly sorry. They were let down. “We are sorry they were allowed to be sent away at the time when they were most vulnerable. We are sorry that instead of caring for them, this country turned its back”. He announced a £6m fund to reunite families that had been torn apart. The last children sailed in 1967. But it is only recently, as their stories have been told, that details of the abuse, and the official sanction which made it possible, has become public.

Read more …

…only to have them enslaved and abused.

Slavery Claims As UK Child Sex Abuse Inquiry Opens (AFP)

England’s mammoth inquiry into historical child sex abuse was told of the “torture, rape and slavery” suffered by child migrants shipped to Australia, at its first public hearings on Monday. The wide-ranging Independent Inquiry into Child Sexual Abuse opened by looking at the schemes that sent thousands of vulnerable children to far-flung parts of the Commonwealth in the decades after World War II. David Hill broke down as he told the inquiry of the “endemic” sexual abuse at the school he was sent to in Australia. “I hope this inquiry can promote an understanding of the long-term consequences and suffering of those who were sexually abused,” he said. “Many never recover and are permanently afflicted with guilt, shame, diminished self-confidence, low self-esteem, fear and trauma.”

British Prime Minister Theresa May set up the inquiry in 2014 when she was interior minister. The British Empire sent some 150,000 children abroad over 350 years, according to a 1998 parliamentary study, although the probe started Monday by looking at use of the practice after World War II. It was justified as a means of slashing the costs of caring for lone children and providing disadvantaged young people with a fresh start, while meeting labour shortages in the Commonwealth and populating colonial-era lands with white British settlers. Between 1945 and 1970, youngsters were sent mainly to Australia, but also Canada, New Zealand and what is now Zimbabwe — often without the consent of their families.

But the promise of a good upbringing and an exciting new life in the sun was often, in reality, a world of forced labour, brutal treatment and sexual assault in remote institutions run by churches and charities. “They sent us to a place that was a living hell,” victim Clifford Walsh told the BBC. Oliver Cosgrove was sent to Australia in 1941, one of an estimated 5,000 to 6,000 children shipped there from 1922 to 1967. “Those who were abused tried in vain to tell others, who they hoped and believed might assist them. But they didn’t,” his representative told the inquiry. “This was a systematic and institutional problem.”

Read more …

Jan 202016
 
 January 20, 2016  Posted by at 9:22 am Finance Tagged with: , , , , , , , , , ,  


DPC Pere Marquette transfer boat 18 passing State Street bridge Chicago River 1901

Oil Falls 3% On Surplus Worries, As US Drops Toward $27 (Reuters)
Shell Q4 Profit Plunges as Oil’s Slump Deepens (BBG)
Chinese Stocks in Hong Kong Fall to Global Financial Crisis Lows (BBG)
Nikkei, Hang Seng Lead Slump In Asian Markets (CNBC)
Recent S&P 500 Correction Appears Small in Context of History (BBG)
World Faces Wave Of Epic Debt Defaults: Central Bank Veteran (AEP)
Hedge Fund That Called Subprime Crisis Urges China To Devalue Yuan by 50% (BBG)
China Is Getting Less and Less Bang for Its Credit Buck (BBG)
China Needs a Great Economic Shift Away From Debt Fueled ‘Growth’ (Wolf)
China Data Indicate Heavy Deflationary Pressure (Nikkei)
What Is China’s Actual GDP? (CNBC)
Mining Giant BHP Billiton Lowers Forecast, Investors Fear Dividend Cut (WSJ)
Fed’s $216 Billion Treasuries Rollover Recalls Crisis Era Buying (BBG)
ECB Plans To Order Banks To Tackle Bad Loans (Reuters)
Varoufakis Speaks About 2015 Greece Parallel Currency Plan (Kath.)
Greek Immigration Minister Slams Turkish Failure To Curb Refugee Flow (Kath.)
EU To Scrap ‘First Country’ Asylum Claim Rule (FT)
Children On Syrian Refugee Route Could Freeze To Death: UN (Reuters)
Doctors Without Borders Says EU Worsens Refugee Crisis, Aids Smugglers (AP)
Rate Of Refugee Arrivals In Greece Dwarfs 2015 Pace (AFP)
More Plastic Than Fish In The Sea By 2050 (Guardian)

On our way to $20 and beyond.

Oil Falls 3% On Surplus Worries, As US Drops Toward $27 (Reuters)

Crude futures slumped again in Asian trade on Wednesday, with U.S. oil droppping more than 3% toward $27 a barrel and its lowest since 2003, on worries about global oversupply. That came after the International Energy Agency, which advises industrialized countries on energy policy, warned that oil markets could “drown in oversupply” in 2016. The crash hammered Asian stock markets with MSCI’s broadest index of Asia-Pacific equities outside Japan falling 2.8% to a four-year low. “Oil prices are at a level where OPEC countries are all struggling. They are selling oil for cashflow not for profit,” said Jonathan Barratt at Sydney’s Ayers Alliance. “U.S. producers are holding out, but I think they’re bleeding as well,” he said.

U.S. crude futures were trading down 97 cents at $27.49 a barrel, or 3.4%, at 0625 GMT, the lowest since September 2003. The contract settled down 96 cents, or 3.26%, the session before. The expiry of the February contract on Wednesday was “probably” adding further downward pressure on U.S. West Texas Intermediate oil as traders closed positions, said Michael McCarthy at Sydney’s CMC Markets. Brent futures dropped 61 cents to $28.15 a barrel, or 2.1%, not far from the 12-year low hit on Monday. It settled up 21 cents, or 0.7 per cent, in the previous session. McCarthy said the market had already taken into account the 500,000 barrels per day Iran has forecast it will add to global production. “(Iran) is really another strike in the same beating the market has taken,” McCarthy said.

Read more …

Profit? You mean creative accounting.

Shell Q4 Profit Plunges 50% as Oil’s Slump Deepens (BBG)

Royal Dutch Shell said fourth-quarter profit plunged as the rout in crude prices deepened. The company sees profit adjusted for one-time items and inventory changes of $1.6 billion to $1.9 billion, Shell said Wednesday in a preliminary earnings statement. That compares with the $1.8 billion average estimate of nine analysts surveyed by Bloomberg, and profit of $3.3 billion a year earlier. Shell, which is buying BG Group in the industry’s largest deal in a decade, has cut jobs and reduced spending as CEO Ben Van Beurden prepares for a prolonged downturn. Crude’s slump below $30 a barrel has driven down Shell’s market value to the lowest in almost seven years and prompted concern it may be overpaying for BG’s production and cash flow.

The average price of Brent crude, the international benchmark, fell 42% in the quarter from a year earlier to $44.69 a barrel, the lowest since 2009. Aberdeen Asset Management and Invesco Asset Management, two of Shell’s major shareholders, have said they will support the company’s plan to buy BG even with crude’s collapse. The acquisition allows Shell to accelerate the reshaping of its portfolio toward deepwater assets and natural gas and BG’s production is likely to grow strongly in the next three to five years, Invesco fund manager Martin Walker said. Standard Life Investments is the only Shell holder that has so far publicly said it will vote against the combination because the acquisition is “value destructive.”

Shell has justified the deal by saying it boosts its ability to maintain dividends, makes it the world’s biggest liquefied natural gas company and gives it oil and gas assets from Australia to Brazil. The company’s B shares, the class of stock used in the deal, have dropped 11% this year, extending last year’s 31% decline. Shell’s shareholders are scheduled to vote on the acquisition on Jan. 27 and BG’s the next day. Shell requires the backing of 50% of its holders. In BG’s case, votes in favor must represent at least 75% of the total value of the company’s shares. The merger will probably become effective Feb. 15, Shell said.

Read more …

Hong Kong is fast becoming the eye of the storm.

Chinese Stocks in Hong Kong Fall to Global Financial Crisis Lows (BBG)

Chinese stocks in Hong Kong tumbled to the lowest level since the depths of the global financial crisis as a slide in the city’s dollar spurred concerns over capital outflows. Oil producers and property developers led declines. The Hang Seng China Enterprises Index plunged as much as 5.5% before paring losses to trade 4% lower at 1:57 p.m. in Hong Kong. PetroChina fell to a 11-year low as oil extended its decline and Cnooc, China’s largest offshore oil company, said it will cut output for the first time in more than a decade. Hong Kong’s dollar traded near its weakest level since 2007 as concern about China’s slowing economy curbs demand for the city’s assets. The Shanghai Composite Index lost 0.8%.

“The local dollar’s slide is igniting concerns that capital outflows are accelerating as funds are selling equities en masse,” said Castor Pang at Core-Pacific Yamaichi Hong Kong. “Overall sentiment is very bad in Hong Kong.” The so-called H-shares gauge slid to 8,043.47, heading for the lowest level since March 2009. The index has slumped 17% this year, joining China’s Shanghai Composite as the world’s worst-performing major global benchmark measure out of the 93 tracked by Bloomberg. Similar to their mainland counterparts, Hong Kong policy makers are fighting to prevent a vicious cycle of capital outflows and a weakening currency with the resulting financial-market volatility heightening concern that China’s deepest economic slowdown since 1990 will worsen. PetroChina and China Petroleum & Chemical tumbled at least 6.2% in Hong Kong.

Oil extended its decline from the lowest close in more than 12 years, while Cnooc’s output cut increased speculation the nation’s producers are succumbing to the global price war. Cnooc’s acknowledgment that spending cuts are hurting production may be a prelude to further reductions by Chinese explorers, according to Nomura. The stock dropped 6%. Hong Kong’s Hang Seng Index tumbled 3.7% to a three-year low as trading volumes surged 77% above the 30-day average for this time of day. Property developers led declines, with Cheung Kong Property Holdings Ltd. sliding 6.1% to a record low. “To protect the Hong Kong dollar peg the government has to raise the interest rate,” said Louis Tse, a Hong Kong-based director at VC Brokerage Ltd. “The property companies are high-beta stocks because you have to borrow during the development phase,” with higher borrowing costs potentially weighing on home owners as well.

Read more …

And Europe follows as we speak.

Nikkei, Hang Seng Lead Slump In Asian Markets (CNBC)

Asian stocks tumbled Wednesday, with major indexes declining by more than 1% each, as global sentiment remained low on concerns over economic growth, China and low oil prices. “The frailty in the Chinese growth remain the core problem for investors and the spotlights are not moving away from it anytime soon,” Naeem Aslam, chief market analyst at AvaTrade, said in a note Wednesday. Overnight, the IMF cut its global growth forecast for 2016 to 3.4%, from 3.6%. The organization cited slower growth in emerging markets, especially in China, falling commodity prices, and rising interest rates in the U.S. as potential risks to global growth. Markets in China opened in negative territory, following a 3.5% gain in the previous session after Beijing released a slew of data including the full-year growth number for 2015.

The Shanghai composite was down 1.15% and the Shenzhen composite declined by 1.10%. The CSI300 was down 1.64%. Hong Kong’s Hang Seng index was down 3.77%. The Chinese economy grew by 6.9% in 2015, according to official data, down from 2014’s 7.3%, and the slowest pace of economic expansion since 1990. Some analysts believe further intervention and economic stimulus from Beijing are forthcoming as the country juggles a structural re-balancing act. Cynthia Kalasopatan from Mizuho Bank said in a morning note, “Soft growth momentum led to expectations that Chinese authorities will need to implement further policy easing to support the economy. “More policy and RRR cuts may be in the pipeline,” she added, “What’s more, targeted fiscal tools may be used as well to spur growth.”

The People’s Bank of China (PBOC) said late on Tuesday it would inject more than 600 billion yuan ($91.22 billion) into the financial system to help ease a liquidity squeeze expected before the Lunar New Year holiday in early February. [..] bank and property shares were sharply lower. Bank of China’s Hong Kong-listed shares dropped 1.97% and its Shanghai-listed ones fell 1.70%. Hong Kong-listed Shimao Property dropped 6.02%.

Read more …

The shape of things to come.

Recent S&P 500 Correction Appears Small in Context of History (BBG)

The recent 10% drop in U.S. stocks looks very small when considered in the context of the 220% rally from the 2009 nadir to the 2015 peak. The Standard & Poor’s 500 Index remains more than 5% above its 200-week moving average, and has not spent this long continuously above it since the 1990s dot-com era. When that bull run finished, the market fell to 38% below the 200-week moving average, while the 2009 crash bottomed out 48% below it.

Read more …

“The European banking system may have to be recapitalized on a scale yet unimagined, and new “bail-in” rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.”

World Faces Wave Of Epic Debt Defaults: Central Bank Veteran (AEP)

The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned. “The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS). “Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said. “It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he said in Davos.

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.” The next task awaiting the global authorities is how to manage debt write-offs – and therefore a massive reordering of winners and losers in society – without setting off a political storm. Mr White said Europe’s creditors are likely to face some of the biggest haircuts. European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed. The European banking system may have to be recapitalized on a scale yet unimagined, and new “bail-in” rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.

The warnings have special resonance since Mr White was one of the very few voices in the central banking fraternity who stated loudly and clearly between 2005 and 2008 that Western finance was riding for a fall, and that the global economy was susceptible to a violent crisis. Mr White said stimulus from quantitative easing and zero rates by the big central banks after the Lehman crisis leaked out across east Asia and emerging markets, stoking credit bubbles and a surge in dollar borrowing that was hard to control in a world of free capital flows. The result is that these countries have now been drawn into the morass as well. Combined public and private debt has surged to all-time highs to 185pc of GDP in emerging markets and to 265pc of GDP in the OECD club, both up by 35 %age points since the top of the last credit cycle in 2007. “Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem too,” Mr White said.

[..] In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style “Fisherite” debt-deflation. Mr White said the Fed is now in a horrible quandary as it tries to extract itself from QE and right the ship again. “It is a debt trap. Things are so bad that there is no right answer. If they raise rates it’ll be nasty. If they don’t raise rates, it just makes matters worse,” he said. There is no easy way out of this tangle. But Mr White said it would be a good start for governments to stop depending on central banks to do their dirty work. They should return to fiscal primacy – call it Keynesian, if you wish – and launch an investment blitz on infrastructure that pays for itself through higher growth.

Read more …

Don’t think they’d do it in one go. But who knows, it might be the way to go.

Hedge Fund That Called Subprime Crisis Urges China To Devalue Yuan By 50% (BBG)

Mark Hart, the hedge fund manager whose bets against U.S. subprime mortgages and European sovereign debt proved prescient, said China should weaken its currency by more than 50% this year. A one-off devaluation would allow policy makers to “draw a line in the sand” at a more appropriate level for the yuan, easing pressure on China’s foreign-exchange reserves and removing an incentive for capital outflows, according to Hart, who’s been betting against the currency since at least 2011. China should devalue before its $3.3 trillion hoard of reserves shrinks much further, he said, because the country can still convince markets it’s acting from a position of strength. “There wouldn’t be anything underhanded about a sharp devaluation,” Hart said. “Why should China be forced to suffer deflationary effects of defending its currency when everyone else isn’t?”

Hart, whose prescription clashes with consensus forecasts for the yuan and recent comments from senior government officials, said China would be justified in weakening the currency after central banks in Europe and Japan fueled declines in their exchange rates to stoke economic growth in recent years. Such a move would likely come as a surprise to global investors, who were rattled by a drop of less than 3% in the yuan last August. China’s current approach to managing the currency’s decline has been costly. Foreign-exchange reserves dropped by a record $513 billion last year as the central bank intervened to ease the currency’s slide, while an estimated $843 billion of capital flowed out of China in the 11 months through November as some investors sought to get in front of further yuan weakness.

Aside from intervention, policy makers have moved to curb bearish bets against the yuan and tighten restrictions on the flow of money across the country’s borders. Those measures have fueled doubts among global investors about the ruling Communist Party’s commitment to give markets a central role in the world’s second-largest economy and make the yuan an international currency. “They’re trying to drive a car with one foot on the brake,” said Hart, who estimates the People’s Bank of China spent more than $100 billion supporting the yuan in onshore and offshore markets during the first 12 days of January. “If China were to devalue to a level that wasn’t actually a true equilibrium they will get run over pretty quickly, they will blow through FX reserves, and then they will lose face because they’ll be forced to devalue.”

Read more …

Omen.

China Is Getting Less and Less Bang for Its Credit Buck (BBG)

Behind the numbers showing China’s continued slowdown at the end of last year lies a warning for Communist Party leaders who have been equally determined to embrace economic change and to ensure a rapid pace of growth. The flashing yellow light: there’s less and less power behind policy makers’ stimulus. For each $1 in credit expansion, China added the equivalent of 27 cents of GDP last year, the least since 2009, according to data compiled by Bloomberg from government figures released Tuesday. As recently as 2011, each $1 generated 59 cents.

The diminishing mileage for credit raises a conundrum for President Xi Jinping and his premier, Li Keqiang, of whether to let China slow further as they shut down surplus smokestack industrial capacity, or keep pumping liquidity. It also highlights the importance of financial-industry reforms – another ball the leadership is juggling. “This will require rolling back preferences that tilt, and trap, the flow of investment in inefficient state enterprises,” said David Loevinger, a former China specialist at the U.S. Treasury and now an analyst at fund manager TCW in Los Angeles. “This is always challenging because the companies that stand to lose are big and powerful and the companies that stand to win are small and may not even yet exist.”

Read more …

Martin Wolf noticed the omen too: “..the “incremental capital output ratio” — the amount of capital needed to generate additional income — has roughly doubled since the early 2000s.”

China Needs a Great Economic Shift Away From Debt Fueled ‘Growth’ (Wolf)

Chinese policymakers have a stellar reputation for the quality of economic management but the same was true of the Japanese three decades ago. For the Japanese, the difficulty of shifting from their high-savings, high-investment, catch-up economic model proved very large. Indeed, this has still not been completed. While the Chinese economy has far more room to grow than Japan a quarter of a century ago, its disequilibria are even bigger. Moreover, contrary to conventional wisdom, the transition to a new pattern of growth has not really begun. Already, the difficulty of handling this transition is damaging Chinese policymakers reputation. Mistakes in handling the implosion of the bubble economy of the 1980s did the damage in Japan. Now it is the Chinese authorities mishandling of the currency and the stock market.

Similarly, the financial crisis of 2007 and 2008 devastated the reputation of western financiers and policymakers. Everybody seems to be a genius when credit is surging. Understandably and rightly, observers are calling upon the Chinese authorities to be more transparent. Given their political system -‘the bureaucrat knows best’- that is going to be hard to do, but this is a second-order matter. The first-order one is that it is unclear how and whether the transition to a more balanced economy is to be made. Again, some people focus on the transition from manufacturing to services. This does seem to be going quite well: according to Chinese data, industry grew at an annual rate of just 6% in the first three quarters of 2015, while services grew 8.4%. However, a large part of this apparent success is due to growth of income from financial services.

Just as was the case in the west, before the crisis, this is as much a symptom of credit growth as of a transition to a more balanced ‘new normal’. The fundamental indicators of a change in the shape of the economy would be a fall in savings and investment and a rise in consumption. Such a shift is necessary not only because much of the investment is wasted, but because it is associated with an explosive rise in debt. China has today a far higher share of investment in GDP than other high-growth east Asian economies ever had. Furthermore, according to the McKinsey Global Institute, overall indebtedness is extremely high with a concentration in non-financial corporations. It is higher than in the US, for example.

In response to the 2008 financial crisis, China promoted a huge rise in debt-fuelled investment to offset the weakening in external demand. But underlying growth in the economy was slowing. As a result, the “incremental capital output ratio” — the amount of capital needed to generate additional income — has roughly doubled since the early 2000s. China’s overall capital-output ratio is also very high and rising. At the margin, much of this investment is likely to be lossmaking. If so, the debt associated with it will also be unsound. But, if wasteful investment were slashed, the economy would go into recession.

Read more …

From debt to deflation, a natural course.

China Data Indicate Heavy Deflationary Pressure (Nikkei)

Excess manufacturing capacity, rising real estate inventories and volatile financial markets weigh on China’s economy as the government tries to engineer a soft landing, with data for 2015 suggesting that deflation may loom. China’s real GDP growth slipped to 6.9% last year, the lowest in a quarter century. Real growth had not dropped below 7% since 1990, when international sanctions were imposed in response to the 1989 Tiananmen Square crackdown. Nominal growth, based on official GDP figures, totaled 6.4%, falling below real growth for the first time since 2009. Nominal growth that is slower than real growth indicates heavy deflationary pressure. Severe overcapacity in major manufacturing industries is one cause. China’s steel industry has 400 million tons of excess capacity.

Exports came to 100 million tons in 2015, on par with Japan’s annual output. With supply outstripping demand, wholesale prices sank 5.2% in 2015, 3.3%age points faster than in 2014. Companies are shouldering heavier real debt-repayment burdens despite repeated interest rate cuts by the People’s Bank of China. Production is depressed, with crude steel, cement and sheet glass output dropping in 2015. Electricity use, a more accurate gauge of economic conditions, slid 0.2%. Mounting real estate inventories are another drag on the economy. Inventories soared nearly 50% in two years to 718.53 million sq. meters at the end of 2015. Housing activity has been sluggish for some time in many outlying cities.

Office building vacancy rates have reached about 40% in the inland cities of Chongqing and Chengdu, a developer said. With little new investment coming in, spending on property development edged up 1% in 2015 – just one-tenth the growth seen in 2014. Turmoil in financial markets compounds the country’s problem. The slide in Chinese stocks since the start of the year could dampen brisk consumer spending. Services accounted for half of GDP in 2015, with the finance industry contributing significantly amid a rise in stock trading. If retail investors flee the market, growth could drop accordingly.

Read more …

“It doesn’t take a rocket scientist to figure out the growth in old China for the past year or so has been somewhere around zero — it’s nothing like 6.8%..”

What Is China’s Actual GDP? (CNBC)

China announced Tuesday that its economy notched 6.9% growth in 2015 — down from the prior year, but perfectly matching expectations. And yet commentary from around the world suggests almost no outside investor or economist believes Beijing’s figures. Although there has never been definitive evidence that Chinese economic data is exaggerated, the widely-held theory says that China’s National Bureau of Statistics will overstate growth in a stability-minded effort to hide the truth about a slowing economy. So instead of relying on government reports, China-watchers analyze other metrics for a more complete picture of the country’s GDP. “Nobody knows for sure, but when we look at things that are harder numbers to fudge…our estimate is growth probably about 3.5% versus roughly 7,” said A. Gary Shilling.

“We watch (the official GDP announcement) as closely as we do in some sense out of a sense of obligation,” said Donald Straszheim, head of China Research at Evercore ISI. “I wasn’t expecting to learn a great deal last night when these numbers came out.” Not only does China’s NBS refuse to respond to inquiries, Straszheim said, but the statistics unit will announce only its total GDP growth figure — not the components of that number. “If you don’t have the components, how can you have a total? And if you have the components, which would add to the total, why are they not publicly available?” Straszheim asked. [..] For his part, Shilling said his firm models China’s possible GDP growth on measures of rail traffic, electricity consumption, coal consumption and debt.

Billionaire distressed asset investor Wilbur Ross, meanwhile, sees China’s actual growth at about 4% on a similar basket of metrics. The “reason is that if you look at physical indicators — rail car loadings, truck loadings, cement consumption, steel consumption, exports, natural gas consumption, electricity consumption — none of those are consistent with 6.8 or 6.9,” he explained. Straszheim said his group uses data from sources it regards as largely independent from government pressure, pointing to commodity consumption among other measures. But most of these indicators seek to measure the share of China’s economy based on exporting, manufacturing, and capital investment — and Beijing has made no secret that it sees the country shifting toward an increasingly service-oriented economy.

That could, in turn, potentially make it even harder for investors to know the truth about China’s GDP. “It doesn’t take a rocket scientist to figure out the growth in old China for the past year or so has been somewhere around zero — it’s nothing like 6.8%,” Straszheim said, explaining that the “new” China of services and consumer spending is tough to measure in the absence of robust data from the private sector. [..] Derek Scissors, a scholar for the American Enterprise Institute, pointed out that China’s own official numbers seem to contradict one another. For example, China’s Xinhua reported that November railways cargo fell 15.6% year on year, but the state statistics office said industrial production through the year was up 6.1%. “What? Did they just produce the goods and leave them on the factory floor and they never went anywhere?” Scissors asked.

Read more …

Putting on the brave face mask.

Mining Giant BHP Billiton Lowers Forecast, Investors Fear Dividend Cut (WSJ)

BHP Billiton said it is committed to protecting its balance sheet amid a sharp downturn in world commodity markets, as expectations build about the miner preparing to cut its dividend. The Anglo-Australian mining giant has faced growing speculation it may have to cut its payout by as much as half this year as it grapples with plunging resources prices and the fallout from one of its worst mining disasters, a deadly dam burst at a mine operated by Samarco Mineração SA, a 50-50 joint venture with Brazil’s Vale SA. Last week, BHP also announced its largest write-down ever, a roughly US$7.2 billion pretax charge against its U.S. onshore energy assets as oil prices slumped below US$30 a barrel for the first time in more than 10 years.

Only 18 months ago, the market was speculating about the possibility of a major share repurchase by the company to reward investors. Now, even maintaining its dividend, a US$6.6 billion annual burden on its balance sheet, appears a stretch. Cutting investor payouts is a measure big companies are loath to take, for fear of alienating important shareholders. It is particularly difficult when options for growth are limited. “We continue to cut costs and remain focused on safely improving our operational performance to enhance the resilience of our business,” Chief Executive Andrew Mackenzie said Wednesday. “In this environment, we are also committed to protecting our strong balance sheet so we have the financial flexibility to manage further volatility and take advantage of the expected recovery in copper and oil over the medium term,” he added.

In August, BHP recorded its worst annual earnings result since 2003. Slackening demand from China, as miners ramp up production from mines planned when prices were booming, has hit prices of nearly every commodity, including coal, iron ore, oil and copper, which are BHP’s core products. BHP’s share price has since slumped to its lowest level in more than a decade. That’s been exacerbated by uncertainty over the Samarco disaster. [..] the Nov. 5 incident killed at least 17 people and triggered a criminal investigation and roughly US$5 billion civil lawsuit by authorities. On Wednesday, it also led BHP to pare its projection for global iron-ore production in the year through June, to 237 million metric tons from an earlier forecast of 247 million. Investors have urged BHP to clear the air on its plans for future dividends. They say uncertainty over the outlook has been a key driver in sending the miner’s share price sharply lower.

Read more …

Well, to be fair, this IS the crisis era.

Fed’s $216 Billion Treasuries Rollover Recalls Crisis Era Buying (BBG)

If you were under the impression that the Federal Reserve was done buying Treasuries, think again. While the central bank won’t be expanding its balance sheet, about $216 billion of Treasuries in its portfolio mature in 2016, up from negligible amounts the past few years. Last week, New York Fed President William C. Dudley reiterated policy makers’ plan to keep reinvesting the proceeds for the time being, giving bondholders and Wall Street dealers reason to cheer. The Fed is the biggest holder of the government’s debt. Its $2.5 trillion hoard, amassed in a bid to support the economy after the financial crisis, is more of a focus for some investors than the trajectory of interest rates. From this month through 2019, about $1.1 trillion of Treasuries in the portfolio are set to mature.

For bond bulls, the Fed’s signals that it will roll over the obligations have been another reason to doubt the consensus forecast that yields will rise in 2016. If officials had chosen to stop funneling that money into new debt, the government would likely have to boost borrowing by roughly an equivalent amount this year, potentially pushing up Treasury yields. “The Fed tightening gave us little worry, but the unwind of the balance sheet gives us major worries,” said Mark MacQueen, co-founder of Sage Advisory Services. “The Fed is keenly aware that the balance sheet has a much greater impact on the overall yield levels in the markets going forward than raising rates.”

Officials anticipate keeping the holdings stable until the normalization of interest rates is “well under way,” though there’s no specific level for the Fed’s target at which reinvestment would end, Dudley said in prepared remarks of a speech Jan. 15. That ensures the legacy of the Fed’s quantitative-easing programs, which boosted its Treasuries holdings from less than $500 billion in 2009, will extend even further into the future. As officials roll maturing issues into new debt, that swells the amount coming due later in the decade.

Read more …

As in: bring them out into the open. Problem is, that’s the death knell for many banks.

ECB Plans To Order Banks To Tackle Bad Loans (Reuters)

The ECB plans to tell euro zone banks how to better manage bad loans, banking officials said on Tuesday, in an effort to resolve an issue that is curbing the region’s economic recovery. Bad loans have more than doubled across the euro zone since 2009 and stood at nearly a €1 trillion at the end of 2014, the IMF said last year. Those loans burden banks and make it harder for them to lend. The ECB has asked a number of banks across the euro zone, including Italy’s Monte dei Paschi di Siena and UniCredit, about their non-performing loans. They were selected to establish a representative sample, not necessarily because they are particularly affected, the sources said. Italian bank shares have tumbled in recent days on fears the ECB had singled out some banks because of their vulnerabilities.

But the banking sources said all types of banks across the continent were included in the sample. The request for information is the first step in a process that will see the ECB define best practices on how to deal with bad loans, encompassing banks with different business models in different jurisdictions. Those guidelines will eventually be used by the ECB’s supervisory teams when formulating recommendations for the banks on their watch. The recommendations might range from hiring more staff to deal with non-performing loans or changing internal practices, to making more provisions, reviewing the value of soured loans or even creating a bad bank. An ECB spokesman said the request for information was “standard supervisory practice”. A bad loan is typically one that is more than 90-days overdue.

Read more …

“I carry a great responsibility,” he said. “I would do a lot of things differently.”

What really happened was Varoukais couldn’t guarantee Plan X would work, and Tsipras then said it would be too great a responsibility to implement it.

Varoufakis Speaks About 2015 Greece Parallel Currency Plan (Kath.)

Yanis Varoufakis was instructed last year by Prime Minister Alexis Tsipras to put together a small team of people to draw up a plan for introducing a parallel currency if Greece was unable to reach an agreement with its lenders on a new bailout, the ex-finance minister said in a TV interview late Tuesday. Speaking on Skai TV’s “Istories” (Stories) program, Varoufakis outlined what was known as Plan X. He said that a small team of about six people examined the various parameters surrounding a potential standoff that would lead to Greece being unable to meet its obligations. Among the issues examined by Varoufakis and his advisers were how the country would continue to have access to medicines, fuel and food under such circumstances.

Varoufakis said that he advised Tsipras to put the plan, which would see Greece defaulting on 27 billion euros in Greek government bonds held by the European Central Bank, into action as soon as he called a referendum at the end of June. “I thought that if we did what we had decided as a negotiating team… and announced that we would restructure these bonds and implement the parallel payment system, then by the Monday, Tuesday or Wednesday before the referendum the discussion we expected between [ECB president Mario] Draghi and [German Chancellor Angela] Merkel would take place,” he said. Varoufakis said that Tsipras considered adopting Plan X but that he was advised against it by Deputy Prime Minister Yiannis Dragasakis.

“The prime minister thought about it very carefully,” said the ex-minister. “I saw him puzzle over what he should do and in the end he decided to follow Dragasakis’s recommendation and not mine.” Varoufakis added that he was against efforts to secure funding from Russia but that there had been an agreement with China regarding investment in Greece, including in Greek bonds. “This agreement was overturned, though, with a phone call from Berlin,” he claimed. The outspoken economist said that he became frustrated with Tsipras when the prime minister agreed to a primary surplus target of 3.5% of GDP for the coming years, saying that he thought this goal was “macroeconomically impossible.” Tsipras told him that he agreed in return for receiving debt relief. “It’s true I don’t have a lot of hair but when I heard this I started pulling out what little I have left,” he said. Varoufakis admitted that he “failed” during his time in office. “I carry a great responsibility,” he said. “I would do a lot of things differently.”

Read more …

He should chide Brussels, not Ankara.

Greek Immigration Minister Slams Turkish Failure To Curb Refugee Flow (Kath.)

Immigration Policy Minister Yiannis Mouzalas on Tuesday criticized Turkey for failing to take any serious measures to cut the flow of migrants into Europe as Brussels called on Greece to complete construction of five “hot spots” on its territory. In an interview with Deutsche Welle, Mouzalas said Ankara’s failure to clamp down on human traffickers put an excess burden on the country’s shoulders. “Smuggling networks are still in full operation… The deportation of migrants who have traveled from Turkey is also a big problem,” Mouzalas said. Greek authorities had carried out 130 deportations in the past 15 days, he said, while some 30,000 people had arrived from Turkey over the same period.

The International Organization for Migration (IOM) confirmed Tuesday that 31,244 migrants and refugees had arrived in Greece by sea since the beginning of 2016, compared with just 1,472 recorded arrivals in January last year. Meanwhile the Greek minister rebuffed criticism that his government had turned down EU help to deal with the crisis. He said that although Athens had officially requested 1,800 staff from EU border agency Frontex, only 900 were dispatched to Greece. Mouzalas did acknowledge delays in completing the five hot spots for registering and processing migrants and refugees on the islands of Lesvos, Samos, Leros, Kos and Chios. Speaking to German newspaper Sueddeutsche Zeitung, European Union Migration Commissioner Dimitris Avramopoulos said Greece – and Italy – must set up hot spots within the next four weeks.

Read more …

Big turnaround, big relief for Greece. But big problems elsewhere.

EU To Scrap ‘First Country’ Asylum Claim Rule (FT)

Brussels is to scrap rules that make the first country a refugee enters responsible for any asylum claim, revolutionising the bloc’s migration policy and shifting the burden from its southern flank to its wealthier northern members. The “first-country” requirement is the linchpin of the EU refugee system. But it has become politically toxic for EU leaders as Germany and other states criticise frontier countries such as Greece and Italy for failing to register and shelter the 1.1m people that have poured into Europe from the Middle East and North Africa. The policy essentially broke down last year, when Germany waived its right to send hundreds of thousands of asylum-seekers back to other EU member states, but exhorted its reluctant partners to shoulder more responsibility.

The European Commission has concluded the rule – which is part of the Dublin regulation – is “outdated” and “unfair”, and will be scrapped in a proposal to be unveiled in March, according to officials briefed on its contents. The move could oblige some EU members such as Britain to take in many more refugees, since it would become harder to send them back to neighbouring countries. It could also increase the pressure on EU members to back a formal quota system and common asylum rights and procedures to spread the burden across the union. European Council president Donald Tusk on Tuesday warned that the EU had “no more than two months to get things under control” or face “grave consequences”.

Changing the rules on who is responsible for refugees when they arrive would mark a victory for Italian prime minister Matteo Renzi, who has repeatedly argued that the law is unfair and that other member states should do more to help with the refugee crisis. Replacing the “first country of entry” principle is likely to prove technically and politically tricky. Countries in northern Europe such as the UK are net beneficiaries from the status quo, able to transfer asylum-seekers back to other EU states quickly. Although the UK has an opt-out on EU migration policy, it has opted into the Dublin rules for this reason. In practice, the current rules have broken down.

Last autumn, German chancellor Angela Merkel controversially waived the country’s right to return Syrian refugees to the first country of entry, generating both praise and opprobrium from her peers – before reversing course and triggering months of chaotic border openings and closures across Europe. Transfers to Greece have been effectively banned since 2011 after the European Court of Human Rights declared that the country’s asylum system was unfit for purpose even before the recent influx.

Read more …

Don’t just talk, call that emergency assembly.

Children On Syrian Refugee Route Could Freeze To Death: UN (Reuters)

Thousands of refugee children traveling along the migration route through Turkey and southeastern Europe are at risk from a sustained spell of freezing weather in the next two weeks, the United Nations and aid agencies said on Tuesday. The U.N. weather agency said it forecast below-normal temperatures and heavy snowfall in the next two weeks in the eastern Balkan peninsula, Turkey, the eastern Mediterranean and Syria, Lebanon, Israel and Jordan. “Many children on the move do not have adequate clothing or access to the right nutrition,” said Christophe Boulierac, spokesman for the U.N. children’s agency UNICEF. Asked if children could freeze to death, he told a news briefing: “The risk is clearly very, very high.”

Children were coming ashore on the Greek island of Lesbos wearing only T-shirts and soaking wet after traveling on unseaworthy rubber dinghies, the charity Save the Children said in a statement. “Aid workers at the border reception center in Presevo say there is six inches of snow on the ground and children are arriving with blue lips, distressed and shaking from the cold,” it said. It said temperatures were forecast to drop to -20 degrees Celsius (-4°F) in Presevo in Serbia and -13 degrees (9°F) on the Greek border with Macedonia. Last year children accounted for a quarter of the one million migrants and refugees arriving across the Mediterranean in Europe, Boulierac said. The UN refugee agency UNHCR said a daily average of 1,708 people had arrived in Greece so far in January, just under half the December daily average of 3,508.

Read more …

Well, obviously.

Doctors Without Borders Says EU Worsens Refugee Crisis, Aids Smugglers (AP)

The aid group Doctors Without Borders said Tuesday attempts by various European Union nations to deter migrants have put thousands of people in danger and created more business for smugglers. In a report, it said border closures and tougher policing only encourage people seeking sanctuary or jobs to use other routes to get to Europe. MSF’s head of operations, Brice de le Vingne, said “policies of deterrence, along with their chaotic response to the humanitarian needs of those who flee, actively worsened the conditions of thousands of vulnerable men, women and children.” The group urged the EU to create more legal ways to come to Europe and allow asylum applications at the land border between Turkey and Greece.

More than 1 million migrants arrived in the EU last year, however they have not always been welcomed. Meanwhile, the EU’s top migration official says so-called “hotspots” should be up and running in Greece and Italy within a month in an effort to better control how migrants flow into the bloc and conduct early security checks on them. The hotspots are intended to register new arrivals, take fingerprints and other data, and perform background checks. Those with no chance of asylum would quickly be sent home, while others would be more evenly distributed among EU nations. Migration Commissioner Dimitris Avramopoulos was quoted by Germany’s Sueddeutsche Zeitung on Tuesday as saying he sees no immediate end to the flood of asylum seekers and that it’s critical to get hotspots running quickly.

Read more …

And nobody’s preparing, all they talk about is fewer refugees, even zero.

Rate Of Refugee Arrivals In Greece Dwarfs 2015 Pace (AFP)

Greece has seen 21 times more migrants arrive on its shores so far this month than in all of January 2015, the International Organization for Migration said Tuesday. Since the beginning of 2016, IOM said 31,244 migrants and refugees had arrived in Greece by sea, compared with just 1,472 recorded arrivals on the Greek islands in January last year. “This is a huge jump,” spokesman Itayi Viriri told reporters in Geneva, warning that it does not bode well for the rest of the year. “If the trend as it is now continues then certainly were looking at another record number,” he cautioned. In 2015, more than one million migrants and refugees made the perilous Mediterranean crossing to Europe – nearly half of them Syrians fleeing a civil war that has been raging for nearly five years.

Although the number of arrivals in Greece last year was initially small, by the end of the year the country alone saw well over 850,000 arrivals. The continued influx will likely add to the EUs dissatisfaction with Turkey, a hub for migrants seeking to reach Europe which has on occasion been criticised by its Western partners for not doing enough to limit the numbers crossing the Aegean Sea. Ankara and Brussels in November agreed a plan to stem the flow by providing Turkey with €3 billion of EU cash as well as political concessions for Turkish cooperation in tackling Europes worst refugee crisis since World War II. IOM said Tuesday that nearly 90% of those who have arrived in Greece so far this year are Syrians, Afghans and Iraqis. Most of them are not staying in Greece. IOM cited numbers from Greek police showing that nearly 31,000 migrants had crossed the border to Macedonia since the beginning of the month.

Read more …

Time for us to leave.

More Plastic Than Fish In The Sea By 2050 (Guardian)

As a record-breaking sailor, Dame Ellen MacArthur has seen more of the world’s oceans than almost anyone else. Now she is warning that there will be more waste plastic in the sea than fish by 2050, unless the industry cleans up its act. According to a new Ellen MacArthur Foundation report launched at the World Economic Forum on Tuesday, new plastics will consume 20% of all oil production within 35 years, up from an estimated 5% today. Plastics production has increased twentyfold since 1964, reaching 311m tonnes in 2014, the report says. It is expected to double again in the next 20 years and almost quadruple by 2050. Despite the growing demand, just 5% of plastics are recycled effectively, while 40% end up in landfill and a third in fragile ecosystems such as the world’s oceans.

Much of the remainder is burned, generating energy, but causing more fossil fuels to be consumed in order to make new plastic bags, cups, tubs and consumer devices demanded by the economy. Decades of plastic production have already caused environmental problems. The report says that every year “at least 8m tonnes of plastics leak into the ocean – which is equivalent to dumping the contents of one garbage truck into the ocean every minute. If no action is taken, this is expected to increase to two per minute by 2030 and four per minute by 2050 “In a business-as-usual scenario, the ocean is expected to contain one tonne of plastic for every three tonnes of fish by 2025, and by 2050, more plastics than fish [by weight].”

Read more …

Sep 282015
 
 September 28, 2015  Posted by at 8:21 am Finance Tagged with: , , , , , , , , , ,  


John Vachon Koolmotor, Cleveland, Ohio May 1938

Cash Beats Stocks And Bonds For First Time In 25 Years (MarketWatch)
US Bonds Flash Warning Sign (WSJ)
Waiting for Collapse: USA Debt Bombs Bursting (Edstrom)
China August Industrial Profits Fall 8.8% From A Year Earlier (Reuters)
Chinese Mining Group Longmay To Cut 100,000 Coal Jobs (China Daily)
VW Proves That Global Business Has Become A Law Unto Itself (Guardian)
Seven Reasons Volkswagen Is Worse Than Enron (FT)
German Transport Authority Demands VW Car Clean-Up Plan By October 7 (Bloomberg)
VW Scandal to Hurt Its Financing Arm (WSJ)
VW Staff, Supplier Warned Of Emissions Test Cheating Years Ago (Reuters)
VW’s New CEO Is Moving Forward With a Strategy Shift (Bloomberg)
Catalan Separatists Claim Election Win As Yes Vote For Breakaway (Guardian)
Sweden’s Negative Interest Rates Have Turned Economics On Its Head (Telegraph)
Zero Inflation Looms Again for ECB as Oil Drop Counters Stimulus (Bloomberg)
Tory Welfare Cuts Will Destroy Benefit Of UK’s New Living Wage (Guardian)
Corbyn Recruits Top Global Economists to Boost Economic Credentials (Bloomberg)
Swiss Watchdog Says Opens Precious Metal Manipulation Probe (Reuters)
Rousseff Worried About Brazilian Companies With Dollar Debt (Bloomberg)
Shell Halts Alaska Oil Drilling After Disappointing Well Result (Bloomberg)
Banksy’s Dismaland To Be Taken Down And Sent To Calais To Build Shelters (PA)
500 Migrants Rescued In Mediterranean This Weekend: Italian Coastguard (AFP)

Brought to you by QE.

Cash Beats Stocks And Bonds For First Time In 25 Years (MarketWatch)

Cash is on track this year to outperform both stocks and bonds, something that hasn’t happened since 1990, according to Bank of America Merrill Lynch. And it might all be down to the notion that central bank-fueled liquidity has peaked. Year-to-date annualized returns are negative 6% for global stocks and negative 2.9% for global government bonds, according to analysts led by Michael Hartnett in a Friday note. The dollar is up 6% and commodities are down 17%, while cash is flat. Here’s what this has to do with the liquidity story:

[Quantitative easing] & zero rates reflated financial assets significantly. The only assets that QE did not reflate were cash, volatility, the US dollar and banks. Cash, volatility, the US dollar are all outperforming big-time in 2015, which tells you markets have been forced to discount peak of global liquidity/higher Fed funds. Frequent flash [crashes] (oil, UST, CHF, bunds, SPX) tell the same story. Peak in liquidity = peak of excess returns = trough in volatility.

The note speaks to what has become a very important theme for investors. While the Bank of Japan and the ECB continue to provide quantitative easing, the Fed has stopped its asset purchases and is moving toward lifting rates from near zero, as is the Bank of England. The notion that liquidity has peaked and that financial markets must now adjust to that new dynamic. Indeed, billionaire hedge-fund investor David Tepper earlier this month argued that as China and other emerging-market central banks shed foreign reserves, liquidity is no longer flowing one direction, making for more volatile conditions.

Read more …

“Clearly, the fact that spreads have been widening since the middle of 2014 is a very worrisome trend..” “We continue to scratch our heads as to the driver of that.”

US Bonds Flash Warning Sign (WSJ)

The U.S. corporate-bond market is starting to flash caution signals about the broader economy. The difference in yield, called the “spread,” between bonds from America’s strongest companies and ultrasafe U.S. Treasury securities has been steadily increasing, a trend that in the past has foreshadowed economic problems. Wider spreads mean that investors want more yield relative to Treasurys to own bonds from U.S. companies. It can signal that investors are less confident about companies’ business prospects and financial health, though other factors likely also are at play. Spreads in investment-grade corporate bonds—debt from companies rated triple-B-minus or higher—are on track to increase for the second year in a row, according to Barclays data.

That would be the first time since the financial crisis in 2007 and 2008 that spreads widened in two consecutive years. The previous times were in 1997 and 1998, as a financial crisis roiled Asian countries, and a few years before the dot-com bubble burst in the U.S. Investors and analysts say they are closely watching the action to determine whether trouble is brewing once again. Concerns are growing about companies’ ability to pay back the massive debt load taken on in recent years, as ultralow interest rates spurred corporate finance chiefs to sell record amounts of bonds. There is also anxiety that economic weakness overseas could ultimately spill over into the U.S., a worry highlighted on Thursday when Caterpillar said it could cut more than 10,000 jobs amid a slowdown in construction-equipment sales in China.

“We could see the economy accelerate; we could see this global weakness pass,” said Brian Rehling at Wells Fargo Investment Institute. “But you could also see things go the other way, where the global economy continues to weaken.” [..] As investors grow more skittish, companies looking to sell new debt are being forced to pay up. Altice NV on Friday reduced the size of a junk-bond deal backing its purchase of Cablevision from $6.3 billion to $4.8 billion and paid higher yields than initially expected, according to S&P Capital IQ LCD. The company also increased the size of a term loan to help finance the $10 billion acquisition. “Clearly, the fact that spreads have been widening since the middle of 2014 is a very worrisome trend,” said Krishna Memani at OppenheimerFunds, which oversees some $220 billion. “We continue to scratch our heads as to the driver of that.”

Read more …

A very extensive overview of what locations in the US are due to default first, and second. Pick your local flavor.

Waiting for Collapse: USA Debt Bombs Bursting (Edstrom)

) It’s been so easy the past 15 years for local governments in the USA, state governments, government authorities, corporations, banks, hedge funds and the US Federal government to simply say how many millions, billions or trillions of dollars they wanted, pay some high priced call accountants to fill out some paperwork with fine print and voila, millions, billions and trillions of dollars in borrowed money simply appeared. It has been that easy! Now, the government in the USA owes $46 trillion, US corporations owe $15 trillion, US individuals owe $13 trillion plus there are $315 trillion in outstanding Wall Street derivatives. (Few Americans know what a derivative is, but we as a nation are on the hook for up to $315 trillion in additional debt because of these derivatives.)

These debt figures continue to escalate with each passing month. Detroit and Puerto Rico have only just begun the debt bombs bursting in the USA, the USA’s slow motion economic collapse. Who’s next? I’m going to tell you about some US local and state governments that have too much debt and are ripe for debt collapse along with a few US government authorities and corporations that borrowed too much money and are also ripe for debt collapse. Mr. Dudley of the New York Federal Reserve Bank recently warned of a wave of US municipal debt collapses coming soon. The problem is bigger than solely US municipalities as Mr. Dudley no doubt is aware.

Chicago or LA, which one is more likely to collapse first? Chicago. Kanakee County IL or Perry County KY? Kanakee County is more likely to go belly up first. Atlantic City (AC) or Yonkers? AC is more likely to bite the dust first. 1 out of 25 states are ready to collapse within months, as are 1 out of 20 US cities, 1 out of 15 US government authorities and 1 out of 7 US corporations. Within a few years, many US cities, counties, authorities, states and corporations will have debt collapsed, before the USA as a nation debt collapses. A tsunami of debt collapses is hitting the USA. The causes are government officials and corporate executives who borrowed too much easy money plus Wall Street bankers and hedge fund vultures who lent too much easy money.

Besides city, county and state collapses, there will also be school debt collapses, hospital debt collapses, government authority debt collapses, individual bankruptcies, corporate debt collapses and finally the nationwide debt collapse of the USA. If change cannot be brought about fast – like increasing revenue (e.g. raising taxes on the rich) or cutting spending (e.g. ending endless war, cutting military/intel spending) or both – then, the best way forward may be to evacuate. Get away from the places about to collapse as quickly as you can. If you find your home is burning to the ground, as I discovered one Sunday evening in New York City in the Summer of 2011, what are you going to do? Evacuate.

Read more …

TEXT

China August Industrial Profits Fall 8.8% From A Year Earlier (Reuters)

Profits earned by Chinese industrial companies declined 8.8% in August from a year earlier due to rising costs and persistent falling prices, official data showed on Monday, adding to signs of weakness in the world’s second largest economy. Also hurting firms was the stock market slump, which pushed down their investment returns while yuan fluctuation increased companies’ financial costs in August, the National Bureau of Statistics (NBS) said. During August, profits of industrial companies suffered the biggest annual fall since the NBS began monitoring such data in 2011. For the first eight months of this year, profits were down 1.9% from the year-earlier period, according to the NBS. The bureau said firms were squeezed by rising costs and falling prices with profits falling more quickly in August than in July.

In total, August profits were down 156.6 billion yuan ($24.59 billion) from a year earlier. The NBS said investment returns for industrial companies from a year earlier increased by 4.12 billion yuan in August, compared with a 11.04 billion yuan gain in July. Financial payments of industrial firms’ increased by 23.9% in August from a year earlier, compared to a 3% year-on-year drop in July. A plunge in China’s stock market over the summer and a surprise devaluation in the yuan have roiled global markets, and raised doubts inside and outside China over Beijing’s ability to manage its economy. Among 41 industrial sectors, 31 sectors had year-on-year growth of profit in the first eight months of this year, while 10 recorded drops, the NBS said.

Read more …

Beijing will spin this as some clean air initiative.

Chinese Mining Group Longmay To Cut 100,000 Coal Jobs (China Daily)

The largest coal mining group in Northeast China is cutting 100,000 jobs within the next three months to reduce its losses – one of the biggest mass layoffs in recent years. Heilongjiang Longmay Mining Holding Group Co Ltd, which has a 240,000 workforce, said a special center would be created to help those losing their jobs to either relocate or start their own businesses. Chairman of the group Wang Zhikui said the job losses were a way of helping the company “stop bleeding”. It also plans to sell its non-coal related businesses to help pay off its debts, said Wang. The State-owned mining group has subsidiaries in Jixi, Hegang, Shuangyashan and Qitaihe in Heilongjiang province, which account for about half the region’s coal production.

China’s coal mining industry has been struggling with overcapacity and falling coal prices since 2012. Last year, Longmay launched a management restructuring and cut thousands of jobs to stay profitable, amid the overall industry decline. However, the company still reported around 5 billion yuan ($815 million) in losses. It has been a dramatic fall from grace for the company, which in 2011 reported 800 million yuan in profit with annual production exceeding 50 million metric tons.

Read more …

Entire political systems in their pockets.

VW Proves That Global Business Has Become A Law Unto Itself (Guardian)

A well-functioning capitalism has, and will always need, multiple and powerfully embedded checks and balances – not just on its conduct but on how it defines its purpose. Sometimes those checks are strong, uncompromised unions; sometimes tough regulation; sometimes rigorous external shareholders; sometimes independent non-executive directors and sometimes demanding, empowered consumers. Or a combination of all of the above. CEOs, company boards and their cheerleaders in a culture which so uncritically wants to be pro-business do not welcome any of this: checks and balances get in the way of “wealth generation”. They are dismissed as the work of liberal interferers and apostles of the nanny state. Germany’s economy has been a good example of how checks and balances work well.

But the existential crisis at Volkswagen following its systematic cheating of US regulators over dangerous diesel exhaust emissions shows that any society or company forgets the truth at its peril. Volkswagen abused the system of which it was part. It became an autocratic fiefdom in which environmental sustainability took second place to production – an approach apparently backed by the majority family shareholder, with no independent scrutiny by other shareholders, regulators, directors or consumers. Even its unions became co-opted to the cause. Worse, the insiders at the top paid themselves, ever more disproportionately, in bonuses linked to metrics that advanced the fiefdom’s interests. But they never had to answer tough questions about whether the fiefdom was on the right track.

The capacity to ignore views other than your own, no external sanction and the temptation for boundless self-enrichment can emerge in any capitalism – and when they do the result is toxic. VW, facing astounding fines and costs, may pay with its very existence. So why did a company with a great brand, passionate belief in engineering excellence and commitment to building great cars knowingly game the American regulatory system, to suppress measured emissions of nitrogen dioxide to a phenomenal degree? Plainly, there were commercial and production benefits. It could thus sell the diesel engines it manufactured for Europe in the much tougher regulatory environment – at least for diesel – of the US and challenge Toyota as the world’s largest car manufacturer. Directors, with their bonuses geared to growth, employment and profits, could become very rich indeed.

Read more …

Bailout?!

Seven Reasons Volkswagen Is Worse Than Enron (FT)

It has only been a week since the stunning revelation that the Volkswagen group equipped millions of diesel-powered cars with software designed to fool anybody testing their emissions, and just days since the company’s chief executive, Martin Winterkorn, resigned. And yet there are reasons to believe that the fallout from this scandal will be as big as Enron, or even bigger. Most corporate scandals stem from negligence or the failure to come clean about corporate wrongdoing. Far fewer involve deliberate fraud and criminal intent. Enron’s accounting manipulation is often held up as a prime example of the latter and cases featuring the US energy company’s massive financial fraud are therefore taught in business schools around the world. Here are seven reasons why the Volkswagen scandal is worse and could have far greater consequences.

First, whereas Enron’s fraud wiped out the life savings of thousands, Volkswagen’s has endangered the health of millions. The high levels of nitrogen oxides and fine particulates that the cars’ on-board software hid from regulators are hazardous and detrimental to health, particularly of children and those suffering from respiratory disease. Second, led by Volkswagen, Europe’s car manufacturers lobbied hard for governments to promote the adoption of diesel engines as a way to reduce carbon emissions. Whereas diesel engines power fewer than 5% of passenger cars in the US, where regulators uncovered the fraud, they constitute more than 50% of the market in Europe thanks in large part to generous government incentives.

It was bad enough that Enron’s chief executive urged employees to buy the company’s stock. This, however, is the equivalent of the US government offering tax breaks at Enron’s behest to get half of US households to buy stock propped up by fraudulent accounting. Third, the fines and lawsuits facing Volkswagen are likely to surpass Enron in both scale and scope. Volkswagen’s potential liability to Environmental Protection Agency fines is $18bn. Add to this fines in most or all of the 50 US states and class action lawsuits by buyers and car dealers who have seen the value of their cars and franchises diminish overnight and you have a massive legal bill.

Read more …

Presumably, if you lower performance enough, it might be doable. But that makes it a toss-up between NOx and CO2.

German Transport Authority Demands VW Car Clean-Up Plan By October 7 (Bloomberg)

Germany’s car regulators have asked Volkswagen to provide a plan by Oct. 7 for if and when its vehicles will meet national emissions requirements, after the company admitted cheating on U.S. air-pollution tests. The Federal Motor Transport Authority sent a letter to VW requesting a “binding” program and schedule for a technical solution, Transport Minister Alexander Dobrindt said Sunday in an e-mailed statement. Volkswagen will present a plan in the coming days for how it will fix its affected vehicles and will notify customers and relevant authorities, Peter Thul, a company spokesman, said by phone. Bild reported earlier about the letter.

VW may have known for years about the implications of software at the center of the test-cheating scandal, newspapers reported. Robert Bosch GmbH warned VW in 2007 that its planned use of the software is illegal, according to Bild. A Volkswagen employee did the same in 2011, Frankfurter Allgemeine Zeitung reported. Volkswagen is investigating and will present its findings as soon as they’re available, Thul said, declining to elaborate.

Read more …

When it rains…

VW Scandal to Hurt Its Financing Arm (WSJ)

Volkswagen’s giant U.S. and European financing operations often act as lenders for car buyers and dealers for any of the brands in the company’s stable, from the namesake VW to Bentley, Lamborghini, Audi, Porsche and others. It bundles banking activities, including deposit taking and consumer lending to spur car sales, as well as leasing and insurance operations. The unit’s lending and leasing contracts are backed by cars. If the value of the car drops, the financial services unit may have to book a write-down. Volkswagen Financial Services AG, as it is formally known, is now evaluating whether it has to book charges on the collateral value of cars affected by a recall, a spokesman said. “We’re in talks with Volkswagen to evaluate the potential impact” and aim to produce results next week, he said.

With more than 11,000 employees and assets of around €114 billion, the Financial Services unit contributed €781 million or nearly 14% to the group’s overall net profit of €5.66 billion in the first half, according to an analyst presentation. The entire unit had 12.6 million contracts, 15% of which are in North America and 70% in Europe. The ECB late last week temporarily excluded asset- backed securities originated by Volkswagen AG from its bond buying program to review recent developments, according to a person familiar with the matter. The ECB hopes to complete its review soon, the person said. VW bonds fell last week.

Read more …

And nothing happened at all..

VW Staff, Supplier Warned Of Emissions Test Cheating Years Ago (Reuters)

Volkswagen’s own staff and one of its suppliers warned years ago about software designed to thwart emissions tests, two German newspapers reported on Sunday, as the automaker tries to uncover how long its executives knew about the cheating. The world’s biggest automaker is adding up the cost to its business and reputation of the biggest scandal in its 78-year history, having acknowledged installing software in diesel engines designed to hide their emissions of toxic gasses. Countries around the world have launched their own investigations after the company was caught cheating on tests in the United States. Volkswagen says the software affected engines in 11 million cars, most of which were sold in Europe. The company’s internal investigation is likely to focus on how far up the chain of command were executives who were responsible for the cheating, and how long were they aware of it.

The Frankfurter Allgemeine Sonntagszeitung, citing a source on VW’s supervisory board, said the board had received an internal report at its meeting on Friday showing VW technicians had warned about illegal emissions practices in 2011. No explanation was given as to why the matter was not addressed then. Separately, Bild am Sonntag newspaper said VW’s internal probe had turned up a letter from parts supplier Bosch written in 2007 that also warned against the possible illegal use of Bosch-supplied software technology. The paper did not cite a source for its report. Volkswagen declined to comment on the details of either newspaper report. “There are serious investigations underway and the focus is now also on technical solutions” for customers and dealers, a Volkswagen spokesman said. “As soon as we have reliable facts we will be able to give answers.”

Read more …

All the smoke and mirrors they can get their hands on.

VW’s New CEO Is Moving Forward With a Strategy Shift (Bloomberg)

Matthias Mueller pressed the Volkswagen board to move ahead with a reorganization he helped devise before the carmaker was caught up in an emissions-cheating scandal, as the new leader seeks to put his stamp on the company. The former Porsche boss wanted the new strategy to remain on the agenda of the Friday meeting in Wolfsburg, Germany, according to a person familiar with Mueller’s thinking, who asked not to be identified because the discussions were private. Volkswagen had intended to hold off on a reorganization aimed at streamlining decision-making to give the new boss a chance to settle in. But Mueller, who had assisted his predecessor Martin Winterkorn with devising the plan, didn’t want to wait to start making the changes.

Volkswagen said Friday that more authority will be given to individual brands and regions, a departure from the centralized structures that kept key decisions in Wolfsburg and the chief executive officer’s inner circle. The announcement capped a tumultuous week after the company admitted it rigged some diesel engines to cheat on emissions tests. Friday’s meeting, which took place in a newly constructed office building within Volkswagen’s main plant, started before noon and stretched into the evening amid wrangling over who knew what and when. Documents from four years ago that flagged the illegal software was evidently never sent up the chain of command, underscoring the need for external investigators, said another person familiar with the meeting.

When the 20-member panel finally dispersed and presented VW’s new CEO, Mueller was flanked by Volkswagen’s power players: Wolfgang Porsche, the head of the family that controls a majority of the company’s voting shares; Bernd Osterloh, the chief representative of Volkswagen’s 600,000 workers; the prime minister of Lower Saxony, Stephan Weil, whose state owns 20% of Volkswagen; and Interim Chairman Berthold Huber. Mueller vowed to do what it takes to fix the company and its tattered reputation. His mission statement was echoed by Osterloh, who said the company needs a new corporate culture that’s more inclusive and avoids a climate in which problems are hidden. Huber called the crisis a “political and moral catastrophe.”

Still, Mueller’s authority isn’t absolute. Winterkorn remains CEO of Porsche Automobil Holding SE, Volkswagen’s dominant shareholder. His continued role is a contentious issue especially for labor leaders, said a person familiar with the issue. The investment vehicle of the Porsche family moved on Saturday to tighten its control of the automaker by buying shares held by Suzuki Motor. The purchase takes the family’s holding in VW to 52.2% from 50.7%.

Read more …

A test of European democracy bigger than Greece. When the laws of the land you want to secede from won’t allow you to secede…

Catalan Separatists Claim Election Win As Yes Vote For Breakaway (Guardian)

Separatists took control of Catalonia’s regional government in an election result that could plunge Spain into one of its deepest political crises of recent years, by forcing Madrid to confront an openly secessionist government at the helm of one of its wealthiest regions. A record-breaking number of Catalans cast their vote in Sunday’s election, billed as a de facto referendum on independence. With more than 98% of the votes counted, the nationalist coalition Junts pel Sí (Together for Yes) were projected to win 62 seats, while far-left pro-independence Popular Unity Candidacy, known in Spain as CUP, were set to gain 10 seats, meaning an alliance of the two parties could give secessionists an absolute majority in the region’s 135-seat parliament. “We won,” said Catalan leaderArtur Mas i Gavarró, as a jubilant crowd waved estelada flags at a rally in Barcelona.

“Today was a double victory – the yes side won, as did democracy.” After attempts by Catalan leaders to hold a referendum on independence were blocked by the central government in Madrid, Mas sought to turn the elections into a de facto referendum, pledging to begin the process of breaking away from Spain if Junts pel Sí won a majority of seats. His party fell six seats short of a majority on Sunday. But Mas vowed to push forward with independence. “We ask that the world recognise the victory of Catalonia and the victory of the yes,” he said. “We have won and that gives us an enormous strength to push this project forward.” Junts pel Sí, representing parties from the left and right, as well as grassroots independence activists, captured 39.7% of the vote, while CUP received 8.2%.

The result leaves the separatists with 47.9% of the vote, shy of the 50%, plus one seat, that they would have needed if Sunday’s vote had been a real referendum. It’s a result that will leave the movement struggling to gain legitimacy on the world stage, said political analyst Josep Ramoneda, while setting Madrid and Barcelona on course for a collision. “The government in Catalonia will try to move forward with independence, but this result won’t allow them to take irreversible steps,” he said, pointing to a declaration of independence as an example. “I mean, nobody will recognise that.” Instead, Catalonia will be left to face Madrid alone, who will seek to stymie any attempts to move forward with independence. The Spanish prime minister, Mariano Rajoy, has vowed to use the full power of the country’s judiciary to block any move towards independence.

Read more …

The war on cash intensifies.

Sweden’s Negative Interest Rates Have Turned Economics On Its Head (Telegraph)

It has long been believed that when it comes to interest rates, zero is as low as you can go. Who would choose to keep their money in the bank if they had to pay for the privilege? But for the people who control the world’s money, this idea has recently been thrown out of the window. Many central banks have pushed their rates into negative territory and yet the financial system has still to come to an abrupt end. It is a discovery that flips on its head the conventional idea of how authorities could respond to future economic crises; and for central bankers, this has come as a relief. Central bank policymakers had believed they had run out of room to support their respective economies, with their interest rates held close to the floor. Traditionally, it was thought that if you wanted to boost the economy, the central bank would reduce its interest rates.

Normally, the rates offered on savings accounts would follow, and people would choose to spend more, and save less. But there’s a limit, what economists called the “zero lower bound”. Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy. What is happening now should not – according to conventional thinking – be possible. As central bank rates have turned negative, the rates offered on bank deposits have followed. Yet rather than stuffing cash under mattresses, people have left their money in the bank or spent it. Nowhere is the experiment with negative rates more obvious than among Nordic central banks.

Sweden – the first to dabble with negative rates – is perhaps the prime candidate for such experimentation. The country already has high savings rates, the third highest in the developed world according to the OECD and, despite growing at healthy rates, there appears to be plenty of slack left in the economy to prevent an overheat. Unemployment is unusually high for an advanced economy at more than 7pc, still well above its pre-crisis levels of sub-6pc. Crucially, the Riksbank’s mandate suggests that such a radical experiment is necessary. Policymakers have battled with deflation since late 2012, and with inflation at minus 0.2pc in August, it remains well below the central bank’s 2pc target.

To a great extent, the Riksbank’s hand has been forced by the plight of the eurozone. A tepid recovery in the currency union has required the ECB to bring in ever-looser policy. As the ECB’s actions have weakened the euro against Sweden’s krona, the cost of importing goods into Sweden has fallen, and weighed down on inflation. The Riksbank has had to cut its own rates in response in an attempt to avoid deep deflation. Sweden’s flexible approach to monetary policy has won it the plaudits of leading credit ratings agency. Standard and Poor’s recently reaffirmed the country’s triple AAA sovereign rating, remarking on the benefits it derives from “ample monetary policy flexibility”. Noting that the Riksbank had introduced both negative interest rates and quantitative easing, S&P said that “should inflation rates stay low or the krona appreciate materially, the central bank could lower the repo rate further”.

Read more …

It’s bewildering to see people describe QE as a success. But they get away with it.

Zero Inflation Looms Again for ECB as Oil Drop Counters Stimulus (Bloomberg)

If the euro area is about to run out of inflation – again – it won’t shock Mario Draghi. The ECB said more than three weeks ago that the inflation rate could turn negative this year because of the renewed decline in oil prices. The 19-nation region is set to take a step in that direction on Wednesday, when data will show consumer prices stagnated in September for the first time in five months, according to a Bloomberg survey of economists. Stalled prices would mark a setback for policy makers who have been trying to steer inflation back toward 2% for the better part of two years, and may spark a new debate about deflation risks. Yet while officials have repeatedly stressed that they’re prepared to add stimulus if needed, they’ve also said they want more evidence before making a decision.

“The figures this month are unlikely to prompt any action from the ECB,” said Ben May, an economist at Oxford Economics Ltd. in London. “Quantitative easing has prevented the emergence of second-round effects from the new decline in oil prices and the pickup in core inflation in recent months is a cause for comfort. Some people may be concerned by this new fall in inflation, but the ECB has tried to distance itself from these concerns.” The EU’s statistics office will publish September inflation data on Wednesday. Estimates in the Bloomberg survey range from 0.3% to minus 0.2%. Eurostat will release unemployment data for August at the same time, and the European Commission will issue its latest report on economic confidence on Tuesday.

Oil prices have fallen more than 23% since the end of June, and a barrel of crude now costs about half what it did a year ago. The decline has boosted disposable income, underpinned consumer confidence that is already benefiting from slowly receding unemployment, and turned domestic demand into a key driver of the region’s economic recovery. At the same time, it has made the ECB’s job more complicated.

Read more …

Basic income is a much better approach than living wage. Huge boost to an economy.

Tory Welfare Cuts Will Destroy Benefit Of UK’s New Living Wage (Guardian)

A record 6.5 million people – almost a quarter of UK workers – will remain trapped on poverty pay next year, despite George Osborne’s 50p-an-hour increase in the national minimum wage, according to research by the Resolution Foundation thinktank. Adam Corlett, Resolution’s economic analyst, said: “While the chancellor’s new wage floor will give a welcome boost to millions of Britain’s lowest-paid staff, it cannot guarantee a basic standard of living or compensate for the £12bn of welfare cuts that were announced alongside it.” The chancellor announced the introduction of a “national living wage” in his July budget. It was an eyecatching bid for the votes of Britain’s workers and will see the statutory minimum pay rate for over-25s increase from £6.70 an hour to £7.20 next April – and to about £9 an hour by 2020.

But the new national minimum will still fall short of an actual “living wage”, calculated on the basis of the cost of basic essentials, including housing, food and transport, that has been the centrepiece of a long-running public campaign. Supermarket giant Lidl recently became the latest high-profile company to promise its staff this higher rate, which stands at £7.85 outside London and £9.15 in the capital. In its annual Low Pay Britain report, to be published next week, the Resolution Foundation will suggest that the living wage will have to be higher – £8.25 an hour outside the capital in 2016 – in part to compensate for the reductions in tax credits and benefits also announced in the budget. Households that receive less in welfare payments will need higher wages to make ends meet.

Resolution forecasts that, despite Osborne’s announcement, the number of people struggling to survive on less than the living wage will continue to rise, hitting 6.5 million people, or 24.4% of employees, in 2016 – up from 5 million, or less than 20% of workers, in 2012. Frances O’Grady, general secretary of the TUC, said: “This analysis provides a sobering reality check. While any increase in the minimum wage is to be welcomed, the new supplement will not cure in-work poverty on its own.” She urged ministers to continue encouraging firms to adopt the living wage – a cause backed in the past by many senior Conservatives, including David Cameron and Boris Johnson.

Read more …

Quite a panel. Steve Keen’s missing though.

Corbyn Recruits Top Global Economists to Boost Economic Credentials (Bloomberg)

U.K. Labour leader Jeremy Corbyn recruited Nobel Prize-winning economist Joseph Stiglitz and wealth and inequality expert Thomas Piketty to advise his party as he seeks to regain credibility for policies attacked by many academics as potentially disastrous. His finance spokesman, John McDonnell, will outline the opposition’s “new economics” in a speech Monday that will cover his deficit-reduction plans and a goal to “change the economic discourse.” McDonnell’s office would say only that his plans involve a “radical review” of the Bank of England. Appointing Stiglitz – a well-known opponent of western governments’ austerity policies – and Piketty, whose book, “Capital in the 21st Century,” became a best-seller in 2013, mark Corbyn’s effort to restore trust among the business and academic community.

They will serve on a panel that will also include David Blanchflower, a former member of the BOE’s Monetary Policy Committee and labor-market economist who’s been vocal in his criticism of British central-bank policy and the U.K.’s Conservative government. “There is now a brilliant opportunity for the Labour Party to construct a fresh and new political economy which will expose austerity for the failure it has been in the U.K. and Europe,” Piketty said in an e-mailed statement. They’ll be joined on Labour’s Economic Advisory Committee by Mariana Mazzucato of Sussex University and Anastasia Nesvetailova and Ann Pettifor of City University in London, the main opposition party said in an e-mailed statement Sunday as it began its annual conference in Brighton, on England’s south coast.

“Corbynomics” has been the subject of much debate since the anti-austerity lawmaker become frontrunner in the party’s leadership race over the summer. His campaign leaflet “The Economy in 2020,” citing analysis by tax expert Richard Murphy, said the government is missing out on £120 billion ($180 billion) in uncollected revenue a year – enough to give every person in Britain £2,000. Corbyn also suggested creating a National Investment Bank, with the power to issue bonds that would then be acquired by the Bank of England. Corbyn’s form of quantitative easing would be used specifically to kick-start infrastructure projects – for instance building schools and hospitals. Murphy estimated this could generate £50 billion a year.

Read more …

The Swiss will need US, UK cooperation.

Swiss Watchdog Says Opens Precious Metal Manipulation Probe (Reuters)

The Swiss competition regulator said on Monday it had opened an investigation into possible manipulation of the precious metals market by several major banks. Switzerland’s WEKO watchdog said its investigation, the result of a preliminary probe, was looking at possible collusion of bid/ask spreads in the market by UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui. A WEKO spokesman said the investigation would likely conclude in either 2016 or 2017.

Read more …

She’s still there? Right to be worried, though. Not worried enough, I’d say.

Rousseff Worried About Brazilian Companies With Dollar Debt (Bloomberg)

Brazil is “extremely concerned” about companies that have debt in dollars, President Dilma Rousseff told reporters in New York, after volatility in the country’s foreign exchange market last week reached the highest level in almost four years. “Brazil today has sufficient reserves to avoid any problems in relation to disruptions because of the real,” Rousseff said. “The government will take a very clear and firm position, as did the central bank at the end of last week.” Brazil’s currency fell to a historic low last week amid concern about the president’s ability to push budget cuts and tax hikes through Congress. Rousseff has said Brazil is better prepared to recover from this year’s recession, compared to past crises, because it has $370 billion in international reserves.

Rousseff arrived Friday in New York for the United Nations General Assembly after a week of negotiations with political allies over cabinet changes intended to consolidate her fragile ruling coalition and reduce government expenses. Political uncertainty has aggravated what is expected to be Brazil’s longest recession since the 1930s, and was cited by Standard & Poor’s as part of their decision to downgrade Latin America’s largest economy to junk status. Speaking after a meeting with heads of state from Germany, Japan and India, Rousseff repeated Brazil’s demands for reform of the UN Security Council to make it more representative of all member states. She said global challenges such as conflict in the Middle East and Europe’s refugee crisis could be better solved by more collective action.

Read more …

$3 billion spent on no oil at all.

Shell Halts Alaska Oil Drilling After Disappointing Well Result (Bloomberg)

Royal Dutch Shell will stop further oil and gas exploration offshore Alaska, citing high costs and “challenging” regulation for drilling in the region. Shell forecast it will take related financial charges, according to a company statement on Monday. The balance sheet carrying value of its Alaska position is about $3 billion, with additional future contractual commitments of about $1.1 billion, The Hague, Netherlands-based energy explorer said. The company will abandon the Burger J well in Alaska’s Chukchi Sea, saying indications of oil and gas weren’t sufficient to warrant further exploration. The company holds a 100% working interest in 275 Outer Continental Shelf blocks in the sea, according to the statement. “Shell will now cease further exploration activity in offshore Alaska for the foreseeable future,” the company said. “This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.”

Read more …

“The exhibition sold out every day of its five-week run, attracting about 4,000 people a day – a total of 150,000 visitors. ”

Banksy’s Dismaland To Be Taken Down And Sent To Calais To Build Shelters (PA)

Britain’s most disappointing tourist attraction is to be dismantled and sent to Calais to be shelter for migrants, creator Banksy has revealed. Work to take down Dismaland begins on Monday and the elusive street artist said all the timber and fixtures from the ‘bemusement park’ would be sent to the Jungle camp. An estimated 5,000 people displaced from countries including Syria, Libya and Eritrea are believed to be camped in and around the French port. On the Dismaland website, Banksy posted a picture of the migrant camp in Calais and had superimposed onto it his fire-ravaged fairytale Cinderella Castle. In a message accompanying the picture, he wrote: “Coming soon … Dismaland Calais.

“All the timber and fixtures from Dismaland are being sent to the Jungle refugee camp near Calais to build shelters. No online tickets will be available.” The theme park opened at a derelict seaside lido at Weston-super-Mare in Somerset and even though Banksy said it was ‘crap’, thousands of people visited. The controversial attraction featured migrant boats, Jimmy Savile and an anarchist training camp, and there were long queues as visitors waited to get inside when it first opened on 22 August. The exhibition sold out every day of its five-week run, attracting about 4,000 people a day – a total of 150,000 visitors.

North Somerset council, which has described the site as the centre of the contemporary art universe, said it would bring £7m to the local economy, while local business leaders have estimated that the economic benefit to the seaside town could top £20m. Banksy described the park as a festival of art, amusements and entry-level anarchism, adding: “This is an art show for the 99% who’d rather be at Alton Towers.” The Bristol-based artist later told the Sunday Times: “This is not a street art show. It’s modelled on those failed Christmas parks that pop up every December – where they stick some antlers on an Alsatian dog and spray fake snow on a skip. “It’s ambitious, but it’s also crap. I think there’s something very poetic and British about all that.”

Read more …

Will this ever stop? How many children must drown?

500 Migrants Rescued In Mediterranean This Weekend: Italian Coastguard (AFP)

Some 500 migrants were rescued in seven operations launched over the weekend in the Mediterranean, the Italian coastguard said. A spokesman told AFP on Sunday that four of the rescue operations had already wound up but the others were ongoing. “Saturday was quiet on the whole but now there is further movement,” he said. “We have had several interventions – one by a ship belonging to (medical charity) MSF, two coastguard units as well as an Italian naval ship and a ship belonging to EU Navfor Med,” he said. The EU Navfor Med is a military operation launched at the end of June to identify, capture and dispose of vessels and rescue migrants undertaking risky journeys in a desperate bid to try and get to Europe from war-ravaged Syria and other trouble spots.

The mission is equipped with four ships, including an Italian aircraft carrier, and four planes. It is manned by 1,318 troops from 22 European countries. A German frigate named Werra and an MSF (Doctors Without Borders) ship rescued 140 people from a giant dinghy on Saturday afternoon, according to an AFP photographer. The migrants mainly came from the west African countries of Nigeria, Ghana, Senegal and Sierra Leone and left Libya three days earlier. They were rescued about 80 kilometres off the Libyan coast. EU leaders have agreed to boost aid for Syria’s neighbours, including one billion dollars through UN agencies, in a bid to mitigate the refugee influx into Europe.

Read more …

Apr 092015
 
 April 9, 2015  Posted by at 11:23 am Finance Tagged with: , , , , , , , ,  


Harris&Ewing Treasury Building, Fifteenth Street, Washington, DC 1918

The Oil Industry’s $26 Billion Life Raft: Derivatives (Bloomberg)
Oil Tumbles 6.6%, Erasing This Year’s Gains (Reuters)
Exxon, BP in Deal Spotlight After Shell Buys BG Group (Bloomberg)
Shell-BG Deal Could Face Bumpy Ride From Partner Rights (Reuters)
Bankers Set To Reap $155million In Fees On Shell-BG Takeover (Bloomberg)
The US Government’s $800 Billion Gamble on Student Loans (Bloomberg)
Bernanke-Summers II: Savings Glut, Investment Shortfall or Monty Python? (Keen)
How China Wants to Overhaul its $16 Trillion Corporate Monster (Bloomberg)
Europe’s Manhandling Of Greece Is A Strategic Gift To Putin (AEP)
Athens Welcomes Germany’s Response To ‘War Debt’ Demand (Guardian)
Piketty Says EU Politics Risks Driving Greece Out of Euro (Bloomberg)
‘Odious Debt’ Is Finally Here: Greece To Write Off ‘Illegal’ Debt (Zero Hedge)
Tsipras Asks Europe To End Russia Sanctions, Cites ‘New Cold War’ (Guardian)
Turkish Stream Will Make Greece Europe’s Energy Hub – Putin (RT)
Russia Weighs Pre-Payment To Greece For Turkish Stream Pipeline (Reuters)
Khazin: Global Recession To Exceed The Great Depression By 2.5 Times (FRU)
US Cops Killed More People In One Month Than The UK Did In 100 Years (TFTP)
New Zealand’s Top Economic Risk Is Australia: PM Key (CNBC)
House Prices Represent Success In Life (NZ Herald)

We’re all a casino now.

The Oil Industry’s $26 Billion Life Raft: Derivatives (Bloomberg)

For U.S. shale drillers, the crash in oil prices came with a $26 billion safety net. That’s how much they stand to get paid on insurance they bought to protect themselves against a bear market – as long as prices stay low. The flipside is that those who sold the price hedges now have to make good. At the top of the list are the same Wall Street banks that financed the biggest energy boom in U.S. history, including JPMorgan, Bank of America, Citigroup and Wells Fargo. While it’s standard practice for them to sell some of that risk to third parties, it’s nearly impossible to identify who exactly is on the hook because there are no rules requiring disclosure of all transactions. The buyers come from groups like hedge funds, airlines, refiners and utilities.

“The folks who were willing to sell it were left holding the bag when prices moved,” said John Kilduff at Again Capital. The swift decline in U.S. oil prices – $107.26 on June 20, $46.39 seven months later – caught market participants by surprise. Harold Hamm, the billionaire founder of Continental Resources Inc., cashed out his company’s protection in October, betting on a rebound. Instead, crude kept falling. Other companies purchased insurance. The fair value of hedges held by 57 U.S. companies in the Bloomberg Intelligence North America Independent Explorers and Producers index rose to $26 billion as of Dec. 31, a fivefold increase from the end of September, according to data compiled by Bloomberg.

Though it’s difficult to determine who will ultimately lose money on the trades and how much, a handful of drillers do reveal the names of their counterparties, offering a glimpse of how the risk of falling oil prices moved through the financial system. More than a dozen energy companies say they buy hedges from their lenders, including JPMorgan, Wells Fargo, Citigroup and Bank of America. At the end of 2014, JPMorgan had about $671.5 million worth of derivatives exposure to five energy companies, including Pioneer, Concho, PDC. and Antero, according to company records. That’s the amount JPMorgan would have owed if the contracts were settled Dec. 31, not including any offsetting trades the bank made. It’s a similar story for Wells Fargo, which was on the hook for $460.9 million worth of oil and natural gas derivatives for companies including Carrizo, Pioneer, Antero, Concho and PDC, according to regulatory filings.

Read more …

Oh no! What happened? 😉

Oil Tumbles 6.6%, Erasing This Year’s Gains (Reuters)

Oil futures settled nearly 7% lower on Wednesday after government data showed the largest weekly increase in U.S. crude inventories since 2001 and a day after Saudi Arabia reported record production in March. U.S. May crude closed down $3.56, or 6.6%, at $50.42 a barrel. The commodity has erased 2015’s gains and is now down 5.4% on the year. Meanwhile, Brent May crude was down $3.30 at $56.90 a barrel. U.S. crude oil inventories surged 10.95 million barrels to a record 482.39 million in the week to April 3, the Energy Information Administration (EIA) said in its weekly report. A Reuters survey of analysts had yielded a forecast for a build of 3.4 million barrels.

“The report is very bearish with the large crude oil inventory build and the somewhat surprising rise in gasoline inventories,” said John Kilduff at Again Capital. Crude oil inventories at the Cushing OK storage hub and delivery point for the U.S. crude contract rose by 1.2 million barrels, the EIA said, a much bigger jump than expected. U.S. crude oil imports rose by 869,000 barrels per day (bpd) to 7.7 million bpd. Gasoline inventories rose 817,000 barrels, compared with analysts’ expectations for a 1 million barrel drop, as refiners increased capacity utilization. The reported build sent U.S. RBOB gasoline futures went into sharp retreat, down 9.20 cents at $1.7689 a gallon. The EIA data arrived a day after Saudi oil minister Ali al-Naimi said that Saudi Arabia’s output would likely remain around 10 million bpd after posting a record high of 10.3 million bpd in March.

Read more …

Survival of the limping.

Exxon, BP in Deal Spotlight After Shell Buys BG Group (Bloomberg)

Now that Royal Dutch Shell Plc has made its move for BG Group, Exxon Mobil and BP could contemplate deals – perhaps even with each other. Speculation of an Exxon-BP combination surfaced last year after oil prices declined sharply, increasing the appeal of big mergers that could yield massive cost savings. BP has largely put behind it the legal morass surrounding the 2010 Gulf of Mexico spill. Still, the $124 billion company remains among the cheapest major producers relative to estimated profit, according to data compiled by Bloomberg. There are, of course, other targets for Exxon and BP that have gotten less expensive in recent months. Anadarko, Cabot, Pioneer, Occidental and Tullow are among those that have risen to the top of analysts’ lists.

Their market values span Tullow’s $4.2 billion to Occidental’s $59 billion. Exxon is valued at $353 billion. The oil slump of the late 1990s sparked a merger boom. BP was the one that kicked things off when it announced plans to buy Amoco. Exxon and Chevron also struck deals at the time. Should prices remain depressed, history could repeat itself. “There’s the potential for a lower-for-longer scenario when it comes to oil prices, which suggests that the majors should at least be considering the playbook they used at the turn of the last century,” said Eric Gordon, a Baltimore-based energy analyst for Brown Advisory, which manages $52 billion. “You really have to spend time thinking about not just the next chess move, but two and three moves out.”

Read more …

Who knew what?

Shell-BG Deal Could Face Bumpy Ride From Partner Rights (Reuters)

Royal Dutch Shell’s agreed $70 billion takeover of rival BG Group could trigger pre-emption rights in key oil and gas fields that would erode the potential benefits of the deal for the Anglo-Dutch oil giant. Shell said a main driver of its bid for BG Group was the gas-focused British group’s position in Brazil. Two exploration blocks, named BM-S-9 and BM-S-11, account for almost all the value of BG’s Brazil assets. But, BG said in its annual report published last week: “In certain specific circumstances, it is possible that BG Group’s partners in BM-S-9 (Petrobras and Repsol Sinopec Brasil) have a right of first refusal to acquire BG Group’s interest .. in the event of a change of control of BG Group plc”.

When Shell Chief Executive Ben van Beurden was asked about change of control provisions on an analyst call on Wednesday, he said these could trigger pre-emption rights in relation to BG’s stake in Karachaganak, a field in Kazakhstan. He did not mention BM-S-9, which contains the Sapinhoa and Lapa fields. Analysts said that failing to secure BG’s stake in Karachaganak might not affect the key strategic drivers of the deal. However, not buying BM-S-9 would be a big loss. “Brazil is central to the acquisition,” said Neill Morton, oil analyst at Investec. “Sapinhoa is pretty important. It’s one that Shell is looking to get its hands on.”

Block BM-S-9 is estimated to contain billions of barrels of oil that can be extracted at moderate costs. Analysts at Bernstein estimated last month that Sapinhoa could be worth $6.5 billion, while Morton said the Reading-based group’s stake in the block could be worth $10 billion. Tom Ellacott, head of the corporate analysis team at research group Wood Mackenzie, said a failure to secure BM-S-9 probably would not be a deal-breaker but would likely force a rethinking of the terms of the deal.

Read more …

How many jobs will be lost through this deal?

Bankers Set To Reap $155million In Fees On Shell-BG Takeover (Bloomberg)

Robey Warshaw, a two-year-old investment bank with less than ten employees, is about to share a massive payday with two of Wall Street’s largest firms. As an adviser to BG Group on its sale to Shell, the London-based firm will split as much as $90 million in fees with Goldman Sachs, according to estimates from Freeman & Co. Because of its size, Robey Warshaw may receive a smaller chunk of that amount. Also set for a large payout is Bank of America, which was the only adviser to Shell and could reap as much as $65 million for its work. The 47 billion-pound ($70 billion) deal is the largest takeover announced in 2015, and the oil and gas industry’s biggest merger in at least a decade.

Robey Warshaw is one of a handful of boutiques – including Zaoui and LionTree – that have sprung up in recent years as some of New York and London’s top dealmakers left major institutions, winning mandates on large deals even without the resources of a major bank. Started in 2013 by London bankers Simon Robey and Simon Warshaw – veterans of Morgan Stanley and UBS – Robey Warshaw also served as an adviser to AstraZeneca as it resisted a takeover approach from Pfizer.

Shell’s purchase is adding to what’s proving to be an already robust year for M&A advisers – with about $327 billion in deals struck by European companies alone. That total is set to rise as the euro’s decline against the dollar and renewed confidence in an economic recovery make Europe appealing for global acquirers. Goldman Sachs, which also advised on Ball Corp.’s acquisition of Rexam, holds the top spot for merger advisory services in Europe this year. Bank of America is ranked second while its role on the Shell-BG deal has vaulted Robey Warshaw to third, data compiled by Bloomberg show.

Read more …

“But I think the problem is that we’ve got double-digit delinquencies on student loans, and the problem only seems to be getting worse.”

The US Government’s $800 Billion Gamble on Student Loans (Bloomberg)

One of the big potential costs to U.S. taxpayers over the next years is an enterprise that’s currently estimated to be even a bit profitable for them: financing student loans. Right now, the federal government borrows money at interest rates that are lower than the rates it charges students. That means the U.S. makes about 14 cents on every dollar lent, according to the Congressional Budget Office. It’s a win-win for the government – make a little cash while helping young Americans pursue an education so they can earn more down the road. There’s no guarantee this will stay this way, however, if more students start to delay or renege on their obligations. While the CBO expects the government to continue to make money on the business until at least 2025, gains are forecasted to shrink.

On subsidized student loans (the most basic kind), the government is forecast to start losing money as early as next year. The CBO already revised up its estimate of how much the loans will cost the government for 2016-2025 by 30%, citing higher estimates of the number of loans in default (which in turn would mean the government won’t be able to collect on as many payments as initially thought). There’s already almost $800 billion in student loans that’s directly on the government’s balance sheet, according to Wall Street experts who advise the U.S. Treasury on its borrowing strategy. And that represents a ballooning share of the debt that the government has issued. Student loans loans in February were worth more than half the value of outstanding Treasury debt with a maturity of 10 years or more.

“If you were fairly confident that all those loans are going to be paid back, then it wouldn’t be that big of an issue,” said Stephen Stanley at Amherst Pierpont. “But I think the problem is that we’ve got double-digit delinquencies on student loans, and the problem only seems to be getting worse.” Data from the Federal Reserve Bank of New York show that 11.3% of student loans were delinquent in the final three months of 2014, up from 11.1% in the prior quarter. The federal student loan default rate declined to 13.7% for borrowers who would have begun paying in 2011, the Education Department said in September. The rate was 14.7% a year before.

Read more …

Steve at his finest: “..even I didn’t fully appreciate how tiny the intellectual gene pool behind these ideas was.

Bernanke-Summers II: Savings Glut, Investment Shortfall or Monty Python? (Keen)

A Twitter follower accused me of being “a little nasty” with my last blog post. He was right, and I don’t apologize. I’ve spent 40 years trying to highlight just how limited the dominant ideas in economics are. But even I didn’t fully appreciate how tiny the intellectual gene pool behind these ideas was. Then, as I started to write a post on the economic issues in the Bernanke-Summers debate, I re-read Summers’ original secular stagnation post and realized that, not merely were the ideas coming from a single perspective, most of the major proponents of these ideas came not only from the same University (MIT), and even the same seminar (Class 14462, conducted by Stanley Fisher). Think of the dominant names in economics and there are a few obvious entries: Ben Bernanke; Larry Summers; Paul Krugman; Olivier Blanchard; Ken Rogoff.

Summers acknowledged all of them (bar Krugman) as classmates from Stanley Fisher’s seminar, while Krugman did his PhD at MIT (as did the other dominant macro textbook author—and ex-advisor to George W. Bush and Mitt Romney—Gregory Mankiw). This goes well beyond the dominance of economics by a single school of thought, and I felt that “in-breeding” was a nasty but evocatively accurate way to express just how narrow the so-called “economic debate” had become—and therefore how justified were student calls for pluralism in economics. Hell, we don’t simply need pluralism: we need to hear opinions from people who didn’t attend Stanley Fisher’s lectures. Maybe being nasty about this might get people to realize why economics needs to change.

To see how inbred this Bernanke-Summers debate really is, let’s look at the explanations they’re putting forward for the persistently disappointing growth rates being experienced around the world—even in countries that, like America, can now claim to have recovered from the financial crisis of 2007. Bernanke is blaming a “savings glut”, and directs the blame at savers in countries like China:

My conclusion was that a global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging market economies and oil producers like Saudi Arabia, was a major reason for low global interest rates. (Bernanke in “Why are interest rates so low, part 3: The Global Savings Glut”)

Summers, on the other hand, argued that there is a secular decline in the level of investment, coming from a number of long-term factors, including lower population growth, lower rates of technical progress, and rising inequality:

Slower population and possibly technological growth means a reduction in the demand for new capital goods… Rising inequality operates to raise the share of income going to those with a lower propensity to spend… (Summers in “Reflections on the ‘New Secular Stagnation Hypothesis’”.

Read more …

“The main goal of the reforms is not to dramatically reduce the state sector. It is to have a better-performing state sector.”

How China Wants to Overhaul its $16 Trillion Corporate Monster (Bloomberg)

How do you dismantle a $16 trillion government behemoth that controls everything from nuclear power plants to tourism kiosks? That’s the task facing Chinese President Xi Jinping as part of the biggest shake-up of state-run companies since the late 1990s, when millions lost their jobs as unprofitable units were sold or shuttered and bigger companies listed their best parts on the stock market. This time, instead of using the shock therapy of mass privatizations championed by Britain in the 1980s, China is trying to improve state industries without putting thousands out of work during an economic slowdown. Policymakers are proposing to strip government holdings from the State-owned Assets Supervision and Administration Commission, or Sasac, the agency that also regulates the more than 100 non-financial companies.

“When China today talks about SOE reform they do not have in mind anything like what we saw in Eastern Europe in the 1990s or other emerging markets or the U.K. in the Thatcher era,” said Andrew Batson at GaveKal Dragonomics in Beijing. “The main goal of the reforms is not to dramatically reduce the state sector. It is to have a better-performing state sector.” The proposed overhaul would bundle companies by industry and hand their control to state asset-management firms, the people familiar with the plans said last month, asking not to be identified because the talks are private. The changes would reduce Sasac’s role to that of regulator.

Sasac was created in 2003 under the State Council, China’s cabinet, to oversee government conglomerates. The commission supervises non-financial companies that build weapons and spacecraft, fly planes, forge steel, mine coal, distribute salt, trade silk and buy art, among much else. Many of its units have stakes in joint ventures with private firms, spreading their tentacles throughout the economy. “Sasac is a gigantic failure,” said Nicholas Lardy, who’s studied China for more than three decades and is a senior fellow at the Peterson Institute for International Economics. The return on assets is going down at state-owned firms under Sasac’s watch and that’s translating into a “big drag on economic growth,” he said in an interview in Beijing.

Read more …

Long piece from Ambrose. He can’t make up his mind who he dislikes more, Brussels or Putin. “The Greek government has understood that it cannot find any common ground with the Eurogroup and the ECB, unless it accepts unconditional capitulation..”

Europe’s Manhandling Of Greece Is A Strategic Gift To Putin (AEP)

The European Union has presented Vladimir Putin with an irresistible strategic prize, on a platter. By insisting rigidly that Greece’s radical-Left government repudiate its electoral pledges and submit to ritual fealty – even on demands of little economic merit, or that might be unwise in the particular anthropology of a post-Ottoman society – it has pushed the Greek premier into the arms of a revanchist Kremlin. The visit of Alexis Tsipras to Moscow has been a festival of fraternity. On Wednesday he laid a wreath at the Tomb of the Unknown Soldier and spoke of the joint struggle against Fascism, and the unstated foe. The squalid subject of money was of course avoided. “Greece is not a beggar,” he said. “The visit could not have come at a better time,” said Mr Putin, purring like the cat who ate the cream.

EU sanctions against Russia will expire in June unless all 28 states agree to roll them over, and Mr Tsipras has already signalled his intent. “We need to leave behind this vicious cycle,” he said. “Greece is a sovereign country with an unquestionable right to implement a multi-dimensional foreign policy and exploit its geopolitical role,” he added, for good measure. A Greek veto on sanctions will embolden Hungary’s Viktor Orban to join the revolt, this time in earnest. His country has just secured a €10bn credit line from Russia to expand its Paks nuclear power plant, a deal described as a “purchase of political influence” by a leading critic. Slovakia is quietly slipping away from what was once a united (if fractious) EU front to deter further Kremlin moves into Ukraine. There is safety in numbers for this evolving constellation, what Mr Putin’s foes would call the EU’s internal “Fifth Column”.

Brussels can bring one to heel, but not a clutch of rebels. It is becoming powerless. Needless to say, a failure to renew sanctions at a time when the Donbass is still under the control of Mr Putin’s proxy forces would drive a wedge between the US and Europe, further draining the life-blood from the Atlantic alliance and what remains of the Western security structure. But it does not stop there. The EU project is close to unravelling in the East. We thought we knew where we stood when the final decision was made in June of 2003 – in Athens of all places – to admit the former captive nations of the Soviet bloc, all clamouring to join what seemed to be an enlightened club of democracies under the rule of law.

I was there for The Telegraph when Tony Blair stood at the Stoa of Attalos, near the colonnades of Socrates and Plato, and exalted in their newly-won freedom from “dictatorship and repression”. Now we have a government in Budapest that scoffs at press freedom and judicial independence, and a government in Athens that is desperately defending its own democracy against the EU itself. Mr Putin merely has to bide his time and the EU’s southeastern flank will fall apart. Europe’s creditor powers have warned Greece not to trifle with them, or to play off Brussels against Moscow, but seem strangely unaware that they too must make concessions to prevent matters spinning out of control, for them as well as for Greece.

Read more …

Got to love it. If confusion is their aim, boy are they doing a fine job.

Athens Welcomes Germany’s Response To ‘War Debt’ Demand (Guardian)

The row between Germany and Greece over war reparations has intensified after Athens hit back at Berlin’s description of its demand for a staggering €278.7bn (£202bn) in compensation as “stupid”. Insisting that Greece’s leftist-led administration had “a historical duty” to seek compensation for atrocities committed by Nazi forces between 1941-44, the politician in charge of the campaign said on Wednesday that he welcomed the German reaction. “The response may have been ‘this is foolish, you have plucked this number out of the blue’ but for me it was also very positive,” Costas Isychos, the deputy defence minister, told the Guardian. “There was an admission that despite disagreeing with the figure a debt is owed, and that is very good.”

On Tuesday, Germany’s economy minister and vice-chancellor, Sigmar Gabriel, not only branded the demand boneheaded, but suggested it had been motivated by Athens’ interest in squeezing a bit of leeway out of its eurozone partners to overcome its debt crisis. “And this leeway has nothing to do with the second world war or reparations,” said Gabriel, who leads the Social Democrats, the junior partner in the ruling coalition of the chancellor, Angela Merkel. Berlin has provided the bulk of the €240bn bailout that has kept the insolvent Greek economy afloat since 2010. But while the claim exceeds that amount, Isychos vehemently denied it was linked to the country’s economic plight, or the tough austerity measures Berlin has pressed for in exchange for international aid.

He implied the figure could in fact be much bigger when interest payments were also taken into account. “We will push for this as much as we can,” he said, describing the war reparations as “an open wound” for a country that had suffered one of the most brutal occupations under Hitler. “We have to close this wound. It is not related, whatsoever, to Greek debt or any policies connected to the memoranda,” he said, referring to the deeply unpopular bailout accords. “They are two very different issues. The left has always been sensitive to this issue.” The timing of the demand was coincidental, he said. “It is a very good coincidence for the Greek people but a very bad coincidence for those who want to connect it to the memoranda.”

Read more …

Thomas, you’re not an authority on every topic.

Piketty Says EU Politics Risks Driving Greece Out of Euro (Bloomberg)

Thomas Piketty, the French economist whose 2013 book on wealth inequality became an international bestseller, said he sees a risk of politicians in the European Union forcing Greece out of the euro area. “The attitude of a number of people in Brussels and Berlin looks like: push Greece out,” Piketty said in an interview with Bloomberg Television in Paris. Greece, Europe’s most-indebted state, is negotiating with euro-area countries and the IMF on the terms of its €240 billion rescue. The standoff, which has left Greece dependent upon ECB loans, risks leading to a default within weeks and its potential exit from the euro area.

German Chancellor Angela Merkel has repeatedly said that she wants Greece to stay in the euro and along with French President Francois Hollande last week expressed concern that time is running short. “There’s no time to lose,” Merkel said at a news conference with Hollande after they met in Berlin March 31. Hollande said too much time has been lost already, adding that he would like an agreement and “the sooner, the better.” Piketty said that lack of institutional coherence has damaged the euro area. Germany and France aren’t just mistreating Greece, “they’re mistreating themselves,” Piketty said. “We need more political integration, more democratic institutions. You can’t just do it with summits of finance ministers.”

Separately, the 43-year-old Piketty said that the main cost of a British exit from the EU would be to Britain and not its continental partners. Prime Minister David Cameron has promised to hold a referendum on the U.K.’s membership in the European Union if he’s re-elected next month. “Many people on the continent are a little bit tired with Britain’s attitude and will say ‘if they leave, it’s too bad for them,’” Piketty said. “The main cost will be incurred by Britain, not by the continent.”

Read more …

War reparations, odious debt, they’ve been studying the books.

‘Odious Debt’ Is Finally Here: Greece To Write Off ‘Illegal’ Debt (Zero Hedge)

It was back in June 2011 when we first hinted that the time of Odious Debt is rapidly approaching. As a reminder, this is what Odious Debt is: In international law, odious debt is a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

Today, nearly four years later, Odious Debt is now a reality in Greece, where Zoi Konstantopoulou, the head of the Greek parliament and a SYRIZA member, released two videos which have promptly gone viral, designed to promote the investigative parliamentary committee to look into the circumstances surrounding the signing of the country’s two bailout agreements that led Greece to implement its austerity measures. That this concept emerges now is perhaps confusing: it was just a few days ago when the Greek FinMin promised to the IMF that Greece would honor all of its debt commitments. Should Greece decide that some (or all) of its debt was illegal and unenforceable, this will clearly not happen.

Then again, this is the same political party that made pre-election promises whose execution would require about €30 billion according to German calculation, so the relentless flipflopping is not very surprising. On the other hand, while perhaps Greece was hoping for a more favorable outcome from Tsipras’ meeting with Putin today, the resultant outcome which led to virtually nothing (that was revealed at least) may embolden the Greek nation to push on with this track which is certain to infuriate the Troika. According to Greek Reporter, Konstantopoulou has said that the newly established “Debt Truth Committee,” will investigate how much of the debt is “illegal” with a view to writing it off.

Proving that this is more than just a populist stunt, during a vote that took place early yesterday, out of the 300 Greek MPs, 156 voted in favor of establishing the public debt auditing committee. “The committee will examine how Greece entered into the bailout agreements with its international lenders, as well as any other matter related to the memoranda’ implementation,” SYRIZA Parliamentary Secretary Christos Mantas had explained earlier. “We are fulfilling our commitment and the social demand to explore the causes and responsibilities of an unprecedented crisis that devastated the vast majority of society,” Mantas added.

Read more …

And he’s damn right too.

Tsipras Asks Europe To End Russia Sanctions, Cites ‘New Cold War’ (Guardian)

The Greek prime minister has called on Europe to end its sanctions against Russia during a visit to Moscow, warning that they could lead to a “new cold war”. Alexis Tsipras also rebuked other European leaders who had criticised his two-day visit to the Russian capital, after meeting Vladimir Putin in the Kremlin on Wednesday. Brussels is nervous that the new Greek government is breaking European unity over Russia’s actions in Ukraine, and Tsipras’s words in the Kremlin would have been music to Putin’s ears. However, fears that the Russian president might seek to build closer economic ties with Greece by offering a loan – a possibility floated in a Russian newspaper report this week – or by lifting a ban on Greek food imports, proved unfounded.

Tsipras, speaking at a press conference alongside Putin after their talks, expressed his opposition to the sanctions imposed by the EU and US on Russia over its intervention in Ukraine. “The counter-sanctions imposed by Russia have inflicted pain on the Greek economy. But we know the retaliations were a response to sanctions [against Russia], the logic of which we do not entirely share,” he said. “We openly disapproved of the sanctions. It is not an efficient solution. We think it could bring about a new cold war between Russia and the west. “To get out of this profound crisis we need to leave behind this vicious cycle of sanctions,” he said. Tsipras also emphasised that Greece is a “sovereign country with an irrevocable right to conduct a multi-faceted foreign policy”. Putin said he welcomed the Greek position, while Tsipras said it was “springtime for Russian-Greek relations”.

Read more …

Love it.

Turkish Stream Will Make Greece Europe’s Energy Hub – Putin (RT)

Greek PM Alexis Tsipras said he is hopeful Greece will play a big role in the Turkish Stream pipeline project, making it a hub between Turkey and the European gas market, after meeting Russian President Vladimir Putin Wednesday. “The new route will provide for European fuel needs, and would allow Greece to become one of the main power distribution centers on the continent, and could help attract significant investment into the Greek economy,” Putin said at a joint news conference with Tsipras. The new Turkish Stream pipeline will travel to the Turkish town of Ipsila close to the Greek border. The possibility is that 47 billion cubic meters (bcm) of gas can be delivered to Central Europe, the Balkans, and possibly Italy via the new pipeline.

The Greek PM sees the project as a way to boost jobs and investment in the Greek economy, which has been in recession for the last six years. “Our pipelines will receive gas from the Turkish border, and will provide energy security for both Greece and the European market,” Tsipras said. Greece is interested in attracting investment, from Russia and others, to construct the pipeline on Greek territory. Russia is considering giving Greece funds based on future profits that Athens would earn from shipping gas to Europe, Reuters reported on Wednesday, citing a Greek government official. The source added that Greece would pay back the prepayment after the pipeline started operating. Lower prices for Russian gas would also be linked to the project, the source said.

Read more …

And the follow-up. We can’t give you money. Oh, wait…

Russia Weighs Pre-Payment To Greece For Turkish Stream Pipeline (Reuters)

Russia is considering soon giving Greece funds based on future profits Athens would earn from shipping Russian gas to Europe as part of an extension of the Turkish Stream gas pipeline project, a Greek government official said. Plans for the pipeline taking Russian gas from Turkey to Europe via Greece would be linked to lower Russian gas prices, the official added. Greece would pay back the Russian prepayment after the pipeline started operating, the official said.

Read more …

Thought provoking?!

Khazin: Global Recession To Exceed The Great Depression By 2.5 Times (FRU)

The trend of centralization of the global economy will remain in the past. It will be replaced by regionalization. In today’s economic instability, only systems with 0.5 to 1 billion people can be effective, says the economist, member of the Izborsky Club, Mikhail Khazin. According to him, the formation of such systems will begin after the onset of the crisis, and the first prototypes have already appeared. Khazin noted that the world economy has developed in the framework of expanding markets over the last 400 years. As a result, today it is in a very unstable state, since household spending is several times higher than income: by $3.3 trillion in the US and $2.5 trillion in the EU. The purchasing power of the average salary in the U.S. is at the level of 1958, all the rest – is induced demand due to the growth of private and public debt, said Khazin.

“The global economy harbors a potential recession, exceeding the scale of the Great Depression by 2.5 times,” said Khazin. Globalist tendencies are replaced by regionalization trends, smaller systems become more cost-effective. “A norm is an economic system with 0.5 to 1 billion people. This means that the world economy should fall into 5-6 relatively independent units as a result of the crisis. An additional factor is that the dollar ceased to be the investment asset for the world economy. The value added generated by the economy today, is insufficient to ensure the normal investment process,” explains Khazin. In this situation, the trend will be the creation of regional emission centers. This issue is raised in Russia: President Vladimir Putin at the regular meeting of the leaders of the Eurasian Economic Union talked about the necessity of creating a monetary union.

The prototype of the regional economic zone is now the EEU. “We see that, despite all the talk that it is nonsense, in spite of all the opposition to the IMF, the trends are there. Moreover, not only in the EEU. China is creating its own periphery, the EU has long been engaged in it, Brazil is active in Latin America and South Africa. Processes are caused by objective circumstances and they will continue”, – said Khazin, adding that the EEU is only a “fetus”, from a geo-economic point of view, it should be joined by Turkey, Vietnam, United Korea and Japan. “They have nowhere else to go, because Vietnam, and Korea, and Japan, and Turkey are export countries. If Turkey’s main partner is the EU, for the rest – it’s the US. Once the demand in these regions falls, and they begin to close their borders, these countries will be left “hanging”.

Read more …

“.. the deaths follow a national pattern: suspects were mostly people of color, mentally ill, or both.”

US Cops Killed More People In One Month Than The UK Did In 100 Years (TFTP)

A new report by ThinkProgress.com unearthed disturbing figures when it came to the number of police-related deaths that occurred in America in the month of March alone. Just last month, in the 31 days of March, police in the United States killed more people than the UK did in the entire 20th century. In fact, it was twice as many; police in the UK only killed 52 people during that 100 year period. According to the report by ThinkProgess, in March alone, 111 people died during police encounters — 36 more than the previous month. As in the past, numerous incidents were spurred by violent threats from suspects, and two officers were shot in Ferguson during a peaceful protest. However, the deaths follow a national pattern: suspects were mostly people of color, mentally ill, or both.

This high number in March increased the average for police killings from every 8.5 hours, to nearly 1 police killing every 6.5 hours in the US. These numbers are staggering and show a serious problem of the violent tendencies within the US policing apparatus. Let’s look at our immediate neighbors to the north, Canada. The total number of citizens killed by law enforcement officers in the year 2014, was 14; that is 78 times fewer people than the US. From 2010 through 2014, there were four fatal police shootings in England, which has a population of about 52 million. By contrast, Albuquerque, N.M., with a population 1% the size of England’s, had 26 fatal police shootings in that same time period. China, whose population is 4 and 1/2 times the size of the United States, recorded 12 killings by law enforcement officers in 2014. On average, US police kill people at a rate 70 times higher than any of the other first world countries as they “protect and serve” the American citizens.

Read more …

Clueless ‘R’ Us.

New Zealand’s Top Economic Risk Is Australia: PM Key (CNBC)

While the drivers for New Zealand’s economy remain largely intact, a sharper-than-anticipated slowdown in neighboring Australia poses a threat to growth, Prime Minister John Key warned. “The big drivers of economic growth are net migration being strong, the Christchurch rebuild adding a lot of stimulus and huge investment in Auckland happening in infrastructure, and generally, putting dairy to one side, commodity prices being quite strong, it’s all going to help us,” Key told CNBC. “But if you say what can trip us up, unquestionably Australia is a big factor, because [it’s] a big part of our economy,” he added. Other risks stem from a continued loss of momentum in China’s economy as well as the domestic housing market, he said.

Australia – New Zealand’s largest trading partner – is a critical destination for Kiwi producers and manufacturers. Last year, New Zealand exported almost $9 billion of goods to Australia, creating 18 cents of every dollar of export revenue New Zealand received, according to the New Zealand Institute of Economic Research. Its top bilateral exports are oil, gold, wine and cheese. As such, the strengthening of the New Zealand dollar against the Australian dollar has become a headache for the country’s export and tourism sector.
“[Australia is] our largest source of tourists by quite some margin. It won’t stop them coming, the question is will they just spend a little less when they’re here.

If they bring $5,000 to spend over the weekend, they’d probably still bring $5,000 but if the exchange rate is a little worse, they will spend less in local currency,” he said. “So we do worry about that with Australia.” The Kiwi dollar, as it is known, has strengthened 6% against the Aussie over the past year. New Zealand’s economy has been the envy of the developed world with steady growth, falling unemployment and low inflation. The economy expanded 3.3% last year, the fastest since 2007, underpinned by its tourism sector, construction activity and net immigration – which has supported jobs growth and spending.

Read more …

No, this is not a comedy sketch. This is New Zealand’s own douchebag.

House Prices Represent Success In Life (NZ Herald)

It is hard to know what I am more excited about this week, our dollar or our houses. Records all over the place. But both signs of just how well we are doing. Barfoot & Thompson, who sell the bulk of Auckland’s homes, saw an average price of 776 grand. And in one of those lines with an appropriate amount of flourish, they said that “never had there been a March to compare” to the month just past. I, like so many, am obsessed with housing, but unlike so many I have loved every bit of it. With the possible exception that young people are being locked out. My wife told me of yet another person she knows, a young person, who just can’t afford to buy here. So she and her partner have worked out it’s cheaper back in the home town of Palmerston North, so they’re off. They won’t be alone.

Buying your first home where the average price is over $700,000 is a sobering experience and one made worse by the control freaks at the Reserve Bank who saw LVRs as some sort of pricing solution. What fools they are being shown to be as investor after investor steps into the young couples’ place at the auction and snaps up the fresh pickings. Mind you, having said that, a family friend the other day secured their first home for $335,000. No it’s not in Remuera or Parnell, and no, it doesn’t have a lot of indoor-outdoor flow leading to any pool. But then again nor did my first house. But they are proof you can still do it if you want to … just.

What the house prices represent is not dissimilar to what the dollar represents: success. Success is the outworking of demand. People want what you’ve got, they want the houses because they have decided to live here, or they feel confident enough to borrow more money because their jobs are going well and they want a bigger or better place, or they want a second home. They want our dollar because they see the fundamentals are sound. They see the growth and investment, they see the expansion. They look to the big country to the left and see all its problems. And they compare their lot with our lot, and they like the look of our lot, so they buy … they buy the currency, they buy the housing.

Read more …

Aug 042014
 
 August 4, 2014  Posted by at 7:36 pm Energy, Finance Tagged with: , , , ,  


Jack Delano Migratory farm worker from Florida in her Sunday clothes July 1940

I know I’ve talked about it more than once lately, but at least for now I don’t think it can be said enough. The world energy situation is much worse than you have been, and are being, led to believe. Even if you do understand the principle that underlies peak oil (by no means a given).

I’ve also repeatedly made the point that the real energy predicament is the real driver behind recent geopolitical events, notably Ukraine. Which is not to say that Libya, Iraq, Gaza or the South China Sea are not, just the Ukraine seems fresher and a more overt play for fossil resources. But let’s stay away from politics today – much as we can -.

The Daily Telegraph gives a podium to Tim Morgan, former global head of research at inter-dealer money broker Tullett Prebon, to present his view of the shale industry. Morgan draws the same conclusion that we at The Automatic Earth drew years ago – only now it’s news … -, and wrote about on numerous occasions.

See for instance Get ready for the North American gas shock , Fracking Our Future , Shale Gas Reality Begins to Dawn , Shale Is A Pipedream Sold To Greater Fools , The Darker Shades Of Shale . And that’s just a sample.

I may like to think that we have over time demolished shale as a viable energy industry so rigorously that nothing should need to be said it anymore. But no, it needs to be repeated by ever more well-placed individuals before it sinks in. So be it.

That conclusion is, shale is about money, not energy. And as such it is a huge money drain. It’s not an asset, it’s a sinkhole. As I cited only last week, the US shale industry lost over $110 billion per year over the past 5 years. That’s half a trillion dollars down the waste hole. In cheap credit. Who’s going to pick up that tab?

In essence, shale, and hence fracking, is nothing more, or less, than the purest form of land speculation. Location, location, location. The only thing that appears to make it stick out from other forms of land speculation is its utterly destructive character. It smells of desperation no matter what direction the wind comes from.

Money broker Morgan focuses on Britain and its ill-fated shale dreams:

Shale Gas: ‘The Dotcom Bubble Of Our Times’

[..] hardly anyone seems to have asked the one question which is surely fundamental: does shale development make economic sense? My conclusion is that it does not. That Britain needs new energy sources is surely beyond dispute. Between 2003 and 2013, domestic production of oil and gas slumped by 62% and 65% respectively, while coal output decreased by 55%. Despite sharp increases in the output of renewables, overall energy production has fallen by more than half. [..]

Those who claim that Britain faces an energy squeeze are right, then. But those who claim that the answer is using fracking to extract gas from shale formations are guilty of putting hope ahead of reality. The example held up by the pro-fracking lobby is, of course, the US, where fracking has produced so much gas that the market has been oversupplied, forcing gas prices sharply downwards.

The trouble with this parallel is that it is based on a fundamental misunderstanding of the US shale story. We now have more than enough data to know what has really happened in America. Shale has been hyped (“Saudi America”) and investors have poured hundreds of billions of dollars into the shale sector. If you invest this much, you get a lot of wells [..]. If a huge number of wells come on stream in a short time, you get a lot of initial production. This is exactly what has happened in the US.

The key word here, though, is “initial”[..] Compared with “normal” oil and gas wells, where output typically decreases by 7%-10% annually, rates of decline for shale wells are dramatically worse. It is by no means unusual for production from each well to fall by 60% or more in the first 12 months of operations.

All this is old fodder for our readership. If anything, that 60% decline in the first year of a typical well is greatly underestimated.

Faced with such rates of decline, the only way to keep production rates up (and to keep investors on side) is to drill yet more wells. This puts operators on a “drilling treadmill”, which should worry local residents just as much as investors. Net cash flow from US shale has been negative year after year, and some of the industry’s biggest names have already walked away. The seemingly inevitable outcome for the US shale industry is that, once investors wise up, and once the drilling sweet spots have been used, production will slump, probably peaking in 2017-18 and falling precipitously after that. The US is already littered with wells that have been abandoned, often without the site being cleaned up.

2017-18? I doubt the US shale industry’s will make it in one piece that long. My bet would be investors will run for cover before.

Meanwhile, recoverable reserves estimates for the Monterey shale – supposedly the biggest shale liquids play in the US – have been revised downwards by 96%. In Poland, drilling 30-40 wells has so far produced virtually no worthwhile production. In the future, shale will be recognised as this decade’s version of the dotcom bubble. In the shorter term, it’s a counsel of despair as an energy supply squeeze draws ever nearer. [..]

The dotcom bubble may be, or seem to be, a somewhat fitting metaphor for shale, but I’m thinking much more along the lines of Klondike, and any other kind of gold rush. Plus the ghost towns they all left behind.

And it’s by no means just shale where our fossil fuel supplies get squeezed. The problems Big Oil is drowning in are much broader. Take, for instance, the Arctic. It’s starting to look a lot like shale, only in a much harsher climate. That even the billions of Big Oil are no match for. Oilprice.com has this:

More Oil Companies Abandoning Arctic Plans, Letting Leases Expire

After years of mishaps and false starts, some oil companies are giving up on drilling in the Arctic. Many companies have allowed their leases on offshore Arctic acreage to expire, according to an analysis by Oceana that was reviewed by Fuel Fix. Since 2003, the oil industry has allowed the rights to an estimated 584,000 acres in the Beaufort Sea to lapse.

It wasn’t supposed to happen this way. The oil industry was once enormously optimistic about drilling for oil in the Beaufort and Chukchi Seas, off the north coast of Alaska. The U.S. Geological Survey estimated in a 2008 study that offshore Alaska holds almost 30 billion barrels of oil and 221 trillion cubic feet of natural gas.

In July 2012, Shell temporarily lost control of its Noble Discoverer rig, which almost ran aground. Shell’s oil spill response ship also failed inspections, which delayed drilling. Shell ultimately had to throw in the towel for the year as the summer season drew to a close. Finally, on December 31, Shell’s Kulluk ship ran aground as the company was towing it out of Alaskan waters. The events forced Shell to take a step back, and the company announced in February 2013 that it would suspend its drilling campaign for the year. It hasn’t returned.

[..] … earlier this year, a court issued a critical setback to the oil company, ruling that the Interior Dept. didn’t follow the law in an earlier Arctic auction. In response to the ruling, Shell’s new CEO Ben van Beurden cancelled drilling for yet another year. “This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” he said.

Van Beurden has also embarked upon a $15 billion two-year divestment program, with the intention of shedding higher cost assets around the world in an effort to improve Shell’s financial position, which had deteriorated in recent quarters due to high-cost “elephant projects.” That would suggest that the Arctic program could get the axe.

Big Oil, Shell, Exxon, Total, BP and others, are desperate for additional reserves. Exxon’s output fell 5.7% last year. If these companies let options expire that they paid millions for, something’s wrong. In simple terms: they can’t get to the resources at a price that’s economically viable.

The Oilprice article is based on this from FuelFix. And while we’re at it, let’s delve a bit deeper, so at the end of the day we understand what is happening as best we can.

Oil Companies Forfeit Arctic Drilling Rights

Oil companies that locked up more than 1.3 million acres of the Beaufort Sea for drilling in 2007 have since relinquished nearly half that territory. The industry’s appetite for tapping those Arctic waters may be waning even as the Obama administration plans to auction off more of the area. Oil companies have ceded rights to drill on roughly 584,000 acres[..]

… all but seven of the 141 still-active oil and gas leases in the Beaufort Sea along Alaska’s northeast coast are partly or completely held by a single firm, Shell [..] “Nearly half of the leases purchased in the 2003 to 2007 lease sales have been allowed to expire as company after company decides to forgo or delay activities in the U.S. Arctic Ocean …

Still on Tuesday, the Obama administration took the first formal steps to do precisely that, inviting oil companies, environmentalists, Alaska residents and other stakeholders to weigh in on what parts of the U.S. Beaufort Sea should be open for leasing during a 2017 auction. The Interior Department’s Bureau of Ocean Energy Management also has asked for public input on what coastal waters – from California and Alaska to the Gulf of Mexico – should be available for leasing from 2017 to 2022. [..]

Interior Department officials have stressed they want to balance any future oil development in the Arctic with preservation of the area’s unique ecosystem and subsistence fishing in the region. So far, the ocean energy bureau is continuing to work on the Chukchi Sea sale, even without a single specific industry nomination for territory that should be sold off. The agency was flooded with maps and other data suggesting areas that should be off limits from local communities and conservation groups.

Administration officials have suggested they are looking for ways to get more input from oil companies as they decide whether to hold the Chukchi Sea auction or cancel it. [..]

But oil companies have struggled to tap the potential lurking under those remote and icy waters — vividly illustrated by the series of mishaps that befell Shell as it drilled exploratory wells in the Chukchi and Beaufort seas two years ago. A specialized, first-of-its-kind oil spill containment system was not ready on time, engines discharged more air pollution than authorities had permitted to be released and the company’s Kulluk drilling unit ended up beached on a rocky Alaskan island’s shore on Dec. 31, 2012. [..]

Many of the forfeited Beaufort Sea oil leases documented by Oceana may have simply been allowed to expire — the likely fate for 39 blocks sold for $9 million in a 2003 auction. Others may have been relinquished early. Industry representatives say the decline in active Beaufort Sea oil leases represents a natural release of acreage based on individual company’s decisions about what they believe to be the most promising prospects.

Arctic oil exploration is also an expensive proposition that may be tough for even well-capitalized companies to justify amid an onshore drilling boom.

Shell has 100% ownership of 406,283 leased Beaufort Sea acres and 40% ownership in an additional 310,573 acres where leases are jointly held with ENI and Repsol. Outside of Shell and BP’s close-to-shore operations, ENI and Repsol are the only other companies holding active Beaufort Sea leases, about 23,861 acres’ worth. That’s a big contrast from 2007, when seven companies held active leases in the Beaufort Sea, including France’s Total, Canada’s EnCana Corp., Armstrong Oil and Gas, and Conoco.

While there seems to be a subtle way to blame the greens for the giant mishaps in there, the overall message is clear: it just can’t be done. It’s not viable at present prices. And before you dream away about the industry benefits of $200 oil, don’t forget that if prices were to go up substantially, a lot less people would be able to afford them. Catch 22.

Someone may still try at some point in the – increasingly desperate – future, but by then oil and gas won’t be anywhere near the industry it is today, and has been for 50-100 years. The money won’t be there, not on the supply side, and not on the demand side.

Obviously, the issue with that is fossil fuels give nations and societies, as well as corporations and individuals, power. Energy=power.

We presently, each of us in the west, have 200+ energy slaves at our disposal night and day, provided by coal, oil and gas. As a group, we maintain our domination over the rest of the world by applying the energy provided by oil fossil fuels to our defense against ‘others’, and to attacking them where we see fit.

If we stop doing that, if we run out, we risk being overrun. To prevent that from happening, we will attempt to grab, and hold on to, to as much as we can from what is left. But so do the ‘others’.

Arctic and shale are about the only ‘new’ sources of oil and gas we have, or had, and the Saudi’s won’t be able to make up for the difference. Not even close.

What is happening at this very moment in the shale industry and in the Arctic is like a big angry bull waving a bright red flag and waiting to have a go at the torero (that would be us).

The only possible way to go from here is to lower your energy demand, and your reliance on the energy demand of your society, as much as you can. 90% is a good and viable number to go for. If you don’t, you will be swept up in the biggest and deadliest battle ever.

The westworld will be hit hard and bloody by a financial collapse well before the energy war comes, and it’s therefore not much use right now to focus on energy, but in the end it’s really the same battle. It’s a very primitive fight for power. That’s what we do when push comes to shove. You too.

Shale Gas: ‘The Dotcom Bubble Of Our Times’ (Telegraph)

Public opinion has been divided very starkly indeed by the government’s invitation to energy companies to apply for licences to develop shale gas across a broad swathe of the United Kingdom. On the one hand, many environmental and conservation groups are bitterly opposed to shale development. Ranged against them are those within and beyond the energy industry who believe that the exploitation of shale gas can prove not only vital but hugely positive for the British economy. Rather oddly, hardly anyone seems to have asked the one question which is surely fundamental: does shale development make economic sense? My conclusion is that it does not. That Britain needs new energy sources is surely beyond dispute. Between 2003 and 2013, domestic production of oil and gas slumped by 62pc and 65pc respectively, while coal output decreased by 55pc.

Despite sharp increases in the output of renewables, overall energy production has fallen by more than half. A net exporter of energy as recently as 2003, Britain now buys almost half of its energy from abroad, and this gap seems certain to widen. The policies of successive governments have worsened this situation. The “dash for gas” in the Nineties accelerated depletion of our gas reserves. Labour’s dithering over nuclear power put replacement of our ageing reactors at least a decade behind schedule, and a premature abandonment of coal has taken place alongside an inconsistent, scattergun approach to renewables. Those who claim that Britain faces an energy squeeze are right, then. But those who claim that the answer is using fracking to extract gas from shale formations are guilty of putting hope ahead of reality. The example held up by the pro-fracking lobby is, of course, the United States, where fracking has produced so much gas that the market has been oversupplied, forcing gas prices sharply downwards.

The trouble with this parallel is that it is based on a fundamental misunderstanding of the US shale story. We now have more than enough data to know what has really happened in America. Shale has been hyped (“Saudi America”) and investors have poured hundreds of billions of dollars into the shale sector. If you invest this much, you get a lot of wells, even though shale wells cost about twice as much as ordinary ones. If a huge number of wells come on stream in a short time, you get a lot of initial production. This is exactly what has happened in the US. The key word here, though, is “initial”. The big snag with shale wells is that output falls away very quickly indeed after production begins. Compared with “normal” oil and gas wells, where output typically decreases by 7pc-10pc annually, rates of decline for shale wells are dramatically worse. It is by no means unusual for production from each well to fall by 60pc or more in the first 12 months of operations alone.

Read more …

Oil Companies Abandoning Arctic Plans, Letting Leases Expire (OilPrice)

After years of mishaps and false starts, some oil companies are giving up on drilling in the Arctic. Many companies have allowed their leases on offshore Arctic acreage to expire, according to an analysis by Oceana that was reviewed by Fuel Fix. Since 2003, the oil industry has allowed the rights to an estimated 584,000 acres in the Beaufort Sea to lapse. It wasn’t supposed to happen this way. The oil industry was once enormously optimistic about drilling for oil in the Beaufort and Chukchi Seas, off the north coast of Alaska. The U.S. Geological Survey estimated in a 2008 study that offshore Alaska holds almost 30 billion barrels of oil and 221 trillion cubic feet of natural gas. Shell Oil has been the leader in the Arctic, venturing into territory where other oil companies were unwilling to go. It promised billions of dollars in revenue and enhanced energy security. But it ran into a seemingly endless series of accidents and setbacks.

In 2009, the Department of Interior approved Shell’s drilling plan. But the following summer, a court suspended Shell’s lease until the offshore regulators could conduct a more thorough scientific review. After providing more detail, Shell received another go-ahead, with high expectations for drilling in the summer of 2012. But that proved to be a fateful year for Shell’s Arctic campaign. In July 2012, Shell temporarily lost control of its Noble Discoverer rig, which almost ran aground. Shell’s oil spill response ship also failed inspections, which delayed drilling. Shell ultimately had to throw in the towel for the year as the summer season drew to a close. Finally, on December 31, Shell’s Kulluk ship ran aground as the company was towing it out of Alaskan waters. The events forced Shell to take a step back, and the company announced in February 2013 that it would suspend its drilling campaign for the year. It hasn’t returned.

Read more …

This is how badly bernanke f***ed up the US economy.

US Banks Braced For $1 Trillion Deposit Outflows (FT)

US banks are steeling themselves for the possibility of losing as much as $1tn in deposits as the Federal Reserve reverses its emergency economic policies and raises interest rates. JPMorgan Chase, the biggest US bank by deposits, has estimated that money funds may withdraw $100bn in deposits in the second half of next year as the Fed uses a new tool to help wind down its asset purchase programme and normalise rates. Other banks including Citigroup, Bank of New York Mellon and PNC Financial Services have also said they are trying to gauge the potential effect of the Fed’s exit on institutional or retail depositors who might choose to switch to higher interest accounts or investments. “There are investors, traders and sellside analysts that are very concerned about it,” said one top-10 investor in several large US banks.

An outflow of deposits would be a reversal of a five-year trend that has seen significant amounts of extra cash poured into banks thanks to the Fed flooding the financial system with liquidity. These deposits, which act as a cheaper source of funding, have helped banks weather the aftermath of the financial crisis. Now the worry is that such deposit funding may prove fleeting as the Fed retreats. Banks might have to pay higher rates on deposits to retain customers – potentially hitting their profits and sparking a price war for client funds. SNL Financial estimates that US banks have collectively increased their deposits by 23% over the past four years, at the same time that their cost of deposit funding has dropped to a 10-year low. “You essentially have frictionless non-interest bearing deposits funding much of the banking system today,” said Peter Atwater, former JPMorgan banker and president of research firm Financial Insyghts. “There’s no financial incentive to stay.”

Read more …

Half-Trillion-Dollar Exodus Magnifying US Bill Shortage (Bloomberg)

One of the biggest winners in the push to make money-market funds safer for investors is turning out to be none other than the U.S. government. Rules adopted by regulators last month will require money funds that invest in riskier assets to abandon their traditional $1 share-price floor and disclose daily changes in value. For companies that use the funds like bank accounts, the prospect of prices falling below $1 may prompt them to shift their cash into the shortest-term Treasuries, creating as much as $500 billion of demand in two years, according to Bank of America Corp. Boeing Co., the world’s largest maker of planes, and the state of Maryland are already looking to make the switch to avoid the possibility of any potential losses. With the $1.39 trillion U.S. bill market accounting for the smallest share of Treasuries in six decades, the extra demand may help the world’s largest debtor nation contain its own funding costs as the Federal Reserve moves to raise interest rates.

“Whether investors move into government institutional money-market funds or just buy securities themselves, there will be a large demand” for short-dated debt, Jim Lee, head of U.S. derivatives strategy at Royal Bank of Scotland Group Plc’s capital markets unit in Stamford, Connecticut, said in a telephone interview on July 28. “That will lower yields.” He predicts investors may shift as much as $350 billion to money-market funds that invest only in government debt. During the past five years, America has enjoyed some of the lowest financing costs in its history as the Fed held its benchmark rate close to zero and bought trillions of dollars in bonds to restore demand after the credit crisis.

Based on prevailing Treasury bill rates, it costs the U.S. just 0.02% to borrow for three months as of 1:13 p.m. today in Tokyo. In the five decades prior to 2008, the average was more than 5%. Now, with traders pricing in a 58% chance the Fed will raise its overnight rate by July, speculation is building that borrowing costs are bound to increase. That’s made finding buyers for the nation’s debt securities even more important. The sweeping rule changes in the money-market fund industry may help provide that demand. Since 1983, money-market funds have been permitted to keep share prices at $1, meaning a dollar invested can always be redeemed for a dollar.

Read more …

Right facts, wrong logic.

That Plunge In Stocks Is Just The Beginning (MarketWatch)

If the ups and downs of the past week have taught investors anything, it’s that there are cracks in this 5 1/2-year-old bull market. The lesson for investors? Tread carefully. Stocks took a tumble as a raft of economic data sparked fears the Federal Reserve could speed up its timetable for raising interest rates. The S&P 500 took its biggest weekly hit in more than two years, losing 2.7%. The Dow Jones Industrial Average, meanwhile, sliced through its 50-day moving average and erased the gains that had tenuously built up this year. “It reminded people that the stock market can actually go down. It seems like a lot of people had forgotten,” said Mike O’Rourke, chief market strategist at JonesTrading.

This past week saw a number of economic indicators: a robust 4% expansion in second-quarter GDP suggested a resurgence in economic activity, while a jump in a highly-watched wage index was a sign that employee earnings, the holy grail of labor market growth, was finally picking up. Even Friday’s soft jobs report didn’t undo the worries about the Fed. Indeed, investors should expect more volatility, not less, as the Fed moves closer to rate hikes, analysts say. The central bank is generally expected to begin raise its key lending rate in the middle of next year. “Every time we see data really heat up, it will really spook investors and keep a cap on the equity market for the time being.” said O’Rourke.

Read more …

A great example of how the world of finance risks missing out on ‘external’ factors driving policy. This guy once worked at the NY Fed, now owns an economic research company, and says “We all have to do what the Fed does: Watch the data on economic activity, labor markets, costs and prices.” I think the Fed looks at other things too, and so should ‘we’.

A Wild Card In Fed’s Rate Hike Timing (CNBC)

The U.S. economy is leaking. Europe’s self-flagellants are happy about that. Suffering from excessive fiscal retrenchment and corrosive sanctions, they see a path to salvation in exports to America. Asia’s trade surplus runners also hope that their 5.4% increase in exports to the U.S. during the first five months of this year will continue – and that they will get bigger as American domestic demand picks up speed and leaks out to the rest of the world. What’s the leak? In the first half of this year, America’s trade deficit subtracted 1.14 percentage points from its economic growth. And that is the time when the U.S. economy just managed to eke out a 1% increase in its gross domestic product (GDP). The American financial community – and, apparently, some governors of the U.S. Federal Reserve (Fed) advocating an early interest rate increase – are blissfully oblivious to the trade deficit speed bumps. They are obsessing instead with non-issues. What are these?

Inflationary capacity pressures, of which there are no signs in American wages, unit labor costs or on factory floors. In spite of that, market operators see tightening credit conditions and the Fed’s alleged confusion about the technical aspects of liquidity withdrawals. It all seems like a trading case is being built to take equity prices down. That may well happen, but if it does I believe that would be a good buying opportunity. The reason is simple. A sustained decline of equity prices can only happen if the Fed is determined to cool down an overheated economy driven by excessive capacity pressures in labor and product markets. We are nowhere near that point. The Fed is now contemplating a gradual “normalization” of its policies after a long period of rescuing its badly damaged financial system and managing the recovery from the Great Recession – under conditions of a pronounced fiscal tightening since 2010. Nothing at the moment suggests that the Fed should rush that “normalization” process. And it is reassuring to see no signs that the Fed is about to do that.

Read more …

If people don’t get deeper into debt, the economy is bad. We live upside down. Ever feel that blood rushing to your head?

Paltry Credit-Card Debt Growth Signals Restrained Consumer (MarketWatch)

Jobs growth has been solid of late, and manufacturing sentiment has been strong. But the lack of wage growth has been apparent, and one manifestation of that has been the paltry growth of credit-card debt. The latest data on consumer credit is due out Thursday. Non-revolving debt like auto and student debt has been growing gangbusters. But you have to squint to see the rise in credit-card debt. Data from the Labor Department showed hourly wages growing at just a 2% year-on-year clip , even though some survey data point to better wage acceleration than that. Another measurement of wage costs, the somewhat cumbersome unit labor costs, comes Friday.

“Incomes are only growing so much,” said Josh Shapiro, chief economist at MFR. “[Consumers] are not going to go two-fisted on credit-card and auto debt.” “A lot of people were wiped out,” added Chris Christopher, an economist at IHS Global Insight. “There aren’t as many credit cards out there.” This reticence to spend aggressively is reflected in consumer-sentiment data . Richard Curtin, the chief economist for the University of Michigan consumer sentiment survey, says current readings should support consumer spending growth of 2.5% this year. That would be the highest rate since 2006 but still below the median growth rate of 3.5% for the last 50 years.

Read more …

Oh loevely, more MBS under another name.

Banks Burdened With Compliance Costs Outsource Home Loans (Bloomberg)

As banks lose money on mortgages and retreat from the business, PHH Corp. is rushing to cash in. PHH, the biggest U.S. outsourcer of home loans, processes and originates mortgages on behalf of small banks and some of the world’s largest financial firms, including Morgan Stanley and HSBC Holdings Plc. PHH Chief Executive Officer Glen Messina is so convinced he can make money where others can’t that in July he sold the company’s cash-producing fleet management unit and plans to plow the proceeds into mortgages.

Lenders are backing away from home loans as an array of new regulations in the aftermath of the housing crash push up compliance costs. Banks lost an average $194 a mortgage in the first quarter, according to the Mortgage Bankers Association. The losses may spur banks to increase outsourcing of home loans by $180 billion a year while keeping their brand name on the mortgage, Messina said on a July 8 call with analysts. “The biggest banks have the resources to implement the new regulations, but if you’re a smaller bank or a wealth manager, it may not make sense to invest in all that infrastructure,” said Bose George, a mortgage analyst at Keefe, Bruyette and Woods Inc. in New York. “The risks are too high for companies to lend without a very high level of compliance expertise.”

Read more …

Without hypothecation, what is China?

Legal Fight Chills China Metal Trade After Qingdao Fraud Probe (Reuters)

As global banks and trading houses fire off lawsuits over their estimated $900 million exposure to a suspected metal financing fraud in China, the tangled legal battle to recoup losses is set to drag on for years and hinder a swift recovery in metal trade. HSBC is the latest bank to launch legal action since Chinese authorities started a probe into whether the firm at the center of the allegations, Decheng Mining, used fake warehouse receipts to obtain multiple loans. Several banks had already ditched their commodity trading divisions due to low returns. The scandal, centered on the eastern port of Qingdao, means those remaining in the commodity financing business will have to consider their future, or at least bring in new controls on lending requirements.

It has also acted as a warning over murky business practices in China and highlighted the difficulties of navigating the Chinese legal system for foreign companies, some of which have since frozen new financing business. “In the next six to twelve months, the impact would likely be reduced appetite for lending on metal collateral,” said Daniel Kang, Asia head of basic materials equity research at JP Morgan. “Copper imports may come under pressure in the second half, partly related to smaller traders going bankrupt.” [..] With multiple claimants, cross-country jurisdictions, involvement of state-owned entities and a separate corruption probe into Chen Jihong, the chairman of Decheng’s parent firm, the lawsuits stemming from the alleged fraud are unlikely to be wrapped up soon.

“The problem is that court judgments attained outside of China are not recognized on the mainland. Companies cannot simply take the judgments into China and have Chinese courts freeze assets,” said William McGovern, a lawyer at Kobre & Kim who specializes in international commercial disputes. Firms may also try to recoup losses via arbitration, as China recognizes international arbitration awards, but that process typically takes at least two to three years. “The other question is, where are the assets?,” said McGovern. “Obtaining an arbitration award against a fraudulent entity is only valuable if the defendant’s assets can be located and seized to satisfy the judgment.” In the Qingdao case, a problem for some Western banks trying to retrieve cash is that their contracts were signed with global warehousing firms acting as collateral managers, leaving them no direct way of claiming in Chinese courts.

Read more …

Is that a bomb ticking in the background?

China Swap Rate Rises as PBOC Expresses Credit Growth Concern (Bloomberg)

China’s one-year interest-rate swaps rose for the first time in three days after the central bank expressed concern over credit expansion. The People’s Bank of China warned that credit and money supply have increased rapidly and indicated it will refrain from broader monetary easing to support growth, according to its Aug. 1 quarterly policy statement. “It’s inappropriate to rely on aggressive expansion of credit to solve structural problems,” the report said, adding that targeted monetary policies such as selective cuts in banks’ reserve ratios will undermine the role of markets in the long run.

The cost of one-year swaps, the fixed payment needed to receive the floating seven-day repurchase rate, climbed one basis point, or 0.01 percentage point, to 3.78% as of 4:10 p.m. in Shanghai, according to data compiled by Bloomberg. The rate climbed by a total of 35 basis points in June and July, after sliding for five months in a row. “It’s very likely the PBOC will slow the pace of monetary easing in the future,” Xu Gao, chief economist at Everbright Securities Co. in Beijing, wrote in a research note yesterday. “Although the central bank has done some targeted easing in the second quarter under pressure to stabilize growth, the remarks in this report seem to contain more elements of concern.”

Read more …

Not if they’re broke.

Mervyn King: New Stress Tests Are European Banks’ ‘Last Chance’ (CNBC)

The upcoming European banking asset quality review will represent the sector’s “last chance” to prove its credibility, former Bank of England Governor Mervyn King told CNBC. The European Central Bank (ECB) plans to publish the results of the review of 128 bank balance sheets in late October and will assess the actions banks have taken to strengthen their capital positions. “Financial markets will be looking very carefully in the autumn at whether the statements made about the capital positions of different banks are really credible and a lot hangs on this,” King told CNBC following his keynote speech at the Diggers and Dealers 2014 conference in Kalgoorlie on Monday. “The previous stress tests for banks in Europe didn’t really convince markets of their seriousness – and this is a really last chance for Europe to put in place a really credible set of tests on the financial worthiness of all the banks in Europe,” he added.

European authorities have conducted regular bank ‘stress tests’ since 2009, designed to increase the sector’s resilience to another economic downturn and restore investor confidence, but the 2014 round has been billed as the toughest. ECB President Mario Draghi earlier this year sounded a warning that some of the banks were likely to fail. King, who was governor of the BOE from 2003 to 2013, told CNBC it’s paramount for banks to take an honest and transparent approach. “What will be disappointing is if the review comes up with very reassuring answers about the banking system that markets clearly don’t believe,” he said. “This is a time when honesty is absolutely vital. Transparency and honestly; facing up to problems on bank balance sheets; [and] injecting new capital, is the only way forward from now on and it will be a test of Europe to see whether it’s willing to do that,” he added.

Read more …

A bail-in really, Cyprus style, with shareholders and subordinated bondholders wiped out.

Portugal Uses $6.6 Billion In EU Funds To Bail Out Espírito Santo (Guardian)

Portugal injected almost €5bn into Banco Espírito Santo on Sunday night to stave off the collapse of the country’s biggest bank following a series of financial scandals. Carlos Costa, governor of the Bank of Portugal, said the bank’s healthy businesses would be spun off into a “good” bank, while its toxic assets would be hived off into a “bad” bank. The bailout plan, which was agreed with Brussels, was sparked by the far bigger than expected €3.5bn (£2.8bn) net loss reported last week by the bank. The loss wiped out its capital buffers and sent its shares falling by more than 75% before the stock was suspended on Friday. Espírito Santo is expected to be delisted from the Lisbon stock exchange, meaning that shareholders will be wiped out. Costa said the injection of money would come mostly from Portugal’s international bailout, which made €6.4bn available for bank recapitalisation through a fund set up by Portugal in 2012.

The fund is aimed at limiting the political fallout from using taxpayers’ money to prop up a bank at a time when Portugal is only just emerging from a deep economic downturn. Pedro Passos Coelho, the prime minister, had pledged that taxpayers would not be called on to bail out failing banks. The “bad” bank will hold the troubled assets, mostly related to its exposure to the Espírito Santo family, which has faced difficulties after financial irregularities were uncovered at one of its array of holding companies last year. An audit ordered by the Portuguese central bank earlier this year discovered material irregularities at the Luxembourg-registered ESI, part of the empire.

Read more …

HFT is too powerful already.

‘Flash Boys’ and the Speed of Lies (Katsuyama)

In the last few months, I have had a strange and interesting experience. In early April, I found myself the main character in Michael Lewis’s book “Flash Boys.” It told the story of a quest I’ve been on, with my colleagues, to expose and to prevent a lot of outrageous behavior in the U.S. stock market. Many of us had worked at big Wall Street firms or inside stock exchanges, and many of us believed something was amiss in the market. But it took the better part of five years to discover exactly how the market had been organized to benefit financial intermediaries, rather than the investors, the companies or the economy it was meant to serve. Only after looking at a flurry of market innovations – 40-gigabit cross-connects, esoteric order types, microwave towers – did we understand that the market’s focus was less about capital formation and more about giving certain market participants an advantage over others. In the end, we felt that the best way to solve these problems was to build a stock market of our own, which we did.

After the book, our stock market, IEX Group Inc., became a topic of discussion – some positive, some negative, some true and some false. Fair enough. If you’re in the spotlight and doing something different, you should take the heat along with the light. It’s for this reason that we have done our best to resist responding publicly to misinformation about our company – even when we read memos circulated inside banks that “Michael Lewis has an undisclosed stake in IEX” (he does not); that “brokers own stakes in IEX” (they don’t); or articles in the Wall Street Journal that said we let “broker-dealers jump to the front of the trading queue,” putting retail investors and mutual funds at a disadvantage (in reality, all orders arrive at IEX via brokers, including those from traditional investors). Our hope in staying quiet was that the truth would win out in the end. But in recent weeks, the misinformation campaign has hit a new high (or low), and on one particularly critical matter, we feel compelled to set the record straight.

Read more …

I call bull.

Denmark Breaks Debt Trap of World’s Most Indebted Households (Bloomberg)

Denmark’s efforts to stop the world’s most indebted households from building up more debt are starting to pay off as amortization rates improve. The Danish Mortgage Bankers’ Federation says issuance of interest-only loans — criticized by the central bank and rating companies for posing a threat to financial stability – has now peaked. Danske Bank A/S, Denmark’s biggest lender, also estimates the share of non-amortizing loans is set to decline. “The trend is broken now,” Jan Oestergaard, a senior analyst at Danske in Copenhagen, said in a phone interview. “Depending on how interest rates move going forward, I think we’ll see a lower share of interest-only loans.”

Interest-only mortgage bonds, which give borrowers a grace period of as long as 10 years on principal payments, made up 56% of Denmark’s $500 billion mortgage bond market at the end of June. The International Monetary Fund said in January the securities risk destabilizing the country’s home finance market, the world’s largest per capita. The Organization for Economic Cooperation and Development has urged Denmark to design policy to reduce gross household debt, which topped 300% of disposable incomes last year — a rich-world record. The Danish government is grappling with how to cut issuance of interest-only loans. A new set of rules for the mortgage market could include a limit. The guidelines “will be published in the fall,” Kristian Vie Madsen, deputy director at the FSA, said in an e-mailed reply to questions.

Read more …

Why am I starting to think all US sales numbers come together like this?

GM Props Up Sales Numbers With ‘Creative’ Discounts To Dealers (AP)

As General Motors tackles a safety crisis, a look its numbers from June show just how intent the company is on keeping new-car sales on the rise during a record spate of safety recalls. The Detroit automaker has recalled nearly 30 million cars and trucks this year, including some models that had barely rolled off the assembly line. Yet sales have been resilient, up 3.5% through the first seven months of the year. In mid-June, however, the automaker was headed for a year-over-year monthly sales decline, according to data compiled by automotive research firms. Then, on June 20, GM asked dealers to buy more cars, and it threw in another $1,000 in discounts per vehicle, five dealership representatives told The Associated Press. The company finished the month with a 1% gain.

The dealers said they were asked to buy the cars for a rental program, one that provides loaner cars for people whose vehicles are being serviced. When they buy the cars for the program, GM counts them as a retail sale. It’s a longstanding practice used by nearly all automakers to boost sales results. At GM, though, the incentive was unusually generous and came as GM executives try to steer the company through the worst safety crisis in its history, including the recall of 2.6 million small cars with defective ignition switches tied to at least 13 deaths. The company has allayed investor fears by saying that recalls have actually helped sales by bringing in customers who see vastly improved new models. “Clearly the timing seems a little suspicious,” said Jesse Toprak, senior analyst for the Cars.com website who predicted on June 22 that GM sales would be down 7% for the month, compared with a 2% decline for the rest of the industry. “Retail numbers at that point did not show any kind of strength.” The industry eked out a 1.2% gain for the month.

Read more …

Would Washington ever let GM go under, again? No way. they got a free pass.

GM Recall Help Site As Defective As Its Ignition Switches (USA Today)

Federal safety regulators say that not only are General Motors ignition switches defective, so is GM’s website for determining if you are driving one of the defective cars. People who use the GM “VIN look-up” site are told their cars aren’t part of an active recall if the repair parts aren’t yet available, even when the cars are, in fact, being recalled. VIN is the vehicle identification number. GM and other automakers maintain websites that allow owners to check for recalls by plugging in their vehicle’s VIN. The National Highway Traffic Safety Administration said late Friday that it “determined that owners of some recalled GM vehicles are receiving incorrect and misleading results” using the automaker’s VIN look-up system. NHTSA said it told GM to fix the system and tell owners about the problem. “Consumers who have used GM’s tool and found no recall should recheck,” NHTSA said. GM spokesman Greg Martin said Friday night, “We are aware of NHSTA’s inquiry on the VIN look-up issue. We are making the necessary changes to our website.”

He said that people who are unsure if they got the right answer from the website “should call the customer care numbers listed on our website.” Starting Aug. 20, NHTSA is requiring all automakers to provide a free online tool that lets car owners search for recalls using the VIN. Many automakers already do so. NHTSA said in its statement that it was alerted to the faulty GM VIN look-up system by Sen. Barbara Boxer, D-Calif. Boxer has been especially tough on GM and its CEO, Mary Barra, at Senate subcommittee hearings, accusing the automaker of a cover-up for not disclosing sooner that millions of its vehicles had ignition switches with a potentially fatal flaw. GM documents show that the switch problem was noticed in 2001, but nothing was done to fix it until engineer Ray DeGiorgio, since fired by GM, tried to improve the switch quietly in 2006, under the guise of fixing a different switch problem.

Read more …

Not terribly new info for Automatic Earth readers, but worth repeating.

Public Pension Funds Making Big Bets On Hedge Funds (NPR)

Public pension funds have been doing something new in recent years — investing in hedge funds. Hedge funds are often secretive investment firms led by supposedly supersmart fund managers. Though, sometimes they implode spectacularly — think Long-Term Capital Management. Another prominent firm, Galleon Group, recently got shut down for rampant insider trading. Those may be rare examples, but one thing that’s true about nearly all hedge funds is that they charge high fees. And some experts are questioning whether public pension funds should be investing this way. Ten years ago, public pension funds stayed away from hedge funds. Maybe hedge funds seemed too pricey or opaque or exotic. After all, public pension funds invest money so they can afford to keep sending checks to retired schoolteachers, police officers and firefighters. “They didn’t have anything in hedge funds,” says David Kotok, the chief investment officer at Cumberland Advisors. He advises public pension funds on their investments.

Hedge funds claim to be able to provide a good return — while protecting the investor if, say, the stock market crashes. That’s why they’re called “hedge” funds — as in hedging your bets. And in recent years more pension funds have invested in them. But Kotok says, “our concern has been that in some cases this seems to have become a fad.” If it is a fad, it’s a very expensive one. Hedge funds generally charge what’s called “2 and 20.” Every year, they take 2% of all the money you have invested with them plus 20% of any profits. If they lose money, they still get the 2%. For public pension funds that invest billions of dollars, those are very steep fees. They’re more than 10 times the percentage cost of a typical stock market index fund. In recent months many hedge funds have cut those fees a bit, under pressure from investors. Some surveys have found the hedge funds willing to take 1.6% and 18% of profits. Those fees are still much higher than other investment options. “The fees are extraordinarily high,” says Julia Bonafede, the president of Wilshire Consulting.

Both she and Kotok advise their public pension fund clients not to invest in hedge funds. Kotok says that over time, the odds are too slim that returns will justify those high fees. “We think that a high-cost structure works against the investor,” he says. Still, some pension funds have been plowing money into hedge funds. “What has happened since the financial crisis is you’ve seen a huge flow of assets into hedge funds,” Bonafede says. Most public pension funds are not investing heavily in hedge funds, according to data from Wilshire. But some of the funds definitely are. The Teacher Retirement System of Texas is investing 10% of its money in hedge funds. The state of New Jersey’s pension system is investing around 12%. For the Ohio school’s pension fund, it’s 15%.

Read more …

Snowden, Greenwald Reveal Scale Of US Aid To Israel (RT)

The turmoil gripping the Middle East is a direct result of the provision of cash, weapons and surveillance to Israel by the US, the latest Snowden leak illustrates. Obama’s “helpless detachment” is just for show, the Intercept’s Glenn Greenwald writes. In a bold examination, the former Guardian journalist reveals the amazing contrast between what the United States says publicly, and what it does behind the curtain. This involves President Barack Obama’s apparent heartbreak over the Middle Eastern region, as well as the American love for publicly listing Israel as a threat to regional peace at a time when billions of dollars’ worth of its weaponry and intelligence were being supplied to the Jewish state since the 1960s. Greenwald has published his analysis of the latest leaked Edward Snowden document, wherein it’s explained just how false the notion that the US is a bystander to the Middle Eastern crisis really is. In fact, “the single largest exchange between NSA and ISNU is on targets in the Middle East which constitute strategic threats to US and Israeli interests,” the leaked paper reveals.

“The mutually agreed upon geographic targets include the countries of North Africa, the Middle East, the Persian Gulf, South Asia, and the Islamic republics of the former Soviet Union. Within that set of countries, cooperation covers the exploitation of internal governmental, military, civil and diplomatic communications; and external security/intelligence organizations.” One of the “key priorities” of this cooperation is “the Iranian nuclear development program, followed by Syrian nuclear efforts, Lebanese Hizbullah plans and intentions, Palestinian terrorism, and Global Jihad.” The paper talks about “targeting and exploiting” these. It goes on to show that both intelligence services have liaison officers in each other’s embassies, enjoy a “cryptanalytic” partnership, and that Israel has direct access to the highest American military technology. Greenwald supplements this with proof of millions in emergency US funds stockpiled in the Middle East, which Israel can use for its own strategic purposes by simply writing a request.

Read more …

Say a little prayer.

More Than 100 Health Workers Have Been Infected By Ebola (Reuters)

Jenneh became a nurse in Sierra Leone 15 years ago with the hope of saving lives in one of the world’s poorest countries. Now she fears for her own after three of her colleagues died of Ebola. Health workers like Jenneh are on the frontline of the battle against the world’s worst ever outbreak of the deadly hemorrhagic fever that has killed 729 people in Sierra Leone, neighboring Liberia, Guinea and Nigeria so far. With West Africa’s hospitals lacking trained staff, and international aid agencies already over stretched, the rising number of deaths among healthcare staff is shaking morale and undermining efforts to control the outbreak.

More than 100 health workers have been infected by the viral disease, which has no known cure, including two American medics working for charity Samaritan’s Purse. More than half of those have died, among them Sierra Leone’s leading doctor in the fight against Ebola, Sheik Umar Khan, a national hero. “We’re very worried, now that our leader has died from the same disease we’ve been fighting,” said Jenneh, who asked for her real name not to be used. “Two of my very close nursing friends have also been killed … I feel like quitting the profession this minute.”

[..] like other carers, she is worried the fabric of the yellow full-body suits used to protect workers on isolation wards is too flimsy to block the virus. “Improper personal protective gear is a serious issue here,” she said. World Health Organization (WHO) experts strongly deny there is any problem with the protective equipment. They point to a chronic lack of experienced staff that is forcing health workers to cut corners in the arduous daily task of decontaminating wards and treating patients. The WHO launched an urgent appeal for hundreds more trained medical personnel on Thursday as part of a $100 million drive to bring the outbreak under control. It said it was seeking ways to safeguard scarce medical workers from infection.

Read more …

US Spy Plane Intercepted By Russian Jet Invades Swedish Airspace (RT)

US officials have confirmed Swedish media reports of a mid-July incident in which an American spy plane invaded Sweden’s airspace as it was evading a Russian fighter jet. The maverick plane was spying on Russia when it was intercepted. The incident, which happened on July 18, went public last Wednesday after a classified document from Sweden’s Defense Ministry was leaked to the press. The plane, a Boeing RC-135 Rivet Joint, entered Sweden’s airspace after permission to do so was denied by traffic control, Svenska Dagbladet (SvD) newspaper said. It passed from the east over the island of Gotland and flew more than 200km over 90 minutes before leaving. The aerial incursion was caused by a Russian fighter jet, which scrambled from a base in the exclave Kaliningrad Region and approached the American reconnaissance plane.

Neither party involved in the incident confirmed or denied it, but a source in the US military told CNN on weekend that it indeed happen. The source said the plane was conducting an electronic eavesdropping mission on the Russian military when the latter locked on to the aircraft with a radar station and sent at least one jet to intercept it. The quickest path of escape was through Swedish airspace, which was what the spy plane pilot did despite the Swedes’ objection. The source said similar incidents may happen in future, a fact which the US officials made known to Sweden. The CNN report didn’t elaborate on how it was perceived by Sweden, a country that is not even a member of NATO and maintains a non-alliance stance.

Read more …