Jun 252019
 
 June 25, 2019  Posted by at 9:36 am Finance Tagged with: , , , , , , , , , ,  


Pablo Picasso Minotauromachie 1935

 

Interest Rates Don’t Need To Rise Much To Cause Recessions Now (Colombo)
The Federal Reserve Is About To Create A Lot More Zombies (MW)
The Solution to Trump’s Iran Mayhem (FFF)
Iran Says New US Sanctions “Permanent Closure” Of Diplomacy (AFP)
Oil Prices Drop Amid Demand Worries, But US-Iran Tensions Support (R.)
Provoking Iran Could Start a War, Crash the Entire World Economy (Pieraccini)
House Party (Jim Kunstler)
Three Years After The Brexit Referendum, What Has Changed? (Coppola)
Firms Fear For Deliveries In Shipping Pollution Shakeup (R.)
‘Climate Apartheid’: UN Expert Says Human Rights May Not Survive (G.)

 

 

The shadow Fed Funds rate is already rising sharply. Wiggle room approaches zero.

Interest Rates Don’t Need To Rise Much To Cause Recessions Now (Colombo)

As a result of debt growing faster than our underlying economy, America’s debt as a percent of GDP soared from just over 150% in the early-1980s to approximately 350% in recent years. This higher debt burden is the reason why our economy simply cannot handle interest rates as high as they were before 2008. Particularly worrisome is the fact that U.S. federal debt is at a record of over 100% of the GDP (vs. 62% before the Great Recession), which will make it a much greater challenge to keep the economy afloat in the coming recession:

As the Fed Funds rate chart below shows, the interest rate threshold necessary to trigger recessions (recessions are designated by the gray bars) keeps falling as our debt burden increases:

Though many optimists are quick to point out that the benchmark Fed Funds rate was only increased from 0% to 2.5% during the current tightening cycle, the reality is that the current tightening cycle is even more aggressive than the past several cycles when the Fed Funds rate is adjusted for quantitative easing (this is known as the shadow Fed Funds rate). According to this methodology, interest rates have increased by the equivalent of 5.41% in the current cycle versus just 3.62% before the 2001 recession and 4.26% before the Great Recession of 2007 to 2009:

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It’s like hearing my own echo.

The Federal Reserve Is About To Create A Lot More Zombies (MW)

Long-term interest rates just fell off a cliff. And if you think they can’t keep falling, think again. Albert Edwards, a strategist at SG Securities, pointed out in a recent note that none of the experts surveyed by the Wall Street Journal at the start of the year predicted 10-year Treasury yields would fall below 2.5%. Current level: 2%. I guess we can toss those forecasting models out the window. He adds that mainstream economists have been saying for years that long-term rates would never end up at zero percent. Yet rates in Europe are now negative. People are paying half a percent a year for the privilege of lending money to the government of Switzerland. Even in the U.S., 10-year rates adjusted for inflation are only 0.29%. A generation ago, they were typically 2% or better.

Western economists used to say that zero percent rates were a weird and unique thing you only saw in Japan — like people eating raw puffer fish and hoping not to die. It would never catch on over here, they said. But they already have. Today European rates are even lower than those in Japan. When U.S. rates first collapsed in 2011-2012, we were assured it was a freak one-off event and was never going to happen again. When it happened again in 2016, we were told it was, well, a “two-off” event that was certainly never going to happen a third time. Now it’s happening a third time, and I guess we’re waiting for the official line on why, once again, this is just a temporary derangement and nothing to worry about.

But the Bank for International Settlements says there is something to worry about, and it’s the reason that economic growth, inflation and interest rates can’t get off the ground: zombies. No, I’m not making this up. The BIS says there are way too many zombies around, and they’re killing the economy, and it’s all the fault of low interest rates. We’re talking “corporate zombies,” of course. The BIS found that, ever since the 1980s, falling interest rates have made it easier and easier for bad companies with lousy management and terrible products and dismal prospects to stay in business long after they should have gone the way of all flesh. These “zombie” companies can stay alive — or whatever the correct term is for zombies — if they can just keep borrowing.

And when money gets cheaper, that’s great for zombies. Lower interest rates are correlated with rising numbers of zombie companies, the BIS found. And there are a lot of zombies around. The BIS reckons no fewer than 12% of the non-financial companies on major developed stock markets could be “zombie” companies, at least by a loose definition. This is an epidemic. In the early 1990s, the figure was about 2%.

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“Restore America’s founding principles of a limited-government republic and its founding foreign policy of non-interventionism. That’s the way to restore peace, prosperity, morality, harmony, normality, fiscal responsibility, and freedom to our land.”

The Solution to Trump’s Iran Mayhem (FFF)

Should the Nobel Peace Prize be awarded to a man who resolves his own crises and then chooses to kill innocent people with sanctions rather than bombs as a way to achieve a political end? Even a blind man can see that Trump’s actions toward Iran have been entirely belligerent, all with the aim of squeezing the Iranian citizenry and bullying their government officials into complying with his dictates or else face a “defensive” U.S. bombing attack. It’s helpful to remind ourselves of what happened here. Iran entered into a deal with the U.S. government under the presidency of Barrack Obama. Pursuant to the deal, Iran would agree not to acquire nuclear weapons and the U.S. government would lift the brutal U.S. sanctions that were impoverishing and even killing the Iranian citizenry.

Complying with the agreement, Iran gave up its nuclear weapons programs, fully expecting the U.S. government to comply with its end of the bargain by lifting its sanctions. Then Donald Trump entered the presidency and proceeded to immediately tear up the deal, knowing full well that Iran had compiled with it with the expectation that the U.S. government would fulfill its end of the bargain. Not only did Trump not lift the sanctions, he doubled down and began enforcing them even more brutally than Obama had. In other words, Iran was double-crossed by the U.S. government operating under Trump. (I wonder if North Korean officials are noticing this.)

[..] The problems began when the U.S. government abandoned its founding policies of a limited-government republic and non-interventionism and instead became a national-security state and embraced a foreign policy of empire and interventionism. This is what gave the country a huge, permanent military establishment, both domestically and in foreign countries. It also gave the nation assassinations, torture, coups, regime-change operations, alliances with dictatorial regimes, installation of dictatorial regimes, sanctions, embargoes, illegal invasions and occupations, undeclared wars, wars of aggression, terrorism, a war on terrorism, out-of-control spending and debt, and, of course, the destruction of American liberty and privacy.

[..] There is but one solution to all this mayhem: Restore America’s founding principles of a limited-government republic and its founding foreign policy of non-interventionism. That’s the way to restore peace, prosperity, morality, harmony, normality, fiscal responsibility, and freedom to our land.

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Sanctions as a military tool. May not be that wise.

Iran Says New US Sanctions “Permanent Closure” Of Diplomacy (AFP)

Iran said Tuesday US sanctions on its leaders represent the “permanent closure” of diplomacy with Washington, after President Donald Trump tightened the screws on a nation he has threatened with “obliteration”. “Imposing fruitless sanctions against Iran’s supreme leader and the commander of Iran’s diplomacy is the permanent closure of the path to diplomacy with Trump’s desperate government,” ministry spokesman Abbas Mousavi said in a tweet. Washington imposed new sanctions against supreme leader Ayatollah Ali Khamenei Monday ahead of blacklisting Foreign Minister Mohammad Javad Zarif later this week, its latest salvo in a tense standoff that has raised fears of a regional conflict.


“Trump’s government is destroying all established international mechanisms for keeping global peace and security,” he added. Tehran and Washington broke off diplomatic relations in 1980 over the hostage crisis at the US embassy in Tehran following Iran’s Islamic revolution. US President Donald Trump also imposed new sanctions Monday against top Iranian military chiefs, pressuring the country it has threatened with “obliteration” if a war breaks out.

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Oil prices fall in this climate. That’s remarkable.

Oil Prices Drop Amid Demand Worries, But US-Iran Tensions Support (R.)

Oil fell on Tuesday amid concerns over the outlook for crude demand, but prices were supported after Washington announced new sanctions on Iran amid mounting tensions in the Middle East. Benchmark Brent crude futures were down 34 cents, or 0.5%, at $64.52 a barrel by 0639 GMT. They dropped 0.5% on Monday. U.S. crude futures were down 24 cents, or 0.4%, at $57.66 a barrel. The U.S. benchmark rose 0.8% in the previous session. Brent climbed 5% last week and U.S. crude surged 10% after Iran shot down a U.S. drone on Thursday in the Gulf, adding to tensions stoked by attacks on oil tankers in the area in May and June. Washington has blamed the tanker attacks on Iran, which denies having any role.


U.S. President Donald Trump targeted Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions on Monday, taking an unprecedented step to increase pressure on Iran after Tehran’s downing of the drone. “This would appear to effectively rule out any talks or negotiations to end the crisis,” said Tom O’Sullivan, founder of energy and security consultancy Mathyos Advisory.

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Derivatives and oil again.

Provoking Iran Could Start a War, Crash the Entire World Economy (Pieraccini)

As if the political and military situation at this time were not tense and complex enough, the two most important power groups in the United States, the Fed and the military-industrial complex, both face problems that threaten to diminish Washington’s status as a world superpower. The Fed could find itself defending the role of the US dollar as the world reserve currency during any conflict in the Persian Gulf that would see the cost of oil rise to $300 a barrel, threatening trillions of dollars in derivativesand toppling the global economy. The military-industrial complex would in turn be involved in a war that it would struggle to contain and even win, destroying the United States’ image of invincibility and inflicting a mortal blow on its ability to project power to the four corners of the world.

Just look at how surprised US officials were about Iran’s capabilities to shot down an advanced US Drone: “Iran’s ability to target and destroy the high-altitude American drone, which was developed to evade the very surface-to-air missiles used to bring it down, surprised some Defense Department officials, who interpreted it as a show of how difficult Tehran can make things for the United States as it deploys more troops and steps up surveillance in the region.” The US dollar-based economy has a huge debt problem caused by post-2008 economic policies. All central banks have lowered interest rates to zero or even negative, thus continuing to feed otherwise dying economies.

The central bank of central banks, the Bank for International Settlements, an entity hardly known to most people, has stated in writing that “the outstanding notional amount of derivative contracts is 542 trillion dollars.” The total combined GDP of all the countries of the world is around 75 trillion dollars. With the dimensions of the problem thus understood, it is important to look at how Deutsche Bank (DB), one of the largest financial institutions in the world, is dealing with this. The German bank alone has assets worth about 40 trillion dollars in derivatives, or more than half of annual global GDP. Their solution, not at all innovative or effective, has been to create yet another bad bank into which to pour at least 50 billion dollars of long-term assets, which are clearly toxic.

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Don’t know what to call it? No worries, mate, Jim can help.

“..as if Mr. Biden might have been mistaken for a waiter in the senators’ dining room, with its old fashioned-ways and renowned bean soup.”

House Party (Jim Kunstler)

As the first of 12 presidential debates blows in at mid-week like an evil patch of bad summer weather, twenty candidates vie for the position of Ole Massa on the Democratic Party plantation, and the air is gravid with bad vibes. One highly-favored entry, Mayor Pete (Buttigieg) of charming South Bend, Indiana, stepped into (and tripped over) a big fresh patty of mule poop over the weekend at a “town hall” meeting that was called to address the June 16 shooting of one Eric Logan, 54, by a police officer dispatched to check out “a suspicious individual going through cars” at 2:30 a.m. The officer said the suspect came at him with a knife. The officer failed to switch on his body-cam, or so the police department said. Conclusions were jumped to. Then, in the wee hours just before Mayor Pete’s June 24 town hall, another black man was killed and 10 other people wounded in the shoot-up of a watering hole called Kelly’s Pub.

God knows what that was about — no police were involved in the shoot-up — but Mayor Pete caught the blame for it, of course, and the Sunday town hall meeting turned into a shriek-in by outraged “community” members. He was hardly allowed to admit his failures, issue apologies, and promise to do better. After the ordeal, Mayor Pete struggled to hold in his tears talking to the media. No doubt he will be pressured to keep ‘splainin’ these matters until either his campaign folds up its tent or he is anointed at the national convention in Milwaukee.

Leader-of-the-Pack (in the polls, anyway) Joe Biden stepped into it perhaps even deeper than Mayor Pete last week when he bragged about how well he was able to work with the old southern segregationist fossils, Herman Talmadge (GA) and James O. Eastland (MS), who were still around in the senate when “Uncle Joe” first came on the scene decades ago. “We didn’t agree on much,” the former Veep said, “but we got things done.” What’s more, the candidate averred, going perhaps a bridge too far, Senator Eastland “never called me ‘boy,’ he always called me ‘son,’” as if Mr. Biden might have been mistaken for a waiter in the senators’ dining room, with its old fashioned-ways and renowned bean soup.

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The divide has widened enormously. So much so that Brexit has become very dangerous.

Three Years After The Brexit Referendum, What Has Changed? (Coppola)

No-one should be fooled by the British media’s attempts to present this contest as a presidential battle like that between Donald Trump and Hillary Clinton in 2016. It is nothing of the kind. The people of the U.K. will have no say in who leads them. That will be decided by about 160,000 Tory party members, mainly old, white, rich and male. Representative of the population of the U.K., they are not. Both leadership candidates have offered tax policies designed to please these people. Boris Johnson’s proposal to cut taxes for the very rich and pay for it by raising payroll taxes was described by The Economist as “a shameless bribe to the elderly and prosperous Tory party members who choose the leader.”

Jeremy Hunt’s approach is more subtle: lowering corporation tax to match Ireland’s rate is still a bung to the rich, but it can be dressed up in supply-side economic language to give the impression of benefiting wider U.K. society. Americans might recall that President Trump’s corporate tax cuts were advertised as benefiting middle-income people through trickle-down effects, though they have primarily benefited the very rich. The Economist – hardly a bastion of lefty economics – was decidedly lukewarm about Hunt’s proposal, pointing out that corporation tax had already been cut considerably and it might be better to tax cashflows rather than profits.

But this contest is really about Brexit. Tory party members are overwhelmingly in favour of leaving the EU, and very frustrated by what they see as May’s delay. They want Brexit now, even if that means leaving with no deal. And they will vote for the candidate they think is most likely to deliver that regardless of the consequences. A recent poll showed that most of them would accept the breakup of the U.K. and/or the death of their own party as the price of Brexit.

Boris Johnson set up this scene of him and his girlfriend after reports of police being called to a big fight the two had. And then someone added a few words. Priceless.

 

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“This is expected to push up the price of diesel fuel for trucks by as much as 100 percent.”

Excellent. Needless transport is our biggest scourge.

Firms Fear For Deliveries In Shipping Pollution Shakeup (R.)

U.S. furniture company RC Willey Home Furnishings is so concerned that new global clean air rules will cause transport disruption that it brought forward the shipment of arm chairs and sofas from China by two months. The tougher regulations, set by the United Nations shipping agency, the International Maritime Organization (IMO), come into force on Jan 1. Costs will rise for ships towards the end of this year and there will be a knock on effect for trucks and other transporters that move goods around the world. For shipping companies it is the biggest shakeup in decades and adds to the pressures of an economic slowdown and the threat of an escalating trade war between the United States and China.

While consumers are not expected to pay more for goods, higher transport bills and disruption to company deliveries could further dent economic growth. Ship owners must cut sulphur emissions to 0.5% from 3.5%. They can do this by using low-sulphur fuel, installing exhaust gas cleaning systems or opting for other, more expensive, clean fuels such as liquefied natural gas or traveling more slowly. Jeff Child, president of Berkshire Hathaway’s RC Willey Home Furnishings, moved the delivery of about 450 containers from September and October to July and August. He wants to avoid any disruption in the peak fourth quarter as ships prepare for the changes, including refitting equipment. “We just don’t want to get caught in a situation where it affects our inventory,” he told Reuters.

Analysts say the container industry, which transports consumer goods such as sofas, designer clothes and bananas, will be one of the worst hit with extra costs of about $10 billion. The world’s two biggest container shipping lines – Denmark’s Maersk and Swiss headquartered MSC – say they face annual extra costs of over $2 billion each. Twenty-five logistics company executives told Reuters they would pass along any IMO-related costs, such as ship upgrades or more expensive fuel, to customers. “The sulphur cap will further put pressure on ocean freight rates and we… will have to pass those costs on to remain competitive,” Peder Winther, global head of ocean freight with Swiss transportation company Panalpina Group said.

[..] “Higher fuel prices would result in higher transport costs,” said Peter Nagle, an economist with the World Bank’s Development Prospects Group. “This would have the potential to lead to slower economic growth and trade.” Trucking companies will also suffer. The IMO rules do not apply to them but they will face new competition from ships for lower sulfur fuel. This is expected to push up the price of diesel fuel for trucks by as much as 100 percent.

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But nobody listens to the UN anymore.

‘Climate Apartheid’: UN Expert Says Human Rights May Not Survive (G.)

The world is increasingly at risk of “climate apartheid”, where the rich pay to escape heat and hunger caused by the escalating climate crisis while the rest of the world suffers, a report from a UN human rights expert has said. Philip Alston, UN special rapporteur on extreme poverty and human rights, said the impacts of global heating are likely to undermine not only basic rights to life, water, food, and housing for hundreds of millions of people, but also democracy and the rule of law. Alston is critical of the “patently inadequate” steps taken by the UN itself, countries, NGOs and businesses, saying they are “entirely disproportionate to the urgency and magnitude of the threat”. His report to the UN human rights council (HRC) concludes: “Human rights might not survive the coming upheaval.”

The report also condemns Donald Trump for “actively silencing” climate science, and criticises the Brazilian president, Jair Bolsonaro, for promising to open up the Amazon rainforest to mining. But Alston said there were also some positive developments, including legal cases against states and fossil fuel companies, the activism of Greta Thunberg and the worldwide school strikes, and Extinction Rebellion. In May, Alston’s report on poverty in the UK compared Conservative party welfare policies to the creation of 19th-century workhouses. Ministers said his report gave a completely inaccurate picture, but Alston accused them of “total denial of a set of uncontested facts”.

Alston’s report on climate change and poverty will be formally presented to the HRC in Geneva on Friday. It said the greatest impact of the climate crisis would be on those living in poverty, with many losing access to adequate food and water. “Climate change threatens to undo the last 50 years of progress in development, global health, and poverty reduction,” Alston said. Developing countries will bear an estimated 75% of the costs of the climate crisis, the report said, despite the poorest half of the world’s population causing just 10% of carbon dioxide emissions.

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Dec 142018
 
 December 14, 2018  Posted by at 10:13 am Finance Tagged with: , , , , , , , , , , , , ,  


Paul Signac Boulevard de Clichy under snow 1886

 

ECB To Halt €2.6 Trillion Stimulus Despite Eurozone Slowdown Concerns (G.)
Shipping Costs From China To The US More Than Doubled In 2018 (CNBC)
China Reports ‘Ugly’ Industrial Output And Retail Sales Growth (CNBC)
Average UK Worker Earns A Third Less Than In 2008 (PA)
EU Leaders Scrap Plans To Help Theresa May Pass Brexit Deal (Ind.)
Labour Plans To ‘Throw Kitchen Sink’ To Force May’s Hand On Brexit (G.)
There Should Be No Exit from Brexit (Spiegel)
My Plan To Revive Europe Can Succeed Where Macron, Piketty Failed (Varoufakis)
A World That Is the Property of the 1% (Nomi Prins)
Trump Inauguration Spending Under Criminal Investigation (CNBC)
US ‘Miscarriage Of Justice’ In Butina Case Denounced (RT)
US Senate Passes Resolution Saying MbS Responsible For Khashoggi Murder (Ind.)

 

 

No. 1 victim will be Italy. ECB was the only buyer of their bonds. And bit by bit Europe will realize Draghi has been spending them into a blind alley. 2019 promises to be a crazy year in Europe.

ECB To Halt €2.6 Trillion Stimulus Despite Eurozone Slowdown Concerns (G.)

The European Central Bank will halt its €2.6tn stimulus programme in January despite concerns that the eurozone is poised to slow down over the next couple of years. Mario Draghi, the ECB boss, warned that rising uncertainty had forced the bank to downgrade its outlook for the currency bloc next year and the effects would continue to be felt in 2020. Draghi, without mentioning the US-China trade war, Brexit or the Italian government’s dispute with Brussels, said: “The balance of risk is moving to the downside.” He said growth would be limited to 1.7% in 2019, “owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”.

The worse-than-expected outlook sent the euro tumbling on international exchanges as investors cut back their expectations for growth across the continent. Figures showing that the German economy contracted in the last quarter were a clear signal that the eurozone had come under pressure from weakening global trade, while the slowing of the bloc’s other two major economies – France and Italy – only added to the worsening outlook. However, the ECB said the recovery was strong enough that it could stop expanding its QE programme that has seen it pump €2.6tn into the eurozone economy to stoke growth and inflation from January.

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Fear of tariffs and trade wars cause US importers to front-load their orders, causing shipping to get much busier. The US imported much more, not less after Trump’s tariffs rhetoric.

Shipping Costs From China To The US More Than Doubled In 2018 (CNBC)

The price of shipping a container from China to the United States has risen dramatically in the last year due to uncertainty surrounding trade tensions between Washington and Beijing. That’s because Chinese exporters have been rushing to get goods to U.S. ports before new tariffs kick in, but data are suggesting that trend may soon run out of steam. China and the U.S., the world’s two largest economies, have been locked in a tit-for-tat tariff fight over the last year, levying duties on each other’s imports worth hundreds of billions of dollars in the last few months. Increasingly strong fears of an all-out trade war have inspired exporters to push forward shipment dates — a phenomenon called front-loading.

In fact, freight prices for containers going from China to the U.S. have surged more than 100 percent from a year ago as of the beginning of December, according to data from Freightos, an online freight marketplace, “Transpacific ocean freight peak season has been a bonanza, with prices still more than double last year,” said a report on the most recent Freightos data published on the Baltic Exchange’s news website. That was as freight rates for China to the U.S. West Coast jumped 128 percent while those from China to the U.S. East Coast surged 123 percent compared to the same period a year ago. In contrast, China to North Europe freight rates were up just 11 percent in the same period due to pre-Christmas cargoes.

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And that is after exports to the US were frontloaded because of tariffs. What’s going to happen after January 1?

China Reports ‘Ugly’ Industrial Output And Retail Sales Growth (CNBC)

China on Friday reported industrial output and retail sales growth for the month of November that missed expectations, according to data from the National Bureau of Statistics, as the world’s second-largest economy started to show signs of slowing amid a bitter trade dispute with the U.S. Industrial output in November grew 5.4 percent from a year ago — the slowest pace in almost three years as it matched the rate of growth seen in January to February 2016, according to Reuters records. The growth in industrial production was lower than the 5.9 percent analysts in a Reuters poll had predicted.

Retail sales rose 8.1 percent in November — the weakest pace since 2003, according to Reuters’ records — lower than the 8.8 percent the analysts expected. November retail sales growth was down from 8.6 percent in October. Fixed asset investment rose 5.9 percent from January to November, marginally higher than the 5.8 percent the economists had forecast. FAI rose 5.7 percent from January to October. [..] The weaker Chinese data in November shows that the positive impact of front-loading had begun to taper off and that downward pressure on the Chinese economy was increasing, wrote Sue Trinh, head of Asia foreign exchange strategy at RBC Capital Markets in Hong Kong. The industrial output and retail sales data released on Friday were “ugly,” she added in a Friday note.

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Why Brexit, you asked?

Average UK Worker Earns A Third Less Than In 2008 (PA)

Wages are still worth a third less in some parts of the country than a decade ago, according to a report. Research by the Trades Union Congress (TUC) found that the average worker has lost £11,800 in real earnings since 2008. The UK has suffered the worst real wage slump among leading economies, said the union organisation. The biggest losses have been in areas including the London borough of Redbridge, Epsom and Waverley in Surrey, Selby in North Yorkshire and Anglesey in north Wales, the studyfound.

Workers have suffered real wage losses ranging from just under £5,000 in the north-east to more than £20,000 in London, said the report. The TUC general secretary, Frances O’Grady, said: “The government has failed to tackle Britain’s cost-of-living crisis. As a result, millions of families will be worse off this Christmas than a decade ago. “While pay packets have recovered in most leading economies, wage growth in the UK is stuck in the slow lane. “Ministers need to wake up and get wages rising faster. This means cranking up the pressure on businesses to pay staff more, especially at a time when many companies are sitting on large profits.”

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“..European leaders were left amazed when she turned up without any developed requests or ideas…”

EU Leaders Scrap Plans To Help Theresa May Pass Brexit Deal (Ind.)

Theresa May‘s Brexit plan was dealt another major blow at a meeting with EU leaders on Thursday night in a disastrous turn of events that resulted in them scrapping written commitments to help her pass her deal through parliament. After arriving in Brussels with promises to help the prime minister, European leaders were left amazed when she turned up without any developed requests or ideas. The 27 heads of state and government subsequently decided to delete lines from their council conclusions saying the EU “stands ready to examine whether any further assurance can be provided” and that “the backstop does not represent a desirable outcome for the union”.

The key paragraphs appeared in leaked earlier drafts on the conclusions and their absence leaves a barebones statement that does the bare minimum to help the prime minister. The limited assurances provided in the statement are extremely unlikely to placate Ms May’s MPs, who have said they want major changes to the agreement. Accounts of the meeting suggest the prime minister’s speech, in which she called for help to get the agreement “over the line”, was repeatedly interrupted by Angela Merkel asking her what she actually wanted from them. Senior UK government officials admitted that the prime minister did not bring any documented proposals with her to the meeting. The approach puzzled EU diplomats, who for days before the conference had said they needed to see what proposals Ms May had come up with before they could respond to her request for aid.

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Labour lacks all strength. What have they been doing in the past 2 years?

Labour Plans To ‘Throw Kitchen Sink’ To Force May’s Hand On Brexit (G.)

Jeremy Corbyn will seek to increase pressure on Theresa May in parliament next week in a bid to prevent the Tories running down the clock on Brexit. As the prime minister urged EU leaders to offer fresh concessions in Brussels on Thursday, senior Labour sources stressed the party was determined to “turn up the heat” at home. May’s spokeswoman confirmed on Thursday that “there will be no meaningful vote before Christmas”, while the prime minister negotiates with her EU counterparts. But Labour fears May will only be able to win cosmetic changes to the backstop – and that she will use the ongoing talks as an excuse to avoid testing the will of parliament.

“There must be no more dither and delay, or attempts to run down the clock in an attempt to deny parliament alternative options,” Corbyn said on Thursday. “People and businesses need certainty. The prime minister should put her deal before parliament next week in our country’s interest,” he said, adding that there was “no time to waste”. The Labour leader has held meetings with the shadow Brexit secretary, Sir Keir Starmer, who has been pressing for the party to table a motion of no confidence in the government before parliament rises for a Christmas break next Thursday. That option has not been ruled out – depending on the reaction of Conservative backbenchers and the DUP when May reports back to MPs from the European council meeting on Monday.

But the party is also studying alternative, less drastic options, including tabling an urgent question on the government’s no-deal preparations; and demanding a three-hour emergency debate to allow parliament to set out its expectations for the latest negotiations over the backstop. It could also demand a full parliamentary debate of regulations readying the financial services sector for a no-deal Brexit, which are currently due to be considered in a committee. “Essentially we can throw the parliamentary kitchen sink at them,” said another senior Labour source, “with all the trimmings”. Some shadow ministers are more sceptical about calling a no-confidence vote early, fearing it would only unite the Conservatives behind May. One told the Guardian: “We’ve got to wait until January now.”

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Germans that don’t want a way back for Britain. But that’s not their decision.

There Should Be No Exit from Brexit (Spiegel)

For two years, the British government has been negotiating the terms of its withdrawal with the European Commission, and now Prime Minister Theresa May is unable to secure a majority for that deal in parliament. The more chaotic things get in London, the more tempting it will become for the country to exit from Brexit through the emergency door the European Court of Justice unlocked on Monday when it declared that the British government could unilaterally move to revoke Article 50. A second referendum that would provide democratic legitimacy to that step seems increasingly likely. But such a move could potentially have graver consequences than an orderly Brexit — both for Britain and the EU.

There’s a good and perhaps even compelling argument for a second referendum: Now that a deal with the EU is on the table, voters would at least finally know what it is they were voting on. In the first referendum in June 2016, that wasn’t even remotely the case. But the campaign ahead of a second referendum would in all likelihood be even more xenophobic and hate-filled than the first. That could in turn produce a British society that is even more divided than it already is today, particularly given that recent polls show the pro-EU camp winning a second referendum by a narrow margin. This time, however, it is likely that the losers would be even angrier and more disappointed than the losers of the first vote.

Many would feel that their long-desired Brexit had been stolen from them and would turn away from democracy in frustration. It would provide a significant boost to anti-European right-wing populists. And this would lead to problem No. 2: Such an outcome would also be uncomfortable for the rest of the EU. The European bloc is currently desperately seeking to find common ground on important policy areas including economic and monetary union, defense and immigration. A Britain that is hopelessly divided on domestic policy could cause significant damage were it still an EU member state.

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I’m wondering how much of any Green New Deal -there are quite a few- depends on investing billions in allowing energy consumption to stay at equal levels, just with a shift from fossil to something else. How many people propose a 10-20-50% cut in overall energy consumption?

My Plan To Revive Europe Can Succeed Where Macron, Piketty Failed (Varoufakis)

[..] the latest Piketty manifesto retains a hybrid parliamentary chamber, but forfeits any Europeanist ambition – all proposals for debt pooling, risk sharing and fiscal transfers have been dropped. Instead, it suggests that national governments agree to raise €800bn (or 4% of eurozone GDP) through a harmonised corporate tax rate of 37%, an increased income tax rate for the top 1%, a new wealth tax for those with more than €1m in assets, and a C02 emissions tax of €30 per tonne. This money would then be spent within each nation-state that collected it – with next to no transfers across countries. But, if national money is to be raised and spent domestically, what is the point of another supranational parliamentary chamber?

Europe is weighed down by overgrown, quasi-insolvent banks, fiscally stressed states, irate German savers crushed by negative interest rates, and whole populations immersed in permanent depression: these are all symptoms of a decade-long financial crisis that has produced a mountain of savings sitting alongside a mountain of debts. The intention of taxing the rich and the polluters to fund innovation, migrants and the green transition is admirable. But it is insufficient to tackle Europe’s particular crisis. What Europe needs is a Green New Deal – this is what Democracy in Europe Movement 2025 – which I co-founded – and our European Spring alliance will be taking to voters in the European parliament elections next summer.

The great advantage of our Green New Deal is that we are taking a leaf out of US President Franklin Roosevelt’s original New Deal in the 1930s: our idea is to create €500bn every year in the green transition across Europe, without a euro in new taxes. Here’s how it would work: the European Investment Bank (EIB) issues bonds of that value with the ECB standing by, ready to purchase as many of them as necessary in the secondary markets. The EIB bonds will undoubtedly sell like hot cakes in a market desperate for a safe asset. Thus, the excess liquidity that keeps interest rates negative, crushing German pension funds, is soaked up and the Green New Deal is fully funded. Once hope in a Europe of shared, green prosperity is restored, it will be possible to have the necessary debate on new pan-European taxes on C02, the rich, big tech and so on – as well as settling the democratic constitution Europe deserves.

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From 2009 to 2017, the number of billionaires that own as much as the poorest 50% of world population went from 380 to 8. At that rate, pretty soon the world’s richest individual will own that much.

A World That Is the Property of the 1% (Nomi Prins)

Thanks to the massive accumulation of wealth by a 1% skilled at gaming the system, the roots of a crisis that didn’t end with the end of the Great Recession have spread across the planet, while the dividing line between the “have-nots” and the “have-a-lots” only sharpened and widened. Though the media hasn’t been paying much attention to the resulting inequality, the statistics (when you see them) on that ever-widening wealth gap are mind-boggling. According to Inequality.org, for instance, those with at least $30 million in wealth globally had the fastest growth rate of any group between 2016 and 2017. The size of that club rose by 25.5% during those years, to 174,800 members.

Or if you really want to grasp what’s been happening, consider that, between 2009 and 2017, the number of billionaires whose combined wealth was greater than that of the world’s poorest 50% fell from 380 to just eight. And by the way, despite claims by the president that every other country is screwing America, the U.S. leads the pack when it comes to the growth of inequality. As Inequality.org notes, it has “much greater shares of national wealth and income going to the richest 1% than any other country.” That, in part, is due to an institution many in the U.S. normally pay little attention to: the U.S. central bank, the Federal Reserve. It helped spark that increase in wealth disparity domestically and globally by adopting a post-crisis monetary policy in which electronically fabricated money (via a program called quantitative easing, or QE) was offered to banks and corporations at significantly cheaper rates than to ordinary Americans.

[..] In our post-2008 era, people have witnessed trillions of dollars flowing into bank bailouts and other financial subsidies, not just from governments but from the world’s major central banks. Theoretically, private banks, as a result, would have more money and pay less interest to get it. They would then lend that money to Main Street. Businesses, big and small, would tap into those funds and, in turn, produce real economic growth through expansion, hiring sprees, and wage increases. People would then have more dollars in their pockets and, feeling more financially secure, would spend that money driving the economy to new heights — and all, of course, would then be well.

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It should not be possible to have this kind of investigation into one side and not the other, simultaneously.

Trump Inauguration Spending Under Criminal Investigation (CNBC)

Manhattan-based federal prosecutors are investigating whether some of the $107 million in donations to then President-elect Donald Trump’s inaugural committee were misspent, The Wall Street Journal reported Thursday. The Journal, citing people familiar with the matter, said the investigation arose in part from the slew of materials seized in April raids on Trump’s former personal lawyer, Michael Cohen, by federal prosecutors. Cohen on Wednesday was sentenced to three years in prison on charges that came in part from those April raids on his office and residence. The criminal probe is also looking into whether some of the committee’s top spenders traded money for access to the incoming Trump administration, as well as “policy concessions or to influence official administration positions,” sources told the Journal.

“Giving money in exchange for political favors could run afoul of federal corruption laws,” the newspaper explained. “Diverting funds from the organization, which was registered as a nonprofit, could also violate federal law.” Federal prosecutors have reportedly also questioned Richard Gates — the ex-partner of onetime Trump campaign chairman Paul Manafort — who pleaded guilty in February to conspiracy and lying charges lodged by special counsel Robert Mueller. Gates, who has cooperated with investigators in Mueller’s probe of Russian interference during the 2016 U.S. election, served as deputy chairman of Trump’s inaugural committee.

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Exactly what I said about the case a few days ago. It’s become accepted in the US to coerce guilty pleas with vile threats and ugly treatment.

US ‘Miscarriage Of Justice’ In Butina Case Denounced (RT)

Maria Butina’s only crime is that she is Russian, legal analysts told RT, attacking the US justice system for keeping her in solitary confinement until she admitted guilt to at least one of the many charges brought against her. “This is an utter and total miscarriage of justice,” retired CIA agent and whistleblower John Kiriakou told RT after Butina pleaded guilty to the charge of failing to register with the Justice Department as an agent of the Russian government. “You can see clearly, this is not about justice, this is not about criminal activity. This is about making a political point. This is about identifying Russia and Russians as the enemy of the United States, and punishing them.”

“We arrested this young woman because we need dirt on Trump and Russia. And she is Russian, political and pro-Trump,” US legal analyst Jennifer Breedon explained. “We are seeing [the Foreign Agents Registration Act – FARA] being used specifically as it relates to undermining the Donald Trump administration or conservatives really with anybody involved in Russia, friends with Russia or contacts.” The Russian gun activist was subjected to “unbearable pressure” from US authorities, by being kept in solitary confinement in the Alexandria detention center outside Washington, and only allowed to take an hour-long break from her “cage” per day. John Kiriakou believes this borderline “torture” could have forced her to admit to a crime she might never even have committed.

“This woman is not an enemy combatant. So, unless news surfaces that there was some kind of skirmish or issue within the jail… it seems to go against US policy and laws as to who is forced into solitary confinement, just based solely on the charges that were lodged against her,” Breedon said. “You are kept in a steel cage 23 hours a day. And for what? Because she failed to fill out a form to send to the Justice Department?” Kiriakou pondered. “It is no wonder people in solitary confinement in the United States commit suicide every day.”

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Nothing to do with defying Trump, he wants this. Imagine he would say this, and then be held responsible for $400 oil. It’s much easier to speak as senator than as president. And many of these senators have politically supported Saudi for decades. They’re merely cleaning up their own mess.

US Senate Passes Resolution Saying MbS Responsible For Khashoggi Murder (Ind.)

The Senate has passed a resolution saying Saudi Arabian Crown Prince Mohammed bin Salman is responsible for the murder of journalist Jamal Khashoggi. Defying Donald Trump’s desire to maintain close relations with Saudi Arabia including lucrative weapons deals, Senate Foreign Relations Committee chairman Bob Corker proposed the legislation, which has been backed by at least 10 of his fellow Republicans. The CIA is reported to have assessed with “high confidence” that Crown Prince Mohammed was involved in the order to kill Mr Khashoggi, partly based on the judgement that as the country’s de facto ruler he would have had to have known. Saudi authorities have blamed a “rogue” team of operatives for the killing and have repeatedly denied any involvement by the crown prince.

Mr Trump and a number of administration officials have sought to play down the CIA assessment, with Secretary of State Mike Pompeo saying this week that it has been reported “inaccurately”. The joint resolution calls for the Saudi government to ensure “appropriate accountability” for all those responsible for Mr Khashoggi’s death, calls on Riyadh to release Saudi women’s rights activists and encourages the kingdom to increase efforts to enact economic and social reforms. However, it is unclear if the House of Representatives will consider voting on the measure.

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


Arthur Rothstein Grain elevators, Great Falls, Montana 1939

 

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

 

 

93 million not in the labor force.

US Jobs: One Big Miss (CNBC)

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

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

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

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Never again…

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

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

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

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

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

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We’ll get you into the casino yet.

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

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

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

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So act.

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

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

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

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

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

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

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

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

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Even Musk makes sense once in a blue moon.

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

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

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

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Lowballing.

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

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

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

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

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Pot and sanctuary.

Another Mighty Conundrum (Kunstler)

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

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

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

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

Provocations (Dmitry Orlov)

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

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

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

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

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Bloomberg editors are clueless, but the issue is real.

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

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

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

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

And we’re not even trying.

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

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

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

Read more …

Nov 022016
 
 November 2, 2016  Posted by at 10:11 am Finance Tagged with: , , , , , , , , , , ,  


Unknown Petersburg, Virginia. Group of Company B, U.S. Engineer Battalion 1864

Asian Markets Show Jitters as Polls Narrow Gap Between Trump and Clinton (G.)
Goldman Says Weakening Yuan Is Behind Iron Ore Rally (BBG)
Maersk’s Profit Drops 43% On Overcapacity In Shipping Industry (BBG)
In Greece, Property Is Debt (NY Times)
Hillary Clinton Is Irreparably Damaged, Even If She Wins (MW)
370 Economists, Including 8 Nobel Laureates: ‘Do Not Vote for Trump’ (WSJ)
Clintons Are Under Multiple FBI Investigations as Agents Are Stymied (Martens)
Five Separate FBI Cases Are Probing Clinton’s Inner Circle (DM)
Top DOJ Official In Clinton Probe ‘Kept Podesta Out Of Jail’ in 1998 (F.)
Hillary Clinton: Wall Street’s Favorite Enemy (R.)
Can The American People Defeat The Oligarchy That Rules Them? (PCR)
Why Is MI5 Making Such A Fuss About Russia? (G.)
Central Banks and the Revenge of Politics (Issing)
Brexit Complexity Set to Overwhelm Politicians (G.)
Oil Drilling Thought To Have Caused 1933 Killer Earthquake In California (R.)
Turkey Rejects Europe’s ‘Red Line’ On Press Freedom After Detentions (R.)
It’s Now -Temporarily- Legal to Hack Your Own Car (IEEE)

 

 

Time to get nervous.

Asian Markets Show Jitters as Polls Narrow Gap Between Trump and Clinton (G.)

Asian shares stumbled and the US dollar was on the defensive on Wednesday amid signs investors were becoming spooked by polls narrowing the gap between US presidential nominees Donald Trump and Hillary Clinton. Market anxiety has deepened over a possible Trump victory given uncertainty on the Republican candidate’s stance on issues including foreign policy, trade relations and immigration, while Clinton is viewed as a candidate of the status quo. Stocks across Asia Pacific saw a broad selloff on Wednesday with the Nikkei in Japan down by 1.8% at 4am GMT. There were also steep falls in Australia where the ASX/S&P 200 benchmark index was down almost 1.5%, with falls of 1.3% in South Korea and Hong Kong as markets took a lead from a sharp drop on Wall Street overnight.

The main European markets were also expected to begin the day in the red when they open later, according to futures trading. The tumultuous presidential race appeared to tighten after news that the FBI was reviewing more emails as part of a probe into Clinton’s use of a private email server. While Clinton held a five-percentage-point lead over Trump, according to a Reuters/Ipsos opinion poll released on Monday, other polls showed Trump ahead by 1-2 %age points. That pushed the US S&P500 Index down to a four-month closing low on Tuesday. The CBOE volatility index, often seen as an investors’ fear gauge, briefly rose to a two-month high, above 20%.

In the currency market, traders sold the dollar partly as they suspect Trump would prefer a weaker dollar given his protectionist stance on international trade. The euro rose to a three-week high of $1.1069, up about 2% from its seven-and-a-half-month low of $1.0851 hit just over a week ago. Against the yen, the dollar slipped to 104.03 yen from three-month high of 105.54 yen set on Friday. Koichi Yoshikawa at Standard Chartered Bank said: “If you had a long dollar position on the view that the dollar would gain because Clinton would win, you would surely close that position because her victory is less certain.”

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There’s that picture again of massive inventory in ports.

Goldman Says Weakening Yuan Is Behind Iron Ore Rally (BBG)

Iron ore’s eye-catching rally to the highest since April is probably due to the weakening of the yuan, according to Goldman Sachs, which said that China’s currency may decline further against the dollar and help to sustain prices of the raw material. Prices surged last month as losses in the yuan prompted some local investors to move into dollar-linked assets, including iron ore, analysts Hui Shan, Amber Cai and Christian Lelong said in a report received Wednesday. Should the Federal Reserve raise interest rates by the end of the year, there’s scope for further yuan weakness, they wrote in the Nov. 1 note. Iron ore has rallied even as signs of robust supply multiply, including a buildup in stockpiles at ports in China.

While some analysts have sought to explain the jump by pointing to higher coal prices as a driver, Goldman said that didn’t stack up as a reason, targeting the yuan’s drop instead. The Chinese currency has sagged as local policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and rise in the dollar. “By our estimates, about 60% of the iron ore price rally in October can be explained by the yuan depreciation,” the analysts said. Iron ore may be the first in line to benefit from onshore investment flows into commodities as the “futures curve is almost always backwardated, making long iron ore a positive-carry trade,” they said, referring to bets on gains.

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Global trade bites again.

Maersk’s Profit Drops 43% On Overcapacity In Shipping Industry (BBG)

A.P. Moller-Maersk, owner of the world’s largest container line, reported a 43% decline in third-quarter profit as the shipping industry suffers from overcapacity. Net income fell to $429 million in the third quarter compared with $755 million in the same period a year earlier, the Copenhagen-based company said in a statement Wednesday. That missed the average estimate of $501 million in a Bloomberg survey of 15 analysts. “The result is unsatisfactory, but driven by low prices,” Chief Executive Officer Soren Skou said in the statement. “We generally perform strongly on cost and volume across businesses.” Maersk said its underlying profit for 2016 will be “below” $1 billion. Previously, the company had said the full-year result would be “significantly” below 2015’s $3.1 billion.

An excess of vessels and weak trade growth have driven container lines to try to under-bid each other on the rates they offer clients. The climate has proven lethal for some industry members, with South Korea’s biggest line Hanjin Shipping Co. filing for bankruptcy protection in August. Earlier this week, Japan’s three biggest container lines said they plan to merge their operations in an efforts to return to profit. Maersk’s response has been to cut costs. On Wednesday it said costs at Maersk Line declined 14% in the quarter, but that was outpaced by a 16% decline in freight rates. The shipping line reported a net operating loss after tax of $116 million compared with a profit by the same measure of $264 million a year earlier as freight rates fell 16%.

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The destruction continues unabated and unopposed. “Construction of homes has collapsed, dropping by 95% from 2007 to 2016.”

In Greece, Property Is Debt (NY Times)

At law courts throughout Greece, people are lining up to file papers renouncing their inheritance. Not necessarily because some feckless uncle left them with a pile of debt at the end of his revels; they are turning their backs on what used to be a pillar of Greece’s economy and society: real estate. Growing personal debt, declining incomes and ever higher taxes as Greece’s depression grinds on have turned property and the dream of easy money into dread of a catastrophic burden. The figures are clear. In 2013, two years after a property tax was introduced (previously, real estate tax revenue came mainly from transfers or conveyance taxes), 29,200 people declined to accept their inheritance, according to the Justice Ministry. In 2015, the number had climbed to 45,627, an increase of 56% in two years.

Reports from across the country suggest that this year, too, large numbers of people are refusing to inherit. “This can be very painful,” said Giorgos Voukelatos, a lawyer. “People may lose their family home. Because if the father or mother had debts, the child might be unemployed and unable to carry this weight as well.” The growing aversion to property is evident in the drop in business at notaries public. The national statistics service, Elstat, reported in July that in 2014 there were 23,221 deeds in which living parents transferred property to their children, down from 90,718 in 2008. The number of wills drawn up or notarized has been steady through the crisis, at around 30,000 annually, suggesting that many inheritances being rejected were not part of formal wills. (More than 120,000 people die each year.)

The desire to inherit used to be so great that some took it upon themselves to give fortune a hand. Greeks were stunned in 1987 when the police uncovered a gang that had killed at least eight rich elderly people after forging their wills. The plot’s leader was a lawyer and former mayor of an Athens suburb; accomplices included a notary public and a gravedigger. Murder Inc., as the news media called it, was seared into popular consciousness as an instance in which criminals acted out a common desire. Today, people are more likely to run away from real estate than be tempted to kill for it.

The collapse of the real estate market shows why. The total number of transactions dropped by 74% from 2004 to 2014. People once hoped that if they came into property they could sell it and live easier; now they fear that they will be unable to sell it and the taxes will drag them down. If they did find a buyer, they would be unlikely to gain much, as prices of apartments have fallen by 41% since 2008, according to the Bank of Greece. Construction of homes has collapsed, dropping by 95% from 2007 to 2016. With no end to the crisis in sight, people will continue to dread coming into property.

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An entire campaign blinded by hubris.

Hillary Clinton Is Irreparably Damaged, Even If She Wins (MW)

We don’t know whether the reopening of the FBI probe of Hillary Clinton’s emails will cost her the election. It may be that she will still emerge the winner after next Tuesday’s vote, or that Donald Trump’s momentum from the Wikileaks emails, Obamacare’s failures, and Clinton’s flawed candidacy were going to carry him to victory in any case. What we do know is that whoever wins, we are in for a fiasco in politics that will make even this fiasco of a campaign pale by comparison. There is hardly any scenario that is too far-fetched. Even if the polls are right and Clinton’s lead translates into an electoral victory, she will be so damaged going into office that her chances of getting anything done will be virtually nil. In this sense alone, Trump’s claim that this scandal is “worse than Watergate” could prove to be true.

As an incumbent, Richard Nixon at least had an administration in place when he won re-election in 1972, though it took nearly another two years before he was forced to resign under threat of impeachment. Clinton is likely to be stymied from the start, especially if the ongoing investigations into her email practices and the Clinton Foundation lead to further damaging disclosures. For one thing, we now have the precedence of Watergate, and Republicans, who are sure to retain the House and now probably the Senate, will not let go. There is hardly a chance that it will all end well for Clinton and that she will be exonerated because what is already known has many Republicans convinced that she is guilty at the very least of mishandling classified documents and perhaps obstruction of justice.

While the immediate attention in the wake of last week’s disclosure about reopening the email investigation has focused on FBI Director James Comey, the real conundrum in all this concerns his boss, Attorney General Loretta Lynch. Lynch fatally compromised her position by meeting with former President Bill Clinton just days before the original investigation was closed without a grand jury ever considering the evidence. And now her failure to block Comey’s disclosure — while leaking that she wanted to — is another ethical lapse. Other reports indicate that she attempted to quash the investigation into the Clinton Foundation. It is hard to see how she can remain in office even if Clinton wins and wants to keep her. Her resignation — or even impeachment — seems inevitable with Republicans out for blood.

The damage done to the whole Clinton entourage through the machinations exposed in the Wikileaks emails means that many of them – Huma Abedin, Cheryl Mills, John Podesta, Neera Tanden – will be virtually untenable in any position of responsibility in a new Clinton administration. And this is the best-case scenario for Clinton. We all know what the worst-case scenario is.

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Hilarious. 370 economists making Trump’s case for him: “The economists object to Mr. Trump for questioning the legitimacy of economic data produced by institutions such as the Bureau of Labor Statistics.” Everybody questions the BLS. Except for 370 economists?!

370 Economists, Including 8 Nobel Laureates: ‘Do Not Vote for Trump’ (WSJ)

A group of 370 economists, including eight Nobel laureates in economics, have signed a letter warning against the election of Republican nominee Donald Trump, calling him a “dangerous, destructive choice” for the country. Signatories include economists Angus Deaton of Princeton University, who won the economics Nobel last year, and Oliver Hart of Harvard University, who was one of the two Nobel winners this year. The letter is notable because it is less partisan or ideological than such quadrennial exercises, and instead takes issue with Mr. Trump’s history of promoting debunked falsehoods.

“He misinforms the electorate, degrades trust in public institutions with conspiracy theories and promotes willful delusion over engagement with reality,” said the signatories, which also include Paul Romer, the new chief economist at the World Bank, and Kenneth Arrow, the 1972 Nobel winner. The economists object to Mr. Trump for questioning the legitimacy of economic data produced by institutions such as the Bureau of Labor Statistics. They say he hasn’t proposed credible solutions to reduce budget deficits and that he has promoted misleading claims about trade and tax policy. They also chide Mr. Trump for failing to “listen to credible experts” and for promoting “magical thinking and conspiracy theories over sober assessments of feasible economic policy options.”

[..] Peter Navarro, a Trump adviser and professor at the University of California, Irvine, said the economics profession has been so wrong about the impact of trade deals, including both the North American Free Trade Agreement in 1994 and the accession of China to the World Trade Organization in 2001, that it has little standing to criticize Mr. Trump’s position on those pacts. Tuesday’s letter “is a headline, whatever, and then they wind up being just so horribly wrong,” Mr. Navarro said. “You shouldn’t believe economists or Nobel Prize winners on trade.”

“You don’t need a Ph.D. in economics to know Trump’s plan to cut taxes, reduce regulation, increase oil, gas, and clean coal production, and eliminate our trade deficit by increasing exports and reducing imports will significantly increase growth, boost wages and generate trillions in new tax revenues,” he said. “This new letter is an embarrassment to an economics profession which continues to insist bad trade deals are good for America—a classic case of reality running roughshod over textbook trade theory.”

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“Not only was Bill Clinton’s wife under an FBI investigation at the time [..] but his own charitable foundation was also under investigation, a fact that was unknown at the time to the public and the media.

Clintons Are Under Multiple FBI Investigations as Agents Are Stymied (Martens)

Current and former FBI officials have launched a media counter-offensive to engage head to head with the Clinton media machine and to throw off the shackles the Loretta Lynch Justice Department has used to stymie their multiple investigations into the Clinton pay-to-play network. Over the past weekend, former FBI Assistant Director and current CNN Senior Law Enforcement Analyst Tom Fuentes told viewers that “the FBI has an intensive investigation ongoing into the Clinton Foundation.” He said he had received this information from “senior officials” at the FBI, “several of them, in and out of the Bureau.” That information was further supported by an in-depth article in the Wall Street Journal by Devlin Barrett. According to Barrett, the “probe of the foundation began more than a year ago to determine whether financial crimes or influence peddling occurred related to the charity.”

Barrett’s article suggests that the Justice Department, which oversees the FBI, has attempted to circumvent the investigation. The new revelations lead to the appearance of wrongdoing on the part of U.S. Attorney General Loretta Lynch for secretly meeting with Bill Clinton on her plane on the tarmac of Phoenix Sky Harbor International Airport on the evening of June 28 of this year. Not only was Bill Clinton’s wife under an FBI investigation at the time over her use of a private email server in the basement of her New York home over which Top Secret material was transmitted while she was Secretary of State but his own charitable foundation was also under investigation, a fact that was unknown at the time to the public and the media.

The reports leaking out of the FBI over the weekend came on the heels of FBI Director James Comey sending a letter to members of Congress on Friday acknowledging that the investigation into the Hillary Clinton email server was not closed as he had previously testified to Congress, but had been reopened as a result of “pertinent” emails turning up.

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The Daily Mail reoprts on ‘persons of interest’: Huma Abedin, Terry McAuliffe, Cheryl Mills, Phillipe Reines, John Podesta, Tony Podesta, Doug Band, Justin Cooper, Anthony Weiner

Five Separate FBI Cases Are Probing Clinton’s Inner Circle (DM)

The extent to which Hillary Clinton’s key advisers are now the focus of major FBI investigations is becoming clear. The Clintons’ long-term inner-circle – some of whom stretch back in service to the very first days of Bill’s White House – are being examined in at least five separate investigations. The scale of the FBI’s interest in some of America’s most powerful political fixers – one of them a sitting governor – underlines just how difficult it will be for Clinton to shake off the taint of scandal if she enters the White House. There are, in fact, not one but five separate FBI investigations which involve members of Clinton’s inner circle or their closest relatives – the people at the center of what has come to be known as Clintonworld.

The five known investigations are into: Anthony Weiner, Huma Abedin’s estranged husband sexting a 15-year-old; the handling of classified material by Clinton and her staff on her private email server; questions over whether the Clinton Foundation was used as a front for influence-peddling; whether the Virginia governor broke laws about foreign donations; and whether Hillary’s campaign chairman’s brother did the same. The progress of the Clinton Foundation investigation and that into McAuliffe was first reported by the Wall Street Journal. The FBI does not generally comment on investigations, so it is entirely possible there are more under way. Here are the advisers and consiglieri – and how the FBI is looking at them:

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Rep. Gowdy has said he thinks Kadzik will do his job properly.

Top DOJ Official In Clinton Probe ‘Kept Podesta Out Of Jail’ in 1998 (F.)

The Justice Department official in charge of informing Congress about the newly reactivated Hillary Clinton email probe is a political appointee and former private-practice lawyer who kept Clinton Campaign Chairman John Podesta “out of jail,” lobbied for a tax cheat later pardoned by President Bill Clinton and led the effort to confirm Attorney General Loretta Lynch. Peter Kadzik, who was confirmed as assistant attorney general for legislative affairs in June 2014, represented Podesta in 1998 when independent counsel Kenneth Starr was investigating Podesta for his possible role in helping ex-Bill Clinton intern and mistress Monica Lewinsky land a job at the United Nations.

“Fantastic lawyer. Kept me out of jail,” Podesta wrote on Sept. 8, 2008 to Obama aide Cassandra Butts, according to emails hacked from Podesta’s Gmail account and posted by WikiLeaks. Kadzik’s name has surfaced multiple times in regard to the FBI’s investigation of Democratic presidential nominee Hillary Clinton for using a private, homebrewed server. After FBI Director James Comey informed Congress on Thursday the FBI was reviving its inquiry when new evidence linked to a separate investigation was discovered, congressional leaders wrote to the Department of Justice seeking more information. Kadzik replied. “We assure you that the Department will continue to work closely with the FBI and together, dedicate all necessary resources and take appropriate steps as expeditiously as possible,” Kadzik wrote on Oct. 31.

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Can’t keep your enemies any closer than this.

Hillary Clinton: Wall Street’s Favorite Enemy (R.)

Hillary Clinton began her presidential campaign by promising to do what it takes to rein in Wall Street. Boosted by Wall Street’s toughest critics, U.S. senators Bernie Sanders and Elizabeth Warren, the Democratic candidate has declared “the deck is still stacked in favor of those at the top” and said she would raise bank fees and tighten banking regulations. She has encouraged regulators to break up too-risky banks. And yet, Wall Street appears unperturbed by the prospect of a Clinton presidency. In fact, the banking industry has supported Clinton with buckets of cash and stocks have sold off on days when the Clinton campaign stumbles. Privately, bankers say that they trust her to remain a pragmatist who will keep the current regulatory regime laid down by the Dodd-Frank Wall Street reform legislation passed in 2010.

“I don’t think Clinton wakes up thinking about Wall Street,” one senior banking industry lobbyist said. There are hints in apparently leaked email discussions among Clinton’s campaign staff that bankers are not far off the mark when they count on her to tread lightly. Pressed during the campaign by progressive Democrats to call for a revival of the Glass-Steagall Act that would require separation of commercial and investment banking, Clinton ultimately refused. She also weighed another progressive favorite – a tax on financial transactions- but instead recommended a far narrower plan to tax only canceled orders by high speed traders. Ultimately, what bankers most like about Clinton is that she is not Donald Trump.

Many financiers fear her unorthodox Republican rival could disrupt global trade, damage geopolitical relationships and rattle markets, industry analysts and participants say. “Those are the kind of things that corner offices think about,” said Karen Shaw Petrou of Federal Financial Analytics, whose firm advises financial firms about U.S. regulatory policy. “The overriding concern about Trump has dominated people’s thinking.” [..] People who work for hedge funds and private equity firms have contributed more than $56 million to Clinton’s presidential campaign and the supporting groups that face no legal cap on donations. Trump’s campaign and related groups received just $243,000 from donors in the same sector, according to data from the Center for Responsive Politics.

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“During an election it is OK to announce that a candidate for president is cleared but it is not OK to say that a candidate is under investigation.”

Can The American People Defeat The Oligarchy That Rules Them? (PCR)

Aren’t you surprised that Hillary and the presstitutes haven’t blamed Putin for FBI director Comey’s reopening of the Hillary email case? But the presstitutes have done the next best thing for Hillary. They have made Comey the issue, not Hillary. According to US Senator Harry Reid and the presstitutes, we don’t need to worry about Hillary’s crimes. After all, she is only a political woman feathering her nest, just as political men have done for ages. Why all this misogynist talk about Hillary? The presstitutes’ cry is that Comey’s alleged crime is far more important. This woman-hating Republican violated the Hatch Act by telling Congress that the investigation he said was closed is now reopened. A very strange interpretation of the Hatch Act. During an election it is OK to announce that a candidate for president is cleared but it is not OK to say that a candidate is under investigation.

In July 2016 Comey violated the Hatch Act when he, on orders from the corrupt Obama Attorney General, announced Hillary clean. In so doing, Comey used the prestige of federal clearance of Hillary’s violation of national security protocols to boost her standing in the election polls. Actually, Hillary’s standing in the polls is based on the pollsters over-weighting Hillary supporters in the polls. It is easy to produce a favorite if you overweight their supporters in the poll questions. If you look at the crowds attending the two candidate’s public appearances, it is clear that the American people prefer Donald Trump, who is opposed to war with Russia and China. War with nuclear powers is the big issue of the election.

Hillary’s problem has the ruling American Oligarcy, for which Hillary is the total servant, concerned. What are they going to do about Trump if he wins? Will his fate be the same as John F. Kennedy, Robert Kennedy, Martin Luther King, George Wallace? Time will tell. Or will a hotel maid appear at the last minute in the way that the Oligarchy got rid of Dominique Strauss-Kahn? All of the American and Western feminists, progressives, and left-wing remnant fell for the obvious frame-up of Strauss-Kahn. After Strauss-Kahn was blocked from the presidency of France and resigned as Director of the IMF, the New York authorities had to drop all charges against Strauss-Kahn. But Washington succeeded in removing Strauss-Kahn as a challenge to its French vassal, Sarkozy.

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Because it seems cheap and easy.

Why Is MI5 Making Such A Fuss About Russia? (G.)

If I had cornflakes for breakfast (which I don’t), I would have choked on them, reading Andrew Parker’s view of the threat posed by Russia, not just to the world at large – that is a commonplace of the “new cold war” discourse – but to the stability of the UK. With the majority vote for Brexit against the strong preference of Scotland and Northern Ireland for remain, we have shown ourselves quite capable of inflicting potentially fatal harm to our national stability all by ourselves. Why would we need Russia to do it for us? That was a knee-jerk reaction to the main thrust of the MI5 chief’s first national newspaper interview in the agency’s history. But a second, more substantial, response chased behind it in the form of a rather basic, and recurrent, question.

Why is the UK establishment in general, and UK intelligence in particular, so fixated on a supposed threat from Russia? The cold war is a quarter-century behind us. The Warsaw Pact was dissolved; the Soviet Union collapsed. Today’s Russia has three quarters of the territory but only half the population of the old Soviet Union. Its GDP, whether overall or per capita, is far below that of the US, or ours. Its 2015 military budget took 5% of that – $70bn in actual money – less than an eighth of the nearly $600bn spent by the US. “Tsar” Vladimir Putin may have played a weak hand magnificently, as judged by admirers and detractors alike, but a weak hand is still a weak hand.

If Russia really harbours ambitions to reconstitute an empire, its only success to date is the expensive (in every respect) reacquisition of Crimea, a contested no-man’s land of ragtag rebels in the rust belt of eastern Ukraine, and two miniature enclaves inside independent Georgia. That recent “show of force”, when the might of the Russian navy made its stately progress through the English Channel, demonstrated only the obsolescence of the erstwhile superpower’s fleet. In the same interview, Parker disclosed that there were around 3,000 “violent Islamic extremists in the UK, mostly British”, and that cyber, not just in Russia’s hands, was the threat of the future. So let me repeat the question: why does Russia remain bogeyman-in-chief?

Here are a few ideas. The first is that blaming Russia carries little cost. Russia is not China. Investment is not a big consideration. For all sorts of reasons, political relations have long been dire. Applying the same virulent rhetoric to terrorism conducted in the name of Islam, on the other hand, risks fomenting social and cultural strife here at home. A second reason, now as in the past, is that blaming Russia aligns us comfortably with the US, where stalwarts in Congress and at the Pentagon have never emerged from their old thinking about the threat. The Russia card has been played to exhaustion during this presidential campaign, to the point where it could swing the election – and I don’t mean in Donald Trump’s favour. A third factor is the consensus about a strong and malevolent Russia that still rules the “expert” community, and will probably do so for a few years yet – helped along by the hatchet-faced Putin.

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When their unwarranted powers are finally taken away from them it will be too late.

Central Banks and the Revenge of Politics (Issing)

The reputation of central banks has always had its ups and downs. For years, central banks’ prestige has been almost unprecedentedly high. But a correction now seems inevitable, with central-bank independence becoming a key casualty. Central banks’ reputation reached a peak before and at the turn of the century, thanks to the so-called Great Moderation. Low and stable inflation, sustained growth, and high employment led many to view central banks as a kind of master of the universe, able – and expected – to manage the economy for the benefit of all. The depiction of US Federal Reserve Chair Alan Greenspan as “Maestro” exemplified this perception. The 2008 global financial crisis initially bolstered central banks’ reputation further.

With resolute action, monetary authorities made a major contribution to preventing a repeat of the Great Depression. They were, yet again, lauded as saviors of the world economy. But central banks’ successes fueled excessively high expectations, which encouraged most policymakers to leave their monetary counterparts largely responsible for macroeconomic management. Such “expectational” and, in turn, “operational” overburdening has exposed monetary policy’s true limitations. In other words, central banks’ good reputation now seems to be backfiring. And “personality overburdening” – when trust in the success of monetary policy is concentrated on the person at the helm of the institution – means that individual leaders’ reputations are likely to suffer as well.

Yet central banks cannot simply abandon their new operational burdens, particularly with regard to financial stability, which, as the 2008 crisis starkly demonstrated, cannot be maintained by price stability alone. On the contrary, a period of low and stable interest rates may even foster financial fragility, leading to a “Minsky moment,” when asset values suddenly collapse, bringing down the whole system. The limits of inflation targeting are now clear, and the strategy should be discarded. Central banks now have to reconcile the need to maintain price stability with the responsibility – regardless of whether it is legally mandated – to reduce financial vulnerability. This will not be easy, not least because of another new operational burden that has been placed on many central banks: macro-prudential and micro-prudential supervision.

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They’re already completely lost by the looks of it.

Brexit Complexity Set to Overwhelm Politicians (G.)

Managing Britain’s exit from the EU is such a formidable and complex challenge that it could overwhelm politicians and civil servants for years, senior academics have warned. Theresa May has announced she will trigger article 50 – the two-year process of negotiating a separation from the EU – by the end of March next year. The government will also publish a great repeal bill, which will transfer all EU-originated laws into British law, so that MPs can decide how much they want to discard. A report from The UK in a Changing Europe, an independent group of academics led by Prof Anand Menon of King’s College London, warns that this will only be the start of the process of extricating Britain from the EU and establishing new relationships with other member states.

“Brexit has the potential to test the UK’s constitutional settlement, legal framework, political process and bureaucratic capacities to their limits – and possibly beyond,” Menon said. The group of experts, commissioned by the Political Studies Association, found that identifying and transposing the legislation to be included in the great repeal bill – and then deciding what to keep and what to ditch – will be a daunting task for civil servants. They also warn that while article 50, as set out in the Lisbon treaty, concerns the terms of a divorce with the rest of the EU – including what share of EU liabilities the UK should take on, for example – it is unclear whether the process can allow for parallel negotiations on Britain’s future status. And they suggest the repatriation of decision-making in key policy areas including agriculture, the environment and higher education to Britain from Brussels could affect the balance of power between Westminster and the devolved parliaments – another major constitutional headache for politicians.

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Wonder how far this kind of research will lead.

Oil Drilling Thought To Have Caused 1933 Killer Earthquake In California (R.)

Several damaging Los Angeles-area earthquakes of the 1920s and 1930s, including the deadliest ever in southern California, may have been brought on by oil production during the region’s drilling boom of that era, US government scientists have reported. The findings of a possible link between oil extraction and seismic events in the LA basin do not apply to modern industry practices but suggest the natural rate of quake occurrences in the region may be lower than previously calculated, the scientists said. The study’s authors, Susan Hough and Morgan Page of the US Geological Survey, stressed a distinction between their results and separate research attributing a growing frequency of quakes in Oklahoma and elsewhere to underground wastewater injection associated with fossil fuel production.

The new study, published in the Bulletin of the Seismological Society of America, also noted that early 20th-century industry techniques differed greatly from today, so the findings “do not necessarily imply a high likelihood of induced earthquakes at the present time”. The report suggested four major Los Angeles-area quakes in 1920, 1929, 1930 and 1933 were triggered by early drilling methods in which oil was extracted without water being pumped into the ground to replace it, causing the ground to subside. This could have artificially placed more pressure on seismic faults near oilfields. The most devastating event was the so-called Long Beach earthquake of 10 March 1933, a 6.4-magnitude quake that ruptured the Newport-Inglewood fault along the coast, toppling scores of buildings and killing 115 to 120 people – the highest death toll on record from a southern California earthquake.

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“..seeking to precipitate the coup through “subliminal messages” in their columns before it happened..”

Turkey Rejects Europe’s ‘Red Line’ On Press Freedom After Detentions (R.)

Turkey’s prime minister said he had no regard for Europe’s “red line” on press freedom on Tuesday and warned Ankara would not be brought to heel with threats, rejecting criticism of the detention of senior journalists at an opposition newspaper. Police detained the editor and top staff of Cumhuriyet, a pillar of the country’s secularist establishment, on Monday, on accusations that the newspaper’s coverage had helped precipitate a failed military coup in July. The United States and European Union both voiced concern about the move in Turkey, a NATO ally which aspires to EU membership. European Parliament President Martin Schulz wrote on Twitter that the detentions marked the crossing of ‘yet another red-line’ against freedom of expression in the country.

“Brother, we don’t care about your red line. It’s the people who draw the red line. What importance does your line have,” Prime Minister Binali Yildirim told members of his ruling AK Party in a speech in parliament. “Turkey is not a country to be brought in line with salvoes and threats. Turkey gets its power from the people and would be held accountable by the people.” Prosecutors accuse staff at Cumhuriyet, one of few media outlets still critical of President Tayyip Erdogan, of committing crimes on behalf of Kurdish militants and the network of Fethullah Gulen, a U.S.-based cleric blamed for orchestrating the July coup attempt. Journalists at the paper were suspected of seeking to precipitate the coup through “subliminal messages” in their columns before it happened, the state-run Anadolu agency said.

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Good to know, right? You don’t really own your car. Or anything else that has software in it.

It’s Now -Temporarily- Legal to Hack Your Own Car (IEEE)

You may own your car, but you don’t own the software that makes it work— that still belongs to your car’s manufacturer. You’re allowed to use the software, but in the past, trying to alter it in any way (including fixing it by yourself when it breaks or patching security holes) was a form of copyright infringement. iFixit, Repair.org, the Electronic Frontier Foundation (EFF), and many others think this is ridiculous, and they’ve been lobbying the government to try to change things. A year ago, the U.S. Copyright Office agreed that people should be able to modify the software that runs cars that they own, and as of last Friday, that ruling came into effect. It’s good for only two years, though, so get hacking. The legal and technical distinction between physical ownership and digital ownership is perhaps most familiar in the context of DVD movies.

You can go to the store and buy a DVD, and when you do, you own that DVD. You don’t, however, own the movie that comes on it: Instead, it’s more like you own limited rights to watch the movie, which is a very different thing. If the DVD is protected by Digital Rights Management (DRM) software, the Digital Millennium Copyright Act (DMCA) says that you are not allowed to circumvent that software, even if you’re just trying to watch the movie on a different device, change the region restriction so that you can watch it in a different country, or do any number of other things that it really seems like you should be able to do with a piece of media that you paid 20 bucks for.

Cars work in a similar way. You own the car as a physical object, but you only have limited rights to the software that controls it, because the car’s manufacturer holds the copyright on that software. This prevents you from making changes to the software, even if those changes are to fix problems or counter obsolescence, as well as preventing you from investigating the security of the software, which can have very serious and direct consequences for you as the owner and driver. It’s also worth pointing out that (especially in older vehicles like the 1995 Volvo 940 Turbo belonging to a certain anonymous journalist) relatively simple computerized parts can cost a ridiculous amount of money to replace because there is no legal alternative besides buying a new one from the manufacturer, who hasn’t made them in 20 years and would much rather you just bought an entirely new car anyway.

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Sep 032016
 
 September 3, 2016  Posted by at 9:31 am Finance Tagged with: , , , , , , , , , ,  


Russell Lee Street scene. Spencer, Iowa 1936

This Labor Day, Let’s Acknowledge Why Our Job-Creation Machine Is Broken (MW)
US Factory Orders Tumble For Longest Streak In History (ZH)
Number Of Credit-Crimped US Companies Rises to 2009 Level, S&P Says (BBG)
US Exchanges Trade Fewest Stocks In 32 Years (ZH)
US Economy May Need Much Higher Interest Rates: Fed’s Lacker (R.)
US Economic Misery Finds Company, Just Not In a Rate Hike (BBG)
ECB Throws Twelfth Zero at Inflation (BBG)
Any ECB Move Into Stocks Unlikely To Be Plain Sailing (R.)
Retailers Seek US Government Help With Shipping Crisis (WSJ)
Tesla’s Cash Crunch Worse Than You Think (Fortune)
Apartment Correction To Cause Australia-Wide Recession (SMH)
Starbucks, Amazon Pay Less Tax Than A Sausage Stand, Austria Says (R.)
Antibacterial Soaps Banned In US Amid Claims They Do ‘More Harm Than Good’ (G.)

 

 

The inbuilt and inevitable downfall of our formerly ‘rich economies’ in a nutshell: “Companies do not exist to create jobs. You don’t get rewarded for creating jobs..”

This Labor Day, Let’s Acknowledge Why Our Job-Creation Machine Is Broken (MW)

It’s Labor Day weekend, and despite unemployment under 5% and nearly 15 million private-sector jobs created since February 2010, nobody’s celebrating. Workforce participation is stuck near historic lows, six million people are part-timers but want to work full time, and wage growth remains subdued. Both presidential candidates have talked a good game about jobs and the economy, but neither addresses the real problem. The U.S. job-creation machine—once the envy of the world—is broken, because American corporations cannot create steady, well-paying jobs here in the USA while also providing maximal returns to their investors, who are really in charge. So says Gerald Davis, a professor at the University of Michigan’s Ross School of Business, who has studied these issues for years.

A short piece he wrote late last year for Brookings and a new book, “The Vanishing American Corporation,” trace the big changes in American corporations from the job-rich giants of the post-World War II era to job killers now, because the mission of the corporation has changed radically. Corporations’ new, exclusive emphasis on shareholder value—enforced by executive-compensation packages in which equity comprised 62.2% of S&P 500 CEOs’ total compensation in 2015, according to Equilar—has pushed top executives to replace humans with robots, send jobs overseas or bring in lower-paid immigrants to do them here, hire part-time or temporary workers (or glorified day laborers and Uber “contractors”) instead of full-time ones, and lay off thousands of employees even when profits are soaring.

Cutting labor costs boosts earnings, which tends to push stock prices (and executive compensation) higher, and frees up cash for more “important” things like dividends or share buybacks. As of March, S&P 500 companies had bought back more than $2 trillion in stock over the last five years, making buybacks the biggest source of demand for stocks since 2009, HSBC estimated. That makes big pension funds and “activist” investors like Carl Icahn happy, but it’s bad news for the millions of Americans who still yearn for well-paying middle-class jobs that offer career advancement, decent health-care coverage, and retirement security. “Under our current conditions, creating shareholder value and creating good jobs are largely incompatible,” Davis wrote in his Brookings piece. “Corporations are ‘job creators’ only as a last resort.” “Companies do not exist to create jobs. You don’t get rewarded for creating jobs..”

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Hollowing out.

US Factory Orders Tumble For Longest Streak In History (ZH)

21 Months… US Factory Orders have decline year-over-year every month since October 2014 (the end of QE3). This is the longest period of decline in US history (since 1956) and has always indicated the US economy is in recession… While headlines will crow of 1.9% MoM gain (which missed expectations of a 2.0% rise), the trend is simply ugly: Year-over-year Factory Orders fell 3.5%. As Bloomberg also notes, there’s one key takeaway from the Commerce Department’s report Friday on U.S. factory orders. The value of unfilled orders dropped in July to the lowest level in two years, indicating producers are having an easier time meeting demand.

With soft sales, factories have little reason to add as many workers to their payrolls and may find it difficult to raise prices. Employment in manufacturing dropped 14,000 in August, the most in three months, another report from the Labor Department showed Friday. • Unfilled orders to all manufacturers fell 0.1% to $1.13 trillion, the lowest since June 2014, after a 0.9% slump. • Unfilled orders have increased just once since November. • Total factory orders rose 1.9% in July after a 1.8% drop. Just another WTF chart to ignore.

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The whole economy turns to junk.

Number Of Credit-Crimped US Companies Rises to 2009 Level, S&P Says (BBG)

You’d have to go back to the months following the financial crisis to find so many companies facing potentially ruinous debt problems. That’s according to the latest tally by S&P Global Ratings of “weakest link” issuers. S&P counted 251 with ratings at the low end of junk status and a negative outlook, the most since October 2009, when the total was 264. The issuers collectively have about $359 billion of debt outstanding, led by energy companies, according to S&P’s Sept. 1 report. “Weakest links maintain an important role as potential default indicators,” Diane Vazza, S&P’s head of global fixed income research, said in the report.

They’re almost 10 times more likely to miss payments than ordinary speculative-grade issuers, Vazza wrote, adding that 71 of 100 companies that defaulted this year had been previously tagged as weakest links. The oil and gas sector contributed 62 issuers, or about 25% of the total, as stress on commodities markets continues. Eight of the August additions were from that industry, including Chesapeake Energy and Hornbeck Offshore Services. Financial institutions followed with 34 issuers, or 14%. Other newcomers included Tesla Motors, Elon Musk’s cash-strapped electric-car maker, and Intelsat SA, the satellite operator that proposed a private bond exchange offer, which S&P labeled “a distressed restructuring and tantamount to default.”

S&P assembled the list based on the number of borrowers rated B- or lower with either negative outlooks or negative implications on Credit Watch that indicate a strong possibility of further downgrades. The number hit its record high of 300 issuers in April 2009. The U.S. speculative-grade corporate default rate grew to 4.8% in August after seven defaults, and is expected to reach 5.6% by June 2017, S&P said in a separate report. The U.S. speculative-grade default rate for energy issuers is 21.7% as of July 31, Vazza said.

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The power of buybacks. “..the American economy has transformed from a system of value creation to one of value extraction.”

US Exchanges Trade Fewest Stocks In 32 Years (ZH)

The number of common stocks traded on major U.S. exchanges are the fewest in three decades. As CNBC reports, “Currently, there are just 3,267 stocks in the University of Chicago’s CRSP data, and this is the lowest since 1984,” wrote longtime Jefferies equity strategist Steven DeSanctis. What’s behind this phenomenon? DeSanctis explains: “Between the lack of IPO activity, the pickup of M&A, and buybacks, the U.S. equity world is becoming smaller and smaller, and this could be one of many reasons why active managers are lagging behind their indexes. Companies may not want to come public due to the additional cost of Sarbanes-Oxley or the fact that the private market has become a bigger source of financing than it has been in the past.”

So whether it’s the total number of stocks or the amount of shares for each company outstanding, the stock market is shrinking. Or as Dark Bid’s Daniel Drew previously noted, The Stock Market Is Disappearing In One Giant Leveraged Buyout It’s easy to find critics and doomsayers who predict that the next stock market crash is just around the corner. They could be right, but another possibility is that the stock market itself will disappear entirely. Anyone who is familiar with mergers and acquisitions knows what happens when a company is being slowly acquired. The price climbs higher, slowly yet relentlessly. Liquidity evaporates as offers are lifted. If the price moves up too quickly, buy programs are canceled. The buyer waits until the froth dies down a little before resuming purchases.

Eventually, the bids reappear, and the process continues. Once the buyer acquires 5% of the company, a legal requirement is triggered: the SEC requires the buyer to file Schedule 13D, otherwise known as a “beneficial ownership report.” Once this report is filed, everyone can see the buyer, and the stock price will usually jump. This same process has been underway in the stock market over the last 6 years. The market is up well over 200%. Liquidity has evaporated in the S&P 500 futures market, and the central banks themselves are buying S&P 500 futures. Companies are spending nearly all of their profits on stock buybacks. All of this activity harms employees. William Lazonick discussed the negative effects in a Harvard Business Review article called “Profits Without Prosperity.” According to Lazonick, the American economy has transformed from a system of value creation to one of value extraction.

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Please do it before the election.

US Economy May Need Much Higher Interest Rates: Fed’s Lacker (R.)

The U.S. economy appears strong enough to warrant significantly higher interest rates, Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday. Lacker, who is not a voting member of the U.S. central bank’s rate-setting committee this year, said he still favors raising rates sooner than later and that the Fed’s last policy meeting in July would have been a “good time” to tighten policy. Speaking to a group of economists in Richmond, Lacker argued that a range of economic analysis suggests the Fed’s benchmark overnight interest rate – the federal funds rate – is currently too low. “It appears that the funds rate should be significantly higher than it is now,” he said in the speech. He made his comments after the U.S. government reported a hiring slowdown in August that could effectively rule out a rate increase later this month.

While Lacker is not due to have a vote on policy until 2018, he does participate in discussions on interest rates. The Fed has appeared sharply divided between policymakers who favor rate increases soon and those who urge more caution. Those favoring caution appeared to get a boost on Friday when a report showed 150,000 U.S. jobs were created last month, fewer than expected. But Lacker said the weaker pace of hiring still left the job market on a strengthening path and the case for higher rates would only grow stronger unless job growth slowed “significantly in the months ahead.” He suggested there were increased risks in waiting to raise rates. “The way the data is playing out I think the longer we wait there is a material increase in risks that we run,” Lacker told reporters after his speech.

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Pity. I’d love to see Draghi do a rate hike.

US Economic Misery Finds Company, Just Not In a Rate Hike (BBG)

The Federal Reserve is expected, sooner or later, to raise its key interest rate for a second time since the financial crisis – a feat not in sight for other major developed-nation central banks. It’ll depend on if the economy is doing well, and policy makers may take comfort that the U.S. ranking has fallen in a gauge of economic misery. With the unemployment rate at 4.9% and inflation at 0.8%, the U.S. Misery Index score of 5.7 has improved since the financial crisis, though it lags behind Switzerland, Japan, the U.K. and New Zealand. All these nations’ central banks are poised to hold rates at record lows, or cut them further, according to surveys conducted by Bloomberg. The Misery Index is a simple calculation adding the rate of unemployment and inflation, with lower scores indicating a healthier economy.

But if you think the four countries that are beating out the U.S. in terms of misery are doing everything right, think again. Japan and Switzerland, both of which have brought their rates to negative levels in an attempt to boost lending, are suffering from deflation, which is helping bring down their Misery Index scores. New Zealand, though faring a bit better economically, is also expected to cut its central bank rate as inflation remains suppressed, and the U.K. will do so as policy makers attempt to counteract the fallout from Brexit.

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All they have left is zeroes.

ECB Throws Twelfth Zero at Inflation (BBG)

The European Central Bank has added a digit to its odometer to read 1,000,000,000,000. Euros, not kilometers. That’s the amount of excess liquidity now sloshing through the financial system – equivalent to almost €3,000 ($3,360) for each of the 340 million people in the 19-nation region. The money is created by the ECB through a program of quantitative easing and bank loans, and is aimed at bringing inflation closer to its goal of just under 2%. It’s labeled “excess” because it’s the amount over and above what’s immediately needed by the banking system to serve the economy. That’s why it’s inflationary. But no matter how often the money is lent to companies and households, at the end of each day it lands at the central bank where commercial institutions have their accounts.

And because the ECB’s stimulus package also includes a negative deposit rate of 0.4%, lenders are charged for that surplus cash. With excess liquidity passing €1 trillion as of Sept. 1, the ECB now makes more than €11 million a day in interest from the deposit facility alone. Though that’s just a fraction of the institution’s revenue. “Earnings related to QE are more decisive for net income,” said Michael Schubert, an economist at Commerzbank in Frankfurt. “It was the bigger factor in the past years.” There is no single profit and loss account for the 19 national central banks and the ECB; everyone publishes their own. Germany’s Bundesbank, which implements monetary policy in Europe’s largest economy, made €248 million last year from charging interest for deposits and nearly €2 billion from past and present asset-purchase programs.

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Please make it stop!

Any ECB Move Into Stocks Unlikely To Be Plain Sailing (R.)

The ECB may soon be forced to follow the Bank of Japan’s example and buy equities as part of any expanded stimulus programme, but it faces significant hurdles in helping all 19 euro zone members equally without distorting a key market for investors. The European Central Bank could run out of eligible bonds for its €1.7 trillion bond-buying scheme, meaning alternative options are on the table should it decide to loosen policy further to lift growth and inflation across the bloc. Analysts say these could include large-scale share buying, a policy that the BOJ has already adopted after it started purchasing equity exchange traded funds (ETFs) for its own quantitative easing scheme six years ago.

ETFs allow an investor to trade a range of assets, from a basket of stocks to government debt. ETFs, which offer a convenient way to purchase a broad basket of securities in a single transaction from an exchange, have risen in popularity with investors due to their simplicity and lower fees. But buying ETFs in the 19-nation euro zone would be far from simple for the ECB, both practically and politically. “How do you buy an index which favours all countries within the euro zone? Obviously the ECB doesn’t want to be seen favouring one market above another,” said Commerzbank economist Peter Dixon.

The BOJ doubled its ETF purchases in late July to an annual pace of 6 trillion yen ($58 billion). According to SPDR ETFs, the BOJ is now estimated to hold almost 50% of the total Japanese ETF market. Investments in Europe-listed ETFs are worth just over $500 billion, compared with nearly $200 billion in Japan and more than $2 trillion in the United States, according to consultancy firm ETFGI. Although the European ETF market is bigger than Japan’s, such a scheme would have to benefit 19 member states, from heavyweight Germany to much smaller Slovakia.

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Washington should leave them alone.

Retailers Seek US Government Help With Shipping Crisis (WSJ)

U.S. retailers, bracing for a blow as they stock up for the crucial holiday sales season, asked the government to step in and help resolve a growing crisis caused by the near-collapse of South Korea’s Hanjin Shipping , one of the world’s largest container shipping companies. “While the situation is still developing, the prospect of harm is significant and apparent,” Sandra Kennedy, president of the Retail Industry Leaders Association, wrote in a letter to the Department of Commerce and the Federal Maritime Commission. Hanjin’s recent bankruptcy filing “presents an enormous challenge to U.S. shippers,” she said, and “could have a substantial impact on consumers and the economy at large.”

The trade group is urging the U.S. to work with ports, cargo handlers and the South Korean government to resolve the widespread disruption in freight shipments caused by the Hanjin bankrupcy filing. A spokesman for the Retail Industry Leaders Association said they’re hoping the South Korean government could help provide clarity and speed to the bankruptcy proceedings, which are being considered by courts there. Hanjin handles about 7.8% of the trans-Pacific trade volume for the U.S. market, Ms. Kennedy’s letter said. Since the shipping company filed for bankruptcy protection in a Seoul court Wednesday, terminal operators, ports, cargo handlers, truckers and others have refused to handle its cargo, for fear they won’t get paid. That is causing turmoil at U.S. ports and beyond, said shippers, importers and freight forwarders.

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There’s no maybe involved. The only way to finance Tesla was to agree to buy back its own second hand cars from lenders, or in other words: “..Tesla began providing “residual value guarantees” to those “leasing partners.”

Tesla’s Cash Crunch Worse Than You Think (Fortune)

It’s well known that Tesla is deploying gigantic amounts of capital to boost sales from a projected 50,000 vehicles this year to half-a-million in 2018. That’s arguably the most ambitious goal in corporate America. To make it happen, Musk has grown Tesla’s asset base from $1.3 billion at the end of 2013 to $11.9 billion by June 30, following a $1.7 billion equity raise in the second quarter. Now, Tesla will need to accelerate its capital-raising program to fund the SolarCity deal. It’s absolutely typical for a startup racing to build new plants and R&D centers to burn a lot more cash than it generates. Investors and analysts are mostly optimistic, predicting that Tesla will in a few years exploit its heavy investment by generating big positive and fast-growing cash flows.

Hence, it’s crucial to examine the arc of Tesla’s cash flows to project when, and if, it will become profitable. As with its other pro-forma measures, Tesla’s version of cash from operations looks a lot better than the official numbers. So which is the right figure for investors? As it reported in its 10K for 2015, Tesla made a major concession to an important group of customers. The shift was aimed at strengthening a fast-growing business, sales of vehicles to banks that lease its model S and X vehicles to end-customers. In the past, Tesla simply sold the autos to its leasing customers, with no strings attached. The banks had no right to get money back from Tesla if, for example, the market for used electric vehicles dropped, forcing them to sell at lower-than-expected prices when the leases ended.

But starting in the fourth quarter of 2014, Tesla began providing “residual value guarantees” to those “leasing partners.” Those guarantees state that when the lease expires, typically after three years, the bank has the option of selling the car back to Tesla at a fixed, pre-determined price. Or, if the lessor chooses to sell the cars on its own and receives less than the guarantee amount, Tesla must cover the shortfall. Of course, customers have the option of buying the Model S or Model X for a fixed price at the end of the lease period, and if a customer does keep the car, Tesla’s liability ends. But if a customer decides not to buy, the bank can return the car to Tesla and pocket the guaranteed price, or sell the three-year old vehicle on the nascent green used car market. Either way, Tesla takes a big loss, and effectively returns a lot of the original “purchase” price, if rates for used S and X’s drop.

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“..Australia’s real estate bubble, which is being held aloft by foreign capital..”

Apartment Correction To Cause Australia-Wide Recession (SMH)

A “correction” in the apartment market could see sharp falls in all Australian home prices and a nationwide recession, a gloomy bank analyst report on the housing market warns. The report by analysts CLSA paints a “base case” scenario which says Australia’s housing cycle has “peaked,” with household debt now extending the country’s property bubble. The shift by big banks to tighten lending standards is likely to cause a “correction” and “crisis” in cheap apartments which will spread, leading to defaults among smaller developers and a sharp contraction in construction, CLSA says.

The “worst case” scenario foresees “dwelling prices falling sharply in all areas, eventually leading to a recession,” the report’s authors, respected former banking analyst Brian Johnson, and his colleagues say. “Issues of affordability and household debt are overextending Australia’s real estate bubble, which is being held aloft by foreign capital,” they say. “Our base case has the crisis starting with cheap apartments and later spreading to other flats in close proximity.” The authors put a “sell” recommendation on stocks of companies most likely to be affected by the crunch, including the country’s biggest bank CBA and listed property giant Lendlease. Another property player Mirvac would also be impacted, they said.

Mr Johnson and co. said they believe a correction in the housing market will start with settlement problems among apartment buyers, where purchasers who stumped up a 10% deposit simply walk away leaving developers to recoup the money or resell the unit. Under the “base case” scenario the contagion from falling apartment prices has a “muted” impact on single-family homes and is not enough to push the economy into recession. The risk of the “worst case” happening, which predicts sharp price falls and a recession, is increased because Australian household’s are holding debt that is at 122% of GDP and house prices are 12 times price to income ratios, the authors say.

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No matter how the Apple case turns out, golden taxation days in Europe are over. Next up for scrutiny: Netherlands.

Starbucks, Amazon Pay Less Tax Than A Sausage Stand, Austria Says (R.)

Multinationals like coffee chain Starbucks and online retailer Amazon pay less tax in Austria than one of the country’s tiny sausage stands, the republic’s center-left chancellor lamented in an interview published on Friday. Chancellor Christian Kern, head of the Social Democrats and of the centrist coalition government, also criticized internet giants Google and Facebook, saying that if they paid more tax subsidies for print media could increase. “Every Viennese cafe, every sausage stand pays more tax in Austria than a multinational corporation,” Kern was quoted as saying in an interview with newspaper Der Standard, invoking two potent symbols of the Austrian capital’s food culture.

“That goes for Starbucks, Amazon and other companies,” he said, praising the European Commission’s ruling this week that Apple should pay up to €13 billion in taxes plus interest to Ireland because a special scheme to route profits through that country was illegal state aid. Apple has said it will appeal the ruling, which Chief Executive Tim Cook described as “total political crap”. Google, Facebook and other multinational companies say they follow all tax rules. Kern criticized EU states with low-tax regimes that have lured multinationals – and come under scrutiny from Brussels. “What Ireland, the Netherlands, Luxembourg or Malta are doing here lacks solidarity towards the rest of the European economy,” he said.

He stopped short of saying that Facebook and Google would have to pay more tax but underlined their significant sales in Austria, which he estimated at more than 100 million euros each, and their relatively small numbers of employees – a “good dozen” for Google and “allegedly even fewer” for Facebook. “They massively suck up the advertising volume that comes out of the economy but pay neither corporation tax nor advertising duty in Austria,” said Kern, who became chancellor in May.

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Always thought that ‘kills 99% of bacteria can’t be a good thing’. Without bacteria, there are no people.

Antibacterial Soaps Banned In US Amid Claims They Do ‘More Harm Than Good’ (G.)

Antibacterial soaps were banned from the US market on Friday in a final ruling by the Food and Drug Administration, which said that manufacturers had failed to prove the cleansers were safe or more effective than normal products. Dr Janet Woodcock, director of the FDA’s center for evaluation and research, said that certain antimicrobial soaps may not actually serve any health benefits at all. “Consumers may think antibacterial washes are more effective at preventing the spread of germs, but we have no scientific evidence that they are any better than plain soap and water,” she said in a statement. “In fact, some data suggests that antibacterial ingredients may do more harm than good over the long term.”

Manufacturers had failed to show either the safety of “long-term daily use” or that the products were “more effective than plain soap and water in preventing illness and the spread of certain infections”. The new federal rule applies to any soap or antiseptic product that has one or more of 19 chemical compounds, including triclocarbon, which is often found in bar soaps, and triclosan, often in liquid soaps. It does not affect alcohol-based hand sanitizers and wipes, which the FDA is still investigating, or certain healthcare products meant specifically for clinical settings. The FDA has given manufacturers a year to change their products or pull them off shelves.

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Sep 022016
 
 September 2, 2016  Posted by at 8:55 am Finance Tagged with: , , , , , , , , , ,  


John Collier Grandfather Romero, 99 years old. Trampas, New Mexico 1943

August US Auto Sales Fall 4.2%; Carmakers Say Industry Has Peaked (R.)
Bill Gross Says Negative Interest Rates Are Nothing But Liabilities (MW)
Goldman: The Fed Might Have a New, Big Idea (BBG)
BOJ Must ‘Do Something Meaningful,’ Former Official Says (BBG)
Is the ECB Buying Bonds From Itself? (WSJ)
Bond Buyers Leave Europe to the ECB, Head to US (WSJ)
The Fed Poses a Big Risk to the Emerging Market Inflow Party (BBG)
Hanjin Shipping Bankruptcy Causes Turmoil In Global Sea Freight (G.)
Don’t Criticize Europeans For Standing Up To Apple – Thank Them (Robert Reich)
Apple Boss Tim Cook Should Stop Whinging And Pay Up (Ind.)
US Imposes Sanctions On ‘Putin’s Bridge’ To Crimea (R.)
Putin Says DNC Hack Was a Public Service, Russia Didn’t Do It (BBG)
The Italian Referendum Could Result In The Death Of The Euro (Andrews/Capacci)
France Vows To Dismantle ‘Jungle’ Refugee Camp In Calais (G.)
Greece On Edge, As Turkish Coup Prompts Surge In New Arrivals (Omaira Gill)
The Death Of Aylan Kurdi: One Year On, Compassion Towards Refugees Fades (G.)

 

 

It’s funny to see how fast the subprime car loan schemes are falling apart.

August US Auto Sales Fall 4.2%; Carmakers Say Industry Has Peaked (R.)

U.S. auto sales fell 4.2% in August as some major automakers said a long-expected decline due to softer consumer demand had begun, possibly sparking a shift to juicer customer incentives and slower production. The top three sellers, General Motors, Ford and Toyota on Thursday reported declines of at least 5%. Of the seven top manufacturers by sales, only Fiat Chrysler reported a gain versus a year ago, when sales were restated to about 11,000 fewer than originally reported. Monthly spending on new cars and trucks is closely watched as the U.S. auto industry accounts for about one-fifth of U.S. retail sales. August sales, said Autodata, totaled 1.51 million vehicles, or 16.98 million vehicles at a seasonally adjusted annualized rate, versus a surprisingly strong 17.88 million vehicles in July.

Ford Chief Economist Bryan Bezold said sales had hit a plateau after steadily rising following the 2008-2009 recession. The auto industry outperformed the overall U.S. economy in those years largely due to pent-up demand that has now played out, he said. Wall Street has pressured automaker shares all year amid expectations of falling sales at some point. [..] Ford, whose sales tumbled 8.4%, said its U.S. inventory was at 81 days of supply versus 61 days a year earlier, suggesting Ford may have to cut production, increase profit-eroding incentives, or boost fleet sales.

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“This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies.”

Bill Gross Says Negative Interest Rates Are Nothing But Liabilities (MW)

Call bond-market veteran Bill Gross a “broken watch.” He doesn’t care. His gripe about negative interest rates and a flood of debt, which he considers a risk, not a fix, for a global economy that’s still limping out of the financial crisis, is challenged daily by resilient demand for the bonds he’s bearish on. But even if being “right” eventually is a hard sell right now, he’s not backing down, Gross said in his latest monthly commentary. “The problem with Cassandras, such as Gross and Jim Grant and Stanley Druckenmiller, among a host of others, is that we/they can be compared to a broken watch that is right twice a day but wrong for the other 1,438 minutes,” Gross wrote. “But believe me: This watch is ticking because of high global debt and out-of-date monetary/fiscal policies that hurt rather than heal real economies.”

Germany, Switzerland, France, Spain and Japan are among countries that have negative yields on government-issued debt. Their hope is that cheap, even free, borrowing raises inflation and revives asset prices that can filter through economies; they argue extreme policies have been needed. Gross and others have argued that rates, including those at the Federal Reserve, at near zero or below won’t create sustainable economic growth and actually undermine capitalism. The U.S. has not tipped rates quite as low as other central banks and the Federal Reserve weaned markets off its quantitative-easing program well ahead of its big-economy brethren. Still, Federal Reserve Chairwoman Janet Yellen said last week at the Fed’s Jackson Hole retreat that she wants her policy kit to include all tools, including further asset purchases if necessary.

Divergence with the rest of the world only complicates the debate over when and how aggressively the Fed should dial back accommodative policy. Was that enough to scare off most bond investors? Apparently not. Treasury yields logged their largest daily drop in nearly two months to kick off this week, taking back their Fed-spooked gain from hawkish comments at Jackson Hole. Yields, of course, fall when prices rise, and vice versa. At that mountain gathering, Fed second-in-command Stanley Fischer opened the door to more than one rate increase this year, depending on economic data. And Fischer himself said Fed Chairwoman Janet Yellen’s stance appears in line with that mind-set.

But Gross questions the long-term effects of the world’s unprecedented yield conditions and central banker reluctance to let them go. “Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield,” wrote Gross, who manages the Janus Global Unconstrained Bond Fund, up just over 4% year to date. “$11 trillion of negative yielding bonds are not assets — they are liabilities. Factor that, Ms. Yellen, into your asset price objective.”

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Well, that makes us feel much better…

Goldman: The Fed Might Have a New, Big Idea (BBG)

The Death Star is a fictional space station popularized by the Star Wars franchise. The r-star (r*) is the natural rate of interest that sometimes crops up in economics texts. It also might be the Federal Reserve’s newest, biggest idea, according to strategists at Goldman Sachs. The notion that the natural or neutral rate of interest has been stuck at ultra-low levels might help the U.S. central bank square a dilemma between hiking interest rates and strengthening the U.S. dollar, they said.

“For the FOMC, this is a genuine conundrum, because it means that too hawkish a message could send the Dollar sky-rocketing, a deflationary shock that would also weigh on growth, thereby – in a way – undermining the very rationale for shifting hawkish in the first place,” write Goldman strategists led by Robin Brooks. “To deal with this conundrum, the framework that many at the Fed seem to be converging around is that ‘r-star’ is low, so that the degree of monetary policy accommodation is only moderate, despite policy rates being so low.” Such a stance could allow the central bank to justify keeping benchmark interest rates lower for longer. While the strategists don’t judge the notion on its merits, they do compare it to some previous big ideas that have been discussed at the central bank in recent years.

Among these is the concept that the effects of the U.S. housing crisis would not be material – a theme that dominated in the two years before the 2008 financial crisis (and shown in the pink line below). That idea soon gave rise to concerns that the bursting of the housing bubble would have a negative impact on the U.S. economy (shown in blue). Subsequently, policymakers’ collective imaginations were captured by the notion that quantitative easing would prove positive for economic growth (in red), while the notion that forward guidance (in yellow) is a useful policy tool soon gained in popularity.

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Yeah, dismantle itself.

BOJ Must ‘Do Something Meaningful,’ Former Official Says (BBG)

The Bank of Japan should abandon the monetary base target that’s driving its unsustainable bond purchases while pursuing a negative-rate loan program to help companies and consumers, said a former BOJ executive director. “The BOJ can’t get out of this struggle as long it has this cursed monetary base target,” Hideo Hayakawa, who retired from the central bank in 2013, said in an interview on Thursday. “Once they drop it, they can take a variety of other easing measures.” Hayakawa, 61, contends that there is no evidence that the monetary base target championed by Governor Haruhiko Kuroda is effective in spurring inflation. It should be dropped, and bond purchases scaled back and managed via a range rather than aiming for a specific number, he said.

“As long as they make it very clear that their goal is to keep a lid on bond yields, and the yields stay low, they can gradually lower the range of bond purchases,” said Hayakawa, who also served as the central bank’s chief economist. At the same time, he said Kuroda ought to avoid taking a deeper dive on the existing negative interest rate charged on some funds commercial banks park at the BOJ. It should simultaneously take rates on its lending facilities from zero into negative territory, which would effectively pay some borrowers who take out loans. People familiar with talks at the BOJ said in April that the central bank may consider minus rates on the Stimulating Bank Lending Facility.

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Can it still get crazier than this?

Is the ECB Buying Bonds From Itself? (WSJ)

The European Central Bank may be buying bonds from itself as it runs out of debt to sate its massive quantitative easing program. That’s according to economists at Jefferies. The ECB’s bond-buying program has been running for nearly 18 months, and investors and analysts have often asked whether the central bank is running out of debt to buy. Now, the ECB may be indirectly buying bonds from itself, according to Marchel Alexandrovich and David Owen at Jefferies, in a research note published Thursday. But here’s how Jefferies thinks it may work. The ECB’s QE program is implemented through several national central banks, like Germany’s Bundesbank and Spain’s Banco de Espana. National central banks buy bonds according to rules set by the ECB.

The problem is that these constraints narrow the stock of debt the banks can buy from. These rules prevent the purchase of too much debt from any one country and stop central banks from buying debt with steeply negative yields. Portuguese and Irish debt, for instance, is now becoming scarce. But the national central banks also sell sovereign bonds. They sometimes reduce their holdings as a part of their reserve management activities, which aim to ensure that banks, state institutions and other organizations “manage their euro-denominated reserve assets comprehensively, efficiently, and in a safe, confidential and reliable environment,” according to the ECB’s website. That means, for example, that while the German Bundesbank bought €209 billion in sovereign bonds between March and July, they also sold off €43 billion of such debt, according to Jefferies.

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Because why would they invest in liabilities?

Bond Buyers Leave Europe to the ECB, Head to US (WSJ)

The ECB recently started buying corporate bonds to boost the eurozone economy. One of the big beneficiaries so far: U.S. credit markets. Faced with dwindling returns in Europe, a growing number of investors are selling their corporate bonds to the ECB and heading across the Atlantic where yields are higher and they aren’t so vulnerable to changes in expectations around central bank buying habits. The extra yield investors demand to hold corporate bonds over safe government debt—or credit spread—has declined more rapidly in Europe than the U.S. since the ECB announced its buying plans in March. But that trend has reversed in recent weeks, with U.S. credit markets outperforming the eurozone in August, according to Bloomberg Barclays bond indexes.

That comes as investors have sold European corporate bonds and shifted funds into the U.S. as they fan out in search of returns. Net inflows into U.S. corporate bond funds have outpaced inflows to similar European funds by almost $2 billion since the start of the ECB’s program in early June, according to the latest available data from EPFR Global. As a result, borrowing costs for large U.S. companies have remained near record lows even as expectations have mounted that the Federal Reserve will soon resume raising interest rates. Mark Kiesel at PIMCO said he had been buying euro and sterling corporate bonds in anticipation of the ECB and, more recently, the Bank of England entering these markets. Now, he’s selling and moving more into U.S. credit markets.

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Modern colonialism.

The Fed Poses a Big Risk to the Emerging Market Inflow Party (BBG)

Battle-hardened emerging-market investors have seen this movie before: A U.S. Federal Reserve interest-rate hike triggers a jump in nominal local rates in emerging markets, especially those with fixed or semi-fixed exchange rate regimes. Hot money flows out of developing nations, across FX, equity and fixed-income markets. Local currencies weaken against the dollar. And the ensuing jump in the cost of dollar liquidity, and declining portfolio flows, spark fears over the debt-servicing capacity of emerging-market borrowers. In short, the boom-and-bust capital-flow cycles in emerging markets over the past three-decades have roughly followed this script.

Fast-forward to September 2016: markets are raising their bets that the Fed will hike rates this year – raising fears the post-Brexit-vote inflow party in emerging markets might ease, while international financial conditions, more generally, might tighten. Now, analysts say that the outlook for EM asset classes hinges on how the U.S. yield curve reprices in the coming months. In short, the shape of the Treasury yield curve and the level of long-term U.S. real rates, in particular – rather than the absolute level of U.S. short-end rates – will be crucial in driving capital flows into emerging markets, analysts say. Sebastian Raedler, equity strategist at Deutsche Bank, is one analyst who urges caution, citing EMs’ dependence on U.S. monetary policy.

EM portfolio flows tend to follow developments in the U.S. yield curve with a two-year lag, he says, suggesting financial conditions could tighten significantly in emerging markets if the Fed becomes notably more hawkish. “It’s very clearly the case that low U.S. rates are historically a push factor for foreign capital flows into emerging markets,” Raedler says. “The best scenario to support continued inflows into emerging markets is that financial conditions remain benign. But, thinking about the 30-year history, investors tend to love EM the most when the party in U.S. monetary policy — low rates — is in full swing.”

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I’m waiting for the next domino to fall. Only then will people recognize what’s going on.

Hanjin Shipping Bankruptcy Causes Turmoil In Global Sea Freight (G.)

[..] Hanjin’s banks decided to end financial support for the shipper this week and many of its vessels were denied entry to ports or left unable to dock as container lashing providers worried they would not be paid. This included the port of Busan, South Korea’s largest. The Korea International Trade Association said on Thursday that about 10 Hanjin vessels in China have been either seized or were expected to seized by charterers, port authorities or other parties. That adds to one other ship seized in Singapore by a creditor earlier in the week. The collapse comes at a time of high seasonal demand for the shipping industry ahead of the year-end holidays. In the US, at the ports of Los Angeles and Long Beach, the nation’s busiest port complex, three Hanjin container ships, ranging from about 700 feet to 1,100 feet long, were either sitting offshore or anchored away from terminals on Thursday.

A fourth vessel that was supposed to leave Long Beach on Thursday morning remained anchored inside the breakwater. The National Retail Federation, the world’s largest retail trade association, wrote to the US secretary of commerce, Penny Pritzker, and the Federal Maritime Commission chairman, Mario Cordero, on Thursday, urging them to work with the South Korean government, ports and others to prevent disruption. Hanjin represents nearly 8% of the trans-Pacific trade volume for the US market and the bankruptcy was having “a ripple effect throughout the global supply chain” that could cause significant harm to both consumers and the US economy, the association wrote.

[..] Other shipping lines were moving to take over some of the Hanjin traffic but at a price, with vessels already are operating at high capacity because of the season. The price of shipping a 40ft container from China to the US jumped by up to 50% in a single day, said Nerijus Poskus, director of pricing and procurement for Flexport, a licensed freight forwarder and customs broker based in San Francisco, who predicted the higher prices would last a month or two. The price from China to west coast ports rose from $1,100 per container to as much as $1,700 on Thursday, while the cost from China to the East Coast jumped from $1,700 to $2,400, he said.

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There is no one answer here. Applying tax laws retroactively is thin ice. But so is allowing companies to pay 0.005% in taxes

Don’t Criticize Europeans For Standing Up To Apple – Thank Them (Robert Reich)

For years, Washington lawmakers on both sides of the aisle have attacked big corporations for avoiding taxes by parking their profits overseas. Last week the European Union did something about it. The EU’s executive commission ordered Ireland to collect $14.5 billion in back taxes from Apple. But rather than congratulate Europe for standing up to Apple, official Washington is outraged. Republican House Speaker Paul Ryan calls it an “awful” decision. Democratic Senator Charles Schumer, who’s likely to become Senate majority leader next year, says it’s “a cheap money grab by the European Commission.” Republican Orrin Hatch, chairman of the Senate Finance Committee, accuses Europe of “targeting” American businesses. Democratic Senator Ron Wyden says it “undermines our tax treaties and paints a target on American firms in the eyes of foreign governments.”

P-l-e-a-s-e. These are taxes America should have required Apple to pay to the U.S. Treasury. But we didn’t – because Ryan, Schumer, Hatch, Wyden and other inhabitants of Capitol Hill haven’t been able to agree on how to close the loophole that has allowed Apple, and many other global American corporations, to avoid paying the corporate income taxes they owe. Let’s be clear. The products Apple sells abroad are designed and developed in the United States. So the foreign royalties Apple collects on them logically should be treated as corporate income to Apple here in America. But Apple and other Big Tech corporations like Google and Amazon – along with much of Big Pharma, and even Starbucks – have avoided paying hundreds of billions of dollars in taxes on their worldwide earnings because they don’t really sell things like cars or refrigerators or television sets that they make here and ship abroad.

[..] over the last decade alone Apple has amassed a stunning $231.5 billion cash pile abroad, subjected to little or no taxes. This hasn’t stopped Apple from richly rewarding its American shareholders with fat dividends and stock buybacks that raise share prices. But rather than use its overseas cash to fund these, Apple has taken on billions of dollars of additional debt. It’s a scam, at the expense of American taxpayers. Add in the worldwide sales of America’s Big Tech, Big Pharma and Big Franchise operations, and the scam is sizable. Over €2 trillion of U.S. corporate profits are now parked abroad – all of it escaping the U.S. corporate income tax. To make up the difference, you and I and millions of other Americans have to pay more in income taxes and payroll taxes to finance the U.S. government.

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Meanwhile, the opinions are fun to read.

Apple Boss Tim Cook Should Stop Whinging And Pay Up (Ind.)

Having been handed a €13bn bill for back taxes – it is not a fine as some would have you believe – Apple boss Tim Cook has gone on the offensive. The under fire tech giant’s chief executive chose Ireland’s state broadcaster RTE as the venue for a broadside against the European Commission in the wake of its ruling that the tax deal arranged between Apple and Ireland amounted to illegal state aid. What he said was, well, hard for me to read without inflicting damage on my, erm, Apple Mac. So read on at your own computer’s risk: “When you’re accused of doing something that is so foreign to your values, it brings out an outrage in you, and that’s how we feel. Apple has always been about doing the right thing.”

Oh Mr Cook. It’s not you who should be feeling outraged. It’s us. Even if you think that what the EC did was pushing it, this is is still a company that has cynically gamed the international tax system with the aim of depriving nation states from whose citizens Apple makes its living, the tax they are due. Taking advantage of loopholes, employing accountants to manipulate the rules; Apple’s defenders might call that pragmatic. But it’s hard to see how anyone not in the business of creating propaganda for Apple could describe its behaviour as “doing the right thing”. Mr Cook, it appears, has no shame. “Total political crap,” he ranted. “Maddening.”

What’s maddening is the way multinational companies like Apple utilise their resources to avoid paying their share at a time of austerity. What’s maddening is the way tax authorities bring the hammer down on individual citizens for making honest mistakes while shrugging their shoulders when it comes to policing wealthy corporations. As for “political crap”? This is a man who has hosted fundraisers for Hilary Clinton. If that’s not political crap, I’d really like to know what is.

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Victoria Nuland is still around. In fact, under a potential Hillary presidency, she’s set to acquire a whole lot more power (Secretary of State?). That’s very scary.

US Imposes Sanctions On ‘Putin’s Bridge’ To Crimea (R.)

Companies building a multi-billion dollar bridge to link the Russian mainland with annexed Crimea, a project close to the heart President Vladimir Putin, were targeted by the United States in an updated sanctions blacklist on Thursday. The U.S. Department of the Treasury added dozens of people and companies to the list, first introduced after Russia annexed the Crimean peninsula from Ukraine in 2014 and expanded over its support for separatist rebels in the east of the country. As well as multiple subsidiaries of Russian gas giant Gazprom and 11 Crimean officials, the Treasury named seven companies directly involved in the construction of the 19 km (11.8 miles) road-and-rail connection across the Kerch Strait, dubbed “Putin’s bridge” by some Russians.

Chief among those were SGM-Most, a subsidiary of lead contractor Stroygazmontazh which is already under U.S. sanctions, and sub-contractor Mostotrest, one of Russia’s biggest bridge builders. “Treasury stands with our partners in condemning Russia’s violation of international law, and we will continue to sanction those who threaten Ukraine’s peace, security and sovereignty,” said John Smith, acting director of the Treasury’s Office of Foreign Assets Control, which levies sanctions.

The Russian Foreign Ministry was not immediately available for comment, but Moscow has previously said sanctions levied over its actions in Ukraine undermine efforts to resolve the conflict. Set to be the longest dual-purpose span in Europe when completed, the Kremlin sees its 212-billion rouble ($3.2 billion) bridge as vital to integrating Crimea into Russia, both symbolically and as an economic lifeline for the region. Putin has called the undertaking an historic mission.

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Note: all of the Hillary campaign’s allegations about Russia hacking the DNC remain wholly unsubstantiated. That’s some flimsy ground to stand on, if that’s all you got. Innuendo can’t carry you all the way.

Putin Says DNC Hack Was a Public Service, Russia Didn’t Do It (BBG)

Vladimir Putin said the hacking of thousands of Democratic National Committee emails and documents was a service to the public, but denied U.S. accusations that Russia’s government had anything to do with it. “Listen, does it even matter who hacked this data?’’ Putin said in an interview at the Pacific port city of Vladivostok on Thursday. “The important thing is the content that was given to the public.’’ U.S. officials blame hackers working for the Russian government for the attacks on DNC servers earlier this year that resulted in WikiLeaks publishing about 20,000 private emails just before Hillary Clinton’s nominating convention in July.

The documents showed attempts by party officials to undermine her chief Democratic rival, Bernie Sanders, and led to the resignation of the head of the DNC, Representative Debbie Wasserman Schultz of Florida. Putin, in power since 2000 and facing re-election in 18 months, and Clinton have had an acrimonious relationship since her failed attempt to “reset” relations as secretary of state in 2009. Putin in 2011 blamed her personally for stoking the biggest protests of his rule by sending an activation “signal” to “some actors” inside Russia. Clinton has compared his annexation of Crimea in 2014 to actions taken by Adolf Hitler before World War II.

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No doubt about it. The euro makes no more sense for Italy than it does for Greece.

The Italian Referendum Could Result In The Death Of The Euro (Andrews/Capacci)

Prime ministers come and go in Italy—four since the financial crisis—but precious little seems to change. The latest incumbent, Matteo Renzi, has pursued structural reform more energetically than his predecessors. But for all the progress he has made, he might as well have been wading through molasses. Now, in a bid to secure a popular mandate for his restructuring program, Renzi has bet his premiership on a referendum over badly-needed constitutional reforms. It is a high stakes gamble. If Renzi wins the vote, which is due in either October or November, his proposed measures will streamline Italy’s legislative process, breaking the parliamentary gridlock which has crippled successive governments, and opening the way to far-reaching economic reforms.

If he loses, Renzi has promised to step down—a pledge that has turned the referendum into a popular vote of confidence in the unelected prime minister, his Europhile policies, and—by extension—Italy’s membership of the eurozone itself. As a result, a “no” vote in October will not just precipitate the fall of Renzi’s government; it could throw Italy’s long-term membership of the eurozone into doubt, plunging the single currency area once again into crisis. Italy’s fundamental problem is that it’s stuck in a policy no man’s land. Its old economic model, in place for much of the last three decades of the 20th century, relied on a combination of currency devaluation to maintain international competitiveness together with fiscal spending to support the poorer regions of the country’s south.

Signing up to the euro put an end to all that, preventing devaluations and prohibiting budget deficits at 10% of gross domestic product. However, the design of Italy’s bicameral parliamentary system, in which the upper and lower house—the Senate and the Chamber of Deputies—wield equal legislative power, made it almost impossible for any government to push through the structural reforms necessary for Italy to compete and prosper within the eurozone. The result has not just been depressed growth and relative impoverishment, but an outright decline in living standards as Italy’s real GDP per capita has slumped to a 20-year low.

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Problem is, the refugees don’t want to say in France.

France Vows To Dismantle ‘Jungle’ Refugee Camp In Calais (G.)

France is to gradually dismantle the “Jungle” refugee camp in Calais, the interior minister, Bernard Cazeneuve, has vowed. Cazeneuve told regional newspaper the Nord Littoral he would press ahead with the closure of the camp “with the greatest determination”, dismantling the site in stages, clearing the former wasteland where record numbers of refugees and migrants are sleeping rough in dire sanitary conditions as many hope to reach Britain. He said France would create accommodation for thousands elsewhere in the country “to unblock Calais”.

French authorities have made repeated efforts to shut down the camp, which the state was responsible for creating in April 2015 when authorities evicted migrants and refugees from squats and outdoor camps across the Calais area and concentrated them into one patch of wasteland without shelter. Less than six months ago, the authorities demolished a large area of the southern part of the camp, saying the aim was to radically reduce numbers. But this month the number of people in the camp reached an all-time high of almost 10,000 people, aid organisations estimate. The French authorities put the official number of people in the camp at almost 7,000. Authorities have said over the past year more than 5,000 asylum seekers have left the northern French town for 161 special centres set up around France.

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Beware the numbers. The relocation scheme has been one big EU failure, one among far too many.

Greece On Edge, As Turkish Coup Prompts Surge In New Arrivals (Omaira Gill)

After dropping for several months, the numbers of refugees pouring through Greece have started to increase again in recent weeks. When an EU-Turkey deal was hacked out in March 2016, it was hailed by EU governments as a success. The massive numbers that had transited through Greece in 2015 and early 2016 quickly whittled down to almost nothing. But people have not stopped coming, and the failed coup in Turkey on 15 July seems to have had consequences. The EU-Turkey deal came into effect on 20 March 2016. In February, UNHCR data showed 55,222 arrivals in Greece. This had fallen to 26,623 in March and 3,419 in April. The numbers for May and June were more or less steady at 1,465 and 1,489, respectively. But in July, the pattern began to change.

There were 1,855 arrivals recorded for the month of July. This could be written off as part of the settling down period for the deal, until the numbers are broken down and matched with events which took place that month. On 15 July, an attempted putsch took place in Turkey. The number of arrivals from 1 July to 14 July came to 560. But that number jumped to 1,295 for the period 15 July to 31 July – an increase of 131%. Taking a step further back, between 15 June and 14 July, 1,438 arrivals were registered in Greece. But from 15 July to 14 August, the number was 2,675, representing an 86% increase in arrivals. In the face of this data, it is hard to ignore Turkey’s current instability as a driving factor behind refugee flows. Between 1 and 28 August, the latest available date for arrivals by the UNHCR, 2,810 refugees and migrants arrived on Greek shores.

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We will be judged on this.

The Death Of Alan Kurdi: One Year On, Compassion Towards Refugees Fades (G.)

Sitting in a refugee camp in northern Greece, Mohammad Mohammad, a Syrian taxi driver, holds up a picture of three-year-old Alan Kurdi. It is nearly a year since the same photograph of the dead toddler sparked a wave of outrage across Europe, and heightened calls for the west to do more for refugees. Twelve months later, Mohammad uses it to highlight how little has changed. Alan may have died at sea, he says, “but really there is no difference between him and the thousands of children now dying [metaphorically] here in Greece”. Tens of thousands have been stranded in squalid conditions in Greece since March, when Balkan leaders shut their borders. “It is,” says Mohammad, “a human disaster.” A year ago, Alan’s tragic death seemed to have shifted the political discourse on refugees.

European leaders appeared to have been shocked into forming more compassionate policies, while previously hostile media outlets took a more conciliatory tone. Two days after Alan’s death, Germany agreed to admit thousands of refugees who had been stranded in Hungary. The move encouraged the leaders of central and eastern Europe to create a humanitarian corridor from northern Greece to southern Bavaria, while Canada promised to resettle 25,000 Syrians. In the UK David Cameron agreed to accept 4,000 refugees a year until 2020. It was less than the number landing each day on the Greek islands at that point, but far more than Cameron had previously dared to offer. He was cheered on by the Sun, whose opinion pages had previously described migrants as cockroaches, but now mounted a front-page campaign in Kurdi’s name: “For Aylan [sic]”.

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Sep 012016
 
 September 1, 2016  Posted by at 9:31 am Finance Tagged with: , , , , , , , , , ,  


F.A. Loumis, Independence (Bastille?!) Day 1906

Collapse of Hanjin, World’s 7th-Biggest Shipping Line, Upsets Global Trade (R.)
Investors Miss Out On $500 Billion As Global Bond Yields Plunge (CNBC)
In Case Of Recession, The Fed Might ‘Need’ To Cut Rates To Minus 2% (CNBC)
Eurozone Core Inflation Fall Raises Prospect Of ECB Stimulus Measures (G.)
Bank of Japan Has an $84 Billion Yen Gap in Balance Sheet (BBG)
Admitting Ignorance Is Better Than Groupthink For Central Bankers (BBG)
An 809% Debt Ratio And Investors Are Serene? It Must Be China (BBG)
Austria Says Will Start ‘Conflict’ In EU About Canada Trade Deal (R.)
Apple Travesty Is A Reminder Why Britain Must Leave The Lawless EU (AEP)
UK Defined Benefit Pension Fund Deficit Grows By £100 Billion In A Month (G.)
London’s Elite ‘Pushed Out Of Exclusive Postcodes By Super Rich’ (G.)
A Third Of Africa’s Elephants Were Wiped Out In Just 7 Years (CNN)

 

 

Excellent. We’re far too independent on the idiocy of 10,000 mile shipping lines. They’re heavily polluting (in more ways than one) and entirely unnecessary.

Collapse of Hanjin, World’s 7th-Biggest Shipping Line, Upsets Global Trade (R.)

The collapse of South Korea’s Hanjin Shipping sent ripples though global trade on Thursday, as the country’s largest port turned away its ships and as some manufacturers scrambled for freight alternatives. Hanjin on Wednesday filed for court receivership after its banks decided to end financial support, and ports from China to Spain, the United States and Canada have refused entry to Hanjin vessels in what is traditionally the industry’s busiest season ahead of the year-end holidays. An official with Hanjin Shipping in Busan confirmed that its vessels were not entering the southern city’s port as container lashing providers deny service on concerns that they will not be paid. The company was also worried that the ships may be seized by creditors.

LG Electronics, the world’s No.2 maker of TVs, told Reuters it was cancelling orders with Hanjin and was seeking alternatives to ship its freight. An executive at the Korea International Freight Forwarders Association said on Wednesday he had been inundated with calls from cargo owners worried about the fate of their shipments in transit to the United States and Europe. While mobile phones and semiconductors are carried by air, other electronics like home appliances are shipped by sea. “This will have an impact on the entire industry,” the official said.

South Korea’s maritime ministry said on Wednesday that Hanjin’s woes would affect cargo exports for two or three months, with about 540,000 TEU of cargo already loaded on Hanjin vessels and facing delays. It would be difficult to find alternative ships given high seasonal demand from August to October. The ministry said it would ask local rival Hyundai Merchant Marine to supply vessels to cover some of Hanjin’s routes to the United States and Europe, while also seeking help from overseas carriers.

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How central bankers kill pensions.

Investors Miss Out On $500 Billion As Global Bond Yields Plunge (CNBC)

Investors have seen their interest income squeezed as global bond yields plunge. On the flipside, governments aren’t complaining. Relative to yields in 2011, global investors are foregoing more than $500 billion in annual income on roughly $38 trillion in sovereign debt that is outstanding, Fitch Ratings said in a report on Wednesday. “Cash flow benefits have effectively been transferred from global investors to sovereign issuers, as sovereign borrowing costs have dropped in response to central bank monetary stimulus,” Fitch said in the report. “This has posed new challenges for income-reliant investors, such as insurers and pension funds, while enabling governments to borrow at increasingly attractive rates.”

Borrowers would realize benefits only slowly, however, as bonds with higher coupon rates matured and newer bonds with lower interest rates were issued, the rating agency said. According to Fitch, investors who tended to buy assets and hold them onto maturity would have to invest new cash in bonds that paid lower interest rates, blunting the money they earned from coupon payments. Government bond yields, which move inversely to prices, have plummeted around the world as central banks in many developed economies scooped up bonds in order to provide stimulus to their economies. These purchases have sparked a scramble for government debt, enabling many countries to flog bonds while cutting the interest rates they have to pay to lure investors.

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In itself a reasonable argumant re the history of spreads, but that does not make the conclusion alright, or logical.

In Case Of Recession, The Fed Might ‘Need’ To Cut Rates To Minus 2% (CNBC)

The U.S. Federal Reserve might need to cut interest rates to as low as negative 2%, far lower than levels other global central banks have tested, a former Fed economist said. That’s what would likely be needed to engineer a recovery if the U.S. economy were to fall into a recession in the next couple of years, Marvin Goodfriend, who was an economist and policy advisor at the Federal Reserve’s Bank of Richmond from 1993-2005, told CNBC’s “Squawk Box” on Thursday. Goodfriend, who is currently a professor of economics at Carnegie Mellon University, pointed to data on the eight recessions in the U.S. since 1960.

“In eight of those recessions, the Fed had to push the short rate 2.5 percentage points below the long term rate. Today, the 10-year rate in the U.S. is 1.5%,” he noted, saying that would indicate that during the next recession, the Fed would need to cut rates as low as minus 1% at a minimum. “In five of those recessions, the Fed had to push the federal funds rate 3.5 percentage points below the 10-year bond rate,” he said. “So if that happens this time around, we would have to push the federal funds rate to minus 2%.” That’s well below where any other central banks have ventured so far. Sweden’s central bank, an early adopter of negative rates, has set its benchmark at negative 0.5%.

The Bank of Japan’s rate was set at minus 0.1% earlier this year, while the ECB, which first moved its rates into negative territory in 2014, currently has a deposit rate of negative 0.4%. The Fed funds rate has remained in positive territory, with the U.S. central bank last increasing interest rates in December of 2015, its first hike since 2006. That raised the Fed’s target rate to a range of 0.25 to 0.5%. To be sure, Goodfriend didn’t expect the Fed would be headed there anytime soon, noting that he believed the central bank should actually raise rates before the end of the year.

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More more more.

Eurozone Core Inflation Fall Raises Prospect Of ECB Stimulus Measures (G.)

Speculation is growing that the European Central Bank could take action to stimulate the eurozone economy after official figures showed an easing in underlying inflation last month. Pressure on the ECB increased when the European commission’s statistical agency, Eurostat, published figures that showed core inflation in July was lower than in same month last year, despite aggressive action by the Frankfurt-based bank over the past 18 months. With concerns that the eurozone recovery was losing momentum, Eurostat said the headline rate of inflation remained unchanged at 0.2% in August. Core, or underlying inflation, which excludes energy, goods, alcohol and tobacco, fell from 0.9% in July to 0.8%.

Separate Eurostat data showed that eurozone unemployment was unchanged at 10.1% in July, the latest month for which figures are available for all 19 countries that use the euro. The jobless rate in the eurozone has fallen from 10.8% over the past year, but financial markets had been expecting the reduction to continue to 10% last month. The ECB has been using negative interest rates and quantitative easing in an attempt to increase activity and push inflation back towards its target of just below 2%. Analysts said the inflation and unemployment figures would be discussed when the ECB meets to discuss policy options next week.

Stephen Brown of consultancy Capital Economics said: “The unchanged headline inflation rate in August highlights the fact that price pressures in the eurozone remain weak and boosts the case for more monetary easing from the ECB. “With [the] survey data also pointing to a marked slowdown in growth ahead, there is a strong case for the ECB to announce further policy easing. This could come as soon as the bank’s meeting next week.”

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Abe and Kuroda won’t even take it serious.

Bank of Japan Has an $84 Billion Yen Gap in Balance Sheet (BBG)

There’s an 8.7 trillion yen ($84 billion) gap between the value of government bond holdings on the Bank of Japan’s balance sheet and their face value. While not an immediate problem because the BOJ’s income can cover the losses, the widening gap raises questions about the sustainability of the central bank’s bond purchases, which Governor Haruhiko Kuroda has said could be expanded. The costs of the central bank’s record stimulus are mounting, while its chief goal – spurring inflation to 2% – appears as far away as it was when Kuroda took the helm in 2013. The BOJ is in the midst of reviewing its policy before a board meeting later this month, but the governor has said there will be no scaling back of his monetary program.

“These numbers show the distortions of the BOJ’s current policies,” said Sayuri Kawamura, a senior economist at the Japan Research Institute in Tokyo. “The annual amortization losses are going to increase and consume the BOJ’s profits, and the risk is increasing that the bank’s financial stability will be shaken.” The bonds the BOJ owns are worth almost 326.7 trillion yen when taken at face value, but were marked at almost 335.4 trillion yen on the balance sheet in August. That gap is 42% bigger than before the introduction of negative rates in January, according to an analysis of the balance sheet and list of the bonds the central bank owns. Tadaaki Kumagai, a spokesman for the central bank, said “the BOJ releases half-yearly and yearly accounts,” while declining to comment further.

The gap exists because, unlike the Federal Reserve, the BOJ counts its bond holdings at the purchase price, minus amortization costs. This number is diverging more from the face value because the central bank’s purchases and negative rate policy are pushing up prices. The face value is what the BOJ will receive when the bonds mature. At the end of the 2015 fiscal year on March 31, the gap between the two valuations was 6.4 trillion yen and the BOJ wrote down 874 billion yen, according to documents seen by Bloomberg. That was covered by the 1.29 trillion yen in coupon income the bank received that year, a situation that may not continue indefinitely.

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Groupthink is all they have.

Admitting Ignorance Is Better Than Groupthink For Central Bankers (BBG)

If the Fed’s objective last week was to put its September meeting back into play as the potential venue for a rate increase, it can claim a partial success. Prices in the futures market show traders now see about a 34% chance of a hike on Sept. 21, up from 22% two weeks ago. But you still have to go out to December before the likelihood rises above 50%. There’s a very good reason for that market skepticism. Raising rates at a time when inflation is dormant and miles away from the central bank’s 2% target seems somewhat perverse, especially when the forecast is for prices to remain subdued for many months to come:

The Jackson Hole Symposium (and let us note in passing what a great word symposium is, adding gravitas to what would otherwise be a mere conference) was an opportunity, as the event title said, to consider “Designing Resilient Monetary Policy Frameworks for the Future.” Instead, Fischer’s comment suggests it’s business as usual at the Federal Open Market Committee, with no room at present for such innovations as changing the inflation goal or targeting nominal GDP. That’s a shame. There’s a consensus that monetary policy is becoming impotent, and that governments need to step in with fiscal stimulus. But until central banks admit that their firepower is waning, politicians can continue to evade responsibility. “You can’t expect us to do the whole job,”

Christopher Sims, a Nobel Prize-winning economist from Princeton University, said at Jackson Hole last week. “Fiscal expansion can replace ineffective monetary policy at the zero lower bound. So long as the legislature has no clue of its role in these problems, nothing is going to get done. Of course, convincing them that they have a role and there is something they should be doing, especially in the U.S., may be a major task.” Finance – particularly in an era of fractional reserve banking – is essentially a confidence trick. Depositors have to be confident their money will be there when they try to withdraw it. Businesses have to be confident that the economy is on a sound footing otherwise they won’t invest and hire. Central bankers aren’t just economists and policy makers; they’re also salespeople, selling a story.

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China is a giant debt bubble.

An 809% Debt Ratio And Investors Are Serene? It Must Be China (BBG)

Prudence dictates that a compulsive shopper who runs up a hazardous amount of debt should think about cutting the credit card in half and staying home for a while. Try telling that to China’s acquisition-hungry companies.Two prime examples were on show this week when China Evergrande Group, one of the nation’s biggest developers, and Fosun International, an expanding Shanghai-based conglomerate, reported first-half earnings. The results show just how hard it is to kick the buying habit in an environment where compliant lenders stand ready to advance seemingly unlimited sums. Total borrowings at junk-rated Evergrande jumped by 28% from the end of December to 381 billion yuan ($57 billion).

That pushed the Guangzhou-based company’s ratio of net debt to shareholders’ equity to 142%, above the average 108% for China’s overleveraged property developers, according to data compiled by Bloomberg. Count Evergrande’s perpetual bonds as debt rather than equity and even that ratio starts to look benign. The total debt to common equity ratio rose to 809% at the end of June, from 582% six months earlier. The developer added about 40 billion yuan more perpetual notes during the period. So, time to rein things in somewhat?

Not a bit of it. Evergrande wants to acquire brokerage and trust companies as well as smaller rivals, Chief Executive Officer Xia Haijun told reporters in Hong Kong Tuesday. That would be on top of more than $5 billion of purchases so far this year, including building a stake in larger developer China Vanke and acquiring a chunk of Shenyang-based Shengjing Bank. First-half profit, meanwhile, fell 23% excluding property revaluations and foreign-exchange losses.The debt buildup wouldn’t be so striking if Evergrande were acquiring cash-generating assets that can help pay down borrowings. If anything, things seem to be moving in the opposite direction.

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Good. Kill that too.

Austria Says Will Start ‘Conflict’ In EU About Canada Trade Deal (R.)

Austria is ready to confront other European Union members states over its opposition to a free trade deal with Canada, Chancellor Christian Kern said, because it sees it containing many of the same problems as one being negotiated with the United States. “This will be difficult, this will be the next conflict in the EU that Austria will trigger… We must focus on making sure… we don’t shift the power balance in favor of global enterprises,” Kern told broadcaster ORF late on Wednesday. Austria opposes a proposed free trade deal with the United States, and Kern said the deal with Canada, called the Comprehensive Economic and Trade Agreement (CETA), bore many of the same problems.

Ministers from Germany and France have also called for a halt in negotitations on the EU-U.S. deal, the Transatlantic Trade and Investment Partnership (TTIP). “We will have to see where the weaknesses of (CETA) are. Many are the same as with TTIP,” Kern, a social-democrat, said, without elaborating. Kern is expected to address issues surrounding TTIP at a news conference on Friday. There are widespread concerns in Austria that the TTIP could compromise food safety standards. Kern also opposes the idea that the agreement could allow companies to challenge government policies if they feel regulations put them at a disadvantage.

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There are multiple truths in this case. In the end, though, this is about Brussels seeking to supersede member states’ sovereign law. For that, the constitutions of 27 nations should be held to the light. I would venture that what Brussels does here, and in many other fields, violates a fair number of these constitutions. And that is not legal no matter what their respective governments say or do. That’s an issue for their judicial systems. There’s a reason why the political and judicial systems have been made separate entities.

Apple Travesty Is A Reminder Why Britain Must Leave The Lawless EU (AEP)

Europe’s Competition Directorate commands the shock troops of the EU power structure. Ensconced in its fortress at Place Madou, it can dispatch swat teams on corporate dawn raids across Europe without a search warrant. It operates outside the normal judicial control that we take for granted in a developed democracy. The US Justice Department could never dream of acting in such a fashion. Known as ‘DG Comp’, it acts as judge, jury, and executioner, and can in effect impose fines large enough to constitute criminal sanctions, but without the due process protection of criminal law. It misused evidence so badly in pursuit of the US chipmaker Intel that the company alleged a violation of human rights. Apple is just the latest of the great US digital companies to face this Star Chamber.

It has vowed to appeal the monster €13bn fine handed down from Brussels this week for violation of EU state aid rules, but the only recourse is the European Court of Justice. This is usually a forlorn ritual. The ECJ is a political body, the enforcer of the EU’s teleological doctrines. It ratifies executive power. We can mostly agree that Apple, Google, Starbucks, and others have gamed the international system, finding legal loopholes to whittle down their tax liabilities and enrich shareholders at the expense of society. It is such moral conduct that has driven wealth inequality to alarming levels, and provoked a potent backlash against globalisation. But the ‘Double Irish’ or the ‘Dutch Sandwich’ and other such tax avoidance schemes are being phased out systematically by the G20 and by a series of tightening rules from the OECD.

The global machinery of “profit shifting” will face a new regime by 2018. We can agree too that Apple’s cosy EU arrangements should never have been permitted. It paid the standard 12.5pc corporate tax on its Irish earnings – and is the country biggest taxpayers – but the Commission alleges that its effective rate of tax on broader earnings in 2014 was 0.005pc, achieved by shuffling profits into a special ‘stateless company’ with its headquarters in Ireland. “The profits did not have any factual or economic justification. The “head office” had no employees, no premises and no real activities,” said Margrethe Vestager, the EU competition chief.

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Someone will find a way to blame this on Brexit.

UK Defined Benefit Pension Fund Deficit Grows By £100 Billion In A Month (G.)

The combined deficit of the UK’s 6,000 defined benefit pension funds has grown by £100bn in the last month, bringing the total deficit to £710bn, according to a new report. The research, by the accountants PricewaterhouseCooper, found that the pension schemes have total assets of £1,450bn but are liable to pay out about £2,160bn in contractual promises to existing and former workers. Pension deficits have worsened since the EU referendum because companies use the interest rate on gilts, otherwise known as the yield, as the main tool in estimating how much they will have to pay out in pensions in the future. The lower the gilt yield, the more that companies have to set aside to meet their future costs.

The scale of the problems facing companies offering final salary pension schemes was underlined on Wednesday by the Yorkshire-based manufacturer Carclo, which issued a statement to the stock exchange to say that the recent increase in its pension deficit meant that a dividend payout to shareholders announced in June and due to be paid in October could not now go ahead. Carclo, which is based near Leeds and employs about 1,300 people making plastics and LED products, said in its statement: “If the corporate bond yield remains at its current low level then this will result in a significant increase in the group’s pension deficit.” It said this would have the effect of “extinguishing the company’s available distributable reserves”. The announcement immediately wiped almost 15% off the company’s share price.

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How to kill a city, Chapter 826.

London’s Elite ‘Pushed Out Of Exclusive Postcodes By Super Rich’ (G.)

London’s traditional elite, such as lawyers, architects and academics, are being pushed out of their enclaves in Mayfair, Chelsea and Hampstead by an influx of global super rich investors, causing a chain reaction of gentrification across the capital, according to research by the London School of Economics. An influx of extremely wealthy overseas buyers is leading the old elite to sell up and move from London’s most exclusive postcodes and buy in areas they previously considered undesirable, said Dr Luna Glucksberg, of the LSE’s International Inequalities Institute. This displacement of old money and affluent middle class professionals is in turn pricing neighbourhoods in south and east London out of the reach of average Londoners and threatening to push those on low incomes to the margins of the city and beyond, she added.

“The changes happening at the top end of the market are real, and although they do not affect large numbers of people directly, the ripple effects they generate do resonate across London,” Glucksberg said. “In terms of the impact on London as a whole, this represents a very different kind of ‘trickle down’ effect from what politicians across the spectrum have long argued would be the benefit of the ‘super rich moving into our city’,” said Glucksberg. “Affordability for average Londoners in the rest of the city is likely to become an even more difficult issue to solve.” The trend was contributing to dramatic house price rises in areas ranging from Battersea and Clapham to Acton, as the old elite bought property there with the significant profits – usually in the millions – made from selling up to the global uber wealthy, the researcher found.

“The study shows that the wealthy individuals and families that live in London’s most exclusive areas no longer feel able to compete at the top end of the capital’s property market,” said the researcher. “Instead they feel like they are being pushed out of elite neighbourhoods. For the first time, this elite group are buying flats for their children in areas they never would have previously considered.”

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We need the death penalty for poachers and buyers, the entire chain, not just in Africa but everywhere, also in China and Japan. If they don’t comply, no more trade and full isolation.

A Third Of Africa’s Elephants Were Wiped Out In Just 7 Years (CNN)

Scanning Botswana’s remote Linyanti swamp from the low flying chopper, elephant ecologist Mike Chase can’t hide the anxiety and dread as he sees what he has seen too many times before. “I don’t think anybody in the world has seen the number of dead elephants that I’ve seen over the last two years,” he says. From above, we spot an elephant lying on its side in the cracked river mud. From a distance it could be mistaken for a resting animal. But the acrid stench of death hits us before we even land. Up close, it is a horror. He was a magnificent bull right in his prime, 45 to 50 years old. To get at his prized ivory tusks, poachers hacked off his face. Slaughtered for their ivory, the elephants are left to rot, their carcasses dotting the dry riverbed; in just two days, we counted the remains of more than 20 elephants in a small area.

Visitors and managers at the tourist camps here are frequently alarmed by the sound of gunshots nearby. And Chase worries that if Botswana can’t protect its elephants, there’s little hope for the species as a whole. Chase, the founder of Elephants Without Borders (EWB), is the lead scientist of the Great Elephant Census, (GEC) an ambitious project to count all of Africa’s savannah elephants – from the air. Before the GEC, total elephant numbers were largely guesswork. But over the past two years, 90 scientists and 286 crew have taken to the air above 18 African countries, flying the equivalent of the distance to the moon – and a quarter of the way back – in almost 10,000 hours.

Prior to European colonization, scientists believe that Africa may have held as many as 20 million elephants; by 1979 only 1.3 million remained – and the census reveals that things have gotten far worse. According to the GEC, released Thursday in the open-access journal PeerJ, Africa’s savannah elephant population has been devastated, with just 352,271 animals in the countries surveyed – far lower than previous estimates. Three countries with significant elephant populations were not included in the study. Namibia did not release figures to the GEC, and surveys in South Sudan and the Central African Republic were postponed due to armed conflict. In seven years between 2007 and 2014, numbers plummeted by at least 30%, or 144,000 elephants.

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Aug 122016
 
 August 12, 2016  Posted by at 10:17 am Finance Tagged with: , , , , , , , , ,  


G. G. Bain At Casino, Belmar, Sunday, NJ 1910

Private Lenders Increase the Risk of a Global Debt Crisis (TeleSur)
US Homeownership Dips to Lowest Rate Since 1960 (RCM)
The Next Huge American Housing Bailout Could Be Coming (TAM)
China’s Stimulus Efforts Show ‘Malinvestment Is Still Hard at Work’ (BBG)
The UK Is the New Engine of Bond-Market Distortion (WSJ)
A Really Vicious Circle Is Threatening UK Pension Pots (BBG)
IMF to ECB: Forget Negative Rates, Or You’ll Do More Harm Than Good (MW)
Global Shipping Giant Moller-Maersk Reports 90% Fall In Net Profit (CNBC/R.)

 

 

Warning against vulture funds. Then again, isn’t the IMF one of them too?

Private Lenders Increase the Risk of a Global Debt Crisis (TeleSur)

Private creditors have replaced the public sector as lead borrower to developing countries, which has contributed to a new borrowing and lending boom. Private financial institutions are responsible for prompting a potential “new wave” of debt crises among developing nations, according to a new report carried out by European Think Tank Eurodad. Public debt in developing countries is increasingly being borrowed from private lenders, which the authors argue has meant that an increasing portion of credit is not effectively monitored or regulated. “Private borrowers, in particular private corporations, have used this regulation gap to throw a big borrowing party, a debt party, and thus have contributed disproportionately to the external debt burden that developing countries carry now,” the report warned.

As part of its findings, the authors of the report concluded that, “while relative debt burdens decreased between 2000 and 2010, these trends have reversed in 2011. Since then debt is on an upward path, also when measured in relative terms.” Developing countries total external debt burden reached US$5.4 trillion in 2014 and over half of this amount is now owed by private debtors, according to data from the report titled,“The Evolving Nature of Developing Country Debt and Solutions for Change.” The study attributed the recent increase in private creditors to the heavy public borrowing that took place during the 1980’s and 1990’s, which prompted sharper restrictions on public lending institutions such as the International Monetary Fund.

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Remember affordable housing?

US Homeownership Dips to Lowest Rate Since 1960 (RCM)

The US homeownership rate, as recently reported by the Census Bureau, dropped to 62.9% in the second quarter of 2016, a rate about equal to the rate of 61.9% reported over a half century ago for 1960. This stagnation compares unfavorably to 1900 to 1960 when the non-farm homeownership rate increased from 36.5% to 61%.-a period encompassing rampant urbanization, immigration, and population growth. For example, the non-farm population quadrupled from about 42 million to 166 million, yet the non-farm homeownership rate increased by 67%. Except for the interruption caused by the Great Depression, the rate of increase was moderate to strong throughout the period.

How can this be? Isn’t there an alphabet soup of federal agencies-FHA, HUD, FNMA, FHLMC, GNMA, RHS, FHLBs-all with the goal of increasing homeownership by making it more “affordable”? Don’t these agencies fund or insure countless trillions of dollars in home loan lending–most with very liberal loan terms? Could it be the federal government massive liberalization of mortgage terms creates demand pressure leading to higher prices? Could it be federal, state, and local governments’ implement land use policies that constrain supply and drive prices up even further? Could it be government housing policies have made homeownership less, not more affordable or accessible?

The answer is an unequivocal yes. Since the mid-1950, liberalized federal lending policies have fueled a massive and dangerous increase in leverage-one that continues to this day. For example, in 1954 FHA loans had an average loan term of 22 years vs. 29.5 years today, an average loan-to-value of 80% vs. 97.5%, average housing debt-to-income ratio of 15% vs. 28%. Only the average borrowing cost in 1954 of 4.5% is the same as it is today. The result is today’s FHA borrower can purchase a home selling for twice as much as one with the underwriting standards in place in 1954-but without a dollar’s increase in income!

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It’s all a big rip-off. Get the government out of housing once and for all.

The Next Huge American Housing Bailout Could Be Coming (TAM)

The failures of government intervention in the economy have made headlines yet again. Recent stress tests by the Federal Housing Finance Agency found something sinister brewing under the surface at notorious mortgage giants Fannie Mae and Freddie Mac. The results show that these puppet companies could need up to a $126 billion bailout if the economy continues to deteriorate. That’s right — the two companies that were taken over by the government and that sucked $187 billion from the treasury could be entitled to more taxpayer money. The toxic home loans bought during the last crisis coupled with a lack of liquidity have suddenly become serious risk factors.

The so-called “recovery” that has been trumpeted for years by countless politicians and economists is falling apart in plain view. The media will do just about anything to assure the public that this is all isolated and overblown, but the canary in the coal mine has just dropped dead. The tests ran a scenario eerily similar to warnings we’ve heard about what the economic future might hold: “The global market shock involves large and immediate changes in asset prices, interest rates, and spreads caused by general market dislocation and uncertainty in the global economy.” In the throes of the 2008 crisis, the government took many unprecedented actions, but one of the most notable was seizing control of the two largest mortgage loan holders in the country.

Since then, Fannie Mae and Freddie Mac have been converted from subsidized private organizations into some of the biggest government-sponsored enterprises ever created. These institutions have been used to prop up the entire real estate market by purchasing trillions of dollars in home loans from other banks to keep prices elevated. Without Fannie and Freddie, the supply of houses on the market would have far exceeded the number of buyers. This glut in supply and low demand would have forced sellers to lower prices until a deal was made. Instead, these wards of the state were able to buy up properties at artificially high prices using government-issued blank checks, allowing for the manipulation of home values back up to desired levels.

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Debt at work.

China’s Stimulus Efforts Show ‘Malinvestment Is Still Hard at Work’ (BBG)

It was supposed to be different this time. Ahead of looming fiscal stimulus from China, analysts were quick to emphasize that this would be a leaner, smarter government spending program. There would be a new method of financing to try to keep the debt burdens for local governments from becoming too onerous. And, above all, it would be targeted to avoid exacerbating the excess capacity that’s abundant in many industries. While the scale of the expenditures certainly pales in comparison to those that followed the Great Recession, the story remains the same. A Morgan Stanley team, led by Chief China Economist Robin Xing, noted that fixed-asset investment growth among state-owned enterprises (or SOEs) has accelerated across the board in 2016, with the exception of mining.

This same trend also holds for investment in services sectors, Xing observed. These data suggest that stimulus efforts have not been as targeted as proponents hoped, belie the narrative of rotation of growth from credit-driven infrastructure projects to activity linked to domestic demand, and raise the specter of further malinvestment in the world’s second largest economy. “We know a) in real terms rebalancing isn’t advancing as much as the government protests citing nominal data and b) the restimulation this last year of investment via credit and fiscal policies will certainly have slowed it down further,” writes George Magnus, senior economic adviser at UBS. “Capital accumulation isn’t all or always wrong but if it’s largely debt financed and SOE provided, I’d say that malinvestment is still hard at work.”

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Lest we forget: There is no market. There is only distortion.

The UK Is the New Engine of Bond-Market Distortion (WSJ)

Britain has taken over from Japan as the world’s wildest bond market, raising new questions about the distortions being caused by central banks. The soaring price (and so plunging yield) of the 30-year gilt means it has now returned the same 31% over the past 12 months as the Japanese 30-year note, even as some of the excess in long-dated Japanese bonds falls away. The race into gilts partly anticipated and was accelerated by the Bank of England’s resumption of bond purchases this week, part of a package of monetary easing designed to offset damage to the economy from June’s Brexit vote. Lower gilt yields are in turn contributing to demand for global bonds, helping keep U.S. Treasury yields depressed even as other market moves suggest a revival of hopes for growth and inflation.

This again raises a long-running problem for investors. Should they regard low yields as a sign of how grim a future is in store for the world economy? Or are central banks distorting the signal so much through bond purchases that yields no longer carry much information about the economy? The rally in gilts has been extraordinary, with the yield on the U.K.’s longest-dated bond, the 2068 maturity, almost halving from 2% on the day of the referendum to 1.06% on Thursday. The price of the bond is up 53% this year, the sort of gains usually produced by risky stocks, not rock-solid government paper.

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Consolation: it happens everywhere.

A Really Vicious Circle Is Threatening UK Pension Pots (BBG)

As the Bank of England seeks to ease Brexit angst by injecting money into the U.K. economy, pension managers and insurers are finding themselves caught up in a vicious circle. Britain’s new quantitative-easing program, combined with monetary easing around the world, is crushing yields, leaving these long-term investors ever more desperate to hold on to their 20-, 30- and 50-year bonds to meet return targets and liabilities. That forces protagonists like the BOE, which is buying 60 billion pounds ($78 billion) of government debt over six months, to bid higher prices – driving yields down even further.

This may explain the crunch this week, when the central bank failed to find enough investors to sell it longer-maturity gilts, the part of the debt market dominated by pensions and insurers. While the revival of QE is intended to reduce the risk of a Brexit-fueled slump, the shortfall raises the question of whether debt purchases with newly created money are becoming part of the problem as well as the solution. “We recognize the Bank’s concern and the need to protect the economy,” said Helen Forrest Hall, defined-benefit policy lead at the Pensions and Lifetime Savings Association in London. “But the challenge we have is that the QE programs do have an impact on pension funds’ liabilities.”

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Yeah, can’t risk bank profits, can we?

IMF to ECB: Forget Negative Rates, Or You’ll Do More Harm Than Good (MW)

Economists at the IMF are urging the ECB to stop yanking interest rates further into negative territory, warning it will take a toll on the region’s already struggling banks and reduce lending to businesses and households. In a blog post on the IMF website, economists Andy Jobst and Huidan Lin say any additional cuts that would push rates further below zero will encounter diminishing returns and threaten, at this point, to do more harm than good. “Further policy rate cuts could bring into focus the potential trade-off between effective monetary transmission and bank profitability. Lower bank profitability and equity prices could pressure banks with slender capital buffers to reduce lending, especially those with high levels of troubled loans,” the analysts said on the blog.

“The prospect of prolonged low policy rates has clouded the earnings outlook for most banks, suggesting that the benefits from a negative interest rate policy might diminish over time,” they said. The warning comes as expectations are rising the central bank will announce fresh stimulus at its September meeting to offset the negative impact on the eurozone from the U.K.’s Brexit vote on June 23. At its July meeting, ECB boss Mario Draghi stopped short of pledging more measures, saying the policy makers will reassess in September when it will have fresh economic forecasts that factor in the impact of the U.K.’s referendum on ending its EU membership.

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New normal: Profit falls 90%, shares up 5.3%.

Global Shipping Giant Moller-Maersk Reports 90% Fall In Net Profit (CNBC/R.)

Moller-Maersk kept its downbeat 2016 profit forecast on Friday as the Danish shipping and oil giant reported net profit way under expectations as it struggles to cope with a shipping recession and tough oil markets. The Danish shipping and oil group said net profit fell to $101 million in April-June, lagging a forecast of $196 million. It was also around 90% lower than the $1.069 billion reported for the same period last year. The company maintained its outlook for an underlying profit for the full year significantly below last years $3.1 billion. Shares of the group were up 5.3% Friday morning.

Trond Westlie, chief financial officer of Maersk Group, told CNBC on Friday that the shipping industry faced turbulent times as a result of the “very difficult” oil market and decline in freight rates. “When we look at the overall market and when we look at supply and demand and the growth in the world, we still think it’s going to be low-growth and volatile.” “For us, like always, we have a view on a couple of weeks or a four weeks’ indication on where the market is going but after that it’s very opaque for us as well.”

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


DPC Broad Street lunch carts, New York 1906

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

Well that’s a surprise….

Iron Ore in Free Fall (BBG)

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

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

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Really, that was a surpsie too?

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

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

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

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

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

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

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

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Where do they store all the stuff?

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

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

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

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

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

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Goodness, Gracious, Great Ball of Money.

Government Policies Make China Prone To Asset Bubbles (Balding)

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

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

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

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Same function as US two-party mouthpieces.

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

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

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

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

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

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

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

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

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

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

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

Oil Discoveries Slump To 60-Year Low (FT)

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

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

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

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

Negative Rates Hit Global Shipping Market (BBG)

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

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

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

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

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

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

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

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

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

The Folly Of German Economic Policy (Coppola)

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

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

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

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

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Luckily, he’s our best friend…

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

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

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

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

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

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

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

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“.. two sides of a debased coin.”

The End of American Meritocracy (Luce)

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

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

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

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

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Would this surpsrise anyone?

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

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

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

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

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

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

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

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

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Erdogan will make sure there’s more of this.

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

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

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

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Feb 132016
 
 February 13, 2016  Posted by at 10:09 am Finance Tagged with: , , , , , , , , ,  


DPC New Orleans milk cart1903

Abenomics Is In Poor Health After Nikkei Slide, And It May Be Terminal (G.)
Yen’s Best Two-Week Run Since 1998 Just the Start (BBG)
The World’s Hottest Trade Has Suddenly Turned Ice-Cold (CNBC)
Credit Default Swaps Are Back As Investors Look For Panic Button (BBG)
‘Austrians Need Constitutional Right to Pay in Cash’ (BBG)
The Shipping Industry Is Suffering From China’s Trade Slowdown (BBG)
China Central Bank: Speculators Should Not Dominate Sentiment (Reuters)
America’s Big Banks Are Fleeing The Mortgage Market (MW)
Large Increase in Debts Held by Americans Over Age 50 (WSJ)
The Eurozone Crisis Is Back On The Boil (Guardian)
Schäuble Says Portugal Debt Woes Trump ‘Strong’ Deutsche Bank (BBG)
European Banks Are In The Eye Of A New Financial Storm (Economist)
150,000 Penguins Die After Giant Iceberg Renders Colony Landlocked (Guardian)
Four Billion People Face Severe Water Scarcity (Guardian)
Merkel Turns to ‘Coalition of Willing’ to Tackle Refugee Crisis (BBG)
EU Is Poised To Restrict Passport-Free Travel (AP)
80,000 Refugees Arrive In Europe In First Six Weeks Of 2016 (UNHCR)

It was terminal when it began.

Abenomics Is In Poor Health After Nikkei Slide, And It May Be Terminal (G.)

Not long ago, Shinzo Abe was being heralded for the early success of his grand design to bring Japan out of a deflationary spiral that had haunted the world’s third-biggest economy for two decades. Soon after Abe became prime minister in December 2012, the first two of the three tenets of his ‘Abenomics’ programme – monetary easing and fiscal stimulus – were having the desired effect. In the first year of the programme, the Nikkei index jumped nearly 60%, and the strong yen, the scourge of the country’s exporters, finally ceded ground to the US dollar. And in April 2013 came the appointment of Haruhiko Kuroda, a Bank of Japan governor who shared Abe’s zeal for deflation busting through ever looser monetary policy.

But by Friday, at the end of a dismal week for the Nikkei share index, market volatility caused by renewed fears over the health of the global economy has left Abe’s prescription for economic recovery in jeopardy. While, as some suggest, it is too early to read the last rites for Abenomics, few would disagree that its symptoms are in danger of becoming terminal. There is damning evidence for that claim; enough, in fact, for Abe to reportedly summon key economic advisers on Friday to discuss a way out of the impasse. Japanese shares registered their biggest weekly drop for more than seven years after shedding 4.8% for the Nikkei s lowest close since October 2014. That took the index below the 15,000 level investors regard as a psychological watershed, and erased all the gains made since the Bank of Japan made the shock decision in October 2014 to inject 80tn yen into the economy.

To compound the problem, another pillar of Abenomics – a weak yen – is also crumbling, with the Japanese currency rising to its strongest level for more than a year on Friday. The intention was for a weak yen to push up corporate earnings and help generate inflation by raising import prices; instead, companies are now cutting earnings forecasts as speculation mounts that Japan will again intervene to rein in the yen’s surge. In recent weeks, slumping oil costs and soft consumer spending – the driving force behind 60% of Japan’s economic activity – have brought inflation to a halt. Official data released last month showed that Japan’s inflation rate came in at 0.5% in 2015, way below the Bank of Japan’s 2% target, as the government struggled to convince cautious firms to usher in big wage rises to stir spending and drive up prices.

In response, the Bank of Japan extended the deadline for achieving its 2% inflation target to the first half of the fiscal year 2017, from its previous estimate of the second half of fiscal 2016. In fairness, Abe is partly the victim of factors beyond his control, namely China’s slowdown, weak overseas demand and plunging oil prices. The problem for Abe and Kuroda is that they are quickly running out of options: witness how the market boost from last week’s surprise decision to adopt negative interest rates ended after a couple of days with barely a whimper. By the time Japan hosts G7 leaders this summer, Abe could be forced to concede defeat in his principal aim of dragging Japan out of deflation and boosting growth.

But higher share prices and a weaker yen were only part of the scheme. He has barely started to address the structural reforms comprising the “third arrow” of Abenomics: a shrinking and ageing workforce and the urgent need to boost the role of women in the economy. Next year, he is expected to introduce a highly controversial increase in the consumption tax – a move that will help Japan tackle its public debt and pay for rising health and social security costs, but which could also dampen consumer spending, the driving force behind 60% of the economy. He may be inclined to disagree after a month of upheaval that also saw the resignation of his economics minister, but Abe’s troubles may be only just beginning.

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When you lose the currency war.

Yen’s Best Two-Week Run Since 1998 Just the Start (BBG)

When the going gets tough, foreign-exchange traders turn to the yen. Japan’s currency may extend its biggest two-week rally since 1998 as investors continue to seek out refuge assets amid market turmoil, according Citigroup Inc. State Street Global Advisors Inc., which oversees about $2.4 trillion, says it’s buying yen and selling dollars as the tumult gripping financial markets bolsters the Japanese currency’s appeal. “We’re not counting on the market mood shifting any time soon,” said Steven Englander at Citigroup. Citigroup, world’s biggest foreign-exchange trader according to Euromoney magazine, expects haven currencies including the yen, euro and Swiss franc to appreciate in the near term, even though it said investors are being overly pessimistic about the prospects for economic growth in the U.S. and monetary stimulus elsewhere.

The yen has defied predictions to weaken this year while its biggest counterpart, the dollar, has upended forecasts for gains. Currency traders are questioning the idea that the U.S. economy is strong enough for the Federal Reserve to raise interest rates while central bankers in Tokyo and Frankfurt consider adding to stimulus. Japan’s currency rose 3.2% this week to 113.25 per dollar, adding to last week’s 3.7% gain. Its strength contrasts with a median forecast for the currency to drop to 123 against the dollar by the end of the year. Global equities fell into a bear market this week, and commodities declined, amid growing signs that central-bank policy tools were losing their stimulative effects. Fed Chair Janet Yellen signaled financial-market volatility may delay rate increases as the central bank assesses the impact of recent turmoil on domestic growth.

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“In 2009, the ETF enjoyed average daily volume of just 10,000 to 20,000 shares. By 2012, about 200,000 shares were being traded each day. The DXJ rallied tremendously in the next half a year, and by mid-2013 was seeing about 7 million to 8 million shares trade daily..”

The World’s Hottest Trade Has Suddenly Turned Ice-Cold (CNBC)

An international trade that once looked like a no-brainer has turned into a major headache. The WisdomTree Japan Hedged Equity Fund (DXJ), which combines a long position on Japanese stocks with a short position on the Japanese yen, sounds like a niche product. But as that trade played out beautifully over the past few years, with Japanese stocks soaring as the yen tanked, the ETF has become downright mainstream. In 2009, the ETF enjoyed average daily volume of just 10,000 to 20,000 shares. By 2012, about 200,000 shares were being traded each day. The DXJ rallied tremendously in the next half a year, and by mid-2013 was seeing about 7 million to 8 million shares trade daily, a pace it has maintained up to the present.

The product plays into a popular macro thesis: Expansive policies from the Bank of Japan should help Japanese stocks and hurt the yen. This trend indeed played out powerfully for a time, leading the DXJ to nearly double from November 2012 to June 2015. But the good times didn’t last. In the eight months after hitting that June peak, the ETF lost nearly all of its gain, falling back to its lowest level in more than three years. This as both legs of the trade failed, with Japanese stocks sliding and the yen strengthening amid a global sell-off in risk assets. What may make this especially frustrating is that Japanese monetary authorities haven’t exactly given up on their plan to send the yen lower in order to foster long-dormant inflation and to boost exports.

To the contrary, the BOJ has introduced a negative interest rate policy — which utterly failed in halting the yen’s rise. In fact, the currency is enjoying its best week in years.

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Omen.

Credit Default Swaps Are Back As Investors Look For Panic Button (BBG)

As markets plunge globally, investors are seeking refuge in an all-but-forgotten place. Trading volumes in the credit-default swaps market — where banks and fund managers go to hedge against losses on corporate and government debt — have surged. Transactions tied to individual entities doubled in the four weeks ended Feb. 5 to a daily average of $12 billion, according to a JPMorgan analysis of trade repository data. The volume of contracts on benchmark indexes in the market increased two-fold during that period to an average of $87 billion a day. The growth could represent a shift. The credit derivatives market has contracted for almost a decade, after loose monetary policies triggered a big rally in assets including corporate bonds, which made investors less eager to protect against the worst.

Regulators have also urged banks to curb their risk taking, reducing the appetite for at least some dealers to trade the instruments. Now, stock markets are selling off and junk bond prices are plunging, increasing investor demand for protection. “The surge we’ve seen in trading is likely to stay with us for the foreseeable future,” said Geraud Charpin at BlueBay Asset Management, which has traded more credit-default swaps on individual credits in the past three months. “The credit cycle has turned, so there’s more appetite to go short and buy protection.” Risk measures fell on Friday after soaring this week to the highest levels since at least 2012 in the U.S., and 2013 in Europe. The cost of insuring Deutsche Bank’s subordinated debt dropped from a record after the German lender said it planned to buy back about $5.4 billion of bonds to allay investor concerns about its finances. The bank’s shares have lost about a third of their value this year.

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The EU just gets crazier by the day. But currency in circulation is way up.

‘Austrians Need Constitutional Right to Pay in Cash’ (BBG)

Austrians should have the constitutional right to use cash to protect their privacy, Deputy Economy Minister Harald Mahrer said, as the EU considers curbing the use of banknotes and coins. “We don’t want someone to be able to track digitally what we buy, eat and drink, what books we read and what movies we watch,” Mahrer said on Austrian public radio station Oe1. “We will fight everywhere against rules” including caps on cash purchases, he said. EU finance ministers vowed at a meeting in Brussels on Friday to crack down on “illicit cash movements.” They urged the European Commission to “explore the need for appropriate restrictions on cash payments exceeding certain thresholds and to engage with the ECB to consider appropriate measures regarding high denomination notes, in particular the €500 note.” Ministers told the commission to report on its findings by May 1.

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“..orders for new vessels dropped 40% in 2015 [..] The demolition rate for unwanted vessels jumped 15%.”

The Shipping Industry Is Suffering From China’s Trade Slowdown (BBG)

When business slows and owners of ships and offshore oil rigs need a place to store their unneeded vessels, Saravanan Krishna suddenly becomes one of the industry’s most popular executives. Krishna is the operation director of International Shipcare, a Malaysian company that mothballs ships and rigs, and these days he’s busy taking calls from beleaguered operators with excess capacity. There are 102 vessels laid up at the company’s berths off the Malaysian island of Labuan, more than double the number a year ago. More are on the way. “There’s a huge demand,” he says. “People are calling us not to lay up one ship but 15 or 20.” Shipbuilders, container lines, and port operators feasted on China’s rise and the global resources boom.

Now they’re among the biggest victims of the country’s slowdown and the worldwide decline in demand for oil rigs and other gear amid the oil price plunge. China’s exports fell 1.8% in 2015, while its imports tumbled 13.2%. The Baltic Dry Index, which measures the cost of shipping coal, iron ore, grain, and other non-oil commodities, has fallen 76% since August and is now at a record low. Shipping rates for Asia-originated routes have dropped, too, and traffic at some of the region’s major ports is falling. In Singapore, the world’s second-largest port, container traffic fell 8.7% in 2015, the first decline in six years. Volumes at the port of Hong Kong, the fourth-busiest, slid 9.5% last year. Beyond Asia, the giant port of Rotterdam in the Netherlands recorded a dip in containerized traffic for the year. Globally, orders for new vessels dropped 40% in 2015, to $69 billion, according to Clarksons Research. The demolition rate for unwanted vessels jumped 15%.

Just a few years ago, as the global economy improved and oil prices rose, many companies ordered more fuel-efficient ships. There were more than 1,200 orders for bulk carriers that transport iron ore, coal, and grain in 2013, compared with just 250 last year, according to Clarksons. Many of the ships ordered are now in operation, says Tim Huxley, chief executive officer of Wah Kwong Maritime Transport Holdings, a Hong Kong-based owner of bulk carriers and tankers. “You have a massive oversupply,” he says. The damage is especially severe in China, the world’s leading producer of ships. New orders for Chinese shipbuilders fell by nearly half last year, according to the Ministry of Industry and Information Technology. In December, Zhoushan Wuzhou Ship Repairing & Building became the first state-owned shipbuilder to go bankrupt in a decade.

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Beijing wants monopoly on sentiment.

China Central Bank: Speculators Should Not Dominate Sentiment (Reuters)

Speculators should not be allowed to dominate market sentiment regarding China’s foreign exchange reserves and it was quite normal for reserves to fall as well as rise, central bank governor Zhou Xiaochuan was quoted as saying on Saturday. China’s foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows. In an interview carried in the Chinese financial magazine Caixin, Zhou said yuan exchange reform would help the market be more flexible in dealing with speculative forces. There was a need to distinguish capital outflows from capital flight, and tight capital controls would not be effective for China, he said. China has not fully liberalized its capital account.

Zhou added that there was no basis for the yuan to keep depreciating, and China would keep the yuan basically stable versus a basket of currencies while allowing greater volatility against the U.S. dollar. The government also needed to prevent systemic risks in the economy, and prevent “cross infection” between the stock, debt and currency markets, he said. The comments come after China reported economic growth of 6.9% for 2015, its weakest in 25 years, while depreciation pressure on the yuan adds to the case for the central bank to take more economic stimulus measures over the near-term. A slew of economic indicators has sent mixed signals to markets at the start of 2016 over the health of China’s economy. Activity in the services sector expanded at its fastest pace in six months in January, a private survey showed on Feb. 3, while manufacturing activity fell to the lowest since August 2012.

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“..the four largest commercial banks will “downsize or exit entirely from the business of originating and servicing residential mortgages.”

America’s Big Banks Are Fleeing The Mortgage Market (MW)

When it comes to residential mortgages, big banks are waving the white flag. Banks originated 74% of all mortgages in 2007, but their share fell to 52% in 2014, the most recent data available from the Mortgage Bankers Association. And it could go even lower. But even at these levels, the big bank backtrack is reshaping a lending landscape that’s already undergone seismic shifts since the housing bubble burst. While there’s widespread agreement that banks should have been reined in — and perhaps punished — after playing a major role in the housing bubble that helped tank the economy, the past few years have been tough for banks’ mortgage businesses. They now face a regulatory environment so strict that many are afraid to lend, even to customers with the most pristine credit.

They’re still paying up for misdeeds done during the bubble. There’s essentially no private bond market to whom to sell mortgages. And fighting those battles on behalf of their least-profitable divisions means residential lending just isn’t worth it for many banks. “We can’t make money in the business,” BankUnited CEO John Kanas said when he announced a mortgage retreat on a January earnings call. “We realized that this was the lowest-margin, most volatile business we had and we decided that we should exit.” Of the top 10 originators in 2015, banks lent 28.6% of all mortgages, according to data from Inside Mortgage Finance. That’s about half their share in 2012, when banks among the top 10 originators accounted for 54.4% of all mortgages.

For many analysts, that step is only natural. “The fact is that the cost of capital and compliance has convinced many bankers that making home loans to American families is not worth the risk,” said Chris Whalen, a long-time bank analyst now with Kroll Bond Rating Agency, in a speech early in February. Whalen expects the four largest commercial banks will “downsize or exit entirely from the business of originating and servicing residential mortgages.”

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Boomers. They’re supposed to be the richest Americans. “..the aggregate debt of the average Baby Boomer has soared 169% since 2003..”

Large Increase in Debts Held by Americans Over Age 50 (WSJ)

Americans in their 50s, 60s and 70s are carrying unprecedented amounts of debt, a shift that reflects both the aging of the baby boomer generation and their greater likelihood of retaining mortgage, auto and student debt at much later ages than previous generations. The average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003, according to data from the Federal Reserve Bank of New York released Friday. The result: U.S. household debt is vastly different than it was before the financial crisis, when many younger households had taken on large debts they could no longer afford when the bottom fell out of the economy.

The shift represents a “reallocation of debt from young [people], with historically weak repayment, to retirement- aged consumers, with historically strong repayment,” according to New York Fed economist Meta Brown in a presentation of the findings. Older borrowers have historically been less likely to default on loans and have typically been successful at shrinking their debt balances. But greater borrowing among this age group could become alarming if evidence mounted that large numbers of people were entering retirement with debts they couldn’t manage. So far, that doesn’t appear to be the case. Most of the households with debt also have higher credit scores and more assets than in the past.

“Retirement-aged consumers’ repayment has shown little sign of developing weakness as their balances have grown,” according to Ms. Brown. The data were released in conjunction with the New York Fed’s quarterly report on household debt, that aggregates millions of credit reports from the credit-rating agency Equifax. The report was launched in 2010 to track the changing debt behaviors of U.S. households after the financial crisis. For the last two years, household debts have been slowly rising, although they remain well below where they were in 2008. That trend continued in the final quarter of 2015, with overall household indebtedness rising by $51 billion to $ 12.1 trillion.

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Timber!

The Eurozone Crisis Is Back On The Boil (Guardian)

Greece is back in recession. Italy is barely growing. Portugal expanded but only at half the expected rate. The message could hardly be clearer: the next phase of the eurozone crisis is about to begin. On the face of it, the performance of the eurozone economy in the final three months of 2015 looks solid if unspectacular, with growth as measured by GDP up by 0.3%. But scratch beneath the surface and the picture looks far less rosy. The beneficial impacts of the European Central Bank’s quantitative easing programme have started to wear off, as has the effect of the big drop in oil prices in the second half of 2014. The eurozone peaked in the second quarter of 2015 and the trend was starting to weaken even before the recent turbulence on the financial markets.

Three individual countries bear closer examination. The first is Germany, for which growth of 0.3% in the fourth quarter of 2015 and 1.4% for the year as a whole is as good as it gets. Exports – the mainstay of the German economy – are going to face a much more challenging international climate in 2016, particularly with the euro strengthening on the foreign exchanges. Finland is noteworthy, not just because it is officially back in recession after two successive quarters of negative growth and still has a smaller economy than it did when the financial crisis erupted in 2008, but because its performance is worse than that of Denmark and Sweden, two Scandinavian EU members not in the single currency.

But by far the most worrying country is Greece, where a crumbling economy and the attempts to impose even more draconian austerity is leading, unsurprisingly, to violent protests on the streets. A contraction in growth makes it even harder for Greece to achieve the already ridiculously ambitious deficit and debt reduction targets set for it by its creditors, and on past form that will lead sooner or later (sooner in this case) to a fresh financial crisis and the imposition of further austerity measures. After six months out of the headlines, Greece is coming back to the boil. The danger is that other weak countries on the eurozone’s periphery – most notably Italy and Portugal – suffer from contagion effects.

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He’s trying so hard to boost Deutsche confidence it’ll backfire. People are going to say: ‘let’s see what you got’.

Schäuble Says Portugal Debt Woes Trump ‘Strong’ Deutsche Bank (BBG)

The volatile Portuguese bond market is more alarming than plunging confidence in Deutsche Bank AG, Europe’s largest lender, according to German Finance Minister Wolfgang Schaeuble. Even as a global rout in stocks has driven down European bank shares by 27% this year, Schaeuble warned on Friday after a meeting of EU finance ministers in Brussels that Portugal doesn’t have enough “resilience.” “Portugal must do everything to counter uncertainty in financial markets,” he said. The German finance minister’s comments come after the yield on Portugal’s 10-year bond fluctuated in a range of 143 basis points this week, the largest five-day swing since July 2013. Prime Minister Antonio Costa, who was sworn in at the end of November, has rolled back reform measures introduced during the nation’s bailout program that ended in 2014.

Deutsche Bank, which issued a statement Friday reassuring investors it has enough reserves to service debt obligations, “has sufficient capital and is well positioned,” Schaeuble said. In an effort to allay anxieties, the Frankfurt-based lender announced plans to buy back about $5.4 billion of bonds in euros and dollars Friday. The move comes after the cost of insuring its senior debt via credit-default swaps rose to the highest since 2011. Deutsche Bank isn’t alone as confidence in banks’ abilities to return profits in a low interest rate environment is waning. Global banks including Citigroup, Bank of America, Credit Suisse and Deutsche Bank have all plunged more than 32%. European finance ministers, when asked about the negative sentiment around European banks, remained upbeat, citing confidence in the safeguards put in place after Lehman Brothers went under in 2008. “We have taken precautions to make banks more resilient after the lessons from the financial and banking crisis,” Schaeuble said.

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The chain is as strong as…

European Banks Are In The Eye Of A New Financial Storm (Economist)

If the start of the year has been desperate for the world’s stockmarkets, it has been downright disastrous for shares in banks. Financial stocks are down by 19% in America. The declines have been even steeper elsewhere. Japanese banks’ shares have plunged by 36% since January 1st; Italian banks’ by 31% and Greek banks’ by a horrifying 60%. The fall in the overall European banking index of 24% has brought it close to the lows it plumbed in the summer of 2012, when the euro zone seemed on the verge of disintegration until Mario Draghi, the president of the ECB, promised to do “whatever it takes” to save it. The distress in Europe encompasses big banks as well as smaller ones. It has affected behemoths within the euro area such as Société Générale and Deutsche Bank – both of which saw their shares fall by 10% in hours this week – as well as giants outside it such as Barclays (based in Britain) and Credit Suisse (Switzerland).

The apparent frailty of European banks is especially disappointing given the efforts made in recent years to make them more robust, both through capital-raising and tougher regulation. Euro-zone banks issued over €250 billion ($280 billion) of new equity between 2007, when the global financial crisis began, and 2014, when the ECB took charge of supervising them. Before taking on the job, it combed through the books of 130 of the euro zone’s most important banks and found only modest shortfalls in capital. Some of the recent weakness in European banking shares arises from wider worries about the world economy that have also driven down financial stocks elsewhere. A slowdown in global growth is one threat. Another is that the negative interest rates being pursued by central banks to try to prod more life into economies will further sap banks’ profits.

A retreat in Japanese bank shares turned into a rout following such a decision in late January. Investors in European banks fret not just about lacklustre growth but also a possible move deeper into negative territory by the ECB in March. On February 11th Sweden’s central bank cut its benchmark rate from -0.35% to -0.5%, prompting shares in Swedish banks to tumble. But the malaise of European banking stocks has deeper roots. The fundamental problem is both that there are too many banks in Europe and that many are not profitable enough because they have clung to flawed business models. European investment banks lack the deep domestic capital markets that give their American competitors an edge. Deutsche, for instance, has only just resolved to hack back its investment bank in the face of a less hospitable regulatory environment following the financial crisis.

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What to say?

150,000 Penguins Die After Giant Iceberg Renders Colony Landlocked (Guardian)

An estimated 150,000 Adelie penguins living in Antarctica have died after an iceberg the size of Rome became grounded near their colony, forcing them to trek 60km to the sea for food. The penguins of Cape Denison in Commonwealth Bay used to live close to a large body of open water. However, in 2010 a colossal iceberg measuring 2900sq km became trapped in the bay, rendering the colony effectively landlocked.Penguins seeking food must now waddle 60km to the coast to fish. Over the years, the arduous journey has had a devastating effect on the size of the colony. Since 2011 the colony of 160,000 penguins has shrunk to just 10,000, according to research carried out by the Climate Change Research Centre at Australia’s University of New South Wales. Scientists predict the colony will be gone in 20 years unless the sea ice breaks up or the giant iceberg, dubbed B09B, is dislodged.

Penguins have been recorded in the area for more than 100 years. But the outlook for the penguins remaining at Cape Denison is dire. “The arrival of iceberg B09B in Commonwealth Bay, East Antarctica, and subsequent fast ice expansion has dramatically increased the distance Adélie penguins breeding at Cape Denison must travel in search of food,” said the researchers in an article in Antarctic Science. “The Cape Denison population could be extirpated within 20 years unless B09B relocates or the now perennial fast ice within the bay breaks out” “This has provided a natural experiment to investigate the impact of iceberg stranding events and sea ice expansion along the East Antarctic coast.” In contrast, a colony located just 8km from the coast of Commonwealth Bay is thriving, the researchers said. The iceberg had apparently been floating close to the coast for 20 years before crashing into a glacier and becoming stuck.

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The next trigger for mass migrations.

Four Billion People Face Severe Water Scarcity (Guardian)

At least two-thirds of the global population, over 4 billion people, live with severe water scarcity for at least one month every year, according to a major new analysis. The revelation shows water shortages, one of the most dangerous challenges the world faces, is far worse previously than thought. The new research also reveals that 500m people live in places where water consumption is double the amount replenished by rain for the entire year, leaving them extremely vulnerable as underground aquifers run down. Many of those living with fragile water resources are in India and China, but other regions highlighted are the central and western US, Australia and even the city of London. These water problems are set to worsen, according to the researchers, as population growth and increasing water use – particularly through eating meat – continues to rise.

In January, water crises were rated as one of three greatest risks of harm to people and economies in the next decade by the World Economic Forum, alongside climate change and mass migration. In places, such as Syria, the three risks come together: a recent study found that climate change made the severe 2007-2010 drought much more likely and the drought led to mass migration of farming families into cities. “If you look at environmental problems, [water scarcity] is certainly the top problem,” said Prof Arjen Hoekstra, at the University of Twente in the Netherlands and who led the new research. “One place where it is very, very acute is in Yemen.” Yemen could run out of water within a few years, but many other places are living on borrowed time as aquifers are continuously depleted, including Pakistan, Iran, Mexico, and Saudi Arabia. Hoekstra also highlights the Murray-Darling basin in Australia and the midwest of the US. “There you have the huge Ogallala acquifer, which is being depleted.”

He said even rich cities like London in the UK were living unsustainably: “You don’t have the water in the surrounding area to sustain the water flows” to London in the long term. The new study, published in the journal Science Advances on Friday, is the first to examine global water scarcity on a monthly basis and at a resolution of 31 miles or less. It analysed data from 1996-2005 and found severe water scarcity – defined as water use being more than twice the amount being replenished – affected 4 billion people for at least one month a year. “The results imply the global water situation is much worse than suggested by previous studies, which estimated such scarcity impacts between 1.7 billion and 3.1 billion people,” the researchers concluded. The new work also showed 1.8 billion people suffer severe water scarcity for at least half of every year.

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Making deals with Turkey while blaming Greece is just plain wrong on many different levels.

Merkel Turns to ‘Coalition of Willing’ to Tackle Refugee Crisis (BBG)

German Chancellor Angela Merkel is turning to a subgroup of European Union members to tackle the region’s refugee crisis as the bloc as a whole bickers over how to handle the biggest influx of migrants into Europe since World War II. Merkel plans to meet again with a “coalition of the willing” in Brussels ahead of an EU summit in the city next week. Turkish Prime Minister Ahmet Davutoglu will attend the talks, which have taken place at previous EU gatherings. Turkey is the main country from which migrants enter the EU. “This doesn’t have to do with a permanent distribution mechanism but rather a group of countries that are willing to consider” taking refugees once the illegal trafficking has been stopped, Merkel said Friday at a Berlin press conference with her Polish counterpart Beata Szydlo.

“We will then report quite transparently to all 28 member states where things stand.” Merkel traveled earlier this week to Turkey to discuss the crisis with Davutoglu. Merkel said on Monday the only way to end the flood of illegal migration across the Aegean Sea from Turkey into Greece was to replace it with a legal avenue. That would involve the EU resettling allotments of mostly Syrian refugees directly from Turkey in return for Turkey halting the flow of migrants, she said. The chancellor has thus far failed to secure a wider EU deal to share in housing and caring for those who have already reached the bloc.

Germany, which took in more than 1 million refugees last year, has pushed to implement a quota system to distribute migrants among EU members – something that a number of the bloc’s states, in particular in the east, argue should only be done on a voluntary basis. “For Poland, a permanent mechanism of relocating migrants is currently not acceptable,” Szydlo said at the press conference with Merkel. “I think we will continue talking about this. But I want to stress that Poland wants to actively participate in solving the migrant crisis because it’s very important for the EU as a whole.”

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They’re too thick to see that this means the end of the union.

EU Is Poised To Restrict Passport-Free Travel (AP)

EU countries are poised to restrict passport-free travel by invoking an emergency rule to keep some border controls for two more years because of the migration crisis and Greece’s troubles in controlling its border, according to EU documents seen by AP. The switch would reverse a decades-old trend of expanding passport-free travel in Europe. Since 1995, people have been able to cross borders among Schengen Area member countries without document checks. Each of the current 26 countries in the Schengen Area is allowed to unilaterally put up border controls for a maximum of six months, but that time limit can be extended for up to two years if a member is found to be failing to protect its borders.

The documents show that EU policy makers are preparing to make unprecedented use of an emergency provision by declaring that Greece is failing to sufficiently protect it border. Some 2,000 people are still arriving daily on Greek islands in smugglers’ boats from Turkey, most of them keen to move deeper into Europe to wealthier countries like Germany and Sweden. A European official showed the documents to the AP on condition of anonymity because the documents are confidential. Greek government officials declined to comment on the content of documents not made public. In Brussels on Friday, EU nations acknowledged that the overall functioning of Schengen “is at serious risk” and said Greece must make further efforts to address “serious deficiencies” within the next three months.

European inspectors visited Greek border sites in November and gave Athens until early May to upgrade the border management on its islands. Two draft assessments forwarded to the Greek government in early January indicated Athens was making progress, although they noted “important shortcomings” in handling migrant flows. But with asylum-seekers still coming at a pace ten times that of January 2015, European countries are reluctant to dismantle their emergency border controls. And if they keep them in place without authorization, EU officials fear the entire concept of the open-travel zone could be brought down. A summary written by an official in the EU’s Dutch presidency for a meeting of EU justice and home affairs ministers last month showed they decided that declaring Greece to have failed in its upgrade was “the only way” for Europe to extend the time for border checks.

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“..more than in the first four months of 2015..”

80,000 Refugees Arrive In Europe In First Six Weeks Of 2016 (UNHCR)

Despite rough seas and harsh winter weather, more than 80,000 refugees and migrants arrived in Europe by boat during the first six weeks of 2016, more than in the first four months of 2015, the UN Refugee Agency, UNHCR, announced today. In addition it said more than 400 people had lost their lives trying to cross the Mediterranean. However, despite the dangers over 2,000 people a day continue to risk their lives and the lives of their children attempting to reach Europe. Comparable figures for 2015 show such numbers only began arriving in July. “The majority of those arriving in January 2016, nearly 58%, were women and children; one in three people arriving to Greece were children as compared to just 1 in 10 in September 2015,” UNHCR’s Chief spokesperson Melissa Fleming told a press briefing in Geneva.

Fleming added that over 91% of those arriving in Greece come from the world’s top ten refugee producing countries, including Syria, Afghanistan and Iraq. “Winter weather and rough seas have not deterred those desperate enough to make the journey, resulting in near daily shipwrecks,” she added. When surveyed upon arrival, most of them cite they had to leave their homeland due to conflict. More than 56% of January arrivals to Greece were from Syria. However, UNHCR stressed that solutions to Europe’s situation were not only eminently possible, but had already been agreed by States and now urgently needed to be implemented. Stabilization is essential and something for which there is also strong public demand.

“Within the context of the necessary reduction of dangerous sea arrivals, safe access to seek asylum, including through resettlement and humanitarian admission, is a fundamental human right that must be protected and respected,” Fleming added. She said that regular pathways to Europe and elsewhere were important for allowing refugees to reach safety without putting their lives in the hands of smugglers and making dangerous sea crossings. “Avenues, such as enhanced resettlement and humanitarian admission, family reunification, private sponsorship, and humanitarian and refugee student/work visas, should be established to ensure that movements are manageable, controlled and coordinated for countries receiving these refugees,” Fleming added.

Vincent Cochetel, UNHCR’s Director Bureau for Europe, added that faced with this situation, UNHCR hoped that EU Member States would implement at a faster pace all EU-wide measures agreed upon in 2015, including the implementation of hotspots and the relocation process for 160,000 people already in Greece and Italy and the EU-Turkey Joint-Action Plan. “If Europe wants to avoid the mess of 2015, it must take action. There is no plan B,” he also told the briefing.

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