Nov 242015
 
 November 24, 2015  Posted by at 7:06 am Finance Tagged with: , , , , , , , , ,  


Russell Lee Proprietor of small store in market square, Waco, Texas Nov 1939

Negative Interest, the War on Cash and the $10 Trillion Bail-In (Ellen Brown)
Sub-Zero Debt Increases To $2 Trillion In Eurozone On Draghi (Bloomberg)
Soaring Global Debt – The Reality Check in Numbers (O’Byrne)
The Closing Of The Global Economy (Calhoun)
Harmless Commodity Crash Accelerates As Dollar Soars (AEP)
Ireland Is Backing Itself (David McWilliams)
Greek Home Rental Costs 40% Less Since 2011 (Kath.)
Four In 10 Greeks ‘Overburdened’ By Housing Costs (Kath.)
Greek Shipping Currency Inflows Drop 53% In September (Kath.)
Inadequate Dirty Money Regulation ‘Leaves UK Open To Terror Funds’ (Reuters)
Cameron Has Guns, Bombs And A Plane – And Not One Good Idea (Hitchens)
Scale Of Osborne’s Cuts To Police, Education, Councils ‘Unprecedented’ (Mirror)
Austeria – A Nation Robs Its Poor To Pay For The Next Big Crash (Chakrabortty)
Richard Russell, Publisher of Dow Theory Letters, Dies at 91 (Bloomberg)
VW Admits Second Illegal Device In 85,000 Audi Engines (FT)
Average House In Fort McMurray Lost $117,000, 20% Of Its Value In 1 Year (CH)
This Is The Worst Time For Society To Go On Psychopathic Autopilot (F. Boyle)
Varoufakis: Closing Borders To Muslim Refugees Only Fuels Terrorism (Guardian)
Average Stay Is 17 Years: Refugee Camps Are The “Cities Of Tomorrow” (Dezeen)
Canada To Turn Away Single Men As Part Of Syrian Refugee Resettlement Plan (AFP)
Stranded Migrants Block Railway, Call Hunger Strike (Reuters)

“..central banks have already pushed the prime rate to zero, and still their economies are languishing. To the uninitiated observer, that means the theory is wrong and needs to be scrapped.”

Negative Interest, the War on Cash and the $10 Trillion Bail-In (Ellen Brown)

Remember those old ads showing a senior couple lounging on a warm beach, captioned “Let your money work for you”? Or the scene in Mary Poppins where young Michael is being advised to put his tuppence in the bank, so that it can compound into “all manner of private enterprise,” including “bonds, chattels, dividends, shares, shipyards, amalgamations . . . .”? That may still work if you’re a Wall Street banker, but if you’re an ordinary saver with your money in the bank, you may soon be paying the bank to hold your funds rather than the reverse. Four European central banks – the European Central Bank, the Swiss National Bank, Sweden’s Riksbank, and Denmark’s Nationalbank – have now imposed negative interest rates on the reserves they hold for commercial banks; and discussion has turned to whether it’s time to pass those costs on to consumers.

The Bank of Japan and the Federal Reserve are still at ZIRP (Zero Interest Rate Policy), but several Fed officials have also begun calling for NIRP (negative rates). The stated justification for this move is to stimulate “demand” by forcing consumers to withdraw their money and go shopping with it. When an economy is struggling, it is standard practice for a central bank to cut interest rates, making saving less attractive. This is supposed to boost spending and kick-start an economic recovery. That is the theory, but central banks have already pushed the prime rate to zero, and still their economies are languishing. To the uninitiated observer, that means the theory is wrong and needs to be scrapped. But not to our intrepid central bankers, who are now experimenting with pushing rates below zero.

The problem with imposing negative interest on savers, as explained in the UK Telegraph, is that “there’s a limit, what economists called the ‘zero lower bound’. Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy.” Again, to the ordinary observer, this would seem to signal that negative interest rates won’t work and the approach needs to be abandoned. But not to our undaunted central bankers, who have chosen instead to plug this hole in their leaky theory by moving to eliminate cash as an option. If your only choice is to keep your money in a digital account in a bank and spend it with a bank card or credit card or checks, negative interest can be imposed with impunity. This is already happening in Sweden, and other countries are close behind.

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His understanding of what he’s doing is sub-zero too.

Sub-Zero Debt Increases To $2 Trillion In Eurozone On Draghi (Bloomberg)

Investor expectations of expanded monetary easing from ECB President Mario Draghi have pushed the amount of euro-area government securities that yield below zero to more than $2 trillion. Bonds across the region climbed last week when Draghi said the institution will do what’s necessary to rapidly accelerate inflation. The statement recalled the language of his 2012 pledge to do “whatever it takes” to preserve the euro and it solidified investor bets on further stimulus at the ECB’s Dec. 3 meeting. While 10-year bonds fell Monday, the two-year note yields of Germany, Austria and the Netherlands all dropped to records. “The ECB is doing little to counter this market speculation,” said Christoph Rieger at Commerzbank in Frankfurt. “Should they not deliver now it would clearly cause a huge backlash with regards to the euro and overall valuations.”

The anticipation of greater easing has also undercut the euro. The single currency weakened to a seven-month low on Monday after futures traders added to bearish bets. A 10 basis- point cut in the deposit rate is now fully priced in, according to futures data compiled by Bloomberg, while banks from Citigroup to Goldman Sachs, are predicting an expansion or extension of the ECB’s €1.1 trillion quantitative-easing plan. Negative-yielding securities now comprise about one-third of the $6.4 trillion Bloomberg Eurozone Sovereign Bond Index. The amount compares with $1.38 trillion before Draghi’s Oct. 22 press conference, where he pledged to re-examine stimulus at the institution’s December meeting.

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“Indeed, not only does war lead to debt, but high levels of debt lead to more war.”

Soaring Global Debt – The Reality Check in Numbers (O’Byrne)

The fact that global debt is growing throughout the world is widely acknowledged and well documented. However, when faced with the numbers, the magnitude of the problem is still quite shocking to read. An article last week in Washington’s blog gives us a stark and timely reminder of those facts. The volatile geo-political environment we are entering into, coupled with this growth-stifling debt, makes for a dangerous economic combination.

“The debt to GDP ratio for the entire world is 286%. In other words, global debt is almost 3 times the size of the world economy. Both public and private debt are exploding and – despite what mainstream economists think – 141 years of history shows that excessive private debt can cause depressions”.

These global debt figures cannot be ignored. Indeed, many erudite economic commentators have been highlighting the reckless monetary policies being pursued by governments around the world that is feeding our debt crisis.

“The underlying cause of this debt glut is the $12 trillion of free or cheap money created by central banks since 2009, combined with near-zero interest rates. When the real price of money is close to zero, people borrow and worry about the consequences later.” Paul Mason.

Similiarly, Jeremy Warner’s recent warnings about our imminent slide into fiscal crisis in “Europe is sliding towards the abyss, and the terrorists know it” reminds us of the vast expense of going to war. A decision that has very long-term repercussions economically and is a situation over which it would appear we have little or no control over, if the threat of terrorism is to be contained. “Indeed, not only does war lead to debt, but high levels of debt lead to more war.”

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Borders, protectionism, the fiancial crisis makes them inevitable. And now it gets help.

The Closing Of The Global Economy (Calhoun)

I don’t often write about global geopolitics because I think, in general, investors spend too much time worrying about things they can’t control or aren’t going to happen or wouldn’t matter much if they did. The best example is the Middle East which has been a mess my entire life and long before it for that matter. Changing your investments based on the latest threat in or from the Levant is a recipe for constant chaos. The only accurate prediction about the Middle East will always be that the various factions that have been fighting for centuries will continue to fight. And that no matter who is in charge they will have to sell oil to make ends meet. And make no mistake oil is the only economic reason we care about the region.

The recent Paris attacks, though, have me thinking more about how global geopolitics is affecting the global economy. The terrorist attacks Europe has experienced in Madrid, London, Paris and other locales are raising old barriers across the continent. Borders where goods, people and capital have crossed freely for the last few decades are now manned and monitored again. Capital largely continues to flow freely but people and goods are starting to be restricted; you can’t restrict the flow of people without also obstructing the flow of goods. For now, the people and goods continue to flow, just more slowly. One can’t help but think though that if the borders become literal barriers again it won’t be long before the metaphoric ones – protectionist policies – return as well.

If one also considers the antipathy toward Germany that permeates most of Europe and the perception – and reality to some degree – that the EU and especially the EMU are much more favorable for the Teutonic members than the Latin ones, then one begins to see how the fragile union might devolve into its former squabbling, fractured self. The feared break up of Europe and the Euro has until now been based on economic considerations but physical security would seem a larger concern at this point. If the EU can’t guarantee physical security and has already failed at providing economic security, it’s raison d’etre is….what exactly? To provide employment for feckless bureaucrats?

The desire for physical security isn’t confined to Europe obviously; the Paris attacks have amped up the political debate in the US over immigration, with Syrian refugees and physical security now replacing Latin Americans and economic security as the targets. The emergence of Donald Trump as a right wing populist to challenge the near universally populist Democrats means that both parties are now pandering to the population’s baser instincts of fear and greed. That isn’t to say that their fears aren’t real or legitimate just that the solutions offered by populist politicians are simplistic and unlikely to achieve the intended results. Indeed, history says that walling ourselves off from the world is more likely to create less security, physical and economic, rather than more.

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A curious attempt at denial by Ambrose:”..the expected revival of Chinese metal demand disappoints yet again.”

Harmless Commodity Crash Accelerates As Dollar Soars (AEP)

Copper prices have crashed to their lowest level since the Lehman Brothers crisis and industrial metals have slumped across the board as a flood of supply overwhelms the market. The violent sell-off came as the US dollar surged to a 12-year high on expectations of an interest rate rise by the US Federal Reserve next month. The closely-watched dollar index rose to within a whisker of 100, and has itself become a key force pushing down commodities on the derivatives markets. Copper prices fell below $4,500 a tonne on the London Metal Exchange for the first time since May 2009, hit by rising inventories in China and warnings from brokers in Shanghai. Prices have fallen 32pc this year, and 55pc from their peak in 2011 when China’s housing boom was on fire.

Known to traders as Dr Copper, the metal is tracked as a barometer of health for the world economy but has increasingly become a rogue indicator. China consumes 45pc of the world’s supply, distorting the picture. Beijing is deliberately winding down its “old economy” of heavy industry and break-neck construction, switching to a new growth model that is less commodity-intensive. “Dr Copper should be struck off the list,” said Julian Jessop, from Capital Economics. “He is telling us a lot about China and the massive over-supply of copper on the market, but he is not telling us anything much about the economy in the US, Europe or the rest of the world.” The CPB index in the Netherlands shows that global trade began to recover four months ago after contracting earlier in the year, and the JP Morgan global PMI index for manufacturing has risen since then to 51.3 – well above the boom-bust line.

The trigger for the latest plunge in copper prices was a decision last week by the Chilean group Codelco to slash its premium for Chinese customers by 26pc, effectively launchng a price war for global market share. “We’re trying to lower costs. We’re not cutting production,” said the group’s chief executive, Nelson Pizarro. Glencore has already said it will suspend output in Zambia and the Congo for two years until new equipment is installed, and others are doing likewise. But Codelco is the key player. Kevin Norrish, at Barclays Capital, said Codelco is in effect copying Saudi Arabia’s tactics in the oil market: using its position as the copper industry’s low-cost giant with a 10pc global share to flush out the weakest rivals. The price war comes as the expected revival of Chinese metal demand disappoints yet again.

Warehouse stocks in Shanghai have risen to their highest in five years, though LME inventories have been falling since September. Views are starkly divided over the outlook for copper, as it is for the whole nexus of commodities. Goldman Sachs says the demise of China’s “old economy” will lead to a near permanent glut through to the end of the decade. Natasha Kaneva, from JP Morgan, said it would take another one to two years to touch the bottom of the mining cycle, predicting further price falls of 12pc-28pc. “We remain bearish on all the base metals,” she said. But the International Copper Study Group is sticking to its guns, insisting that there will be a global copper shortage of 130,000 tonnes next year.

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“..everyone knows that a balance sheet with too much debt, like Ireland’s, is made more robust by less debt, not more debt. The bailouts mean the opposite.”

Ireland Is Backing Itself (David McWilliams)

On the fifth anniversary of the troika’s arrival, let’s be clear on what has actually helped us recover Six years after its inaugural outing, the atmosphere at the Global Irish Economic Forum on Friday in Dublin Castle couldn’t have been more different. Back then, there was a palpable sense of panic and many reasons to be fearful; this time, there was a sense of a steadied ship and many reasons to be optimistic. This weekend also happens to be the fifth anniversary of the bailout. That was the weekend that the IMF rocked into town and nailed their demands to the door of the Department of Finance. One of the more galling episodes in the run-up to this anniversary has been watching the IMF’s chief negotiators pointing the finger of blame at the ECB about Frankfurt forcing successive Irish governments to take on odious bank debts rather than burning bondholders.

It’s a pity they were not so vocal on the issue of odious debt at the time, and it underscores just how pointless this institution now is, in Europe at least. Let’s remember what the bailout was in reality. The bailout wasn’t so much a bailout, which at least visually conjures up the image of a friend in a canoe bailing out water to keep the canoe afloat. These European bailouts were really a response to the financial markets declining to lend to the stricken states. Once the private sector refused to lend, the public sector had to, or the economies would have imploded. This is where the IMF and the EU came in. They lent to us, and we committed to do certain things – and this public commitment, and the troika’s oversight, coaxed the markets to lend to our government again.

But everyone knows that a balance sheet with too much debt, like Ireland’s, is made more robust by less debt, not more debt. The bailouts mean the opposite. A balance sheet that was laid low by too much debt was forced to take on more debt. However, as the ECB undertook to buy all this debt if necessary, the risk premium of this debt fell – the rate of interest fell. Is a country with more debt less or more risky? Traditionally, you would say more risky, but with the ECB backstopping the government bond market, the opposite has occurred. However, in terms of what prompted the Irish recovery, while Italy, Portugal and Greece remain in the doldrums, this bailout doesn’t explain things adequately.

For example, the chief baiter of debtor countries, Finland, is now in recession, so it’s clear that the state of the public finances isn’t sufficient to explain the recovery for the man on the street. If public finances alone were sufficient, Finland would be booming. What affects the man on the street are the employment opportunities around him in the real economy. The government’s narrative is that the recovery – which is still fitful – was due to some European confidence fairy which magically spread confidence dust all over Ireland after the bailout. But the bailout only replaced private creditors with public creditors. We are still debtors, just to different creditors. I don’t buy the government’s story – not because I don’t want to, but because I can’t, as a trained economist, see how this eurozone transmission mechanism might work.

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Yes, you can rent an apartment in Athens for €200.

Greek Home Rental Costs 40% Less Since 2011 (Kath.)

The price of rentals has declined considerably since the start of the financial crisis across all categories, with house rents costing an average of 40% less than in 2011, when the drop began. This decline has all but offset the rate growth recorded over the 11-year period from 2000 to 2011, estimated at 43% on average. The drop is even bigger in Attica, where, according to data collected by estate agents, rates have fallen by 7 to 8% in the last 12 months alone, despite an increase in demand for rented property. In Athens city center, rates for apartments have dropped by 50% or more since 2011, as this mostly concerns older flats covering a surface of 60-70 square meters.

This means that a one-bedroom flat will set a renter back by €150-200 a month, depending on the area and the condition of the property. Sector professionals stress that as long as citizens’ purchasing power declines, rental rates will continue to shrink. Most landlords, they say, would rather shave their asking price to ensure they will at least collect the rent due than insist on a higher rate they may never collect. Alpha Bank, however, reports a slowdown in the decline of rental rates in the second quarter of 2015.

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Real Greece: rental costs down 40%, but 40% of Greeks still can’t afford them.

Four In 10 Greeks ‘Overburdened’ By Housing Costs (Kath.)

Four in 10 Greeks spend more than 40% of their disposable income on housing costs, more than double the European Union average, according to a new study by Eurostat, the European Commission’s statistics service. On average, 11.4% of households in the 28-member EU spent more than 40% of their disposable income in 2014 on housing, a rate that that the Commission considers a housing cost “overburden.” Greece ranks first, with households spending 40.7% of their disposable income on housing, followed by Germany with 15.9%, the Netherlands with 15.4% and Romania with 14.9%. At the lower end of the scale are Malta and Cyprus, with 1.6% and 4% respectively, followed by France and Finland, both with 5.1%.

The continual reduction of household income in Greece since the crisis struck in 2010 – wages have been slashed and pensions cut several times – has been accompanied by higher electricity prices, higher value-added tax on food and more property taxes. According to figures presented over the weekend by the Panhellenic Federation of Property Owners (POMIDA), Greek households will be called upon to pay eight times more in property taxes next year than they did in 2010.

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Greece can’t catch a break: it also gets hit by the global demise of shipping.

Greek Shipping Currency Inflows Drop 53% In September (Kath.)

The drop in foreign currency inflows from shipping, which started in July following the introduction of capital controls in late June, has picked up again, with the reduction in September coming to 53%, on the back of a 46% decline in August and 60% in July, according to Bank of Greece figures. When one considers that the lion’s share of foreign currency in the sector comes from oceangoing shipping, it becomes clear that the capital controls have had a sinking effect on the foreign account balance and the cash flow of banks. In the first half of the year the inflow has posted an annual increase. The foreign currency inflow from shipping dropped to €598.2 million in September against €1.274 billion in the same month last year. In August it had amounted to €570.7 million (from €1.069 billion in August 2014) and in July it had come to €470.7 million from €1.172 billion in July 2014.

This means that the inflow declined by a total of €1.7 billion in the third quarter of the year. The decline is even greater considering that the exchange rate of the euro has fallen significantly from last year and the above amounts given in euros concern dollar payments. The decline is mainly attributed to the capital controls and the fact that a notable number of shipping firms, often under pressure from foreign shareholders, were forced to redirect their revenues from chartering and ship transactions to other countries so that they could meet their international obligations. Another factor is the fall in global dry-bulk market rates, which have reached historic lows. As most of the Greek-owned fleet comprises dry-bulk carriers – and not tankers whose rates are showing very good yields – it is estimated that the current, last quarter of the year will see a further decline in the foreign currency inflows from shipping.

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This is by design. Invariably is.

Inadequate Dirty Money Regulation ‘Leaves UK Open To Terror Funds’ (Reuters)

Britain’s “woefully inadequate” anti-money laundering system has left the country wide open to corrupt money and terrorism funds and needs radical overhaul, a leading anti-corruption group said on Monday. Each year billions of pounds of dirty money flow through Britain, but the system for identifying it is too fragmented and unaccountable to be effective, according to a report by Transparency International UK (TI-UK). “The UK supervision system which should be protecting the country from criminal and terrorist funding is not fit for purpose,” said TI-UK’s Head of Advocacy and Research Nick Maxwell. “Those vulnerabilities can be exploited by sophisticated terrorist organizations as well as the corrupt.” Penalties for professionals such as lawyers and estate agents who fail to comply with anti-money laundering regulations are also too small to act as a deterrent, the report said.

Money laundering is the process of disguising the origins of money obtained from crime and corruption by hiding it within legitimate economic activities. The government’s 2015 money laundering and terrorist financing national risk assessment said there was “evidence of terrorist financing activity in the UK” which uses the same methods as criminal money laundering and “poses a significant threat to the UK’s national security.” Money laundering is also pushing up London property prices because money commonly ends up in high-value physical assets such as real estate and art. Britain’s National Crime Agency’s economic crime director told The Times newspaper this year that London property prices were being artificially driven up by overseas criminals wanting to hide their assets.

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“..if grand personages like him had to shuffle through the security screens, belts off, shoes off, shampoo humourlessly confiscated, like the rest of us, these daft and illogical rules would have been reviewed long ago.”

Cameron Has Guns, Bombs And A Plane – And Not One Good Idea (Hitchens)

So far there is little sign of serious thought about the Paris atrocities. We are to have more spooks, though spooks failed to see it coming, and failed to see most of the other outrages coming, and the new ones will be no more clairvoyant than the old ones. France and Belgium are reaching for emergency laws, surveillance, pre-trial detention, more humiliation of innocent travellers and all the other rubbish that has never worked in the past and won’t work again. David Cameron (in a nifty bit of news management) takes the opportunity to announce that he will henceforth be spared from flying like a normal human being, in an ego-stroking Blaircraft paid for by you and me. Austerity must have been having a day off. Actually, if grand personages like him had to shuffle through the security screens, belts off, shoes off, shampoo humourlessly confiscated, like the rest of us, these daft and illogical rules would have been reviewed long ago.

British police officers dress up like Starship Troopers, something they’ve obviously been itching to do for ages and now have an excuse to do, the masked women involved looking oddly like Muslim women in niquabs. It’s not the police’s job to do this. If things are so bad that we need armed people on the streets, then we have an Army and should deploy it. If not, then spare us these theatricals, which must delight the leaders of ISIS, who long for us to panic and wreck our own societies in fear of them. Next comes the growing demand for us to bomb Syria. Well, if you want to. Only a couple of weeks ago all the establishment experts were saying that the Russian Airbus massacre was obviously the result of Vladimir Putin’s bombing of Syria. Now the same experts say it’s ridiculous to suggest that our planned bombing of Syria might bring murder to the streets of London or to a British aircraft.

Perhaps it’s relevant to this that Pierre Janaszak, a radio presenter who survived the Bataclan massacre in Paris, said he heard one fanatic in the theatre say to his victims, ‘It’s the fault of Hollande, it’s the fault of your President, he should not have intervened in Syria.’ There may be (I personally doubt it) a good case for what’s left of the RAF to drop what’s left of our bombs on Syria. It may be so good that it justifies risking a retaliation in our capital, and that we should brace ourselves for such a war. But I think those who support such bombing should accept that there might be such a connection, and explain to the British people why it is worth it. I am wholly confused by the Cameron government’s position on Syria.

It presents its desire to bomb that country as a rerun of the Parliamentary vote it lost in 2013. But in 2013, Mr Cameron wanted (wrongly, as it turned out) to bomb President Assad’s forces and installations, to help the Islamist sectarian fanatics who are fighting to overthrow the secular Assad state. This is more or less the exact opposite of what he seems to want now. Far from being a rerun, it is one of the most embarrassing diplomatic U-turns in modern British history.

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“People die this way and governments fall.”

Scale Of Osborne’s Cuts To Police, Education, Councils ‘Unprecedented’ (Mirror)

Chancellor George Osborne will this week take the axe to police, councils and welfare as he unleashes the most brutal cuts in history. He will brush aside warnings from police chiefs by pressing ahead with the reductions to their budgets when he unveils his spending review on Wednesday. Funding to local government, transport and higher education will also be slashed – and experts said the scale of the cuts was unprecedented. “We have never had anything like it,” said Paul Johnson of the Institute for Fiscal Studies economic think-tank. Mr Osborne is pushing on with the measures despite being told they may put services such as social care and child protection at risk – and also undermine the fight against terrorism . The Chancellor, when challenged, did not deny that police numbers could be reduced , saying: “Every public service has to make sure it is spending its money well.”

Senior police figures, including former Scotland Yard Commissioner Ian Blair, have warned that axing community support officers (PCSOs) will be a disaster because they work with Muslim youngsters who are being radicalised. Lord Blair said: “National security depends on neighbourhood security and the link between the local and the national is about to be badly damaged.” He added: “This is the most perilous terrorist threat in our history. “With their long, successful track record in counter-terrorism, police have adapted well to the changing circumstances and, at the last moment, the very best defences they have built, the neighbourhood teams and the fast and accurate response to multi-site concurrent attacks, are being degraded. “People die this way and governments fall.”

Mr Osborne revealed all departments had now signed up to the spending review which will see them have to make cuts of around 30% on average. The Chancellor is also likely to hit further education and welfare, including housing benefit and the universal credit, in his determination to have a budget surplus by the end of the decade. Council chiefs warned they would struggle to provide services such as care for the elderly, bin collections, street lighting, social work and pothole repairs. Town hall spending on key services has already fallen by up to a quarter since David Cameron became Prime Minister in 2010, while expenditure on roads and transport services has dropped 20% in the last five years and education budgets have fallen by 24%.

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“Osborne proudly promises a “permanent change” and “a new settlement” for the UK.“

Austeria – A Nation Robs Its Poor To Pay For The Next Big Crash (Chakrabortty)

A familiar dance begins on Wednesday, as soon as George Osborne reveals his blueprint for Britain. The analysts immediately begin poring over his plans for the next five years. They tell us how deep are the cuts in neighbourhood policing, how tight the squeeze for your local school – and the knock-on effect for the Tory leadership hopes of George and Theresa and Boris. But many will miss the backdrop forming right behind them. Britain is now halfway through a transformative decade: staggering out of a historic crash, reeling through the sharpest spending cuts since the 1920s, and being driven by David Cameron towards a smaller state than Margaret Thatcher ever managed. None of this is accidental. While much commentary still treats the Tories as merely muddling through a mess they inherited, Osborne proudly promises a “permanent change” and “a new settlement” for the UK.

The chancellor has the ambition, the power and the time – 10, perhaps 15 years in office – to do exactly that. Between 1979 and 1990 Thatcher permanently altered Britain and, going by what we already know, Osborne is on course to engineer a similar shift. I think of the country we are morphing into as Austeria. It has three defining characteristics: it is shockingly unequal, as a deliberate choice of its rulers; it looks back to the past rather than investing in its future; and it has shrunk its public services for the benefit of its distended, crisis-prone banking sector. Let’s start with the unfairness. Remember Osborne’s promise, “we’re all in it together”? He is ensuring the opposite.

Wanting to make massive cuts without rendering his party unelectable, the chancellor is deliberately targeting austerity at those sections of society where he calculates he can get away with it. That means slashing local council funding, hoping angry voters will turn on their town halls rather than Whitehall. It means running down prisons. What may be clever Tory politics is desperately unfair policy. The Centre for Welfare Reform calculates Osborne’s austerity programme has so far hit disabled Britons nine times harder than the average, while those with severe disabilities were 19 times worse off. Watch for them to be punished again on Wednesday, as the government looks to cut welfare and local government again.

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Icon.

Richard Russell, Publisher of Dow Theory Letters, Dies at 91 (Bloomberg)

Richard Russell, who shared his technical analysis with subscribers through the influential Dow Theory Letters since 1958, has died. He was 91. He died Nov. 21 at his home in La Jolla, California, his family said in a message to subscribers on the publication’s website. He had entered a hospital a week earlier and was diagnosed with blood clots in his leg and lungs “and other untreatable ailments,” his family said. He returned home under hospice care. An adherent of the investing principles of Charles Dow, founder of the Wall Street Journal, Russell published his newsletter continuously from 1958, never missing an issue in more than half a century. In his last column, published Nov. 16, Russell wrote: “I read 10 newspapers a day, but the news is getting increasingly difficult to digest down to something understandable, and the vast array of news sources becomes more and more complex. I can only imagine what the newspapers will look like in 10 years.”

Stock analyst Robert Prechter wrote in his 1997 book: “Russell has made many exceptional market calls. He recommended gold stocks in 1960, called the top of the great bull market in stocks in 1966 and announced the end of the great bear market in December 1974.” In 1969 Russell devised the Primary Trend Index, composed of eight market indicators that he never publicly divulged – his own secret recipe. When his index outperformed an 89-day moving average, it was time to buy. When it underperformed the 89-day moving average, a bear market was at hand. “The PTI is a lot smarter than I am,” Russell said. The benchmark is unrelated to the Russell 2000 and other indexes maintained by Seattle-based Russell Investments.

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How much crazier can it get? They’re lying about something or the other new every single day.

VW Admits Second Illegal Device In 85,000 Audi Engines (FT)

Audi has conceded that the engines in a further 85,000 cars from the Volkswagen group contained an illegal defeat device, raising questions of how systematic the cheating was at the German carmaker. The luxury car brand of the VW group said it estimated that correcting the engine management software used in Audi, VW and Porsche models would cost in the mid-double-digit millions of euros. It admitted that the software was in all three-litre V6 diesel engines manufactured by Audi and sold from 2009 until this year. The admission further undermines VW’s insistence that the cheating in the two-month-old emissions scandal was limited to a rogue group of engineers. The German carmaker has already admitted installing a defeat device in 11m diesel cars worldwide.

It is also facing a third emissions problem after disclosing that 800,000 cars, including some with petrol engines, had been sold with the stated carbon dioxide levels as too low and the fuel efficiency too high. Audi sent its chief executive and engineers to meet the US Environmental Protection Agency last week. Late on Monday night, it sent out a statement saying that it had failed to disclose three auxiliary emissions control devices (AECDs) to regulators. Without disclosure and subsequent approval from regulators, AECDs are not legal. Audi added: “One of them is regarded as a defeat device according to applicable US law. Specifically, this is the software for the temperature conditioning of the exhaust-gas cleaning system.” The admission causes significant embarrassment to VW, which appeared set for a confrontation with the EPA over the issue. When the EPA first disclosed in early November that it had found a defeat device in the three-litre engines, VW sent out a terse statement, saying that it would co-operate with the EPA.

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Will the tar sands ever be cleaned up? Who would pay for that?

Average House In Fort McMurray Lost $117,000, 20% Of Its Value In 1 Year (CH)

The slumping oilpatch in Alberta continues to take its toll on the Fort McMurray housing market, as the average MLS sale price of a home in that northern community plunged by more than $117,000 in October. Data obtained from the Canadian Real Estate Association indicates that the average sale price for the month of $468,199 was down 20% from $585,438 in October 2014. Sales also plunged by 41% to 85 from 144 a year ago. Year-to-date, MLS sales in Fort McMurray are down by 44.8%. In October, Lloydminster saw MLS sales dip by 54.3%, falling to 43 transactions from 94 last year while the Alberta West area experienced a decline of 52.7%, dropping to 70 from 148 a year ago.

Year-to-date MLS sales in Alberta are down 21.1% from last year. Besides Fort McMurray, the CREA statistics show the hardest hit areas in the province are Lloydminster (down 34.1%); South Central Alberta (down 31.6%) and Calgary, (down 28.9%). Calgary’s resale housing market led the country in October — in a negative way. MLS sales in the Calgary region were 1,810 for the month, down 36.4% from a year ago. The rate of decline was the highest among Canada’s major housing markets, according to a report by the Canadian Real Estate Association. In Alberta, sales fell 28.9% to 4,327 transactions. Across the country, however, MLS sales were up 0.1% to 41,653. CREA said national activity stood near the peak recorded earlier this year and reached the second highest monthly level in almost six years.

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“Abdelhamid Abaaoud? ..they’d have got him even if they just went through lists of terrorists alphabetically.”

This Is The Worst Time For Society To Go On Psychopathic Autopilot (F. Boyle)

There were a lot of tributes after the horror in Paris. It has to be said that Trafalgar Square is an odd choice of venue to show solidarity with France; presumably Waterloo was too busy. One of the most appropriate tributes was Adele dedicating Hometown Glory to Paris, just as the raids on St-Denis started. A song about south London where, 10 years ago, armed police decided to hysterically blow the face off a man just because he was a bit beige. In times of crisis, we are made to feel we should scrutinise our government’s actions less closely, when surely that’s when we should pay closest attention. There’s a feeling that after an atrocity history and context become less relevant, when surely these are actually the worst times for a society to go on psychopathic autopilot. Our attitudes are fostered by a society built on ideas of dominance, where the solution to crises are force and action, rather than reflection and compromise.

If that sounds unbearably drippy, just humour me for a second and imagine a country where the response to Paris involved an urgent debate about how to make public spaces safer and marginalised groups less vulnerable to radicalisation. Do you honestly feel safer with a debate centred around when we can turn some desert town 3,000 miles away into a sheet of glass? Of course, it’s not as if the west hasn’t learned any lessons from Iraq and Afghanistan. This time round, no one’s said out loud that we’re going to win. People seem concerned to make sure that Islam gets its full share of the blame, so we get the unedifying circus of neocons invoking God as much as the killers. “Well, Isis say they’re motivated by God.” Yes, and people who have sex with their pets say they’re motivated by love, but most of us don’t really believe them. Not that I’m any friend of religion – let’s blame religion for whatever we can.

Let’s blame anyone who invokes the name of any deity just because they want to ruin our weekend, starting with TGI Friday’s. The ringleader, Abdelhamid Abaaoud, evaded detection by security services by having a name too long to fit into one tweet. How could the most stringent surveillance in the world not have picked up Abdelhamid Abaaoud before? I mean, they’d have got him even if they just went through lists of terrorists alphabetically. We’re always dealing with terror in retrospect – like stocking up on Imodium rather than reading the cooking instructions on your mini kievs. The truth is that modern governments sit at the head of a well-funded security apparatus. They are told that foreign military adventures put domestic populations at risk and they give them the thumbs up anyway.

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“..if somebody knocks on your door at three in the morning, and they’re wet, they’re bleeding, they’ve been shot at, and they’re frightened, what do you do?”

Varoufakis: Closing Borders To Muslim Refugees Only Fuels Terrorism (Guardian)

Europe must not close its borders to refugees in the wake of the Paris terrorist attacks, Greece’s former finance minister Yanis Varoufakis has cautioned, saying rising intolerance towards Muslim refugees would only fuel further violence. Speaking on the Q&A program on Australia’s ABC, Varoufakis said he was proud of the Greek people’s response to the refugee crisis, despite the country being gripped by economic crises. “We have two [thousand], three [thousand], 5,000, 10,000 people being washed up on our shores, on the Aegean Islands, every day. In a nation, by the way, that is buffeted by a great depression, where families, on those islands in particular, are finding it very hard to put food on the table for their children at night.

“And these people in their crushing majority, I’m proud to report, opened their doors to these wretched refugees. And the thought comes to my mind very simply: if somebody knocks on your door at three in the morning, and they’re wet, they’re bleeding, they’ve been shot at, and they’re frightened, what do you do? I think there’s only one answer: you open the door, and you give them shelter, independently of the cost-benefit analysis, independently of the chance that they may harm you.” [..] Varoufakis said while Europe was struggling to cope with both the refugee crisis and Paris attacks, it was a mistake to read one as the cause of the other. “There’s no doubt that when you have a massive exodus of refugees that there may very well be a couple of insurgents that infiltrate [that population], but it’s neither here nor there.”

“Both the terrorist attacks and the refugee influx are symptoms of the same problem. But one doesn’t cause the other.“ The vast majority of the people who exploded bombs, and blew themselves up, and took AK47s to mow people down, these were people who were born in France, in Belgium. Think of the bombings in London. Britain doesn’t have free movement [over its borders] it is not part of the Schengen treaty. So the notion that we’re going to overcome this problem by erecting fences, electrifying them, and shooting people who try to scale them … the only people who benefit from that are the traffickers, because their price goes up … and Isis. They are the only beneficiaries.”

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Good point.

Average Stay Is 17 Years: Refugee Camps Are The “Cities Of Tomorrow” (Dezeen)

Governments should stop thinking about refugee camps as temporary places, says Kilian Kleinschmidt, one of the world’s leading authorities on humanitarian aid (+ interview). “These are the cities of tomorrow,” said Kleinschmidt of Europe’s rapidly expanding refugee camps. “The average stay today in a camp is 17 years. That’s a generation.” “In the Middle East, we were building camps: storage facilities for people. But the refugees were building a city,” he told Dezeen. Kleinschmidt said a lack of willingness to recognise that camps had become a permanent fixture around the world and a failure to provide proper infrastructure was leading to unnecessarily poor conditions and leaving residents vulnerable to “crooks”. “I think we have reached the dead end almost where the humanitarian agencies cannot cope with the crisis,” he said.

“We’re doing humanitarian aid as we did 70 years ago after the second world war. Nothing has changed.” Kleinschmidt, 53, worked for 25 years for the United Nations and the United Nations High Commission for Refugees in various camps and operations worldwide. He was most recently stationed in Zaatari in Jordan, the world’s second largest refugee camp – before leaving to start his own aid consultancy, Switxboard. He believes that migrants coming into Europe could help repopulate parts of Spain and Italy that have been abandoned as people gravitate increasingly towards major cities. “Many places in Europe are totally deserted because the people have moved to other places,” he said.

“You could put in a new population, set up opportunities to develop and trade and work. You could see them as special development zones which are actually used as a trigger for an otherwise impoverished neglected area.” Refugees could also stimulate the economy in Germany, which has 600,000 job vacancies and requires tens of thousands of new apartments to house workers, he said. “Germany is very interesting, because it is actually seeing this as the beginning of a big economic boost,” he explained. “Building 300,000 affordable apartments a year: the building industry is dreaming of this!” “It creates tons of jobs, even for those who are coming in now. Germany will come out of this crisis.”

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Bit of a weird compromise?!

Canada To Turn Away Single Men As Part Of Syrian Refugee Resettlement Plan (AFP)

Canada will accept only whole families, lone women or children in its mass resettlement of Syrian refugees while unaccompanied men – considered a security risk – will be turned away. Since the Paris attacks launched by Syria-linked jihadis, a plan by the new prime minister, Justin Trudeau, to fast-track the intake of 25,000 refugees by year’s end has faced growing criticism in Canada. Details of the plan will be announced Tuesday but Canada’s ambassador to Jordan confirmed that refugees from camps in Jordan, Lebanon and Turkey will be flown to Canada from Jordan starting 1 December. Speaking in Jordan on Monday, ambassador Bruno Saccomani said the operation would cost an estimated C$1.2bn (US$900m), the official Petra news agency reported.

According to Canadian public broadcaster CBC, the resettlement plan will not extend to unaccompanied men. Québec premier Philippe Couillard seemed to corroborate that report ahead of a meeting with Trudeau and Canada’s provincial leaders where the refugee plan was high on the agenda. “All these refugees are vulnerable but some are more vulnerable than others, for example women, families and also members of religious minorities who are oppressed,” he said, although he rejected the notion of “exclusion” of single men. Faisal Alazem of the Syrian Canadian Council, a nonprofit group in talks with the government to sponsor refugees, told Radio-Canada of the plans: “It’s a compromise.”

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Sweet Jesus.

Stranded Migrants Block Railway, Call Hunger Strike (Reuters)


Migrant with his mouth sewn shut at Greek/Macedonian border Nov 23, 2015 (Reuters/Ognen Teofilovski)

Moroccans, Iranians and Pakistanis on Greece’s northern border with Macedonia blocked rail traffic and demanded passage to western Europe on Monday, stranded by a policy of filtering migrants in the Balkans that has raised human rights concerns. One Iranian man, declaring a hunger strike, stripped to the waist, sewed his lips together with nylon and sat down in front of lines of Macedonian riot police. Asked by Reuters where he wanted to go, the man, a 34-year-old electrical engineer named Hamid, said: “To any free country in the world. I cannot go back. I will be hanged.” Hundreds of thousands of migrants, many of them Syrians fleeing war, have made the trek across the Balkan peninsula having arrived by boat and dinghy to Greece from Turkey, heading for the more affluent countries of northern and western Europe, mainly Germany and Sweden.

Last week, however, Slovenia, a member of Europe’s Schengen zone of passport-free travel, declared it would only grant passage to those fleeing conflict in Syria, Iraq and Afghanistan, and that all others deemed “economic migrants” would be sent back. That prompted others on the route – Croatia, Serbia and Macedonia – to do the same, leaving growing numbers stranded in tents and around camp fires on Balkan borders with winter approaching. Rights groups have questioned the policy, warning asylum should be granted on merit, not on the basis of nationality.

“To classify a whole nation as economic migrants is not a principle recognized in international law,” said Rados Djurovic, director of the Belgrade-based Asylum Protection Center. “We risk violating human rights and asylum law,” he told Serbian state television.On the Macedonian-Greek border, crowds of Moroccans, Iranians and others blocked the railway line running between the two countries, halting at least one train that tried to cross, a Reuters photographer said. A group of Bangladeshis had stripped to the waist and written slogans on their chests in red paint. “Shoot us, we never go back,” read one. “Shoot us or save us,” read another.

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Nov 052015
 
 November 5, 2015  Posted by at 9:08 am Finance Tagged with: , , , , , , , ,  


Martha McMillan Roberts Three sisters at Cherry Blossom Festival, Washington, DC” 1941

This Is the Worst U.S. Earnings Season Since 2009 (Bloomberg)
U.S. Posts Record Deficit in Manufacturing Trade (Bloomberg)
German Factory Orders Unexpectedly Drop for Third Straight Month (Bloomberg)
America’s Labour Market Is Not Working (Martin Wolf)
Yellen Signals Solid Economy Would Spur December Rate Hike (Bloomberg)
David Stockman Explains How To Fix The World -In 7 Words- (Zero Hedge)
The Bear Case for China Sees PBOC Following Fed to Zero Rates (Bloomberg)
I’ll Eat My Hat If We Are Anywhere Near A Global Recession (AEP)
VW Could Face Billions In Car Tax Repayments Over Latest CO2 Scandal (Guardian)
VW Scandal Widens Again as India Says Vehicles Exceeded Emission Rules (BBG)
Germany Ups Pressure On VW As Scandal Takes On New Dimension (Reuters)
VW Emissions Scandal Still Obscured By A Cloud (Guardian)
Germany To Retest VW Cars As Scandal Pushes Berlin To Act (Reuters)
Basque Secessionists Follow Catalans In Push For Independence (Guardian)
US Presses Europe To Take Steps To Reduce Greece’s Debt Burden (Bloomberg)
Fannie, Freddie May Need To Tap Treasury, FHFA Director Says (MarketWatch)
Maersk Line to Cut 4,000 Jobs as Shipping Market Deteriorates (WSJ)
2015 Million Mask March: Anonymous Calls For Day Of Action In 671 Cities (RT)
Merkel Overwhelmed: Chancellor Plunges Germany Into Chaos (Sputnik)
Merkel Reasserts Control as Rebellion Over Refugees Fades (Bloomberg)
Rough Seas and Falling Temperatures Fail to Stop Flow of Refugees (NY Times)
800,000 ‘Illegal Entries’ To EU In 2015, Frontex Chief Says (AFP)

Not a freak incident, but a trend.

This Is the Worst U.S. Earnings Season Since 2009 (Bloomberg)

This U.S. earnings season is on track to be the worst since 2009 as profits from oil & gas and commodity-related companies plummet. So far, about three-quarters of the S&P 500 have reported results, with profits down 3.1% on a share-weighted basis, data compiled by Bloomberg shows. This would be the biggest quarterly drop in earnings since the third quarter 2009, and the second straight quarter of profit declines. Earnings growth turned negative for the first time in six years in the second quarter this year. The damage is the biggest in commodity-related industries, with the energy sector showing a 54% drop in quarterly earnings per share so far in the quarter, with profits in the materials sector falling 15%. The picture is brighter for the telecom services and consumer discretionary sectors, with EPS growth of 23% and 19% respectively so far this quarter.

When compared with analyst expectations, about 72% of companies have beaten profit forecasts. That’s only because the consensus has been sharply cut in the past few months, Jeanne Asseraf-Bitton, head of global cross-asset research at Lyxor Asset Management says in a telephone interview. For the year as a whole, S&P 500 earnings are expected to fall 0.5%, data compiled by Bloomberg shows. For 2016, earnings growth is now seen at 7.9%, down from 10.9% in late July. Next year’s consensus is “still very optimistic,” Asseraf-Bitton says, citing the lack of positive catalyst seen for U.S. stocks in 2016 as well as the negative impact from the sharp slowdown in the U.S. energy sector. By contrast, the euro-zone is the only region worldwide where earnings are expected to “grow significantly” in 2015, according to a note from Societe Generale Head of European Equity Strategy Roland Kaloyan.

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Lower oil prices hurt where they were ‘supposed’ to heal.

U.S. Posts Record Deficit in Manufacturing Trade (Bloomberg)

The U.S. trade deficit in manufacturing hit a record $74.7 billion in September, according to an analysis of new Census Bureau data by RealityChek, a reliable blog on manufacturing and trade. That could become fodder for debate in the presidential election, where candidates have been arguing over the plight of American factory workers. The record was spotted by Alan Tonelson, founder of RealityChek. Spotting records involves searching through historical trade data, since the Census Bureau doesn’t make comparisons in its news releases. The swelling of the manufacturing trade deficit is more evidence that while the overall U.S. economy has recovered from the 2007-09 recession, the manufacturing sector continues to lag. While overall employment is up 3% since the start of the recession, in December 2007, manufacturing employment is down 10%.

According to Tonelson, the previous high for the manufacturing trade deficit was $73 billion in August. He says the U.S. appears headed for an annual record deficit in manufacturing. The Alliance for American Manufacturing noted that U.S. imports from China hit a record of $45.7 billion in September, and President Scott Paul said the inflow is “killing America’s manufacturing recovery.” Thanks to the lowest oil imports in a decade, the overall U.S. trade deficit shrank in September to $40.8 billion from $48 billion in August, according to the Census Bureau. But the one-month dip masks a rising trend. “A weakening global economy, soaring dollar, and global petro-recession with an associated inventory overhang are hurting exports and widening the deficit despite the improvement once expected with the big drop in oil prices,” Action Economics said in a statement.

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It’s a global trend.

German Factory Orders Unexpectedly Drop for Third Straight Month (Bloomberg)

German factory orders unexpectedly extended a series of declines in September amid a slump in demand for investment goods in the euro area, highlighting increasing risks for Europe’s largest economy. Orders, adjusted for seasonal swings and inflation, fell 1.7% from August, when they dropped 1.8%, data from the Economy Ministry in Berlin showed on Thursday. That’s the third consecutive decrease and compares with a median estimate of a 1% gain in a Bloomberg survey. Orders declined 1% from a year earlier. The Bundesbank said last month that an upward trend in economic activity in Germany continued in the third quarter, albeit less dynamically. While business confidence as measured by the Ifo institute fell in October for the first time in four months in response to weakening global trade, the slowdown in China in itself should only have a modest impact on the euro-area economy, according to the European Central Bank.

“Manufacturing orders are experiencing a hard time at the moment, which relates primarily to weak demand from outside the euro area,” the ministry said in the statement. “Domestic demand and from within the euro area continue to point moderately upward and supports manufacturing. Sentiment in the industry remains good.” Factory orders dropped 2.8% in the third quarter from the previous one, according to the report. Demand from within the country increased 0.3% and was up 0.9% for the euro area. Non-euro-area orders fell 8.6% in the July-to-September period. In September, orders for investment goods from the euro area fell 12.8%, reflecting a drop in demand for big-ticket items. Excluding bulk orders, demand fell 0.4%.

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There are over 93 million Americans not in the labor force. How can you write about this issue and leave out that number? Wolf says ‘just’ 12% of US men “were neither in work nor looking for it.”

America’s Labour Market Is Not Working (Martin Wolf)

In 2014, 12% — close to one in eight — of US men between the ages of 25 and 54 were neither in work nor looking for it. This was very close to the Italian ratio and far higher than in other members of the group of seven leading high-income countries: in the UK, it was 8%; in Germany and France 7%; and in Japan a mere 4%. In the same year, the proportion of US prime-age women neither in work nor looking for it was 26%, much the same as in Japan and less only than Italy’s. US labour market performance was strikingly poor for the men and women whose responsibilities should make earning a good income vital. So what is going on? The debate in the US has focused on the post-crisis decline in participation rates for those over 16. These fell from 65.7% at the start of 2009 to 62.8% in July 2015.

According to the Council of Economic Advisers, 1.6 percentage points of this decline was due to ageing and 0.3 percentage points due to (diminishing) cyclical effects. This leaves about a percentage point unexplained. Princeton’s Alan Krueger, former chairman of the council, argues that many of the long-term unemployed have given up looking for work. In this way, prolonged cyclical unemployment causes permanent shrinkage of the labour force. Thus unemployment rates might fall for two opposite reasons: the welcome one would be that people find jobs; the unwelcome one would be that they abandon the search for them. Happily, in the US, the former has outweighed the latter since the crisis. The overall unemployment rate (on an internationally comparable basis) has fallen by 5 percentage points since its 2009 peak of 10%.

In all, the proportion of the fall in the unemployment rate because of lower participation cannot be more than a quarter. Relative US unemployment performance has also been quite good: in September 2015 the rate was much the same as the UK’s, and a little above Germany’s and Japan’s, but far below the eurozone’s 10.8%. US cyclical unemployment performance has at least been decent by the standards of its peers, then. Yet as the 2015 Economic Report of the President notes, the UK experienced no decline in labour-force participation after the Great Recession, despite similar ageing trends to those in the US. Even on a cyclical basis, the decline in participation in the US is a concern. It is, however, the longer-term trends that must be most worrying. This is particularly true for the prime-aged adults.

Back in 1991, the proportion of US prime-age men who were neither in work nor looking for it was just 7%. Thus the proportion of vanished would-be workers has risen by 5 percentage points since then. In the UK, the proportion of prime-aged men out of the labour force has risen only from 6% to 8% over this period. In France, it has gone from 5 to 7%. So supposedly sclerotic French labour markets have done a better job of keeping prime-aged males in the labour force than flexible US ones. Moreover, male participation rates have been declining in the US since shortly after the second world war.

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This nonsense keeps on going. Whoever follows it deserves what they get.

Yellen Signals Solid Economy Would Spur December Rate Hike (Bloomberg)

Fed Chair Janet Yellen said an improving economy has set the stage for a December interest-rate increase if economic reports continue to assure policy makers that inflation will accelerate over time. “At this point, I see the U.S. economy as performing well,” Yellen said on Wednesday in testimony before the House Financial Services Committee in Washington. “Domestic spending has been growing at a solid pace” and if the data continue to point to growth and firmer prices, a December rate hike would be a “live possibility,” she said in response to a question from Representative Carolyn Maloney, a New York Democrat. The Federal Open Market Committee in its October statement said it will consider raising interest rates at its “next meeting,” citing “solid” rates of household spending and business investment.

“There are pretty good odds that the Fed will hike rates in December as long as employment perks back up and the unemployment rate slips further, which is what we are looking for,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “She is trying to keep the Fed’s options open in December.” No decision has yet been made on the timing of a rate increase, Yellen cautioned. Yellen appeared before the House Financial Services Committee to testify primarily on the Fed’s supervision and regulation of financial institutions. “What the committee has been expecting is that the economy will continue to grow at a pace that’s sufficient to generate further improvements to the labor market and to return inflation to our 2% target over the medium term,” she said.

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But that wouldn’t make the 1% nearly as much money…

David Stockman Explains How To Fix The World -In 7 Words- (Zero Hedge)

While we are used to David Stockman’s detailed and lengthy “nailing” of the real state of the world, the following brief clip of an interview with Fox Business, in which David explains how to ‘fix’ so many of our problems, can be summarized perfectly in just seven short words: “Replace The Fed with the free market.” Enjoy 4 minutes of refeshing honesty… as the Fox anchor just cannot fathom who or what would “control” rates if there was no Fed…

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“He and colleagues at Fathom reckon its growth rate has slowed to about 3% a year..”

The Bear Case for China Sees PBOC Following Fed to Zero Rates (Bloomberg)

Danny Gabay “bows to nobody” in his pessimism about China’s economy. Gabay, a former Bank of England economist, says the world’s second-biggest economy is barreling toward a hard landing. He and colleagues at Fathom reckon its growth rate has slowed to about 3% a year – less than half the official estimate of 6.9% for the year to the third quarter and the 6.5% the government is aiming for over the next five years. That means desperate measures are in store, he says. The People’s Bank of China will eventually follow its western counterparts by cutting its benchmark interest rate to zero from the current 4.35% and begin buying assets. Politicians will ease fiscal policy and step in to support banks. By cutting so deeply, the PBOC’s main rate will next year fall below that of the Fed for the first time since 2001.

It has already lowered its benchmark six times in a year and devalued the yuan by 3% against the dollar in August. “They will try to do it stone by stone, step by step,” says Gabay, a director and co-founder of Fathom. The authorities also will need to let the yuan slide further, probably by between 2% and 3% a quarter for the next two years and ultimately by about 25% overall to stop it from choking the economy even more. “The rope the Chinese have is currently around their neck and they need to let it go,” said Gabay. “It’s going to hurt.” Fathom’s case conflicts with that of Ma Jun, the PBOC’s chief economist. He said on Tuesday that some market participants are “too bearish” on the economy, where a recovery in property sales alongside recent stimulus should support expansion. The PBOC has repeatedly said it won’t need to do quantitative easing.

Underpinning Gabay’s pessimistic view is his argument that China is no special case and that its policy makers are no better equipped that those elsewhere to prop up a faltering economy. Like the U.S. and U.K. before it, China needs to face life with excess debt.
China’s total government, corporate and household debt load as of mid-2014 was equal to 282% of the country’s total annual economic output, according to McKinsey. “They will be no more adept at stopping an asset price bubble from bursting than the rest of us,” said Gabay. Its banks are now on perilous ground with non-performing loans totaling more than 20% of gross domestic product, more than the level witnessed in Japan in the 1990s before its economy entered deflation, according to Gabay. “We haven’t yet had the final shoe drop,” he said. “There could be a larger further fall in Chinese activity if we’re right and the banking system implodes.”

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Ambrose notes the rise in money supply, but fully ignores that means nothing is it is not spent. A curious oversight.

I’ll Eat My Hat If We Are Anywhere Near A Global Recession (AEP)

The damp kindling wood of global economic recovery is poised to catch fire. For the first time in half a decade of stagnation, government policy has turned expansionary in the US, China and the eurozone at the same time. Fiscal austerity is largely over. The combined money supply is surging. Such optimistic claims are perhaps hazardous, given record debt ratios in most areas of the world and given that we are six-and-a-half years into an aging economic cycle that might normally be rolling over at this stage. It certainly feels lonely. Citigroup’s Willem Buiter has issued a global recession alert. Professor Nouriel Roubini from New York University joined him this week, warning that the odds of a fresh slump have doubled to 30pc. Mr Roubini’s gloom is unsettling for me.

We saw the world in almost exactly the same way in the lead-up to the Lehman crisis, when it seemed obvious to both of us that sharply rising interest rates would prick the US housing bubble and the EMU credit bubble. This time I dissent. Years of fiscal retrenchment and balance sheet deleveraging have prevented the current global economic recovery from gathering speed, and have therefore stretched the potential lifespan of the cycle. The torrid pace of worldwide money growth over recent months is simply not compatible with an imminent crisis. A combined gauge of the global money supply put together by Gabriel Stein at Oxford Economics shows that the “broad” M3 measure grew by 8.1pc in August, and by almost as much in real terms. This is the fastest rate in 25 years, excluding the final blow-off phase of the Lehman boom.

The index has since fallen back slightly as the US settles down but the pattern is clear. It bears no relation to the monetary implosion in early to mid-2008 before the collapse of Fannie Mae and Freddie Mac, the twin mortgage giants that in turn brought down the banking system. It is, of course, possible that money signals have lost their meaning in our brave new world of zero rates and secular stagnation, but the current pace of growth would typically imply a flurry of economic activity over the following year or so. “It is a very benign picture for the world. We should see above trend growth over the next year,” said Tim Congdon from International Monetary Research. Mr Congdon said the expansion of broad money in China has accelerated to an annual pace of 18.9pc over the past three months, thanks in part to equity purchases by the central bank (PBOC), a shot of adrenaline straight to the heart – otherwise known as quantitative easing with Chinese characteristics.

The eurozone is no longer hurtling into a 1930s deflationary vortex. A trifecta of cheap money, cheap oil and a cheap euro have entirely changed the landscape, and now the European Central Bank seems curiously determined to push stimulus yet further by doubling down on QE. Central banks are strange animals, pro-cyclical by nature.

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“VW has now lost €32.4bn, or 40% of its value,..”

VW Could Face Billions In Car Tax Repayments Over Latest CO2 Scandal (Guardian)

Volkswagen could have to repay billions of pounds of tax credits to European governments after finding irregularities in the levels of carbon dioxide emitted by its cars. Shares in the embattled carmaker slumped by 10% on Wednesday, wiping €5bn off the value of the company, as analysts warned that the consequences of rigging CO2 and fuel consumption tests could be worse than the initial scandal around diesel emissions tests. VW has now lost €32.4bn, or 40% of its value, since admitting in September that it installed defeat devices into 11m diesel vehicles. The scandal is dragging down sales of new VW cars, according to industry figures due to be released in Britain on Thursday. Sales data for October from the Society of Motor Manufacturers and Traders is expected to show that VW sales fell by more than 8% year-on-year, with Seat and Skoda also down.

The latest admission about CO2 tests dramatically widens the scandal that VW is facing. Germany, Britain and other countries set vehicle tax rates based on their CO2 emissions. This means that if VW artificially lowered CO2 emissions during testing then its vehicles will have contributed far less in tax than they should have. VW has said that at least 800,000 cars are affected by the CO2 discovery and estimated the economic risks at €2bn. This works out at €2,500 per car, far more than the €609 per car put aside for the cost of the 11m cars involved in the diesel emissions scandal, which was €6.7bn in total. Analysts said these costs were likely to relate to repaying tax credits in Europe rather than customer compensation. [..]

VW could also face compensation claims from motorists over the misstatement of their vehicle’s fuel economy. According to BNP Paribas, the cost of compensation to governments and customers could reach €4bn, on top of the estimated €12bn cost of rigging nitrogen oxide tests. UBS said the total costs of the scandal, including legal claims, could reach €35bn. The discovery about the irregularities in CO2 data emerged from VW’s investigation into the diesel emissions scandal. This found that figures for CO2 and fuel consumption were set too low during CO2 tests. VW is yet to confirm which models are involved or how the misstatement occurred. The majority of the cars have a diesel engine, but petrol vehicles have been dragged into the scandal for the first time.

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The whole world.

VW Scandal Widens Again as India Says Vehicles Exceeded Emission Rules (BBG)

India sought a response from Volkswagen after probes into four car models showed diesel-fuel emissions exceeding permissible limits, and variations in results between on-road tests and those done in laboratories. Investigations into the Jetta, Vento, Polo and Audi A4 marques showed significant variations and about 314,000 vehicles are potentially affected, Ambuj Sharma, an additional secretary in India’s Heavy Industries Ministry, said in an interview in Mumbai. If cars have defeat devices that cheat tests, the matter would become criminal, he said.

Emissions exceeding India’s Bharat Stage IV standards were detected, and VW has 30 days to reply to the findings, Sharma said. The notice adds to Volkswagen’s woes after the automaker admitted in September to cheating U.S. pollution tests for years with illegal software, prompting a plunge in its shares and a leadership change. India’s standards for controlling pollution from exhaust fumes lag behind those in Europe by several years. The company said yesterday it will present its results on the diesel-engine emissions issue by the end of November, and that it’s co-operating fully with the Indian government.

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Merkel is way late on this issue too.

Germany Ups Pressure On VW As Scandal Takes On New Dimension (Reuters)

German officials stepped up the pressure on Volkswagen to clean up its act on Wednesday after it revealed it had understated the fuel consumption of some vehicles, opening a new front in the crisis at Europe’s biggest carmaker. The company said late on Tuesday it had understated the level of carbon dioxide emissions in up to 800,000 cars sold in Europe, and consequently their fuel usage. This means affected vehicles are more expensive to drive than their buyers had been led to believe. The revelations add a new dimension to a crisis that had previously focused on VW cheating tests for smog-causing nitrogen oxide emissions. They are the first to threaten to make a serious dent in the firm’s car sales since the scandal erupted as they could deter cost-conscious consumers, analysts said.

The latest admission provoked some of the strongest criticism yet from the German government of Volkswagen, which is part of an auto industry that employs over 750,000 people in the country, has been a symbol of German engineering prowess and dwarfs other sectors of the economy. Transport minister Alexander Dobrindt said the latest irregularities had caused “irritation in my ministry and with me”. Chancellor Angela Merkel’s spokesman, Steffen Seibert, said the carmaker had to take steps to prevent this happening again. “VW has a duty to clear this up transparently and comprehensively,” he added. “It’s important (for VW) to create structures to avoid such cases.” The latest revelations, which led to Volkswagen adding €2 billion to its expected costs from the scandal, are also the first time gasoline cars have been drawn into the scandal.

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It’s becoming a valid question: can VW survive this?

VW Emissions Scandal Still Obscured By A Cloud (Guardian)

The surprise is that Volkswagen’s shares fell only 10% as the cheating affair deepened in several ways. First, the scandal now covers emissions of carbon dioxide, or CO2, not only nitrogen oxide. Second, some petrol engines are now involved. Third – perhaps most importantly for shareholders who hope VW can recover quickly – the company still seems incapable of giving a straightforward account of what its own investigation has uncovered. Tuesday evening’s statement contained the obligatory expressions of regret and commitment to transparency. Indeed, Matthias Müller, the executive shoved into the hot seat in the first week of the crisis, opted for pomposity overdrive. “From the very start I have pushed hard for the relentless and comprehensive clarification of events,” he declared.

“We will stop at nothing and nobody. This is a painful process, but it is our only alternative. For us, the only thing that counts is the truth.” What, though, did VW actually say beyond the confession that “based on present knowledge” 800,000 vehicles have been affected? Almost nothing. Were cheat devices attached to the vehicles, or were real CO2 emissions disguised by other means? How many petrol cars are affected? Does the phrase “present knowledge” mean most cars in VW’s fleet are in the clear, or that they haven’t yet been examined for CO2? And, since the word “irregularities” is so vague, how severely wrong is the published CO2 data? None of these issues were addressed. A little reticence is understandable while investigations continue but it is not unreasonable to expect VW to explain why it can’t answer questions that would occur to most readers of its statement.

More disgracefully from the point of view of shareholders, the company failed to explain how it derived its estimate that the latest revelations will cost “approximately €2bn”. Does that figure merely cover tax credits that now would appear to have been unfairly earned? Analysts assume so, in which case there could also be a wave of claims from consumers who were encouraged to buy VW vehicles on the basis of bogus claims about fuel efficiency. Analysts at Exane BNP Paribas, for example, added €4bn for recall and compensation costs for customers. That assumption sounds fair. The point, though, is that VW ought to be able to say what its €2bn covers and what it doesn’t.

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They should have done this two months ago, when the scandal broke.

Germany To Retest VW Cars As Scandal Pushes Berlin To Act (Reuters)

Germany is to retest all Volkswagen car models to gauge their genuine emissions levels after new revelations from the carmaker six weeks into its biggest-ever corporate scandal pushed the government to act. Expressing his “irritation” with one of Germany’s biggest employers, Transport Minister Alexander Dobrindt said on Wednesday that all current models sold under the VW, Audi, Skoda and Seat brands – with both diesel and petrol engines – would be tested for carbon dioxide and nitrogen dioxide emissions. As the crisis deepened, VW said it had told U.S. and Canadian dealers to stop selling recent models equipped with its 3.0 V6 TDI diesel engine, while the Moody’s agency downgraded the firm’s credit rating.

The German government’s announcement followed a VW statement on Tuesday that it had understated the level of carbon dioxide emissions in around 800,000 cars sold mainly in Europe, and consequently their fuel usage. This means affected vehicles are more expensive to drive than their buyers had been led to believe. The revelations added a new dimension to a crisis that had previously focused on how Europe’s biggest carmaker cheated in U.S. tests on diesel cars for emissions of nitrogen oxide, which cause smog. Previously the government had said it would review only nitrogen dioxide emissions from VW diesel cars.

“We all have an interest that everything at VW is turned over and reviewed,” Dobrindt said, adding that the government wanted to force the company to pay the extra car taxes which would be incurred by the higher CO2 emissions levels. VW is Europe’s biggest motor manufacturer, employing over 750,000 people in Germany, and has been a symbol of the nation’s engineering prowess.

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Basque independence is not that strong now, but Catalunya may change that.

Basque Secessionists Follow Catalans In Push For Independence (Guardian)

As the central government in Madrid squares off against secessionists in Catalonia, separatists in another Spanish region have begun formally laying the groundwork for their own push for independence. EH Bildu, a leftwing pro-independence party in the Basque country, has submitted a bill to the regional parliament that it hopes will pave the way for consultations to be held in the region. “The aim is to put the political, economic and social future of the Basque country in the hands of its citizens,” EH Bildu’s spokesman, Hasier Arraiz, said as he presented the legislation. The bill mirrors that passed by the Catalan parliament last year, which aimed to create legal cover for a consultation on independence in the region. Spain’s constitutional court suspended the regional law, but Catalonia pressed ahead with the consultation, rebranding it as a symbolic referendum.

The Catalan leader, Artur Mas, and two associates are under investigation for disobedience, abuse of power and obstruction of justice over their actions. Basque separatists have shied away from specifically mentioning independence, but they referred several times to Catalonia as they presented their bill. “It’s time to confront the state democratically. They are doing it in Catalonia and we want to do it in the Basque country,” Arraiz said. The Basque bill has little chance of being passed, because EH Bildu holds only 21 of the 75 seats in the Basque parliament. Its actions, however, confirmed worries in Madrid that any concessions made to secessionists in Catalonia may have to be extended to separatist movements across the country.

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Regurgitated ‘news’.

US Presses Europe To Take Steps To Reduce Greece’s Debt Burden (Bloomberg)

The US is pressing euro-area countries to agree to an overhaul of Greece’s debt to give private-sector investors confidence that the nation’s borrowing burden is sustainable, a US Treasury official said. Europe needs to take action to lower Greece’s overall debt levels, said the official, who asked not to be identified because discussions are in progress. Participation by the European Bank for Reconstruction and Development would also be helpful to restore financial stability in Greece, the official said. The EBRD, which was created to help central and eastern European countries after the Cold War, could lend staff and contribute technical expertise to help the Greek banking system get on firmer footing, according to the official.

Lowering interest rates and extending maturities can ease Greece’s debt burden, and the US and IMF have stopped short of calling for writing down the principal of the loans. Many euro-area nations have indicated that would be a “red line,” while indicating they might agree to better servicing terms. The US call to reduce Greece’s debt burden echoes the position taken by the IMF, which has said it won’t offer new money to Greece unless the euro area commits to a formal debt operation. The US is the largest shareholder in the Washington-based IMF, which lends to countries that run into balance-of-payments troubles. Germany and other creditor nations say bringing the IMF on board is an essential element of the €86 billion bailout that the currency bloc approved in August.

The bailout loans Greece has amassed over its three rescues are the focus in the debt-relief talks, since Greece’s private- sector debt was already restructured in early 2012. Greece’s borrowing outlook gained a boost over the weekend, when the European Central Bank found that capital shortfalls at the four biggest banks won’t require all of the money set aside for financial-sector assistance within the aid program. The banks need €14.4 billion, of which €10 billion is expected to come from the rescue coffers. The European Stability Mechanism said on Saturday that this means Greece won’t draw down the full bailout amount, since it doesn’t appear to need another 15 billion euros that had been earmarked for bank aid if needed. The banks are expected to raise 4.4 billion euros from private-sector sources.

Greek government officials say the EBRD, which took bank stakes in Cyprus, has indicated its willingness to take part in the Greek banks’ search for fresh capital. The EBRD is actively looking at the recapitalization plans of the Greek banks with a view to determining whether we can play a role in the process over the next few weeks, said Axel Reiserer, a spokesman for the London-based development bank. The EBRD has recently established a presence in Greece and is now building relationships and exploring options for investments, Reiserer said. The EBRD handles project finance and does not provide budget support or financial aid.

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Time warp.

Fannie, Freddie May Need To Tap Treasury, FHFA Director Says (MarketWatch)

Fannie Mae and Freddie Mac are at risk of needing an injection of Treasury capital after the latter reported its first quarterly loss in four years, the director of the Federal Housing Finance Agency said Tuesday. FHFA Director Mel Watt issued a statement following mortgage-finance company Freddie Mac’s $475 million third-quarter loss, its first quarterly loss in four years. “Volatility in interest rates coupled with a capital buffer that will decline to zero in 2018 under the terms of the senior preferred stock purchase agreements with Treasury will likely make both Enterprises increasingly susceptible to the possibility of quarterly losses that could result in draws going forward,” Watt said. Freddie Mac said its loss was driven by interest rate changes that soured the value of derivatives it holds.

Watt, in his statement, pointed out that Freddie Mac didn’t report a decline in the credit quality of credit-related losses. The status of Fannie Mae and Freddie Mac has been left in limbo since the government took them under conservatorship in 2008. Efforts to reform the companies have stalled in Congress. But Treasury Secretary Jack Lew and his deputies have pushed back against the idea of privatizing Fannie Mae and Freddie Mac. So-called recap and release could raise the possibility of another bailout, the Treasury says. Freddie Mac has paid $96.5 billion to the U.S. Treasury in dividends. It won’t make any payments to the Treasury for the third quarter, but it won’t have to draw, either, due to the $1.8 billion in reserves.

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This is big. When the supply chain of the global economy starts sputtering, look out below.

Maersk Line to Cut 4,000 Jobs as Shipping Market Deteriorates (WSJ)

The world’s biggest container-ship operator is altering course, slashing jobs and canceling or delaying orders for new vessels after years weathering a sharp downturn in the container-shipping market. Danish conglomerate A.P. Møller-Maersk A/S said Wednesday its Maersk Line container-shipping unit would cut 4,000 jobs from its land-based staff of 23,000. It is also canceling options to buy six Triple-E vessels, the world’s largest container ships, to cope with the deepest market slump in the industry since the 2009 global financial crisis. Maersk said it would also push back plans to purchase eight slightly smaller vessels. The decision to halt its fleet expansion represents a significant U-turn for the company, which had been investing heavily amid the downturn.

Counting on its market-share dominance and deep pockets, it aimed to expand as smaller competitors retrenched. But after issuing a surprise profit warning last month, Maersk signaled it, too, was no longer immune to a combination of slowing global growth and massive container ship overcapacity on many routes. The conglomerate said it would cut its annual administration costs by $250 million over the next two years and would cancel 35 scheduled voyages in the fourth quarter. That is on top of four regularly scheduled sailings it canceled earlier in the year. Maersk has already ordered 27 vessels this year, including 11 Triple-E behemoths, which can carry in excess of 19,000 containers. “Given weaker-than-expected demand, this will be enough for us to grow in line with our ambitions over the next three years or so,” said Maersk Line Chief Executive Søren Skou.

The Triple-E orders were placed at South Korean yard Daewoo Shipbuilding and included a nonbinding option to order six more ships. Maersk officials said that under the terms of the deal, the Danish company isn’t subject to any damages for canceling the option. DSME wasn’t immediately available for comment. Although such options aren’t included in the order books of shipbuilders until they become solid orders, a move like Maersk’s represents a psychological blow for the global shipbuilding industry as well. Ships like the Triple-E go for more than $150 million each, and orders for them have helped cushion the blow for dwindling orders for other ship types.

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Remember remember the 5th of November. Today Anonymous promised to ‘unveil’ 1000 American KKK members.

2015 Million Mask March: Anonymous Calls For Day Of Action In 671 Cities (RT)

Tens of thousands of activists disguised as Guy Fawkes are expected to the flood streets of over 671 cities as the Anonymous-led Million Mask March sweeps the globe. The hacktivist group and its followers will protest censorship, corruption, war and poverty. For the fourth year in a row the “Anonymous army,” as the group likes to call its activists, will rise up and take part in rallies and protests from Sydney to Los Angeles and Johannesburg to London. Hiding their faces behind stylized ‘Anonymous’ masks popularized by the “V for Vendetta” movie, they will come forward to make their voices heard. The Million Mask March is also about letting “various governments” know that “the free flow of information” will never be stopped.

“We now face a dilemma unfamiliar to any previous human civilization, we face this dilemma not simply as a community, nor a nation; rather collectively as a planet. We have something no previous generation has ever had, the internet,” Anonymous said in its 2015 promo video for the Million Mask March. Social media has been their major megaphone calling on people to unite in a global move. Just like last year, London expects one of the most massive marches on its streets. According to the demonstration’s page on Facebook, 18,000 people are going to join the Anonymous-inspired march. “The government and the 1% have played their hand, now it is time to play ours,” a Facebook statement reads. This year’s dress code for the London’s Million Mask March calls for “white judicial wigs, black robes & Anonymous masks for Order of Public Court.”

Activists will start gathering by the Ecuadorian Embassy “to free Robin Hood [Julian Assange]” at 9 am. The Metropolitan Police is bracing for 2015’s Million Mask March with thousands of extra police. Law enforcement will be on stand-by in case activists attack businesses or cause damage to property. Potential targets have been warned. The 2014 Million Mask March in London was marked by scuffles between activists and police. Meanwhile in Washington, the Million Mask March is expected to be attended by 25,000 people, according to Facebook’s number of “going” at the time of publication. Activists plan to meet by the Washington monument not far from the Capitol building and march towards the White House.

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Note how this piece is 180º different from the next one.

Merkel Overwhelmed: Chancellor Plunges Germany Into Chaos (Sputnik)

Merkel’s recent statements about the need to keep German borders open in order to prevent military conflicts in Europe is causing panic and anxiety among the German population, DWN wrote. According to the newspaper, Merkel’s actions have surprised political observers as well, some of whom say that the German Chancellor is “overwhelmed” and that her era will soon come to an end. The author argued that Merkel’s statements about the possibility of a military conflict are causing fear and panic among Germans. “A warning of a war in Europe expressed by the German Chancellor in public is irresponsible,” the article said, adding that in this context Merkel’s statements about the need to keep the borders open sound confusing and ridiculous.

“The reaction of all ordinary people to such a threatening statement would be that they would want the borders to be closed quickly,” the author wrote. The situation in the country is extremely critical. There is aggression and a tense atmosphere between various groups in refugee camps that may lead to an explosion anytime. Some refugees do not view the German authorities as an obstacle and do not take into account the local legislation when initiating violent clashes. “Will Merkel send the Bundeswehr to the camps? The police have already called the Bundeswehr during violent clashes because otherwise they would lose control,” the newspaper wrote.

According to the newspaper, the catastrophic situation has its roots in Merkel’s irresponsible policy of open doors towards all refugees and migrants. Now at a time when the influx of newcomers is still increasing and the country’s authorities are completely overwhelmed, the situation may come out of control any time. Germany and other European countries have been struggling to resolve the refugee crisis for many months, but without much success. Hundreds of thousands of undocumented migrants continue to flee their home countries in the Middle East and North Africa to escape violence and poverty.

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Her power is more important than refugees’ lives.

Merkel Reasserts Control as Rebellion Over Refugees Fades (Bloomberg)

German Chancellor Angela Merkel may have defused one of the biggest bust-ups of her third-term coalition after quelling a political revolt from her Bavarian allies over her handling of the refugee crisis. A nascent deal reached this week indicates Merkel is reasserting her control over the domestic political drift Germany has witnessed recently amid coalition sniping that put her chancellorship in question. While she has said many external factors will determine whether the flow of refugees can be stemmed – from government action in Turkey to a diplomatic solution to end the war in Syria – Merkel can also take heart from the latest polling that suggests her party’s sliding support has halted.

“There were some threats, but Merkel treated it quite calmly,” said Manfred Guellner, head of Berlin-based pollster Forsa, adding that her party’s poll numbers have probably reached the bottom. “As far as power brokers in Berlin are concerned, nobody at the moment wants to risk the coalition in any serious way.” The chancellor struck the agreement with her chief internal critic, Bavarian Premier Horst Seehofer, removing his threat of unilateral action to halt the influx of refugees. Merkel and Seehofer will meet Thursday with Sigmar Gabriel – head of junior coalition partner, the Social Democrats – to hammer out a final deal. All three have signaled in the last two days that they’re aiming to put the dispute behind them. “We will see if we can find common ground,” Merkel told reporters Wednesday in Berlin.

“If we don’t find an agreement, we have to continue negotiating. That wouldn’t be the first time, but everybody wants us to find a logical solution.” [..] Seehofer, the chairman of the Bavarian sister party of Merkel’s Christian Democrat Union, was assuaged by the chancellor’s commitment to reduce the number of refugees. Merkel said that would involve a series of measures including a political agreement with Turkey to protect that country’s border and a resolution of the civil war in Syria, rather than shutting Germany’s frontier or setting upper limits on those who can come in. “No country in the world can accommodate a limitless flow of refugees,” Seehofer said earlier this week, responding to the numbers of refugees arriving in Bavaria from Austria, issuing the biggest challenge yet to Merkel’s open-door policy.

Speaking to business leaders in Dusseldorf Wednesday evening, Merkel reiterated the need to cut the number of asylum-seekers and tackle the refugee crisis at its source in Syria, warning that a restoration of border controls within the European Union would hit the free movement of goods and people. “We probably need a European border guard, agreements with our neighbors and a fair distribution” of refugees in Europe, the chancellor said. “That means we need a change to the existing asylum system, but a change that strengthens Europe and not a change that weakens Europe.”

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“..people will keep coming as long as the smugglers tell them to come, and the smugglers will keep attempting trips as long as the people are coming..”

Rough Seas and Falling Temperatures Fail to Stop Flow of Refugees (NY Times)

The rubber dinghy rolled perilously on the waves and twisted sideways, nearly flipping, as more than three dozen passengers wrapped in orange life vests screamed, wept and cried frantically to God and the volunteers waiting on the rocky beach. Khalid Ahmed, 35, slipped over the side into the numbing waist-high water, struggled to shore and fell to his knees, bowing toward the eastern horizon and praying while tears poured into his salt-stiff beard. “I know it is almost winter,” he said. “We knew the seas would be rough. But please, you must believe me, whatever will happen to us, it will be better than what we left behind.” The great flood of humanity pouring out of Turkey from Syria, Afghanistan, Iraq and other roiling nations shows little sign of stopping, despite the plummeting temperatures, the increasingly turbulent seas and the rising number of drownings along the coast.

If anything, there has been a greater gush of people in recent weeks, driven by increased fighting in their homelands – including the arrival of Russian airstrikes in Syria — and the gnawing fear that the path into the heart of Europe will snap shut as bickering governments tighten their borders. “Coming in the winter like this is unprecedented,” said Alessandra Morelli, the director of emergency operations in Greece for the United Nations High Commissioner for Refugees. “But it makes sense if you understand the logic of ‘now or never.’ That is the logic that has taken hold among these people. They believe this opportunity will not come again, so they must risk it, despite the dangers.”

The surge means that countries throughout the Balkans and Central Europe already under intense logistical and political strain will not find relief — especially Germany, the destination of choice for many of the refugees. Hopes that weather and diplomacy would ease the emergency are unfounded so far, putting more pressure on financially strapped and emotionally overwhelmed governments to quickly find more winterized shelter. The influx also underscores the European Union’s failure to reach a unified solution to the crisis, leaving places like Lesbos struggling to deal with huge numbers of desperate people and raising questions about what will happen not just this winter, but in the spring and beyond.

Early this week, the number of people who had crossed into Greece from Turkey hit 600,000, after having passed 500,000 only a few weeks earlier. Both migrants and relief workers shrug when asked how far into the winter people will try to make the treacherous crossing. “Some of the smugglers, they tell the people who call them, ‘Yes, there will be more trips, you should come,’ and so the people keep coming,” said Abu Jawad, a 28-year-old Palestinian Syrian who works as a broker for Turkish smugglers, recruiting passengers from the crowds in Izmir, Turkey, and other coastal cities. “So what I think is that people will keep coming as long as the smugglers tell them to come, and the smugglers will keep attempting trips as long as the people are coming,” he said.

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Leggeri should be fired from framing the issue this way. But he won’t, because this is Europe’s new normal, this is how politics wants is framed. Still, under international law people fleeing war zones cannot be labeled ‘illegal’.

800,000 ‘Illegal Entries’ To EU In 2015, Frontex Chief Says (AFP)

Migrants have made some 800,000 “illegal entries” to the European Union so far this year, the head of the bloc’s border agency Frontex said in an interview with German newspaper Bild published Wednesday. Warning that the influx of migrants has probably not yet “reached its peak,” Fabrice Leggeri called for European states to detain unsuccessful asylum seekers so they can be “rapidly” sent back to their countries of origin. “EU states must prepare for the fact that we still have a very difficult situation ahead of us in the coming months,” added Leggeri. Last month, Frontex said that 710,000 migrants had entered the EU in the first nine months of the year but cautioned that many people had been counted twice. The agency said on October 13 that “irregular border crossings may be attempted by the same person several times.”

“This means that a large number of the people who were counted when they arrived in Greece were again counted when entering the EU for the second time through Hungary or Croatia,” explained the agency. According to the most recent figures from the UN refugee agency, more than 744,000 people have made the perilous journey across the Mediterranean this year, the majority to Greece. On Wednesday, the first set of 30 migrants was due to leave Athens for Luxembourg under an EU plan to redistribute people throughout the 28-member bloc in order to ease pressure on countries like Greece and Italy. The bloc hopes to transfer some 160,000 people under the plan.

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Aug 182015
 
 August 18, 2015  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  


G. G. Bain 100-mile Harkness Handicap, Sheepshead Bay Motor Speedway, Brooklyn 1918

China Shanghai Stocks Lose 6.15% Overnight On Yuan Fears (CNBC)
World Shipping Slump Deepens As China Retreats (AEP)
Japan Exports Its Way to Irrelevance (Pesek)
China’s Currency Move Rattles African Economies (WSJ)
The Great Emerging-Market Bubble (BIll Emmott)
Bonds Signal Trouble Ahead As Equities Keep Calm (FT)
Greek Senior Bank Bonds Fall on Dijsselbloem Bail-In Comment (Bloomberg)
Greek Deposits Become Eligible For Bail-In On January 1, 2016 (Zero Hedge)
Greek Government On Its ‘Last Legs’, Merkel Faces Growing Rebellion (Telegraph)
Leftist Veteran Glezos Appeals To Syriza Leadership To ‘Come To Senses’ (Kath.)
Thanks To The EU’s Villainy, Greece Is Now Under Financial Occupation (Zizek)
A New Approach to Eurozone Sovereign Debt (Yanis Varoufakis)
Yanis Varoufakis: Bailout Deal Allows Greek Oligarchs To Maintain Grip (Guardian)
The Future of Europe (James Galbraith)
Brutish, Nasty And Not Even Short: The Ominous Future Of The Eurozone (Streeck)
Greece To Trouble Eurozone For Decades, Says Finland’s Soini (Reuters)
Banks Braced For Billions In Civil Claims Over Forex Rate Rigging (FT)
US Graft Probes May Cost Petrobras Record $1.6 Billion Or More (Reuters)
Ron Paul: Fed May Not Hike Because ‘Everything Is Vulnerable’ (CNBC)
Junk-Rated Offshore Drillers Headed into Bankruptcy (WolfStreet)
How Money, Race and Religion Determine the Fate of Europe-Bound Migrants (WSJ)

Kept going down after this article was posted.

China Shanghai Stocks Lose 6.15% Overnight On Yuan Fears (CNBC)

Chinese shares led losses in Asia on Tuesday, as nerves over China’s struggling economy and a deadly bomb explosion in Thailand sent investors scrambling for safety. A positive handover from Wall Street did little to help sentiment; the tech-heavy Nasdaq led gains with a 0.9% rise overnight, as investors scooped up battered biotech plays, while the Dow Jones Industrial Average and the S&P 500 notched up 0.4 and 0.5%, respectively, on the back of positive homebuilder data. China’s Shanghai Composite index widened losses to 5.2%, hitting a more than one-week low, as concerns over the yuan eclipsed data which showed monthly home prices up for a third straight month in July, indicating that country’s all-important property sector may be finally bottoming.

Prior to the market open, the People’s Bank of China (PBOC) set the midpoint rate at 6.3966 per dollar, firmer than the previous fix of 6.3969. However, the yuan fell against the greenback, slipping 0.2% to last change hands at 6.4086. Among the mainland’s other indexes, the blue-chip CSI300 and the smaller Shenzhen Composite plummeted 4.9 and 5.7%, respectively. Hong Kong’s Hang Seng index tracked the losses in its mainland peers to move down 0.9%. [..] utilities and industrial sectors were among the hardest-hit, with China Shipbuilding and China Shenhua Energy being two of the biggest drags on the index despite news that Beijing may be close to announcing broad plans to reform its state-owned enterprises (SOEs) this month.

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From the same Ambrose who mere days ago was quite upbeat on world trade.

World Shipping Slump Deepens As China Retreats (AEP)

World shipping has fallen into a deep slump over the late summer, dashing hopes of a quick recovery from the global trade recession earlier this year and heightening fears that the six-year economic expansion may be on its last legs. Freight rates for container shipping from Asia to Europe fell by over 20pc in the second week of August, even though trade volumes should be picking up at this time of the year. The Shanghai Containerized Freight Index (SCFI) for routes to north European ports crashed by 23pc in five trading days. The storm in the shipping industry comes as the New York state manufacturing index for July plummeted to a recessionary low of minus 14.9, the lowest since the Great Recession and one of the steepest one-month drops ever recorded.

The new shipments component fell to -13.8, and new orders to -15.7. A similar drop occurred in 2005 and proved to be a false alarm but the latest fall comes at a delicate moment for the world economy. There is now a full-blown August storm sweeping through global markets. The Bloomberg commodity index dropped to a fresh 13-year low on Monday and the MSCI index of emerging market equities touched depths not seen since August 2009. A closely-watched gauge of emerging market currencies has fallen for the eighth week – the longest run of unbroken declines since the beginning of the century – led by the Malaysian Ringgit, the Russian rouble and the Turkish lira. China’s surprise devaluation last week continues to send after-shocks through skittish global markets, already on edge over a likely rate rise by the US Fed in September – though this is now in doubt.

The currency move was widely taken as a warning that the Chinese economy is in deeper trouble than admitted so far, a menacing prospect for exporters of raw materials and for trade competitors in Asia. It threatens to transmit a fresh deflationary impulse through the global system. The great worry is that companies in emerging markets will struggle to service $4.5 trillion of US dollar debt taken out in the boom years when quantitative easing by the Fed flooded the world with cheap money, much of it at irresistible real rates of 1pc. This is up from $1 trillion in 2002. The monetary cycle has gone into reverse since the Fed ended QE in October 2014 and cut off the flow of fresh liquidity. While the first rate rise in eight years has been well-telegraphed, nobody knows for sure what will happen once tightening starts in earnest.

This stress-test could prove even more painful if China really has abandoned its (crawling) dollar peg and is seeking to protect export margins by driving down its currency. The yuan has risen by 60pc against the Japanese yen and 105pc against the rouble since mid-2012. Yet China nevertheless has a trade surplus of 6pc of GDP. Data from the Port of Hamburg released on Monday show much damage this currency surge may be doing to Chinese companies. Axel Mattern, the port’s chief executive, said a 10.9pc drop in trade with China was the chief reason why volumes of container cargoes passing through the port fell 6.8pc in the first six months.

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Abenomics was always only a huge failure.

Japan Exports Its Way to Irrelevance (Pesek)

There’s a difference between bad economic news and the devastating variety that Japan received Monday. Prime Minister Shinzo Abe might have been able to weather the second-quarter data showing a drop in Japanese consumption and a 1.6% decline in annualized growth. But it’s not clear his government can recover from the latest news about sputtering exports, which fell 4.4% from the previous quarter. An export boom, after all, was the main thing Abenomics, the prime minister’s much-heralded revival program, had going for it. The yen’s 35% drop since late 2012 made Japanese goods cheaper, companies more profitable and Nikkei stocks more attractive. But China is spoiling the broader strategy.

The economy of Japan’s biggest customer is slowing precipitously, which has imperiled earnings outlooks for Toyota, Sony, and trading houses like Mitsui. But Abe needs to recognize, as China already has, that this is only the latest sign of a broader reality: Asia’s old export model of economic growth no longer works. China’s devaluation last week raised fears of a return of the currency wars that devastated Asia in the late 1990s. That’s a reach, considering that exports are playing less and less of a role in China. McKinsey, for example, found that as far back as 2010, net exports were contributing only between 10% and 20% of Chinese GDP. The services sector is growing in size and influence to rebalance the economy – not fast enough, perhaps, but change is nevertheless afoot.

If any major country has been relying too much on exports it’s Japan. As yet another recession beckons, the Bank of Japan will likely respond with yet more easing to extend the yen’s declines and save giant exporters. No matter how cheap the yen gets, though, China will still be slowing. All the stimulus BOJ Governor Haruhiko Kuroda can muster won’t change the worsening trajectory of the region’s most-populous nation. That’s why Abe needs to take a page from Beijing and focus more on creating new industries at home. Tokyo seldom acknowledges it can learn anything from Beijing. Japan wrote the book on exporting your way to prosperity, one followed to great effect from South Korea to Vietnam, and eventually even China. But recent years have seen the student (China) surpass the teacher in moving past that simplistic growth strategy.

Abenomics, meanwhile, has proven to be a time machine endeavoring to return Japan to the export boom times of 1985. But even with additional BOJ stimulus, says Diana Choyleva of Lombard Street Research, exports don’t offer Japan a path to sustainable growth. Europe is still limping, the U.S. consumer isn’t the reliable growth engine it was a decade ago, and China’s relatively modest devaluation (about 3.5% in total) still means the yen’s value will rise on a trade-weighted basis.

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Better find an alternative to the term “emerging”.

China’s Currency Move Rattles African Economies (WSJ)

The shock waves from China’s surprise yuan devaluation are ricocheting through African economies, sending currencies tumbling and stoking anxiety that the continent’s biggest trading partner might be losing its appetite for everything from oil to wine. In South Africa, the rand hit a 14-year low of 12.94 to the dollar on Monday, extending a 2% drop since Aug. 10 and a 12% slide this year. Currencies in other African countries with close ties to China, like Angola’s kwanza and Zambia’s kwacha, are also down sharply after Beijing unexpectedly cut the yuan’s value by 2% against the dollar last Tuesday. China’s demand for Angolan oil, Zambian copper and South African gold has fueled a steep increase in trade, helping fuel rapid growth but leaving economies exposed to policy shifts in Beijing.

In 2013, Africa’s trade with China was valued at $211 billion, the African Development Bank said in June, more than twice the continent’s trade with the U.S. By contrast, 15 years ago, the U.S. traded three times as much with Africa as China did. Now, a weaker yuan is stoking fears in some African treasury departments and boardrooms that China’s buying power will be eroded—and that the world’s second-biggest economy may be slowing even more than official statistics suggest. Razia Khan, chief Africa economist at Standard Chartered bank, said China’s move was happening at a difficult moment for many African economies, which have been buffeted by volatility that has sent many regional currencies lower this year as oil prices dropped and the dollar surged. “Countries…with narrow export bases will be substantially disadvantaged,” she said.

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“..although countries can ride waves of growth and exploit commodity cycles despite having dysfunctional political institutions, the real test comes when times turn less favorable..”

The Great Emerging-Market Bubble (BIll Emmott)

Officially, Chinese growth is rock-steady at 7% per year, which happens to be the government’s declared target, but private economists’ estimates mostly range between 4% and 6%. One mantra of recent years has been that, whatever the twists and turns of global economic growth, of commodities or of financial markets, “the emerging-economy story remains intact.” By this, corporate boards and investment strategists mean that they still believe that emerging economies are destined to grow a lot faster than the developed world, importing technology and management techniques while exporting goods and services, thereby exploiting a winning combination of low wages and rising productivity.

There is, however, a problem with this mantra, beyond the simple fact that it must by definition be too general to cover such a wide range of economies in Asia, Latin America, Africa, and Eastern Europe. It is that if convergence and outperformance were merely a matter of logic and destiny, as the idea of an “emerging-economy story” implies, then that logic ought also to have applied during the decades before developing-country growth started to catch the eye. But it didn’t. The reason why it didn’t is the same reason why so many emerging economies are having trouble now. It is that the main determinants of an emerging-economy’s ability actually to emerge, sustainably, are politics, policy and all that is meant by the institutions of governance. More precisely, although countries can ride waves of growth and exploit commodity cycles despite having dysfunctional political institutions, the real test comes when times turn less favorable and a country needs to change course.

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“..if there is ever a dispute between what the bond market is saying and what the stock market is saying, the bond market is usually right..”

Bonds Signal Trouble Ahead As Equities Keep Calm (FT)

Confidence levels in corporate bond and equity markets have diverged to an extent not seen since the financial crisis as fixed income traders signal rougher times ahead to their stock market peers. Investment-grade bond yields and equity volatility, measures of investor sentiment in their respective markets, have moved further apart than at any time since March 2008, according to Bank of America Merrill Lynch analysts. US equities tumbled for the rest of that year as the financial crisis intensified. “Somebody has to be wrong here,” said Hans Mikkelsen, credit strategist at BofA. The contrast between equities and bonds comes as many economists expect the US Federal Reserve to increase overnight borrowing costs next month, the first rate rise in almost a decade.

“If I was an equity investor I would pay close attention to what’s going on in the corporate bond market, probably more than they are currently,” said Mr Mikkelsen. The broad S&P 500 has largely traded sideways this year, and briefly turned negative last week, while implied volatility, as measured by the CBOE Vix index, remains quiescent. The Vix has eased below 13, after a brief rise above 20 in July, a threshold that in the past has signalled an escalation of investor anxiety over equities. According to the BofA corporate bond index, the gap between yields on investment-grade corporate bonds and US government bonds has moved to 164 basis points.

This takes the difference between credit spreads per point of equity volatility to 10.26bp, BofA calculates, its highest level in more than seven years. “It’s a signal, but not necessarily a timing tool,” said Jack Ablin, chief investment officer at BMO Private Bank. He agreed that equity investors should be concerned by pessimism in the bond markets. “In my experience, if there is ever a dispute between what the bond market is saying and what the stock market is saying, the bond market is usually right,” he added.

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“We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up.” But that’s not the whole story (see article below this one).

Greek Senior Bank Bonds Fall on Dijsselbloem Bail-In Comment (Bloomberg)

Senior bonds of Greek banks tumbled after Euro-area finance ministers protected depositors from any losses in the nation’s €86 billion bailout. While Greece’s third bailout will spare depositors in any restructuring of the nation’s financial system, senior bank bondholders may not be so lucky, according to comments from Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem. The bondholders will be in line for losses if Greek lenders tap into any of the financial stability funds set aside in the new bailout. “Bondholders were overly optimistic because bail-in of senior bonds was not explicitly mentioned before,” said Robert Montague, a senior analyst at ECM Asset Management in London. “Today they were brought back down to earth with a bump.”

Under the bailout terms, as much as €25 billion will be made available in a fund to recapitalize the Greek banks, including €10 billion as a first installment. Greek stocks rose and government bond yields dropped on the deal, though senior unsecured bank bonds fell. “The bail-in instrument will apply for senior bondholders, whereas the bail-in of depositors is explicitly excluded,” Dijsselbloem said at a press conference in Brussels on Friday. Greece’s euro-area creditors made adoption of the EU’s Bank Resolution and Recovery Directive, or BRRD, a precondition of the bailout. The directive, which makes it easier to impose losses on senior creditors, should rank senior unsecured bondholders and depositors equally, said Olly Burrows at brokerage firm CRT Capital.

By protecting deposits, Greece is walking a different path to neighboring Cyprus, which imposed a levy on uninsured depositors as part of a rescue package in 2013. “It is not clear how they will make it possible to bail-in bonds while excluding deposits, but as we have seen in other problematic situations, where there is a will there will be a way,” Burrows said. “We call Dijsselbloem’s solution a bail-up: part bail-out, part bail-in and part cock-up.”

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No bail-in for deposits?! Here’s the real story.

Greek Deposits Become Eligible For Bail-In On January 1, 2016 (Zero Hedge)

Europe’s eagerness to promise depositor stability is transparent: the finmins will do everything in their power to halt the bank run from banks which will likely be grappling with capital controls for months if not years. Still, absent some assurance, there is no way that the depositors would be precluded from withdrawing all the money they had access to, which in turn would assure that the €86 billion bailout of which billions are set aside for bank recapitalization, would be insufficient long before the funds are even transfered. According to an Aug. 14 Eurogroup statement an asset quality review of Greek banks will take place before the end of the year,

“We expect a comprehensive assessment of the banks – so-called Asset Quality Review and Stress Tests – by the ECB/SSM to take place first,” EC spokeswoman Annika Breidthardt tells reporters in Brussels. “And this naturally takes a few weeks.” In other words Europe is stalling for time: time to get more Greeks to deposit their cash in the bank now, when deposits are “safe” and while everyone is shocked with confusion at the nonsensical financial acrobatics Europe is engaging in. But once Jan.1, 2016 rolls around, it will be a vastly different story. This was confirmed by the very next statement: “I must also stress that, depositors will not be hit” in this year’s review, she says. In this year’s, no. But the second the limitations from verbal promises of deposit immunity expire next year, everyone who is above the European deposit insurance limit becomes fair game for bail-in.

Dijsselbloem concluded on Friday that “Depositors have been excluded from the bail-in because in the first place it’s concerning SMEs and private persons. But it is only concerning depositors with more than 100,000 euros and those are mainly SMEs. That would again lead to a blow to the Greek economy. So the ministers said we will exclude them explicitly, it would bring damage the Greek economy.” Right, exclude them… until January 1, 2016. And only then impair them because Greece will never again be allowed to escape a state of permanent “damage” fo the economy. As for Greeks and local corporations whose funds are parked in a bank and who are wondering what all this means for their deposits, here is the answer: for the next 4.5 months, your deposits are safe, which under the current capital control regime doesn’t much matter: it’s not as if the money can be withdrawn in cash and moved offshore.

However, once January 1, 2016 hits and Greece becomes subject to a bank resolution process supervised and enforced by the BRRD, all bets are off. Which likely means that as the Greek bank balance sheet is finally “rationalized”, any outsized deposits will be promptly Cyprused. For our part, we tried to warn our Greek readers about the endgame of this farcical process since January of this year: we will warn them again – capital controls or not, pull whatever money you can in the next few months because once 2016 rolls around, all the rules change, and those unsecured bank liabilities yielding precisely nothing, and which some call “deposits” will be promptly restructured to make the Greek financial balance sheet at least somewhat remotely viable.

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Sounds more dramatic than it is. In Greece, democracy works. In Germany, differences are much less pronounced.

Greek Government On Its ‘Last Legs’, Merkel Faces Growing Rebellion (Telegraph)

Greek MPs are poised to hold a vote of confidence in the government of Alexis Tsipras after Leftist party rebels deserted the prime minister over the punishing terms of a third international bail-out agreement. Syriza’s energy minister Panos Skourletis said it was now “self evident” that parliamentarians would decide on whether or not to continue supporting the government after a “deep wound” had been inflicted on the ruling coalition. Lawmakers voted to ratify a 30-page “Memorandum of Understanding” to keep the country in the eurozone for the next three years on Friday. But the terms of the deal, which roll back a number of key pledges from the anti-austerity government, have split the ruling party. Mr Tsipras failed to get the backing of at least 120 of his own MPs, a constitutional threshold that could oblige him to trigger a vote in his leadership.

In a detailed evisceration of the austerity measures, former rebel finance minister Yanis Varoufakis denounced the agreement as encapsulating “the Greek government’s humiliating capitulation”. “Greek sovereignty is being forfeited wholesale” he said. “Not since the Soviet Union has wishful thinking, unsupported by anything tangible, posed as policymaking.” Support for the ruling coalition has becoming vanishingly thin. Greece’s two main opposition parties – which have so far voted to keep the country in the euro – vowed to pull the plug on the embattled premier should a vote be called in the coming weeks. Pasok, the much depleted socialist opposition, joined the conservative New Democracy in refusing to endorse Mr Tsipras and his junior coalition partner, led by defence minister Panos Kammenos.

[..] Chancellor Angela Merkel is facing the biggest domestic rebellion in her 10 years in office over the aid package. More than 60 of her Christian Democrat MPs rejected restarting talks over a new Greek rescue in an initial vote in July. This insurrection is set to mount when the package is put before a final parliamnetary vote on Wednesday, according to a key ally of the German premier. Michael Fuchs, deputy chairman of the CDU, said he had yet to decide whether or not he would back the bail-out as doubts over the involvement of the IMF continue to hang over Berlin. “There might be some changes by tomorrow, even,” said Mr Fuchs in an interview with Bloomberg.

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A broad summit sounds like the by far best idea available.

Leftist Veteran Glezos Appeals To Syriza Leadership To ‘Come To Senses’ (Kath.)

Leftist veteran Manolis Glezos, a former SYRIZA MEP, called on the party leadership to “come to your senses” and hold a broad summit, saying that the country’s third bailout “binds the Greek people hand and foot and enslaves them for entire decades.” “Let’s not allow the Left to become a seven-month parenthesis,” Glezos said in a statement. Describing the government’s strategy as “fickle and faltering,” he accused the party’s leadership of “erasing and destroying hopes and dreams.” “Finally come to your senses, fellow fighters and comrades of the leadership of the United Party,” Glezos wrote. “Before it is too late and before rushed initiatives are taken, listen to the voice of the people, of SYRIZA’s organizations and call a broad summit,” Glezos wrote, adding that “despite the intense dialogue that will take place, a solution will be found.”

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“.. the Greek retreat is not the last word for the simple reason that the crisis will hit again..[..]..The task of the Syriza government is to get ready for that moment..”

Thanks To The EU’s Villainy, Greece Is Now Under Financial Occupation (Zizek)

When my short essay on Greece after the referendum “The Courage of Hopelessness” was republished by In These Times, its title was changed into “How Alexis Tsipras and Syriza Outmaneuvered Angela Merkel and the Eurocrats”. Although I effectively think that accepting the EU terms was not a simple defeat, I am far from such an optimist view. The reversal of the NO of referendum to the YES to Brussels was a genuine devastating shock, a shattering painful catastrophe. More precisely, it was an apocalypse in both senses of the term, the usual one (catastrophe) and the original literal one (disclosure, revelation): the basic antagonism, deadlock, of the situation was clearly disclosed.

Many Leftist commentators (Habermas included) got it wrong when they read the conflict between the EU and Greece as the conflict between technocracy and politics: the EU treatment of Greece is not technocracy but politics at its purest, a politics which even runs against economic interests (as it was clearly stated by IMF, a true representative of cold economic rationality, which declared the bailout plan unworkable). If anything, it was Greece which stood for economic rationality and EU which stood for politico-ideological passion. After the Greek banks and stock exchange reopened, there was a tremendous flight of capital and fall of stocks which were not primarily a sign of the distrust of the Syriza government but of the distrust of the imposed EU measures a clear brutal message that (as we are used to put it in today s animistic terms) capital itself does not believe in the EU bailout plan.

(And, incidentally, most of the money given to Greece goes to the Western private banks, which means that Germany and other EU superpowers are spending taxpayers money to save their own banks which made the mistake of giving bad loans. Not to mention the fact that Germany profited tremendously from the escape of the Greek capital from Greece to Germany.) When Varoufakis justified his vote against the measures imposed by Bruxelles, he compared the deal to the Versailles treaty which was unjust and harboured a new war. Although his parallel is correct, I would prefer another one, with the Brest-Litovsk treaty between Soviet Russia and Germany at the beginning of 1918, in which, to the consternation of many of its partisans, the Bolshevik government ceded to Germany’s outrageous demands.

True, they retreated, but this gave them a breathing space to fortify their power and wait. And the same goes for Greece today: we are not at the end, the Greek retreat is not the last word for the simple reason that the crisis will hit again, in a couple of years if not earlier, and not only in Greece. The task of the Syriza government is to get ready for that moment, to patiently occupy positions and plan options. Keeping political power in these impossible conditions nonetheless provides a minimal space for preparing the ground for future action and for political education.

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“The ECB will service (as opposed to purchase) a portion of every maturing government bond corresponding to the percentage of the member state’s public debt that is allowed by the Maastricht rules.”

A New Approach to Eurozone Sovereign Debt (Yanis Varoufakis)

Greece’s public debt has been put back on Europe’s agenda. Indeed, this was perhaps the Greek government’s main achievement during its agonizing five-month standoff with its creditors. After years of “extend and pretend,” today almost everyone agrees that debt restructuring is essential. Most important, this is true not just for Greece. In February, I presented to the Eurogroup (which convenes the finance ministers of eurozone member states) a menu of options, including GDP-indexed bonds, which Charles Goodhart recently endorsed in the Financial Times, perpetual bonds to settle the legacy debt on the ECB’s books, and so forth. One hopes that the ground is now better prepared for such proposals to take root, before Greece sinks further into the quicksand of insolvency.

But the more interesting question is what all of this means for the eurozone as a whole. The prescient calls from Joseph Stigltiz, Jeffrey Sachs, and many others for a different approach to sovereign debt in general need to be modified to fit the particular characteristics of the eurozone’s crisis. The eurozone is unique among currency areas: Its central bank lacks a state to support its decisions, while its member states lack a central bank to support them in difficult times. Europe’s leaders have tried to fill this institutional lacuna with complex, non-credible rules that often fail to bind, and that, despite this failure, end up suffocating member states in need.

One such rule is the Maastricht Treaty’s cap on member states’ public debt at 60% of GDP. Another is the treaty’s “no bailout” clause. Most member states, including Germany, have violated the first rule, surreptitiously or not, while for several the second rule has been overwhelmed by expensive financing packages. The problem with debt restructuring in the eurozone is that it is essential and, at the same time, inconsistent with the implicit constitution underpinning the monetary union. When economics clashes with an institution’s rules, policymakers must either find creative ways to amend the rules or watch their creation collapse.

Here, then, is an idea (part of A Modest Proposal for Resolving the Euro Crisis, co-authored by Stuart Holland, and James K. Galbraith) aimed at re-calibrating the rules, enhancing their spirit, and addressing the underlying economic problem. In brief, the ECB could announce tomorrow morning that, henceforth, it will undertake a debt-conversion program for any member state that wishes to participate. The ECB will service (as opposed to purchase) a portion of every maturing government bond corresponding to the percentage of the member state’s public debt that is allowed by the Maastricht rules. Thus, in the case of member states with debt-to-GDP ratios of, say, 120% and 90%, the ECB would service, respectively, 50% and 66.7% of every maturing government bond.

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He’s not done yet by any means.

Yanis Varoufakis: Bailout Deal Allows Greek Oligarchs To Maintain Grip (Guardian)

Greece’s former finance minister Yanis Varoufakis has accused European leaders of allowing oligarchs to maintain their stranglehold on Greek society while punishing ordinary people in a line-by-line critique of the country’s €86bn bailout deal. Varoufakis said the Greek parliament had pushed through an agreement with international creditors that would allow oligarchs, who dominate sections of the economy, to generate huge profits and continue to avoid paying taxes. The outspoken economist published an annotated version of the deal memorandum on his website on Monday, arguing throughout the 62-page document that most of the measures imposed on Greece would make the country’s dire economic situation worse.

His first insertion makes clear his dismay at the dramatic events of last month, when the Greek prime minister, Alexis Tsipras, was forced to accept stringent terms for a new bailout amid calls from Germany for Greece’s temporary exit from the eurozone. Varoufakis, who resigned from his post in June, said: “This MoU [memorandum of understanding] was prepared to reflect the Greek government’s humiliating capitulation of 12 July, under threat of Grexit put to Tsipras by the Euro summit.” Folllowing the July summit, Athens agreed a three-year memorandum of understanding last week that will release €86bn of funds, much of it to repay debts related to two previous rescue deals. In exchange, Athens will implement wide-ranging reforms including changes to the state pension system and selling off government assets.

But Varoufakis said a reform programme overseen by the troika of lenders would only enslave ordinary workers and families by imposing tough welfare cuts while letting foreign companies grab domestic assets cheaply through privatisations. He said billionaire business owners in Greece would also escape scrutiny. In the memorandum it says: “Fiscal constraints have imposed hard choices, and it is therefore important that the burden of adjustment is borne by all parts of society and taking into account the ability to pay. Priority has been placed on actions to tackle tax evasion.” In answer, Varoufakis said: “As long as it is not committed by the oligarchs in full support of the troika through their multifarious activities.”

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Reforming the EU is a dead end street.

The Future of Europe (James Galbraith)

On June 8th, I had the honor of accompanying then-Greek finance minister, Yanis Varoufakis, to a private meeting in Berlin with the German finance minister, Wolfgang Schäuble. The meeting began with good-humored gesture, as Herr Schäuble presented to his colleague a handful of chocolate Euros, “for your nerves.” Yanis shared these around, and two weeks later I had a second honor, which was to give my coin to a third (ex-)finance minister, Professor Giuseppe Guarino, dean of constitutional scholars and the author of a striking small book (called The Truth about Europe and the Euro: An Essay, available here) on the European treaties and the Euro. Professor Guarino’s thesis is the following:

“On 1st January 1999 a coup d’état was carried out against the EU member states, their citizens, and the European Union itself. The ‘coup’ was not exercised by force but by cunning fraud… by means of Regulation 1466/97… The role assigned to the growth objective by the Treaty (Articles 102A, 103 and 104c), to be obtained by the political activity of the member states… is eliminated and replaced by an outcome, namely budgetary balance in the medium term.” As a direct consequence: “The democratic institutions envisaged by the constitutional order of each country no longer serve any purpose. Political parties can exert no influence whatever. Strikes and lockouts have no effect. Violent demonstrations cause additional damage but leave the predetermined policy directives unscathed.”

These words were written in 2013. Can there be any doubt, today, of their accuracy and of their exact application to the Greek case? It is true that Greek governments in power before 2010 governed badly, entered into the euro under false premises and then misrepresented the country’s deficit and debt. No one disputes this. But consider that when austerity came, the IMF and the European creditors imposed on Greece a program dictated by the doctrines of budget balance and debt reduction, including (a) deep cuts in public sector jobs and wages; (b) a large reduction in pensions; (c) a reduction in the minimum wage and the elimination of basic labor rights; (d) large regressive tax increases and (e) fire-sale privatization of state assets.

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Pretty brutal assessment.

Brutish, Nasty And Not Even Short: The Ominous Future Of The Eurozone (Streeck)

Now the dust has temporarily settled over the ruins of Greece’s economy, it is worth asking if there wasn’t a brief moment when the actors had found a way to cut the eurozone crisis’s Gordian knot. At some point in July German finance minister, Wolfgang Schäuble, appeared to have realised that his dream of a “core Europe” with a Franco-German avant-garde would vanish into thin air if Greece was allowed to remain in the economic and monetary union. Rewriting the rules of the union to accommodate the Greeks, Schäuble realised, would pull the euro southwards, and France, Italy and Spain with it – forever breaking up the European core.

His Greek equivalent Yanis Varoufakis, for his part, may have learned from his encounters of the third kind with the Eurogroup that the only role there was for Greece in the Europe of monetary union was that of an underfed and overregulated welfare recipient. Not only was this incompatible with Greek national pride; more importantly, what the governors of Europe would be willing to offer the Greeks by way of “European solidarity” would, at best, be too little to live on. The deal Schäuble offered in the last hour of July’s battle of the euro might have been worth exploring: a voluntary exit (an involuntary one not being possible under the current treaties) that gave Greece the freedom to devalue its currency and return to an independent monetary and fiscal policy, plus emergency assistance and some restructuring of the national debt, outside of the monetary union to avoid softening its rules by creating a precedent.

A generous golden handshake might have also been an idea, protecting Germany from being blamed for having plunged the Greeks into misery or driven them into the arms of Vladimir Putin. Politics can make strange bedfellows, but sometimes just for a one-night stand. In the end Varoufakis was overruled by Alexis Tsipras and Schäuble was overruled by Angela Merkel. The latter, displaying truly breathtaking political skills, managed within a day or two to redefine the resounding no of the Greek people to their creditors’ demands into a yes to “the European idea”, defined as a common currency – allowing him to sign on to even harsher conditions than had been rejected in the referendum (called, it seems, at the suggestion of Varoufakis, who was sacked on the very evening the results were in).

Afraid of the unimaginable economic disaster publicly imagined by fear-mongering euro supporters, and perhaps encouraged by informal promises by Brussels functionaries of future injections of other peoples’ money, Tsipras was ready to split his party and govern with those who had for decades let Greece rot in clientelism and corruption, offering the parties of Samaras and Papandreou an opportunity to regain legitimacy as pro-European supporters of “reform”.

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Little people from little countries get to have their say in the press. And they get off on that.

Greece To Trouble Eurozone For Decades, Says Finland’s Soini (Reuters)


Greece will be a headache for the eurozone for decades, Finland’s eurosceptic foreign minister said, and called for the IMF to participate in the Greece’s new bailout package. “Unfortunately, this problem will be in front of us for decades, I would say, if the eurozone stays together,” foreign minister Timo Soini said in an interview with public broadcaster YLE on Monday. IMF’s participation in the new bailout is uncertain because the fund demands debt reliefs to ease the burden on Greece. “An absolute debt cut, I think, is out of question, Germany too is against it … On other issues (maturities, interest rates) we must negotiate,” Soini said.

“IMF’s participation would also strengthen the expertise in the package, so that the programs will actually be carried out by Greece.” The Finnish parliament’s grand coalition last week approved the bailout deal. Soini’s nationalist the Finns party is known for opposing eurozone bailouts but had to support the new Greek deal to be able to keep a seat in the coalition government which it joined in May for the first time. “I still think bailout policy is bad policy … But in politics, one must make unpleasant decisions,” he said.

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If governments and regulatirs won’t do it…

Banks Braced For Billions In Civil Claims Over Forex Rate Rigging (FT)

Global banks are facing billions of pounds-worth of civil claims in London and Asia over the rigging of currency markets, following a landmark legal settlement in New York. Barclays, Goldman Sachs, HSBC and Royal Bank of Scotland were among nine banks revealed last Friday to have agreed a $2bn settlement with thousands of investors affected by rate-rigging in a New York court case. Lawyers warned the victory opens the floodgates for an even greater number of claims in London, the largest foreign exchange trading hub in the world, in a sign that the currency manipulation scandal is far from over. Banks could be hit as early as the autumn with claims in London’s High Court from corporates, fund managers and local authorities, according to lawyers working on the cases.

In addition, investors are expected to bring cases in Hong Kong and Singapore, which are also home to large foreign exchange markets. The US settlement comes just months after a record $5.6bn fine was slapped on six banks by regulators for manipulating the $5.3tn-a-day foreign exchange markets. “There will be more claims in London than in New York because it’s a bigger forex market,” said David McIlroy, a barrister at Forum Chambers. A settlement in London could amount to “tens of billions of pounds”, he said. Analysts said it would be extremely difficult to assess the financial impact on banks at this stage. “We’ve put in some element of civil fines for all the banks we cover, but it’s difficult to be specific because there aren’t that many clear precedents,” said one analyst.

“We looked at this one last week with interest, but the range of outcomes [from civil suits] is still quite wide.” Lawyers at US firm Hausfeld who worked on the class action said the recent settlement was “just the beginning”. Anthony Maton, a managing partner at Hausfeld, said: “There is no doubt that anyone who traded FX in or through the London or Asian markets — which transact trillions of dollars of business every day — will have suffered significant loss as a result of the actions of the banks. “Compensation for these losses will require concerted action in London.”

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Make that more.

US Graft Probes May Cost Petrobras Record $1.6 Billion Or More (Reuters)

Brazil’s Petrobras may need to pay record penalties of $1.6 billion or more to settle U.S. criminal and civil probes into its role in a corruption scandal, a person recently briefed by the company’s legal advisors told Reuters. State-run Petroleo Brasileiro, as the company is formally known, expects to face the largest penalties ever levied by U.S. authorities in a corporate corruption investigation, according to the person, who has direct knowledge of the company’s thinking. The settlement process could take two-to-three years, this person said. To date, the largest settlement of corporate corruption charges with the U.S. Department of Justice and the U.S. Securities and Exchange Commission was a 2008 agreement with Siemens, the German industrial giant.

It agreed to pay the U.S. $800 million to settle charges related to its role in a bribery scheme, and paid about the same amount to German authorities. The person told Reuters the legal advisors said they believed Petrobras faced fines that could be as large as, or more than, the $1.6 billion in combined U.S. and German penalties that Siemens faced. Two other sources with direct knowledge of Petrobras’ plans also said that any settlement, while several years away, would likely be “large,” but declined to give a specific estimate. All three sources requested anonymity, and cautioned that any estimates for the size of possible fines are very preliminary. Petrobras has not yet begun settlement talks with U.S. authorities, whose investigations are believed to be in an early phase, they said.

In November, the SEC sent a subpoena to Petrobras requesting information about the widening corruption investigations that have ensnared top company executives, major private contractors and senior politicians in Brazil. According to people familiar with the matter, the DOJ, which can bring criminal charges, is also investigating the company.

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“They’re terrified of 1937..” Hmm. Don’t forget that certain people made a killing post-1937.

Ron Paul: Fed May Not Hike Because ‘Everything Is Vulnerable’ (CNBC)

China’s move to devalue its currency roiled the markets last week, and stoked new fears about the health of the world’s third largest economy. However, according to former Rep. Ron Paul, the move may have given Federal Reserve Chair Janet Yellen the cover she needs to not raise rates later this year, as many market participants expect. “She’s going to be more hesitant to raise rates because she sees how fragile the global economy is,” Paul told CNBC’s “Futures Now” on Thursday. “She’s under the gun,” he added. “I could be wrong, but I don’t think they are going to raise interest rates.” According to the former Republican presidential candidate, a rapidly slowing Chinese economy adds just another headwind for an already struggling U.S. economy.

“I think there’s going to be enough problems existing, whether it’s the Chinese precipitating some crisis, or whether it’s our economy breaking down,” he said. Currently, markets expect the Fed will begin tightening monetary policy at its meeting in September. Gauges like closely watched fed fund futures contracts are pricing in a 45% chance of a September rate hike, while other analysts see the odds as higher. Yet institutions like the IMF have warned that a rate hike might imperil a fragile global recovery. In June, the IMF’s deputy director warned about potential risks of a Fed tightening. By Paul’s reasoning, the Fed is too scared to raise interest rates in the middle of an already weak recovery and risk sending the U.S. economy back into recession, or worse.

“They’re terrified of 1937,” said Paul, who has long called for a “day of reckoning” that will lead to the collapse of both the fixed income and equity markets. The Fed chief “does not want to be responsible for the depression that I think we’ve been in the midst of all along,” Paul added.

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The entire oil industry will try to keep smiling all the way to bankruptcy.

Junk-Rated Offshore Drillers Headed into Bankruptcy (WolfStreet)

After fracking, offshore drilling. At the leading edge is rig-contractor Hercules Offshore. In March 2014, before the oil price collapsed, it had the temerity to sell for 100 cents on the dollar $300 million in junk bonds. Since then, its shares have collapsed to near zero. Its bonds have collapsed too. And on Thursday last week, it and a whole gaggle of related companies filed for Chapter 11 bankruptcy. It won’t be the only junk-rated offshore driller with that fate, according to Fitch Ratings. Investors are going to get their pockets cleaned. “This is the lowest level of demand we have seen since the early days of the offshore industry,” Hercules CEO John Rynd had told investors in a quarterly conference call on April 29.

Hercules had already cut its global workforce – about 1,800 employees at the end of 2014 – by nearly 40%, he said. Offshore drillers have been buffeted from two directions: the collapse of drilling activity and the collapse in the daily rates they can charge for their offshore drilling rigs. So fewer rigs, and less money for each of the fewer rigs: Hercules’ revenues in the second quarter plunged 67% from a year ago! And junk-rated companies like Hercules that need new money to stay afloat and service their debts are finding out that their burned investors have shut off the spigot. “A leading indicator of further bankruptcies among other challenged high yield (HY) offshore drillers,” is what Fitch Ratings calls Hercules.

In the prepackaged bankruptcy, Hercules swaps four senior bond issues totaling $1.2 billion for 96.9% of the company’s equity. So how do these bondholders fare? The recovery rate for senior noteholders would be 41%, the company said in its disclosure statement. According to S&P Capital IQ LCD’s highyieldbond.com, “the range of reorganized equity value implies a recovery rate of 32-47.8%.” Meanwhile, the notes are quoted in the “low” 30-cents-on-the-dollar range. So for now, nearly a 70% haircut. Stockholders get the remaining 3.1% of the equity, plus warrants. Mere crumbs. To finish construction of the Hercules Highlander rig and to stay afloat a while longer, the company will also get $450 million in new money for 4.5 years, at LIBOR +9.5% per year, with a 1% floor. No more cheap money, even after bankruptcy, though it dramatically deleveraged the balance sheet at the expense of investors.

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The poor are expendable here too.

How Money, Race and Religion Determine the Fate of Europe-Bound Migrants (WSJ)

As Europe grapples with the biggest wave of migration since World War II, the fates of those crossing the Mediterranean are increasingly being determined by class systems based on money, ethnicity and religion. On these transnational trails, migrants tell of a fast-developing market for human cargo, where cash or creed can ensure a safer trip, more resources and better treatment. The discrimination starts at the beginning of migrants’ journeys at the hands of smugglers looking to maximize profits, and it ends with European authorities scrambling to handle the overwhelming numbers of people arriving and prioritizing them by nationality. In Greece this weekend, authorities deployed a 3,000-capacity passenger ferry to the island of Kos to host Syrian refugees arriving in record numbers.

Thousands of other asylum seekers on the island from Iraq and Afghanistan have been left without shelter, and with only sporadic access to food and a much longer wait to get their documents processed. Syrians are prioritized because the United Nations High Commissioner for Refugees has advised governments that they are so-called prima facie refugees, meaning they should be granted instant humanitarian protection because they are fleeing a war zone. EU countries recently agreed to resettle some 32,000 refugees from Greece and Italy, but said they would only do that for Syrian and Eritrean nationals, both designated as prima facie refugees by the U.N.

First reception procedures should be the same for everyone, said Barbara Molinario, a spokeswoman for the U.N. agency. Syrians are considered prima facie refugees, but “people from other countries might also have valid refugee claims, and generalizations should be avoided,” she said. On Kos, many locals view Syrians—who are almost neighbors across the Aegean Sea—as culturally similar to them. “Syrians are more civilized and they show more respect,” said Lefteris Kefalianos, a Kos resident who sells construction materials.

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