Jun 212018
 
 June 21, 2018  Posted by at 9:05 am Finance Tagged with: , , , , , , , , , ,  


Vincent van Gogh Avenue of Poplars at Sunset 1884

 

Short-Sellers Sense An Opportunity As China Trade Tensions Brew (R.)
The Greatest Short-Squeeze In History (ZH)
Chinese Investment In The US Drops 90% Amid Political Pressure (CNBC)
China Warns Washington’s ‘Capricious’ Trade Actions Will Hurt US Workers (R.)
China Could Strike Back At Dow-Listed Firms Over Trade: Global Times (R.)
Deutsche Bank Troubles Raise Worries About The Future Of The Eurozone (Polleit)
Greece Expects Substantive Debt Relief Conditions From Eurogroup (R.)
EU Committee Approves New Rules That Could ‘Destroy The Internet As We Know It’
Trump’s Military Drops a Bomb Every 12 Minutes, and No One Talks About It (TD)
Circle Closed: Merkel, Macron Want EU Border States To Deal With Refugees (RT)
Italian Coastguard Ship Carrying 522 Migrants Docks In Sicily (AFP)
I’ve Got Some Things to Say (Romelu Lukaku)

 

 

Something’s brewing alright…

Short-Sellers Sense An Opportunity As China Trade Tensions Brew (R.)

Escalating trade tensions between Washington and Beijing may have sent tremors across the U.S. stock market but short-sellers are taking the opportunity to boost bearish bets against U.S. companies exposed to a full-blown trade war. Planemaker Boeing, automaker General Motors, casino operator Las Vegas Sands, package delivery company FedEx and agricultural trader Bunge – companies that could feel the pain from growing trade tensions with China – have drawn a noticeable pickup in shorting activity this month, according to financial analytics firm S3 Partners.

“I think the change in short interest is directly related to the increase in trade tensions,” said Ihor Dusaniwsky, head of research at S3 in New York. Short-sellers aim to profit by selling borrowed shares with the hope of buying them back later at a lower price. On Friday, U.S. President Donald Trump said he was pushing ahead with hefty tariffs on $50 billion of Chinese imports, and Beijing immediately vowed to respond in kind. Tensions escalated further on Monday, after Trump threatened to hit $200 billion of Chinese imports with 10 percent tariffs if Beijing retaliated. Multinationals that rely on China for large parts of their business are seen as particularly at risk from a potential trade war.

Read more …

…but who’s going to come up on top, the shorts or the squeezers?

The Greatest Short-Squeeze In History (ZH)

A quick glance at the stock market – particularly big-tech – and once can quickly discern that “something’s up.” Every dip is met by a wall of buying, ramping the market ever higher, and ever more ignorant of the increasingly uncertain world around it.

Why? Simple… it’s a massive, unprecedented short-squeeze…

The “most shorted” stocks in America are up 20% in the last two months, almost incessantly.

While the chart above is ridiculous enough, it turns out that this is actually accelerating and is now the great short-squeeze in the history of the data…

The ‘Relative Strength Index’ of the “most shorted” stocks has never been higher and each time it has reached this level, stocks have fallen hard.

But as a reminder – amid all of this – The Dow is down for the 7th day in a row, its longest losing streak in 18 months.

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Xi needs to keep his foreign reserves at home.

Chinese Investment In The US Drops 90% Amid Political Pressure (CNBC)

Chinese acquisitions and investments in the U.S. fell 92 percent to just $1.8 billion in the first five months of this year, consulting and research firm Rhodium Group said Tuesday. Counting divestitures, net Chinese deal flow to the U.S. during that time was a negative $7.8 billion, the report said. The decline follows a sharp drop in the second half of last year as pressure from both Beijing and the Trump administration curbed a recent surge in cross-border investment. Completed Chinese deals in the U.S. hit a record $46 billion in 2016, and dropped to $29 billion in 2017, according to Rhodium. In a search for investment opportunities, Chinese companies went on an overseas buying spree in 2015 and 2016.

But now, China wants to limit capital flight and excessive leverage. The U.S. is worried about intellectual property protection and has increased scrutiny of deals on the basis of national security. The Trump administration has also threatened restrictions on investment based on a “Section 301” investigation, the same study that led to the latest tariff announcements. As a result, acquisitions worth more than $2 billion in the first five months of this year have fallen apart, Rhodium Group’s Thilo Hanemann said.

Read more …

Still negotiating.

China Warns Washington’s ‘Capricious’ Trade Actions Will Hurt US Workers (R.)

China’s commerce ministry on Thursday accused the United States of being “capricious” over bilateral trade issues, and warned that the interests of U.S. workers and farmers ultimately will be hurt by Washington’s penchant for brandishing “big sticks”. Previous trade negotiations with the United States had been constructive, but because the U.S. government is being unpredictable and challenging, Beijing has had to respond in a strong manner, commerce ministry spokesman Gao Feng said in a regular briefing in Beijing.

President Donald Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if Beijing retaliates against his previous announcement to target $50 billion in imports. The United States has alleged that China is stealing U.S. intellectual property, a charge denied by Beijing. Washington’s accusations of forced tech transfers are a distortion of reality, and China is fully prepared to respond with “quantitative” and “qualitative” tools if the U.S. releases a new list of tariffs, Gao said. “It is deeply regrettable that the U.S. has been capricious, escalated the tensions, and provoked a trade war,” he said. “The U.S. is accustomed to holding ‘big sticks’ for negotiations, but this approach does not apply to China.”

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China will have to move.

China Could Strike Back At Dow-Listed Firms Over Trade: Global Times (R.)

China could hit back at U.S. firms listed on the Dow Jones Industrial Average if U.S. President Donald Trump keeps exacerbating tensions with China over trade, state-controlled Chinese tabloid The Global Times said on Thursday. Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if China follows through with retaliation against his previous targeting of $50 billion in imports. The Dow, which counts Boeing, Apple and Nike among its constituents, ended down 0.17 percent on Wednesday. The 30-stock share index has declined 0.25 percent year-to-date.

“If Trump continues to escalate trade tensions with China, we cannot rule out the possibility that China will strike back by adopting a hard-line approach targeting Dow Jones index giants,” the Global Times said in a commentary. The world’s two biggest economies seemed increasingly headed towards open trade conflict after three rounds of high-level talks since early May failed to reach a compromise on U.S. complaints over Chinese trade practices and a $375 billion trade deficit with China. Despite taking steps in self-defense, China will not stray from its path of deepening reform and opening up, said the tabloid, which is run by the People’s Daily.

Read more …

Deutsche = derivatives.

Deutsche Bank Troubles Raise Worries About The Future Of The Eurozone (Polleit)

The euro banking sector is huge: In April 2018, its total balance sheet amounted to €30.9 trillion, accounting for 268% of GDP in the euro area. Unfortunately, however, many euro banks are in lousy shape. They suffer from low profitability and carry an estimated total bad loan exposure of around €759 billion, which accounts for roughly 30% of their equity capital. Share price developments suggest that investors have lost quite some confidence in the viability of euro banks’ businesses: While US bank stocks are up 24% since the beginning of 2006, the index for euro-area bank stocks is still down by around 70%. Perhaps most notably, ’Germany’s two largest banks, Deutsche Bank and Commerzbank, have lost 85 and 94%, respectively, of their market capitalization.

With a balance sheet of close to €1.5 trillion in March 2018, Deutsche Bank accounted for around 45% of German GDP. In international comparison, this an enormous, downright frightening dimension. It is mostly the result of the bank still having an extensive (though not profitable) footprint in the international investment banking business. The bank has already started reducing its balance sheet, though. Beware of big banks — this is what we could learn from the latest financial and economic crises 2008/2009. Big banks have the potential to take an entire economy hostage: When they get into trouble, they can drag everything down with them, especially the innocent bystanders – taxpayers and, if and when the central banks decide to bail them out, those holding fiat money and fixed income securities denominated in fiat money.

Read more …

Sure.

Greece Expects Substantive Debt Relief Conditions From Eurogroup (R.)

Greece expects eurozone finance ministers to deliver on promised debt relief this week so that it can at last plan its financial future “like any ordinary country,” the government spokesman said on Wednesday. Ministers in the Eurogroup will meet in Luxembourg on Thursday to consider plans for easing the debt burden, which at 179.8% of annual Greek GDP is proportionately the greatest in the 19-nation euro zone. “We are optimistic that we are on the verge of a solution with substance,” spokesman Dimitris Tzanakopoulos said, adding that this would “have a multiplying effect on the momentum of the Greek economy.” Shut out of debt markets in 2010, Greece is set to exit its international bailout program formally in August.

The Eurogroup will discuss debt relief to ensure Athens can return to market financing after eight years of loans from euro zone governments and the IMF. “The accepted criteria for all sides is that this solution be convincing for markets and embed the creditworthiness of our country – the final act in restoring the credibility of Greece to be able to plan for the next day like any ordinary country,” Tzanakopoulos told a news briefing. The European Stability Mechanism (ESM) holds more than half of the country’s public debt and, as its biggest creditor, is keen to see Greece regain market access sustainably. EU officials have repeatedly said the meeting will be crucial to seal Greece’s financial future.

Decisions will need to be made on the use of about €40 billion that remain unspent under its third, €86 billion bailout programme which expires on Aug. 20. Greece has already received substantial debt relief during the crisis. Private creditors cut the value of their holdings of Greek government bonds by more than half in 2012. As a result Greek debt stock was cut by about €107 billion. Official creditors do not accept such “haircuts” but have eased lending terms which reduced the net present value of the loans granted to Athens, resulting in further budget savings. European creditors will probably grant frontloaded debt relief to Greece by using the funds left over in the third bailout to buy out part of the IMF loans..

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“..a tool for the automated surveillance and control of its users..”

EU Committee Approves New Rules That Could ‘Destroy The Internet As We Know It’

An EU committee has approved two new copyright rules that campaigners warn could destroy the internet as we know it. The two controversial new rules – known as Article 11 and Article 13 – introduce wide-ranging new changes to the way the web works. Article 13 has been criticised by campaigners who claim that it could force internet companies to “ban memes”. It requires that all websites check posts against a database of copyrighted work, and remove those that are flagged. That could mean memes – which often use images taken from films or TV shows – could be removed by websites. The system is also likely to go wrong, campaigners say, pointing to previous examples where automated systems at YouTube have taken down a variety of entirely innocent posts.

Smaller sites might not even be able to maintain such a complicated infrastructure for scanning through posts, and therefore might not be able to continue to function, activists claim. Some companies and sites have already had to shut down as a result of the EU’s new GDPR data rules. It has been opposed by a whole host of internet experts, many of them involved with the creation of the central technologies and services of the internet. An open letter published last week was signed by more than 70 experts, including web creator Tim Berners-Lee, Wikipedia co-founder Jimmy Wales and internet pioneer Vint Cerf. “By requiring Internet platforms to perform automatic filtering all of the content that their users upload, Article 13 takes an unprecedented step towards the transformation of the Internet, from an open platform for sharing and innovation, into a tool for the automated surveillance and control of its users,” that letter read.

The authors note that copyright is an important part of law, which exists to encourage creators to ensure their work is put out into the world. But the automatic systems being considered by the EU are not the right ways of controlling that, they argue. “We support the consideration of measures that would improve the ability for creators to receive fair remuneration for the use of their works online,” the letter reads. “But we cannot support Article 13, which would mandate Internet platforms to embed an automated infrastructure for monitoring and censorship deep into their networks.”

Read more …

They all do it.

Trump’s Military Drops a Bomb Every 12 Minutes, and No One Talks About It (TD)

There was basically a media blackout while Obama was president. You could count on one hand the number of mainstream media reports on the Pentagon’s daily bombing campaigns under Obama. And even when the media did mention it, the underlying sentiment was, “Yeah, but look at how suave Obama is while he’s OK’ing endless destruction. He’s like the Steve McQueen of aerial death.” And let’s take a moment to wipe away the idea that our “advanced weaponry” hits only the bad guys. As David DeGraw put it, “According to the C.I.A.’s own documents, the people on the ‘kill list,’ who were targeted for ‘death-by-drone,’ accounted for only 2% of the deaths caused by the drone strikes.”

Two percent. Really, Pentagon? You got a two on the test? You get five points just for spelling your name right. But those 70,000 bombs dropped by Bush—it was child’s play. DeGraw again: “[Obama] dropped 100,000 bombs in seven countries. He out-bombed Bush by 30,000 bombs and 2 countries.” You have to admit that’s impressively horrific. That puts Obama in a very elite group of Nobel Peace Prize winners who have killed that many innocent civilians. The reunions are mainly just him and Henry Kissinger wearing little hand-drawn name tags and munching on deviled eggs.

However, we now know that Donald Trump’s administration puts all previous presidents to shame. The Pentagon’s numbers show that during George W. Bush’s eight years he averaged 24 bombs dropped per day, which is 8,750 per year. Over the course of Obama’s time in office, his military dropped 34 bombs per day, 12,500 per year. And in Trump’s first year in office, he averaged 121 bombs dropped per day, for an annual total of 44,096. Trump’s military dropped 44,000 bombs in his first year in office. He has basically taken the gloves off the Pentagon, taken the leash off an already rabid dog.

Read more …

Why the EU should not be in the hands of people who need to win national elections. Not Brussels either, obviously. This is disastrous.

Circle Closed: Merkel, Macron Want EU Border States To Deal With Refugees (RT)

With no end in sight to the EU refugee crisis, Berlin and Paris look to put the burden of dealing with asylum seekers on the countries where they first register. The seeming return to ‘old rules’ is poised to split Europe further. During their meeting ahead of the EU summit, German Chancellor Angela Merkel and French President Emmanuel Macron pledged to “jointly and resolutely tackle” what they euphemistically called “secondary movements inside the EU.” An elusive wording used in the so-called Meseberg Declaration adopted by the two leaders effectively means one thing: Macron and Merkel want all the newly arrived asylum seekers and migrants to stay in the EU countries where they were first registered while their cases are being processed.

This would leave the EU southern member states to deal with the new arrivals alone. The problem, however, is that the same rules embodied in what is known as the ill-fated EU Dublin Regulation already proved to be dysfunctional at the height of the 2015 refugee crisis. “It is a de-facto return to the Dublin Agreement, which was disavowed by Merkel herself when she opened Germany’s borders for refugees back in 2015,” Evgenia Pimenova, an expert at the International Studies Center of the Moscow State Institute of International Relations (MGIMO), told RT. It seems, however, that the leaders of Europe’s two powerhouses do not have much of a choice in a situation when they face a growing opposition to the old migration policies both at home and at the European level.

This apparent attempt to save face and gain some political points without giving up on their principled stance on immigration issues, however, might lead Berlin and Paris to a situation in which they only sow seeds of further discord in a bloc, which is already beset with political differences. “It is not a revolution” in a field of migration policy, Alain Corvez, a former advisor to the French Defense and Interior Ministries, told RT. “It is only a tactical decision [aimed at dealing] with the current threats” and “pressure” that Merkel and Macron and facing “in their own countries.”

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5Star must be careful with continuing support for Salvini.

Italian Coastguard Ship Carrying 522 Migrants Docks In Sicily (AFP)

An Italian coastguard ship carrying more than 500 migrants, including dozens rescued by the US Navy off Libya last week, arrived Tuesday night at a port in Sicily, days after the new far-right interior minister banned NGO rescue ships from docking in Italy. “Diciotti ship finally lands in Pozzallo taking 522 people to safe port,” the UNHCR Italy tweeted. “They were rescued in multiple operations, 42 of them survived drowning and they need urgent medical care and psychological support,” the UN refugee agency said, adding that it was at the scene along with Italian authorities and humanitarian organisations.

A dozen very dehydrated migrants, including six children, three women and one man, had already been sent to Pozzallo and taken into care by the Italian Red Cross. It is not known whether they were part of the group of 41 migrants rescued from a vessel in distress off Libya last Tuesday by the USNS Trenton, which transferred them to the Diciotti. The crew of the US fast transport ship also spotted 12 bodies in the water but were unable to locate them during a search after the rescue, the US Navy said. A nearby ship from the NGO Sea Watch offered to help provided it could dock with the migrants at an Italian port, which the Italian authorities refused.

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Wonderful story from an unexpected source, the attacker from Manchester United and Belgium. Moving.

I’ve Got Some Things to Say (Romelu Lukaku)

I remember the exact moment I knew we were broke. I can still picture my mum at the refrigerator and the look on her face. I was six years old, and I came home for lunch during our break at school. My mum had the same thing on the menu every single day: Bread and milk. When you’re a kid, you don’t even think about it. But I guess that’s what we could afford. Then this one day I came home, and I walked into the kitchen, and I saw my mum at the refrigerator with the box of milk, like normal. But this time she was mixing something in with it. She was shaking it all up, you know? I didn’t understand what was going on. Then she brought my lunch over to me, and she was smiling like everything was cool. But I realized right away what was going on.

She was mixing water in with the milk. We didn’t have enough money to make it last the whole week. We were broke. Not just poor, but broke. My father had been a pro footballer, but he was at the end of his career and the money was all gone. The first thing to go was the cable TV. No more football. No more Match of the Day. No signal. Then I’d come home at night and the lights would be shut off. No electricity for two, three weeks at a time. Then I’d want to take a bath, and there would be no hot water. My mum would heat up a kettle on the stove, and I’d stand in the shower splashing the warm water on top of my head with a cup.

There were even times when my mum had to “borrow” bread from the bakery down the street. The bakers knew me and my little brother, so they’d let her take a loaf of bread on Monday and pay them back on Friday. I knew we were struggling. But when she was mixing in water with the milk, I realized it was over, you know what I mean? This was our life. I didn’t say a word. I didn’t want her to stress. I just ate my lunch. But I swear to God, I made a promise to myself that day. It was like somebody snapped their fingers and woke me up. I knew exactly what I had to do, and what I was going to do. I couldn’t see my mother living like that. Nah, nah, nah. I couldn’t have that.

Read more …

Jul 222017
 
 July 22, 2017  Posted by at 8:34 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle July 22 2017


Jackson Pollock Pasiphae 1943

 

House of Cards (Paul Craig Roberts)
Deeply Flawed Western Economic Models Undermine Worst Recovery In History (CNBC)
Short Sellers Give Up as Stocks Run to New Records (WSJ)
Greed Is No Longer Good – Bond Boom Comes To An End (G.)
The Media’s War On Trump Is Destined To Fail. Why Can’t It See That? (Frank)
Goldman Sachs Boss Urges Long Brexit Transition. Is Anyone Listening? (Ind.)
US To Drop Criminal Charges In ‘London Whale’ Case (R.)
A Third Of Greeks At Risk Of Poverty As Athens Wants Return To Bond Market
No Surprises From IMF Report On Greek Debt (K.)
The Kingdom Whose Name We Dare Not Speak At All (Robert Fisk)
EPA Will Allow Fracking Waste Dumping in the Gulf of Mexico (TO)
German Carmakers Colluded On Diesel Emissions For Decades (Qz)
Number Of Homeless Children In Temporary Accommodation in UK Rises 37% (G.)
Sicilian Mayor Moves To Block Far-Right Plan To Disrupt Migrant Rescues (G.)
All Hell Breaks Loose As The Tundra Thaws (G.)

 

 

PCR short and to the point. And don’t you ever forget it.

House of Cards (Paul Craig Roberts)

Despite unrealistic plots and weak characterization (except for Francis Urquhart), Michael Dobbs’ books, House of Cards, Play the King, and The Final Cut were best sellers that provided the basis for a long-running TV series. I haven’t seen the films, but I have read the books. I conclude that plot and characters are mere props for the didactic lesson of the novels: Democratic politics is concerned only with power and sex. Nothing else is in the picture. There is no such thing as a politician concerned with the people’s well being or capable of marital fidelity.

The media are as bad as the politicians. Female journalists use their bodies for access to power and become accomplices in political intrigues. Idealism is merely another vehicle used in the competition for power. I suspect the novels and TV series were popular because they expose politics for what it is. Politics serves only personal ambition. This is a lesson that liberals and progressives, who present government as a public-spirited alternative to private greed, need to learn. In showing politics in service to personal ambition, Dobbs is a master of truth despite his shortcoming as a novelist.

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Yeah, the future of the world depends on the definition of “tight”. Do you buy it?

Deeply Flawed Western Economic Models Undermine Worst Recovery In History (CNBC)

The Western economic system is deeply flawed with countries such as the U.S. and Britain contributing to the lowest quality economic recovery the world has ever seen, Chris Watling, chief executive of Longview Economics, told CNBC on Friday. “The economic model is deeply flawed and the system in the west is deeply flawed, particularly in the English speaking part of the world and it needs to change,” Watling said. “I think this is undoubtedly the lowest quality economic recovery we have seen globally… full stop,” he added. The Longview Economics CEO explained that a debt-laden global economy could be vulnerable to looming interest rate hikes. The Federal Reserve is on a course to gradually increase interest rates, with financial markets expecting it to approve one more rate hike this year.

In addition, other central banks are pulling the reins on bond-buying and other liquidity programs aimed at injecting cash into their respective economies. “This is a world that is more indebted than it was before the global financial crisis in 2007, there’s no productivity growth, asset prices are very elevated, a lot of debt that corporates have built up has gone to share buy backs (and) the number of ‘zombie companies’ has doubled since 2007,” Longview Economics’ CEO explained. In the U.S. alone, households have $14.9 trillion in debt while businesses owe $13.7 trillion, according to the Federal Reserve.

Bond guru Bill Gross also warned that the course of global central banks toward tightening policy could be detrimental for the economic recovery. He argued that raising interest rates would increase the cost of short-term debt that corporations and individuals currently hold. When asked whether an imperfect system constituted a clear and present danger for the financial markets, Watling replied, “Whatever you want to call it doesn’t really matter but these sorts of things always unwind when you tighten money. The problem is judging what is tight? And that is sort of the million dollar question.”

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What are shorts worth in a world without price discovery? Shorts are there to chase off zombies. But central banks keep them alive.

Short Sellers Give Up as Stocks Run to New Records (WSJ)

Times are tough for skeptics of the bull market. Flummoxed by the endurance of a 2017 rally that produced its 27th S&P 500 record this week, investors are backing off bets that major indexes are headed downward. Bets against the SPDR S&P 500 exchange-traded fund, the largest ETF tracking the broad index, fell to $38.9 billion last week, the lowest level of short interest since May 2013, and remained near those levels this week, according to financial-analytics firm S3 Partners. Short sellers borrow shares and sell them, expecting to repurchase them at lower prices and collect the difference as profit. Bearish investors say they are scaling back on these bets not because their view of the market has fundamentally changed, but because it is difficult to stick to a money-losing strategy when it seems stocks can only go up.

They believe the market moves are at odds with an economy that remains lukewarm as it enters its ninth year of growth, stock valuations that are historically high and a delay of business-friendly policies in Washington like tax cuts and infrastructure spending. “There seems to be an overall view that people are invincible, that things will always go up, that there are no risks and no matter what goes on, no matter what foolishness is in play, people don’t care,” said Marc Cohodes, whose hedge fund focused on shorting stocks closed in 2008. Mr. Cohodes is now a chicken farmer based in California who is looking to get into goat herding in Canada. He shorts a handful of individual stocks personally, but isn’t focused on the broader market.

[..] The practice of shorting companies is also going by the wayside as stocks continue to notch records. Short-biased hedge funds had $4.3 billion in assets at the end of March, down from $7.1 billion at the end of 2013, according to HFR Inc. The difficulty for stock-market bears stems from a Goldilocks-like market environment, in which the economy is expanding fast enough to support corporate earnings, but slow enough for the Federal Reserve to keep rates relatively low. Years of low rates and easy-money policies have boosted stocks, defying forecasts for a steep, prolonged downturn. “The shorts have been frustrated now for quite a while,” said Scott Minerd, global chief investment officer at Guggenheim Partners, which has $260 billion in assets under management. The scenarios that might lead to a payout for market bears—an economic recession or a sharp rise in interest rates—don’t seem imminent, either, Mr. Minerd added.

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Sure, I believe you.

Greed Is No Longer Good – Bond Boom Comes To An End (G.)

City bond traders have put the champagne on ice. They had a good run. For some it lasted almost a year. But it’s over now and the “new normal” of low trading volumes and weak profits is reasserting itself. On Wall Street, Goldman Sachs took the biggest hit. This week the firm reported profits had plunged 40% in the second quarter on its bond, currency and commodities trading desks. All the other big names in the US investment banking world saw bond trading profits dive in the three months to the end of June, save for age-old Goldman rival Morgan Stanley, which restricted the loss to 4%. Lloyd Blankfein, the Goldman boss who rose through the ranks of bond traders to the top job, was unlikely to be sanguine about the turn of events amid concerns that his bank suffered more than most for relying on out-of-favour hedge funds as clients.

Back in October 2016 the story was very different. Barclays was on a high after what it said was a summer bonanza for its bond traders, pushing quarterly profits to a two-year high. Likewise Goldman, Deutsche Bank, Bank of America and JPMorgan were raking in the trades. Much of the reason for their optimism was a change of stance at the Federal Reserve. The US central bank signalled in late 2015 that the post-crash era of low inflation and low interest rates was coming to an end. To combat the threat of inflation, it would start to raise rates consistently through 2016 and 2017. This move put two trends in motion that spelled a big payday for the banks. First, the price of bonds started to fall, making them more attractive to buy. Second, not long afterwards, it became clear the other central banks were not going to follow suit in raising rates.

That broke seven years of agreement among the major central banks to hold interest rates at near zero as a way to boost economic activity. The Bank of England, the European Central Bank and the Bank of Japan were still on board, but Janet Yellen at the Fed had broken away. Without a consistent story, investors in fixed-income securities, the jargon name for bonds, found themselves needing to back several horses. And investors demanded the banks buy and sell their securities more frequently as uncertainty translated into an ever-changing mood in the market. The main measure of volatility – the Vix index – was still well below the 2009 peak, but it was elevated in 2016. And traders make money in periods when uncertainty and confusion raise levels of volatility.

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Thomas Frank (re-)writes my article from a few weeks ago, Feeding Frenzy in the Echo Chamber.

The Media’s War On Trump Is Destined To Fail. Why Can’t It See That? (Frank)

These are the worst of times for the American news media, but they are also the best. The newspaper industry as a whole has been dying slowly for years, as the pathetic tale of the once-mighty Chicago Tribune reminds us. But for the handful of well funded journalistic enterprises that survive, the Trump era is turning out to be a “golden age” – a time of high purpose and moral vindication. The people of the respectable east coast press loathe the president with an amazing unanimity. They are obsessed with documenting his bad taste, with finding faults in his stupid tweets, with nailing him and his associates for this Russian scandal and that one. They outwit the simple-minded billionaire. They find the devastating scoops. The op-ed pages come to resemble Democratic fundraising pitches. The news sections are all Trump all the time. They have gone ballistic so many times the public now yawns when it sees their rockets lifting off.

A recent Alternet article I read was composed of nothing but mean quotes about Trump, some of them literary and high-flown, some of them low-down and cruel, most of them drawn from the mainstream media and all of them hilarious. As I write this, four of the five most-read stories on the Washington Post website are about Trump; indeed (if memory serves), he has dominated this particular metric for at least a year. And why not? Trump certainly has it coming. He is obviously incompetent, innocent of the most basic knowledge about how government functions. His views are repugnant. His advisers are fools. He appears to be dallying with obviously dangerous forces. And thanks to the wipeout of the Democratic party, there is no really powerful institutional check on the president’s power, which means that the press must step up.

But there’s something wrong with it all. The news media’s alarms about Trump have been shrieking at high C for more than a year. It was in January of 2016 that the Huffington Post began appending a denunciation of Trump as a “serial liar, rampant xenophobe, racist, birther and bully” to every single story about the man. It was last August that the New York Times published an essay approving of the profession’s collective understanding of Trump as a political mutation – an unacceptable deviation from the two-party norm – that journalists must cleanse from the political mainstream. It hasn’t worked. They correct and denounce; they cluck and deride and Trump seems to bask in it. He reflects this incredible outpouring of disapprobation right back at the press itself.

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Contemplating the horrors of bankers leaving your society.

Goldman Sachs Boss Urges Long Brexit Transition. Is Anyone Listening? (Ind.)

I’ve no fondness for wealthy bankers, but that doesn’t mean to say they aren’t sometimes right. An example of that is Goldman Sachs International chief executive Richard Gnodde, who has just entered the Brexit debate to urge a “significant” transition period. Mr Gnodde is currently pouring money down a bottomless pit labelled “Brexit Contingency Plans”. There aren’t many Britons who will feel all that much sympathy for him over that. That money pit will mean less is available for the bonuses he and his colleagues are so fond of. So tough luck. Trouble is, his masters in New York won’t see it that way. They will eventually say that’s enough of that, start moving your people over to Frankfurt. Actually, the process has already begun. Some jobs are moving over to Germany.

Still more are simply staying in New York, which, for all the scrambling being done by Frankfurt, and Paris, and Dublin, has quietly become the biggest winner from this whole sorry affair. There are many who would shrug some more. What do we lose by inconveniencing a few thousand wealthy bankers anyway. They don’t exactly contribute much to society. Well, they pay a lot of tax for starters. It’s also true that they should pay more. But that’s just another debate. Despite that, I have for years argued that London’s financial centre has played too central a role in the nation’s economy, and that it would be a good idea for the Government to pursue a more balanced economic approach rather than coddling it (as it did until recently).

The trouble is it is now happening at a dangerously fast pace and it is impossible to see, as things stand, quite what is going to replace those tax revenues, which contribute to things like the NHS, schools, roads without potholes, and any number of other things. There are also a lot of support staff who work for banks like Goldman in the City. They’re not rich, by any means, and they’re unlikely to be able to move like the bankers so they’ll just lose their jobs. If it’s unpalatable hearing about this from Mr Gnodde – as it will be to an awful lot of people – consider also that the CBI has said much the same thing as have most sensible, and even semi-sensible, businesses both in the square mile of the City of London and beyond.

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Everyone walks. Yawn.

US To Drop Criminal Charges In ‘London Whale’ Case (R.)

U.S. prosecutors have decided to drop criminal charges against two former JPMorgan Chase derivatives traders implicated in the “London Whale” trading scandal that caused $6.2 billion of losses in 2012. In seeking the dismissal of charges against Javier Martin-Artajo and Julien Grout, the Department of Justice said it “no longer believes that it can rely on the testimony” of Bruno Iksil, a cooperating witness who had been dubbed the London Whale, based on recent statements he made that hurt the case. Prosecutors also said efforts to extradite Martin-Artajo and Grout, respectively citizens of Spain and France, to face the charges have been “unsuccessful or deemed futile.” Acting U.S. Attorney Joon Kim in Manhattan asked a federal judge for permission to drop charges that included securities fraud, wire fraud and falsifying records. Martin-Artajo and Grout were indicted in September 2013.

“After four long years of protracted litigation, we are very pleased that the government has decided to do the right thing, and dismiss the criminal case,” Grout’s lawyer, Edward Little, said. The dismissal request marks a fresh setback in U.S. efforts to prosecute individuals for financial crimes. This has included the undoing of several insider trading convictions and pleas that had been won by Kim’s predecessor Preet Bharara. It has also included this week’s overturning of the convictions of two former Rabobank NA traders for rigging the Libor interest rate benchmark. Martin-Artajo and Grout were accused of hiding hundreds of millions of dollars of losses within JPMorgan’s chief investment office (CIO) in London by marking positions in a credit derivatives portfolio at inflated prices.

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At risk of, you said? Weird that if you let investors and analysts discuss this, turns out they have no idea what’s really going on. But doesn’t that cluelessness hurt their investments. their clients?

A Third Of Greeks At Risk Of Poverty As Athens Wants Return To Bond Market

The Greek government might be preparing to return to the bond market but there are many structural problems that have yet to be resolved to make the economy more sustainable, an analyst told CNBC on Friday. Greece is currently on a third financial program since 2010, due to expire next year. According to James Athey, fixed income investment manager at Aberdeen Asset Management, despite the reforms implemented until now, “it still doesn’t seem we are particularly far down the road in solving the structural issues of Greece.” “Until the Greek economy has got a business model which works and it’s productive and it’s creating stable, secure growth that it’s not reliant on debt relief, external support and constantly bailouts from the Europeans, then it’s difficult to believe that the path is towards something more healthy rather than something less healthy,” Athey told CNBC on Friday.

The IMF agreed Thursday to make a loan of $1.8 billion to Greece as part of its current bailout program, but warned that the country will have to continue reforming in order to receive that money. Greece has to continue focusing on reducing the level of bad loans in its financial sector and extend labour market reform to liberalize Sunday trade and allow for collective dismissals, the fund said. However, with the bailout program due to end in 2018, Greece wants to come back to bond markets to show the rescue has been successful and the economy is able to fund itself. The government is studying when and how such a comeback will be more appropriate. Though Athens refuses to comment on this issue, it is widely expected that Greece will issue bonds next week.

The move is somewhat confusing given that Greek government bonds do not qualify for the ECB’s asset purchase program. They are considered junk by credit rating agencies, and thus cannot feature on the central bank’s balance sheet. When asked how Greece would convince investors to buy bonds if the ECB isn’t buying these assets, Athey said: “I don’t know.” “I guess from a Greek perspective it seems to be a window of opportunity, we’ve seen Greek yields have fallen fairly consistently throughout the year…the fact that Greece might come to market at what optically looks like an attractive yield for a Greek issuer must be tempting to them, especially considering that we are expecting the QE program to ultimately come to a conclusion over the next 6 to 12 months, they certainly would not want to wait until then,” he suggested.

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Absolute fantasy predictions. That’s the only way left to sell their stories. They all want Greece back in ‘markets’ before the next bailout expires next year.

No Surprises From IMF Report On Greek Debt (K.)

Bond markets responded calmly on Friday to the debt sustainability analysis (DSA) of the IMF, which found Greece’s debt exceptionally unsustainable, while deciding to participate in the Greek bailout program with 1.6 billion euros. The markets’ reaction allows for the government to issue the five-year bond as early as on Monday. The DSA reiterates that the eurozone’s commitments to secure the sustainability of the Greek debt are not sufficient. The IMF estimates the debt will slide to 160% of GDP in 2020 and to 150% in 230, before soaring to 190% in 2060. Servicing the debt will exceed 15% of GDP in 2028, reaching as high as 45% in 2060.

The Fund argues that the estimates of Athens and the eurozone on growth rates, primary surpluses and other parameters affecting the debt are optimistic and insists its own views are realistic, saying that Greece has historically been weak in implementing reforms and cannot support high primary surpluses for many years. It goes on to say that revenues from privatizations will not exceed €2 billion by 2030 and believes that the state will not collect any substantial funds from the sale of the bank shares it acquired in the last few share capital increases. It therefore calls on the eurozone to reach an agreement on a realistic strategy for easing Greece’s debt.

The IMF’s proposal for a new stress test on Greek banks and a fresh asset quality review were met with a clear dismissal on Friday by a ECB spokesman, who pointed to Frankfurt being the sole monitoring authority that decides on such issues. The strong ECB response was also addressed at the IMF’s estimate that Greek lenders will require fresh recapitalization to the tune of €10 billion. On Friday Standard & Poor’s stopped short of raising the country’s credit rating, affirming it at ‘B-,’ but pointed to an upcoming upgrade switching Greece’s outlook from stable into positive.

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How much longer? We know there are reports.

The Kingdom Whose Name We Dare Not Speak At All (Robert Fisk)

Theresa May has oddly declined to comment on the reported arrest of the mini-skirted lass who was videotaped cavorting through an ancient Najd village this week, provoking unexpected roars of animalistic male fury in a kingdom known for its judicial leniency, political moderation, gender equality and fraternal love for its Muslim neighbours. May should, surely, have drawn the attention of the rulers of this normally magnanimous state to the extraordinarily uncharacteristic behaviour of the so-called religious police – hitherto regarded as extras in the very same kingdom’s growing tourism industry which is supported by its newly appointed peace-loving and forward-thinking young Crown Prince.

But of course, since May cannot possibly believe that a single person in this particular national entity would give even a riyal or a halfpenny to “terrorists” – of the kind who have been tearing young British lives apart in Manchester and London – she’s hardly likely to endanger the “national security” of said state by condemning the arrest of the aforementioned young lady. In any event, a woman so proper that she would not risk soiling her hands by greeting the distraught survivors of the Grenfell Tower fire has no business shedding even a “little tear” for middle class girls who upset what we must now call The Kingdom Whose Name We Dare Not Speak At All. Or at least, we do not dare to speak its name.

It’s now a week since this extraordinary woman – our beloved May, not the cutie of Najd – declined to publish perhaps the most important, revelatory document in the history of modern “terrorism” on the grounds that to identify the men who are funding the killers running Isis, al-Qaeda, al-Nusrah and sundry other chaps, would endanger “national security”. Note that Amber Rudd, May’s amanuensis, intriguingly declined to specify whose “national security” was at risk. Ours? Or that of The Kingdom Whose Name We Dare Not Speak At All – henceforth, for brevity’s sake, the KSA – which must surely be well aware which of its illustrious citizens (peace-loving, moderate, gender-equalised, etc) have been sending their lolly to the Isis lads.

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If you read carefully, you see that it’s all been a mess for many years. The only difference is Trump doesn’t try to hide that.

EPA Will Allow Fracking Waste Dumping in the Gulf of Mexico (TO)

As the Trump administration moves to gut Obama-era clean water protections nationwide, an environmental group is warning the Environmental Protection Agency (EPA) that its draft pollution discharge permit for offshore drilling platforms in the Gulf of Mexico violates clean water laws because it allows operators to dump fracking chemicals and large volumes of drilling wastewater directly into the Gulf. In a recent letter to the agency, the Center for Biological Diversity told the EPA that the dumping of drilling wastewater – which can contain fracking chemicals, drilling fluids and pollutants, such as heavy metals – directly into Gulf waters is unacceptable and prohibited under the Clean Water Act.

Under current rules established by the Obama administration, offshore oil and gas platforms can discharge well-treatment chemicals and unlimited amounts of “produced waters” from undersea wells directly into the Gulf as long as operators perform toxicity tests a few times a year and monitor for “sheens” on the water’s surface. About 75 billion gallons of produced water were dumped in the Gulf in 2014 alone, according to EPA records. Offshore fracking, which typically involves injecting water and chemicals at high pressure into undersea wells to improve the flow of oil and gas, has rapidly expanded in the Gulf of Mexico over the past decade.

The latest draft of the pollution discharge permit, which was largely prepared under the Obama administration, would require drillers to collect information on the fracking chemicals they dump overboard. Regulators want to know what these chemicals are; their catalogue of offshore fracking chemicals has not been updated since 2001, despite advancements in technology.

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Here’s real collusion for you: “special committees of up to 200 employees”. It wasn’t just software, they also agreed to use too small versions of the ‘tanks’ that clean emissions. Now VW is talking, trying to get its own fines diminished.

Oh, and you think nobody in government ever knew about this? Prediction: Merkel will push EU into lower fines. Prediction 2: they will comply.

German Carmakers Colluded On Diesel Emissions For Decades (Qz)

German magazine Der Spiegel reports that the country’s powerful automakers have been meeting in secret since the 1990s—and their joint decisions on dealing with diesel emissions may have laid the groundwork for Volkswagen’s massive emissions-cheating scandal. According to Der Spiegel, VW admitted to German authorities that it may have engaged in “anti-competitive behavior” with rivals BMW and Daimler via special committees of up to 200 employees that set prices, agreed on suppliers, and engaged in other forms of coordination. One major topic of the meetings was how to manage emissions from diesel engines. The result, as we now know in Volkswagen’s case, was the installation of emissions-cheating software, which was uncovered by American regulators in 2015 and has cost the automaker dearly since.

Daimler tried to get ahead of things this week by recalling 3 million diesel vehicles in Europe for a free emissions-system alteration. Audi followed suit today, with a similar offer to “improve emissions behavior” for 850,000 cars. Spiegel says that German regulators discovered signs of an illegal agreement between the automakers this summer, when they were investigating Volkswagen on suspicion that carmakers were fixing the price of steel. Volkswagen, Daimler, and BMW declined to comment on the Spiegel report, with the latter two calling it “speculation.” Germany’s automakers are anxious as a backlash against diesel motors gathers pace. Several European cities—including Stuttgart, the home of Porsche—have called for a ban on diesel cars, which accounted for around 47% of cars sold in Europe’s five biggest markets in the second quarter of this year.

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Nice society you got there. Britain’s way overdue for a complete make-over.

Number Of Homeless Children In Temporary Accommodation in UK Rises 37% (G.)

Councils across England are housing the equivalent of an extra secondary school of pupils per month as the number of homeless children in temporary accommodation soars, according to local government leaders. The Local Government Association (LGA) said councils are providing temporary housing for around 120,540 children with their families – a net increase of 32,650 or 37% since the second quarter of 2014. It said the increase equates to an average of 906 extra children every month. The LGA said placements in temporary accommodation can present serious challenges for families, from parents’ employment and health to children’s ability to focus on school studies and form friendships. The LGA, which represents 350 councils across England, said the extra demand is increasing the pressure on local government.

It said councils need to be able to build more “genuinely affordable” homes and provide the support that reduces the risk of homelessness. This means councils being able to borrow to build and to keep 100% of the receipts of any home they sell to reinvest in new and existing housing, the LGA said. Council leaders are also calling for access to funding to provide settled accommodation for families that become homeless. Martin Tett, the LGA’s housing spokesman, said: “When councils are having to house the equivalent of an extra secondary school’s worth of pupils every month, and the net cost for councils of funding for temporary accommodation has tripled in the last three years, it’s clear the current situation is unsustainable for councils, and disruptive for families.

“Councils are working hard to tackle homelessness, with some truly innovative work around the country – and we now need the Government to support this local effort by allowing councils to invest in building genuinely affordable homes, and taking steps to adapt welfare reforms to ensure housing remains affordable for low-income families.”

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EU policies bring the vermin our of the woodwork.

Sicilian Mayor Moves To Block Far-Right Plan To Disrupt Migrant Rescues (G.)

A Sicilian mayor is seeking to block a ship chartered by a group of far-right activists attempting to disrupt migrant rescues in the Mediterranean. Enzo Bianco, the mayor of Catania, has urged authorities in the port city on the island’s east coast to deny docking rights to C-Star, a 40-metre vessel hired by Generation Identity, a movement made up of young, anti-Islam and anti-immigration activists from across Europe, for its sea mission to stop migrants entering Europe from Libya. The ship is expected to arrive on Saturday, and the group intends to launch its mission next week. “I’ve told [the relevant] authorities that allowing the ship to dock in our port would be very dangerous for public order,” Bianco said in a statement to the Guardian.

“I also consider it to be a provocation by those involved, with their sole purpose being to fuel conflict by pouring fuel on the fire.” Under a vigilante scheme called “Defend Europe”, the activists crowdfunded more than €75,000 (£67,000) to hire the boat. In a “trial run” two months ago, the ship successfully intercepted a charity rescue ship off Sicily. The activists’ aim is to expose what they claim to be wrongdoing by “criminal” NGO search and rescue vessels, which they accuse of working with people smugglers to transport illegal immigrants to Europe. They also plan to disrupt the work of the crews by calling the Libyan coastguard and asking them to take migrants and refugees attempting to cross the Mediterranean back to war-torn Libya.

Anti-racism groups across Sicily have also urged authorities to take action against the group, to prevent them interfering in the life-saving missions. “Sicily is a place where every family has an emigration story,” Bianco said. “In recent years we have welcomed thousands of people fleeing from war and hunger, people who were saved from dying in the Mediterranean by European vessels, and those who have lost one or more family members crossing the sea. Talking about ‘defending Europe’ is not just demagogic, it’s unworthy.”

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“Long dormant spores of the highly infectious anthrax bacteria frozen in the carcass of an infected reindeer rejuvenated themselves and infected herds of reindeer and eventually local people.”

All Hell Breaks Loose As The Tundra Thaws (G.)

Strange things have been happening in the frozen tundra of northern Siberia. Last August a boy died of anthrax in the remote Yamal Peninsula, and 20 other infected people were treated and survived. Anthrax hadn’t been seen in the region for 75 years, and it’s thought the recent outbreak followed an intense heatwave in Siberia, temperatures reaching over 30C that melted the frozen permafrost. Long dormant spores of the highly infectious anthrax bacteria frozen in the carcass of an infected reindeer rejuvenated themselves and infected herds of reindeer and eventually local people. More recently, a huge explosion was heard in June in the Yamal Peninsula. Reindeer herders camped nearby saw flames shooting up with pillars of smoke and found a large crater left in the ground.

Melting permafrost was again suspected, thawing out dead vegetation and erupting in a blowout of highly flammable methane gas. Over the past three years, 14 other giant craters have been found in the region, some of them truly massive – the first one discovered was around 50m (160ft) wide and about 70m (230ft) deep, with steep sides and debris spread all around. There have also been cases of the ground trembling in Siberia as bubbles of methane trapped below the surface set the ground wobbling like an airbed. Even more dramatic, setting fire to methane released from frozen lakes in both Siberia and Alaska causes some impressive flames to erupt. Methane is of huge concern. It is more than 20 times more potent a greenhouse gas than carbon dioxide, and a massive release of methane in the Arctic could pose a significant threat to the global climate, driving worldwide temperatures even higher.

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 December 3, 2016  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , , ,  


DPC “Car ferry Michigan Central turning in ice, Detroit River” 1900

Italian Stock Exchange CEO: There Are ‘Colossal’ Short Positions On Italy (R.)
Markets Eye Europe’s ‘Fear Gauge’ As Italian Referendum Approaches (CNBC)
Is the Yellen Fed TRYING to Crash Stocks To Hurt Trump? (Summers)
China Blames Taiwan For President’s ‘Petty’ Phone Call With Trump (R.)
China Bond Yields Jump As Investors Head For Exit (MNI)
China’s ‘Extraordinary Leverage’ Tops BOE List Of Concerns (CNBC)
Do We Want House Prices Up Or Down? (AFR)
Cash Is Still King In Eurozone – Deutsche (CNBC)
Iceland Pirate Party To Try To Form Government (BBC)
UK Politicians Exempt Themselves From New Wide-Ranging Spying Laws (Ind.)
The New American Dream – A Life In Hock (Peters)
California Pensions Underfunded By $1 Trillion Or $93k Per Household (ZH)
Why US ‘News’ Media Shouldn’t Be Trusted (Zuesse)
Everything You Read About The Wars In Syria And Iraq Could Be Wrong (Ind.)
US Veterans Build Barracks For Pipeline Protesters In Cold (R.)

 

 

By Monday morning, Europe could be shaking on its brittle foundations.

Italian Stock Exchange CEO: There Are ‘Colossal’ Short Positions On Italy (R.)

Big international investors are holding huge short positions on Italian assets, the CEO of the Italian exchange said on Tuesday, days before the country holds a referendum on constitutional reform that could unseat Prime Minister Matteo Renzi. “There are colossal short positions on Italy from the U.S. and other countries where big investors are based,” said Raffaele Jerusalmi during a conference in Milan. Opinion polls conducted until a blackout period began last week showed the “no” vote comfortably in the lead, raising concerns of a political crisis and fueling market volatility. Renzi has said he would resign if Italians reject the reform.

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Spread with Bunds.

Markets Eye Europe’s ‘Fear Gauge’ As Italian Referendum Approaches (CNBC)

The Italian referendum is the current hot concern for investors, who are worrying and waiting to see if voters will reject government attempts to reform the country’s political system. Prime Minister Matteo Renzi has staked his reputation and job on the outcome, arguing a change in the legislature will usher in a nimbler, more productive Italy. However some see the predicted rejection of Renzi’s wishes as a potential opportunity for anti-European populist to gain momentum. Jan Randolph, Director of Sovereign Risk at IHS Markit said in an email Friday that worries over a potential European break-up can be measured by Europe’s “fear gauge”: The difference in yield between Italian and German debt.

“The markets are certainly focusing on this ‘spread’ – what we used to call in the old British banking days the ‘country risk spread’ as viewed by the financial markets,” Randolph said. In recent weeks, the yield spread between Italian and German 10-year government bonds has risen by more than 60 points in 60 days. Last week the spread hit a two-and-a-half year high of 188 basis points, however Reuters reported Friday that investors may be short covering as the gap between Italian and German bond yields has narrowed to 167 basis points. Jan Randolph said any blow-out of Italian yields may well be prevented by the poker hand being played by ECB President Mario Draghi’s massive bond-buying program, which many analysts expect to be extended next year.

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Entertaining ideas.

Is the Yellen Fed TRYING to Crash Stocks To Hurt Trump? (Summers)

Is Janet Yellen trying to crash stocks to screw Trump? Ever since the $USD began its bull market run in mid-2014, the Fed, lead by Janet Yellen, has intervened whenever the $USD cleared 98. The reason for this was the following… Over 47% of US corporate sales come from abroad. With the $USD spiking, pushing all other major currencies generally lower, US corporate profits began to implode. As we write this today, profits have fallen to 2012 levels. Note when this whole profit massacre began. Because of this, the Fed has “talked down” the $USD anytime it began to push higher. Until today…

Since it was announced that Trump won the Presidency, the Fed has allowed the $USD to ramp straight up. It is currently over 101…and the Fed hasn’t said a word. So we ask again… is Janet Yellen trying to crash stocks to screw Trump? We all know the Yellen Fed is one of the most political in history with Fed officials openly donating money to the Clinton campaign. Now Trump has won… the $USD soars to 101… and suddenly the Fed is silent? Not one Fed official has appeared to talk about putting off a rate hike or some other statement that might push the $USD lower…

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Entire books have been written about this in the past 12 hours or so. That, too, is fake news.

China Blames Taiwan For President’s ‘Petty’ Phone Call With Trump (R.)

U.S. President-elect Donald Trump spoke by phone with President Tsai Ing-wen of Taiwan, the first such contact between the two sides in nearly four decades, but China dismissed the call as a “petty action” by the self-ruled island it claims as its own. The 10-minute telephone call with Taiwan’s leadership was the first by a U.S. president-elect or president since President Jimmy Carter switched diplomatic recognition from Taiwan to China in 1979, acknowledging Taiwan as part of “one China”. Hours after Friday’s call, Chinese Foreign Minister Wang Yi blamed Taiwan for the exchange, avoiding what could have been a major rift with Washington just before Trump assumes the presidency. “This is just the Taiwan side engaging in a petty action, and cannot change the ‘one China’ structure already formed by the international community,” Wang said at an academic forum in Beijing, state media reported.

“I believe that it won’t change the longstanding ‘one China’ policy of the United States government.” In comments at the same forum, Wang noted how quickly President Xi Jinping and Trump had spoken by telephone after Trump’s victory, and that Trump had praised China as a great country. Wang said the exchange “sends a very positive signal about the future development of Sino-U.S. relations”, according to the Chinese Foreign Ministry’s website. Taiwan was not mentioned in that call, according to an official Chinese transcript. Trump said on Twitter that Tsai had initiated the call he had with the Taiwan president. “The President of Taiwan CALLED ME today to wish me congratulations on winning the Presidency. Thank you!” he said. Alex Huang, a spokesman for Tsai, said: “Of course both sides agreed ahead of time before making contact.”

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“When everyone heads for the exit at the same time, there’s a risk of injury in the stampede.”

China Bond Yields Jump As Investors Head For Exit (MNI)

When everyone heads for the exit at the same time, there’s a risk of injury in the stampede. Chinese bond investors are getting a taste of just how that feels as they scramble to offload their holdings in what could turn out to be a nasty correction. Some investors have already been dumping their government bonds as yields started to rebound from record lows, while others, who only got in recently when yields were around 2.8-2.9%, been holding on in the hope that bond yields will fall back soon. In the secondary market, the yield on the benchmark 10-year Chinese Government Bond (CGB) broke above 3% on Thursday for the first time since early June and was at 2.995% in Friday morning trade, up nearly 15 basis points for the week, the biggest weekly rise since May 2015.

For November as a whole, the yield jumped 8.88%, the biggest monthly gain since October 2010. Treasury futures also plunged this week with March contracts for 10-year CGB and five-year CGB both having their biggest weekly loss since the contracts started trading in June. A Shanghai-based trader with a joint stock bank said he believes the yield on the 10-year CGB could rise as high as 3.2% before falling back. The brutal sell-off has been triggered by a triple whammy – expectations of tighter liquidity conditions and higher inflation on the domestic front, and externally, rising bond yields in the U.S.

A surge in redemptions from worried investors has hit the market hard. One major state-owned bank is said to have redeemed around CNY200 billion from money market funds while the Industrial and Commercial Bank of China, the country’s largest commercial bank, is also said to have told fund managers managing some of its money to cut bonds holdings and stockpile cash in line with ICBC’s own liquidity management. Domestic investors have swarmed over China’s bond market like bees around a honey pot over the last couple of years amid a dearth of more attractive investment opportunities as economic growth slowed. The stock market rout in the summer of 2015 only encouraged investors to move more funds to fixed income products.

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Sounds about right.

China’s ‘Extraordinary Leverage’ Tops BOE List Of Concerns (CNBC)

China, euro zone sovereign debt and the potential fallout from Brexit top the escalating list of concerns for the Bank of England (BOE), according to a report published on Wednesday which warns that risks to global stability have spiked in the past six months. The U.K.’s central bank’s semi-annual Financial Stability Report states, “Vulnerabilities stemming from the global environment and financial markets, which were already elevated, have increased further since July.” China’s burgeoning debt levels and rapid rate of credit expansion are singled out as significant red flags, with the report noting a 100 percentage point spike in the country’s non-financial sector debt relative to GDP since the 2008 financial crisis. The ratio currently stands at around 260% of GDP.

“This is extraordinary leverage for an advanced, let alone, an emerging economy,” the BOE Governor Mark Carney said at a press conference to launch the report. The “near-record” pace of net capital outflows from China during the third quarter and a 3% depreciation in the Chinese renminbi against the U.S. dollar since the publication of the BOE’s July report were also highlighted as reasons for concern. Turning to nearer neighbors, the governor broke down the key risks emanating from some euro area economies into, firstly, existing sovereign debt dynamics and, secondly, threats to the resilience of parts of the trading bloc’s banking system.

Carney noted the vulnerability of elevated sovereign debt levels to a leap in borrowing costs or diminished growth prospects on the back of either trade or political headwinds. Moving even closer to home, the governor raised the looming specter of the U.K.’s impending departure from the EU, noting banks located domestically currently supply over half of the debt and equity issuance from continental firms and account for over 75% of foreign exchange and derivatives activity in the U.K.

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“We” can’t make up our minds about this one. Because our minds are stuck in a bubble.

Do We Want House Prices Up Or Down? (AFR)

Just as market forces were about to push the price of housing down in Australia, the Treasurer stepped in with some new regulation. Phew. Some first home buyer’s nearly snatched a good deal, but luckily the Treasurer was there to protect the property developers from the oversupply their building bonanza created. No issue creates a bigger flood of nonsensical econobabble in Australia than “housing affordability”. It’s a meaningless term engineered for the sole purpose of allowing politicians to pretend they are simultaneously on the side of home buyers and home sellers. What’s remarkable is the willingness of the media and others to play along. Most politicians are adamant that they want petrol, fresh food and health insurance to be less expensive.

We talk about the price of petrol and the price of milk. We don’t talk about “petrol affordability” or “bread affordability” let alone create an index of the price of bread divided by median household income. Talking endlessly about “housing affordability” allows politicians to duck the simple question of whether house prices are “too high”, “too low” or “just right”. The absurdity of this situation was revealed during the federal election campaign when the Coalition attacked the ALP’s plans to reform negative gearing on the basis that such changes would, wait for it, put downward pressure on house prices. Oh, the humanity! The Coalition’s rhetorical solution to the imaginary issue of housing affordability is to reject changes to the tax treatment of investment houses and instead blame environmentalists and state governments for “restricting the supply of housing”.

Of course this week’s redefinition of “second-hand property” by Treasurer Morrison makes a mockery of such a position. Having spent years pretending that increasing the housing supply would make housing “more affordable” the Treasurer has now acted to prevent an increase in apartment supply from pushing apartment prices down. The Coalition playbook makes clear that when it’s not the environmentalists’ fault, it must be the unions’ fault. On cue Malcolm Turnbull recently empathised with the terrible plight of “young Australian couples that can’t afford to buy a house because their costs are being pushed up by union thuggery”. A quick look at the data suggests no such link, but if Donald Trump taught conservatives anything it’s that data is for losers.

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And it should be.

Cash Is Still King In Eurozone – Deutsche (CNBC)

While cash is facing several challenges in the euro area with an increasing number of people moving towards cashless payments and digital banking, the reports of the demise of cash are greatly exaggerated, Deutsche Bank has said in its latest research note. “Cash is facing many challenges in the euro area. The ECB has decided to cease production of the €500 ($532) note due to concerns over its facilitation of illicit activities,” the bank said while adding that the cash in circulation is three times more than what it was in 2003.

While many would attribute this to the never-ending stream of money that the central banks have been pumping into the economy through QE and ultra-low interest rates, Deutsche Bank’s Heike Mai believes that most of the increase in cash since 2008 comes from abroad and hoarders. Cash held outside the euro area was worth €80 billion and cash hoarded domestically by the real economy is estimated to be valued at €120 billion. “There are good reasons to believe that cash won’t disappear anytime soon from the euro area. First, it is debatable that a cashless society would mean less crime,” Mai said, adding, that the ratio of damage caused by card fraud to the value of counterfeit notes in circulation is more than 10 to 1.

“Second, the political value of cash should not be underestimated. Some economies like using cash, for example, Germany, Spain, Italy and Austria. The most robust data protection is provided by cash,” Mai, an economist at Deutsche Bank, said in the note. The research note that focuses on Europe argued that by the end of third-quarter of 2016, euro currency in circulation amounted to €1.1 trillion, three times as much as in the first quarter of 2003. While small-value notes such as €5, €10 and €20 are used to a great extent for day-to-day payments, bigger-value notes such as €50 and €100 are used for both payments and cash hoarding.

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Beware of frozen quicksand. Everyone wants the Pirates to fail.

Iceland Pirate Party To Try To Form Government (BBC)

Iceland’s anti-establishment Pirate Party has been asked by the president to try to form a new government, following October’s snap elections. President Gudni Johannesson made the announcement after talks with Pirates head Birgitta Jonsdottir. The Pirates, who vowed radical reforms, came third in the elections in which no party won an outright majority. Two earlier rounds of coalition talks involving first the Independence Party and then the Left-Greens failed. “Earlier today, I met the leaders of all parties and asked their opinion on who should lead those talks. After that I summoned Birgitta Jonsdottir and handed her the mandate,” President Johannesson said on Friday.

Ms Jonsdottir said afterwards she was “optimistic that we will find a way to work together”. In the elections, the Pirate Party – which was founded in 2012 – more than tripled its seats to 10 in the 63-member parliament. The election was called after Prime Minister Sigmundur Gunnlaugsson quit in April in the wake of the leaked Panama Papers, which revealed the offshore assets of high-profile figures. The Pirates want more political transparency and accountability, free health care, closing tax loopholes and more protection of citizens’ data.

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Color me stunned.

UK Politicians Exempt Themselves From New Wide-Ranging Spying Laws (Ind.)

Politicians have exempted themselves from Britain’s new wide-ranging spying laws. The Investigatory Powers Act, which has just passed into law, brings some of the most extreme and invasive surveillance powers ever given to spies in a democratic state. But protections against those spying powers have been given to MPs. Most of the strongest powers in the new law require that those using them must be given a warrant. That applies to people wanting to see someone’s full internet browsing history, for instance, which is one of the things that will be collected under the new law. For most people, that warrant can be issued by a secretary of state. Applications are sent to senior ministers who can then approve either a targeted interception warrant or a targeted examination warrant, depending on what information the agency applying for the warrant – which could be anyone from a huge range of organisations – wants to see.

But for members of parliament and other politicians, extra rules have been introduced. Those warrants must also be approved by the prime minister. That rule applies not only to members of the Westminster parliament but alos politicians in the devolved assembly and members of the European Parliament. The protections afforded to politicians are actually less than they had hoped to be given. Earlier in the process, the only amendment that MPs had submitted was one that would allow extra safeguards for politicians – forcing any request to monitor MP’s communications to go through the speaker of the House of Commons as well as the prime minister.

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Eric Peters sells cars. And he’s right that cheap credit drives car sales and gadgetry. But not about the need for cars in the first place.

The New American Dream – A Life In Hock (Peters)

We live in a society driven by debt. Cars, for example, have become hugely expensive (even on the low end) relative to what people can afford – because of the easy availability of credit. Which is the nice word used to speak about debt, intended to encourage us to get into it. It takes at least $15,000 or so to drive home in a “cheap” new car, once all is said and done. And the “cheap” car will have to be registered, plated and insured. It runs into money. And most new cars cost a lot more money. Which most people haven’t got. So they get debt. A loan. Which, when it becomes commonly resorted to as a way to live beyond one’s means as a lifestyle, drives up the cost of life for everyone. Including those who try to live within their means – or better yet, below them.

When most people (when enough people) are willing – are eager – to go into hock for the next six years in order to have a car with an LCD touchscreen, leather (and heated) seats, six air bags, a six-speaker stereo, electronic climate control AC and power everything – which pretty much every new car now comes standard with – the car companies build cars to satisfy that artificial demand. Artificial because based on economic unreality. That is a good way to think about debt. It is nonexistent wealth. You are promising to pay with money you haven’t earned yet. And maybe won’t. The car market has become like the housing market – which has also been distorted by debt to a cartoonish degree. The typical new construction home is a mansion by 1960s standards.

Not that there’s anything wrong with living in a mansion. Or driving a car with heated leather seats and climate control AC and a six-speaker surround-sound stereo and six air bags and all the rest of it. Provided you can afford it. Most people can’t. Normally, that fact would keep things in check. There would be mansions, of course – and high-end cars, too. But only for those with the high-end incomes necessary to afford them. Everyone else would live within their means. We wouldn’t be living in this economic Potemkin village that appears prosperous but is in fact an economic Jenga Castle that could collapse at any moment. There would be a lot less pressure to “keep up with the Joneses”… as they head toward bankruptcy and foreclosure.

As society heads that way. Like the housing industry, the car industry has ceased building basic and much less expensive cars because of easy and grotesque debt-financing. Which is tragic. There ought to be (and would be) a huge selection of brand-new cars priced under $10,000 were it not for the ready availability of nonexistent wealth (.e., debt and credit). Cars many people could pay cash for.

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Still waiting for a politican or government to come clean about the Pension Ponzi.

California Pensions Underfunded By $1 Trillion Or $93k Per Household (ZH)

Earlier today the Kersten Institute for Governance and Public Policy highlighted an updated pension study, released by the Stanford Institute for Economic Policy Research, which revealed some fairly startling realities about California’s public pension underfunding levels. After averaging $77,700 per household in 2014, the amount of public pension underfunding for the state of California jumped to a staggering $92,748 per household in 2015. But don’t worry, we’re sure pension managers can grow their way out of the problem…hedge fund returns have been stellar recently, right?

Stanford University’s pension tracker database pegs the market value of California’s total pension debt at $1 trillion or $93,000 per California household in 2015. In 2014, California’s total pension debt was calculated at $77,700 per household, but has increased dramatically in response to abysmal investment returns at California’s public pension funds that hover at or below 0% annual returns.

Looking back to 2008, the underfunding levels of California’s public pension have skyrocketed 157% on abysmal asset returns and growing liabilities resulting from lower discount rates. Perhaps this helps shed some light on why CalPERS is having such a difficult time with what should have been an easy decision to lower their long-term return expectations to 6% from 7.5% (see “CalPERS Weighs Pros/Cons Of Setting Reasonable Return Targets Vs. Maintaining Ponzi Scheme”)…$93k per household just seems so much more “manageable” than $150k.

Oddly enough, California isn’t even the worst off when it comes to pension debt as Alaska leads the pack with just over $110,000 per household. Of course, at this point the question isn’t “if” these ponzi schemes will blow up but rather which one will go first? We have our money on Dallas Police and Fire…

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Oh, there are thousands of reasons.

Why US ‘News’ Media Shouldn’t Be Trusted (Zuesse)

Nassim Nicholas Taleb headlined on November 22nd a devastating takedown of U.S. ‘news’ media and academia, «Syria and the Statistics of War», and he began there by exposing the highly honored Harvard fraud, Dr. Steven Pinker, but then went pretty much through the entire U.S. ‘intellectual’ Establishment, including all of its major ‘news’ media, as being untrustworthy on the part of any intelligent person. (Regarding Professor Pinker specifically, Taleb linked to a scientific paper that Taleb had co-authored, which shredded one of Pinker’s highly honored and biggest-selling books. Taleb and his colleague mentioned there an article that had appeared in Britain’s Guardian raising serious questions about Pinker’s work, and they were here offering statistical proof of the fraudulence of that work.)

The scenario of exposing intellectual fraud is so common: the only reason why it’s not better known among the public is that usually the disproofs of highly honored work have no impact, and fail to dislodge the prejudices that the given established fraud has ‘confirmed’. Another good example of that occurred when the University of Massachusetts graduate student Thomas Herndon issued his proof of the fraudulence of the extremely influential economics paper by Kenneth Rogoff and Carmine Rinehart, «Growth in a Time of Debt», which had been widely cited by congressional Republicans and other conservatives as a main ‘justification’ for imposing draconian economic austerity on the U.S. and other nations during the recovery from the 2008 economic crash.

Years later, that graduate student is still a graduate student (i.e., unemployed), while Kenneth Rogoff remains, as he was prior to his having been exposed: one of Harvard’s most prominent professors of economics, and a member of the Group of 30 — the world’s 30 most influential and powerful economists. Carmen Rinehart likewise retains her position also as a Harvard Professor. Previously, the Harvard Economics Department had guided communist Russia into a crony-capitalist (or fascist) ‘democracy’, but then Vladimir Putin took over Russia and got rid of the worst excesses of Harvard’s «capitalism» and so became hated by the U.S. aristocracy and its ‘news’ media — hated for having tried to establish Russia’s national independence, Russia’s independence from the U.S. aristocracy (which expected, and still craves, to control Russia).

And now after Donald Trump’s victory against the super-neoconservative hater of Russia, Hillary Clinton, the U.S. Establishment, through its voices such as the Washington Post, is trying to smear — like Joseph R. McCarthy smeared America’s non-fascists back in the 1950s — the tiny independent newsmedia that had been reporting truthfully about U.S.-Russian relations and America’s coups and invasions trying to weaken and ultimately to conquer Russia even if that means nuclear war.

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Fake news as far as the eye can see. Next up: Putin eats babies.

Everything You Read About The Wars In Syria And Iraq Could Be Wrong (Ind.)

The Iraqi army, backed by US-led airstrikes, is trying to capture east Mosul at the same time as the Syrian army and its Shia paramilitary allies are fighting their way into east Aleppo. An estimated 300 civilians have been killed in Aleppo by government artillery and bombing in the last fortnight, and in Mosul there are reportedly some 600 civilian dead over a month. Despite these similarities, the reporting by the international media of these two sieges is radically different. In Mosul, civilian loss of life is blamed on Isis, with its indiscriminate use of mortars and suicide bombers, while the Iraqi army and their air support are largely given a free pass. Isis is accused of preventing civilians from leaving the city so they can be used as human shields.

Contrast this with Western media descriptions of the inhuman savagery of President Assad’s forces indiscriminately slaughtering civilians regardless of whether they stay or try to flee. The UN chief of humanitarian affairs, Stephen O’Brien, suggested this week that the rebels in east Aleppo were stopping civilians departing – but unlike Mosul, the issue gets little coverage. One factor making the sieges of east Aleppo and east Mosul so similar, and different, from past sieges in the Middle East, such as the Israeli siege of Beirut in 1982 or of Gaza in 2014, is that there are no independent foreign journalists present. They are not there for the very good reason that Isis imprisons and beheads foreigners while Jabhat al-Nusra, until recently the al-Qaeda affiliate in Syria, is only a shade less bloodthirsty and generally holds them for ransom.

These are the two groups that dominate the armed opposition in Syria as a whole. In Aleppo, though only about 20 per cent of the 10,000 fighters are Nusra, it is they – along with their allies in Ahrar al-Sham – who are leading the resistance. Unsurprisingly, foreign journalists covering developments in east Aleppo and rebel-held areas of Syria overwhelmingly do so from Lebanon or Turkey. A number of intrepid correspondents who tried to do eyewitness reporting from rebel-held areas swiftly found themselves tipped into the boots of cars or otherwise incarcerated.

Experience shows that foreign reporters are quite right not to trust their lives even to the most moderate of the armed opposition inside Syria. But, strangely enough, the same media organisations continue to put their trust in the veracity of information coming out of areas under the control of these same potential kidnappers and hostage takers. They would probably defend themselves by saying they rely on non-partisan activists, but all the evidence is that these can only operate in east Aleppo under license from the al-Qaeda-type groups.

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Could get tricky for Trump. Luckily for him, there’s still 7 weeks to go until January 20.

US Veterans Build Barracks For Pipeline Protesters In Cold (R.)

U.S. military veterans were building barracks on Friday at a protest camp in North Dakota to support thousands of activists who have squared off against authorities in frigid conditions to oppose a multibillion-dollar pipeline project near a Native American reservation. Veterans volunteering to be human shields have been arriving at the Oceti Sakowin camp near the small town of Cannon Ball, where they will work with protesters who have spent months demonstrating against plans to route the Dakota Access Pipeline beneath a lake near the Standing Rock Sioux Reservation, organizers said. The Native Americans and protesters say the $3.8 billion pipeline threatens water resources and sacred sites.

Some of the more than 2,100 veterans who signed up on the Veterans Stand for Standing Rock group’s Facebook page are at the camp, with hundreds more expected during the weekend. Tribal leaders asked the veterans, who aim to form a wall in front of police to protect the protesters, to avoid confrontation with authorities and not get arrested. Wesley Clark Jr, a writer whose father is retired U.S. Army General Wesley Clark, met with law enforcement on Friday to tell them that potentially 3,500 veterans would join the protest and the demonstrations would be carried out peacefully, protest leaders said. The plan is for veterans to gather in Eagle Butte, a few hours away, and then travel by bus to the main protest camp, organizers said, adding that a big procession is planned for Monday.

[..] The protesters’ voices have also been heard by companies linked to the pipeline, including banks that protesters have targeted for their financing of the pipeline. Wells Fargo said in a Thursday letter it would meet with Standing Rock elders before Jan. 1 “to discuss their concerns related to Wells Fargo’s investment” in the project. There have been violent confrontations near the route of the pipeline with state and local law enforcement, who used tear gas, rubber bullets and water hoses on the protesters, even in freezing weather. The number of protesters in recent weeks has topped 1,000. State officials on Monday ordered them to leave the snowy camp, which is on U.S. Army Corps of Engineers land, citing harsh weather, but on Wednesday they said they would not enforce the order. “There is an element there of people protesting who are frightening,” North Dakota Attorney General Wayne Stenehjem said on Thursday. “It’s time for them to go home.”

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Feb 222016
 
 February 22, 2016  Posted by at 9:54 am Finance Tagged with: , , , , , , , ,  


NPC People’s Drug Store, 11th & G streets, Washington DC 1920

NYSE Short Interest Nears Record – And We Know What Happened Last Time (ZH)
EU Chamber Urges China To Cut Excess Production (WSJ)
Biggest Banks’ Commodity Revenue Slid to Lowest in Over a Decade (BBG)
The Metals Crunch Is Forcing Miners To Reconsider Diversification (Economist)
The World’s Biggest Miner May Be About to Toast Its Oil Drillers (BBG)
New Market Storm Could Catch Eurozone Unprepared (Reuters)
Traders Would Rather Get Nothing in Bonds Than Buy Europe Stocks (BBG)
German Economy Takes a Blow From Weakening Global Demand (BBG)
Germany Isn’t Investing the Way It Used to and That’s a Problem (BBG)
China Yuan Bears Predict More Trouble Ahead (BBG)
Kyle Bass, A Sharpshooting Short-Seller (FT)
As US Shale Sinks, Pipeline Fight Sends Woes Downstream (Reuters)
Chinese Military Ambitions Fuel Asian Arms Race Amid Slowdown (WSJ)
Krugman and the Gang of 4 Need to Apologize (Bill Black)
Greek Attempt To Force Use Of Electronic Money Instead Of Cash Fails (ZH)
New Zealand Super Fund’s $200 Million Loss (NZ Herald)
Long Way To Go: 5th Anniversary of the Christchurch Earthquake (G.)
Macedonia, Serbia Close Borders To Afghan Refugees (AP)
Shadowing The Hellenic Coast Guard’s Refugee Rescues (CCTV)

We’re getting closer.

NYSE Short Interest Nears Record – And We Know What Happened Last Time (ZH)

In the last two months, NYSE Short Interest has risen 4.5%, back over 18 billion shares near the historical record highs of July 2008 (and up 7 of the last 9 months).

There are two very different perspectives on could take when looking at this data… Either a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs, or .. Just as the record short interest in July 2008 correctly predicted the biggest financial crisis in history and all those shorts covered at a huge profit, so another historic market collapse is just around the corner. The correct answer will be revealed in the coming weeks or months… but we know what happened last time…

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Ask nicely. Prety pretty please. Look, China doesn’t want millions of unemployed workers. They’ll want to smear this out over years.

EU Chamber Urges China To Cut Excess Production (WSJ)

The European Union Chamber of Commerce in China urged Beijing to do more to tackle excess industrial production, saying that failed attempts to do so have created a flood of excess goods that threatens to destabilize the global economy. The call comes as Chinese manufacturers, hit by an economic slowdown, are sending products–from tires and steel to solar panels and chemicals–overseas that they can’t sell at home. The EU Chamber, which represents more than 1,600 members across China, said Monday that excess production is plaguing industrial sectors, such as steel, cement and chemicals, but is also spilling over into the consumer economy, including consumer electronics, pharmaceuticals and even food and apparel.

The usage rate for China’s steel in 2014 dropped to 71% from 80% in 2008, the EU Chamber estimated, based on China’s official data. Production increased to 813 million metric tons from 513 million tons during that time, the industry group said. Representatives from Europe’s steel industry, reeling from competition from cheap Chinese steel, last week took to the streets in Brussels to protest alleged unfair trade practices that they claim will worsen if the EU grants market-economy status to China later this year. Such a move would make it more difficult for Europe to impose steep tariffs on Chinese goods. London-based Caparo initiated bankruptcy proceedings in October for 16 of its 20 steel businesses, which employed 1,700 people. Tata Steel of India blamed overproduction in China when it said in January that it would cut 1,050 jobs from its U.K. operations, adding to cuts announced in October.

In a briefing Monday, the EU Chamber, which released a study on China’s industrial overcapacity, said China must act immediately to restructure its economy and overhaul state-owned companies that are pumping out excess goods. It must reduce negative impacts in China, such as job losses and bad debt, and fend off a crisis that could reverberate globally, the chamber said. Chinese leaders have prioritized party reform and anticorruption, but it is time to shift that focus to the economy, said Jörg Wuttke, president of the European Chamber. “The time spent on economic reforms is way down on the priority list.” said Mr. Wuttke.” We believe they have to act now, not wait.”

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Are they betting against their own clients yet?

Biggest Banks’ Commodity Revenue Slid to Lowest in Over a Decade (BBG)

Revenue from commodities at the largest investment banks sank to the weakest in more than a decade last year, laid low by a rout in prices for everything from metals to gas. Income at Goldman Sachs, Morgan Stanley and the 10 other top banks slid by a combined 18% to $4.6 billion, according to analytics firm Coalition. That was the worst performance since the London-based company began tracking the data 11 years ago, and a slump of about two-thirds from the banks’ moneymaking peak in 2008. Revenues are unlikely to return to the heights of $14.1 billion seen at the top of the market, according to George Kuznetsov at Coalition. “The competitive landscape is very different,” Kuznetsov said by phone.

“Financial institutions are now much more regulated. We have significantly less involvement of the banks in the physical commodities market, and banks do not take as much risk as they used to in 2008-09.” The Bloomberg Commodity Index, a measure of investor returns from 22 raw materials, slumped the most in seven years in 2015, led by a plunge in energy and metals. Banks including JPMorgan, Deutsche Bank and Barclays have also been scaling back commodities activity in the past three years amid rising regulatory scrutiny. Even as oil revenues improved last year on increased activity by corporate clients, U.S. curbs on proprietary trading meant banks couldn’t fully take advantage of a 35% plunge in crude by making speculative bets, unlike trading houses and big oil companies.

Last year was one of the best years of all time for trading oil and gas, BP Chief Financial Officer Brian Gilvary said this month. Trafigura’s oil-trading earnings surged to a record last fiscal year. A gauge of industrial-metals prices fell by 24% last year, the most since 2008. Income from energy markets also returned to normal levels after gains in 2014, according to Coalition. “A normalization of the U.S. power and gas markets and weakness in metals and investor products drove the overall decline,” the company said in a report released on Monday. Declining commodities revenues helped bring down the performance for banks’ overall fixed-income divisions, according to Coalition. The analytics company tracks commodities activities including power and gas, oil, metals, coal and agriculture.

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BHP Billiton looks to be in danger.

The Metals Crunch Is Forcing Miners To Reconsider Diversification (Economist)

At the pinnacle of the mining industry sit two Anglo-Australian companies, BHP Billiton and Rio Tinto, which are to iron ore what Saudi Arabia is to oil: the ones who call the shots. Their mines in Pilbara, Western Australia, are vast cash cows; with all-in costs below $30 a tonne, they still generate substantial profits even though prices have slumped from $192 a tonne in 2011 to about $44. They have increased iron-ore production despite slowing demand from China, driving higher-cost producers to the wall—an echo of the Saudis’ strategy in the oil market. But whereas Rio Tinto has doubled down on iron ore, BHP also invested in oil and gas—in which it has nothing like the same heft—at the height of the shale boom. Their differing strategies are a good test of the merits of diversification.

The China-led commodities supercycle encouraged mission creep. Many companies looked for more ways to play the China boom, and rising prices of all raw materials gave them an excuse to cling on to even those projects that were high-cost and low-quality. Now the industry is plagued with debts and oversupply. On February 16th Anglo American, a South African firm that was once the dominant force in mining, said it would sell $3 billion of assets to help pay down debt, eventually exiting the coal and iron-ore businesses that it had spent a fortune developing. That would leave it with a core business of just copper, diamonds and platinum. The day before, Freeport-McMoRan, the world’s largest listed copper producer, was forced to sell a $1 billion stake in an Arizonan copper mine to Sumitomo of Japan, to help cut debts racked up when it expanded into oil and gas.

With Carl Icahn, an American activist investor, agitating for a shake-up, analysts say its energy assets could follow—if there are any buyers. When BHP reports half-yearly results on February 23rd its misadventure in American oil and gas will be of particular concern because it has put the world’s biggest mining firm in the shadow of Rio for the first time. Since BHP merged with Billiton in 2001, its share price has outperformed Rio’s; it made an unsuccessful bid to merge with its rival in 2007. Yet in the past year its shares have done worse. Analysts expect that next week it will cut its annual dividend for the first time since 2001, thereby breaking a promise to raise the dividend year by year. Though Rio ended a similar “progressive dividend” policy this month, it did not cut the 2015 payout.

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And this is its last desperate call.

The World’s Biggest Miner May Be About to Toast Its Oil Drillers (BBG)

BHP Billiton’s shares began tracking oil prices more closely last year as they headed into the worst energy market downturn in a generation. It may not seem like it, but that could be good news for the world’s biggest miner. Unlike its rivals, BHP has a substantial petroleum unit, valued at about $25 billion by UBS. So while iron ore and most base metal prices are forecast to languish over the remainder of the decade as growth in China slows, the Melbourne-based company’s stock stands to benefit from a projected rebound in crude oil. BHP needs an edge. Its Sydney-traded shares sunk last month to the lowest since 2005 and it’s forecast to report a 86% drop in first-half earnings on Tuesday. On top of that, the producer’s ultimate liability for the deadly Samarco dam burst in Brazil late last year remains uncertain and it’s been warned by Standard & Poor’s that it may face a second credit rating downgrade this year.

An oil rebound could deliver a reboot with Schroders saying this month prices may rally almost two-thirds to as high as $50 a barrel in a few months. BHP has flagged it’s on the lookout for petroleum assets, and is likely to study adding more conventional assets, particularly in the Gulf of Mexico, if distressed competitors are forced to sell, according to Aberdeen Asset Management. BHP “follows oil a lot more closely than iron ore these days,” Michelle Lopez, a Sydney-based investment manager at Aberdeen, which holds BHP shares among the $428 billion of assets it manages globally, said by phone. “When you look at the forward curve, iron ore still looks like it’s going to be at these levels if not a bit lower, whereas there are expectations of a correction in the oil price.”

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Some people are still talking about a recovery. Get real.

New Market Storm Could Catch Eurozone Unprepared (Reuters)

Distracted by an unresolved migration crisis and negotiations on keeping Britain in the EU, euro zone leaders could be caught unprepared by a new storm on financial markets. Global market turmoil since the start of the year has helped set warning lights flashing in euro zone sovereign bond markets. In early February, the premium that investors charge to hold Portuguese, Spanish and Italian government debt rather than German bonds hit some of the highest levels since the euro zone crisis that peaked in 2011-2012. European bank shares have been badly hit by concerns over their high stock of non-performing loans, new regulatory burdens and a squeeze on profits due to sub-zero official interest rates. New EU banking regulations that force shareholders and bondholders to take first losses if a bank needs rescuing are further spooking the market, notably in Italy.

All this comes at a time when public resistance to further austerity measures has surged all over southern Europe, producing unstable results at the ballot box. Furthermore, the storm clouds are gathering above a tenuous and slow euro zone economic recovery – growth is officially forecast to reach 1.9% this year versus around 1.6% in 2015. Southern periphery countries all face budget problems that are fuelling political tension with Brussels. Inflation is also refusing to perk up despite the ECB’s bond-buying programme and negative interest rates, making it harder for heavily indebted euro zone countries to pay down debt. Yet euro zone governments transfixed by differences over sharing out refugees, managing Europe’s porous borders and accommodating British demands for concessions on EU membership terms have a huge amount on their hands already. One French government adviser said the EU had never faced such an accumulation of crises in the last 50 years.

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Yeah, sure: “We’re still looking for some confirmations for the economic growth outlook.”

Traders Would Rather Get Nothing in Bonds Than Buy Europe Stocks (BBG)

The cash reward for owning European stocks is about seven times larger than for bonds. Investors are ditching the equities anyway. Even with the Euro Stoxx 50 Index posting its biggest weekly rally since October, managers pulled $4.2 billion from European stock funds in the period ended Feb. 17, the most in more than a year, according to a Bank of America note citing EPFR Global. The withdrawals are coming even as corporate dividends exceed yields on fixed-income assets by the most ever. Investors who leaped into stocks during a similar bond-stock valuation gap just four months ago aren’t eager to do it again: an autumn equity rally quickly evaporated come December.

A Bank of America fund-manager survey this month showed cash allocations rose to a 14-year high and expectations for global growth are the worst since 2011. If anything, the valuation discrepancy between stocks and bonds is likely to get wider, said Simon Wiersma of ING. “The gap between bond and dividend yields will continue expanding,” said Wiersma, an investment manager in Amsterdam. “Investors fear economic growth figures. We’re still looking for some confirmations for the economic growth outlook.” Dividend estimates for sectors like energy and utilities may still be too high for 2016, Wiersma says. Electricite de France and Centrica lowered their payouts last week, and Germany’s RWE suspended its for the first time in at least half a century.

Traders are betting on cuts at oil producer Repsol, which offers Spain’s highest dividend yield. With President Mario Draghi signaling in January that more ECB stimulus may be on its way, traders have been flocking to the debt market. The average yield for securities on the Bloomberg Eurozone Sovereign Bond Index fell to about 0.6%, and more than $2.2 trillion – or one-third of the bonds – offer negative yields. Shorter-maturity debt for nations including Germany, France, Spain and Belgium have touched record, sub-zero levels this month.

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And Germany makes sure to transfer that blow to the rest of the eurozone.

German Economy Takes a Blow From Weakening Global Demand (BBG)

The German economy took a hit this month from weak global demand, with a manufacturing gauge dropping to a 15-month low. Markit Economics said its factory Purchasing Managers Index fell to 50.2, barely above the key 50 level, from 52.3 in January. A services gauge improved slightly, but a composite measure declined to the lowest since July. “The German economy appears to be in the midst of a slowdown,” said Oliver Kolodseike, an economist at Markit. Manufacturing is “near stagnation,” he said. While Germany weathered global headwinds through 2015, maintaining its pace of expansion in the fourth quarter, business confidence has weakened recently.

China’s slowdown is weighing on exports while the equity selloff this year threatens a fragile recovery in the euro area, the country’s largest trading partner. The OECD cut its global growth forecast last week and said both Germany and the euro region will expand less this year than previously estimated. Markit said the slowdown in German output led to increased caution on hiring, with the rate of job creation at the weakest in almost a year. France’s composite Purchasing Managers Index slipped to 49.8 from 50.2 in January. In the 19-nation euro area, both the factory and services measures probably declined this month, according to surveys of economists. Markit will publish those numbers at 9 a.m. London time.

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Germany’s surpluses keep on bleeding its neighbors dry. That is the problem.

Germany Isn’t Investing the Way It Used to and That’s a Problem (BBG)

All the pieces appear to be in place for a surge in corporate investment in Germany – except one critical element. While low borrowing costs, robust domestic consumption and capacity strains mean companies should be itching to spend, the confidence to do so is lacking. Market turmoil, signs of a weaker global demand and Germany’s own aging population are giving bosses plenty of reason to hold back, leaving capital spending as a share of output clinging stubbornly to a five-year low. That matters both for Germany, where the IMF says more capital spending is needed to ensure future growth, and the 19-nation euro area. The strength of the region’s largest economy could be key to whether the currency bloc’s fragile recovery can be sustained.

“Every year since 2013, most pundits including ourselves have been predicting that this is going to be the year that investment really picks up in earnest,” said Timo Klein, an economist at IHS Global Insight in Frankfurt. “But every year something unfolds that clouds the picture, from Ukraine to China, and investment is postponed again. The long-term consequence of this is a reduction in growth potential.” A report on Tuesday will shed more light on the role of investment in Germany’s economic expansion in the fourth quarter. Preliminary data showed gross domestic product rose 0.3%, matching the pace of the previous three months, with government and consumer spending leading the way.

While that’s unspectacular, France and Italy fared worse. The euro zone’s second and third-largest economies cooled, with the latter barely growing, increasing the burden on Germany to be the region’s engine. Yet investment as a share of German GDP fell to less than 20% last year from about 23% at the turn of the century, a Bundesbank study in January showed. Private investment slid to 11.5% from 13.4%, according to Eurostat. In its February bulletin, the Bundesbank said investment should increase because of an “above-average level of capacity utilization.” However, it also said a “key prerequisite” is that external demand picks up.

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One safe bet.

China Yuan Bears Predict More Trouble Ahead (BBG)

Before China’s devaluation in August roiled global markets and spurred some of the hedge fund industry’s biggest names to bet against the yuan, a small cohort of researchers saw the whole thing coming. Now, some of those same forecasters are warning that there’s more turmoil in store – and it’s not just China they’re worried about. Asianomics’s Jim Walker, who predicted the yuan’s four-year advance would end a month before the currency peaked in January 2014, is forecasting a U.S. recession and says 10-year Treasury yields will plunge to all-time lows. Raoul Pal, publisher of the Global Macro Investor report and a yuan bear since 2012, says European bank shares will tumble by half. John Mauldin of Millennium Wave Advisors, who has argued since 2011 that the Chinese currency should weaken, sees the risk of heightened geopolitical instability in the Middle East as lower crude prices strain the budgets of oil-rich countries.

While all three forecasters see scope for further declines in the yuan, they’re also emphasizing risks outside the Chinese economy as the outlook for world growth dims and commodities trade near the lowest levels in more than 15 years. Their bearish stance has gained traction in global markets this year, with share prices from New York to Riyadh and Sydney sliding as investors shifted into gold and sovereign bonds. “There’s a storm of troubles coming,” Pal, a former hedge-fund manager at GLG Partners whose clients now include pension plans and sovereign wealth funds, said in a phone interview from the Cayman Islands. “The risk of a very bad outcome in 2016 and 2017 remains the highest probability.”

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“What we are witnessing is the resetting of the largest macro imbalance the world has ever seen..”

Kyle Bass, A Sharpshooting Short-Seller (FT)

I’ve been to Beijing twice, I don’t care to go back,” Kyle Bass says. “I’m OK with that.” The subprime-shorting, sniper rifle-shooting, spearfishing hedge fund manager from Dallas, Texas, does not fear the ire of the Chinese authorities. He has a decade-long record of putting his mouth where his money is, and if his latest apocalyptic call — that the Communist government does not have the resources to prevent a banking crisis and a vicious currency devaluation — puts him at the centre of the angriest debate in financial markets, well, that is just fine by him. “Anyone who is invested in China, whether you are a pension fund or sovereign wealth fund or a large US or European institution — you better be thinking about this, and not with the reverence that people give to China,” he says.

“Everyone has this embedded belief that China can pull off the ‘triple lindy’ every time they want to do it,” says the former springboard diver, “but our view is they are going to have to have a reset.” Mr Bass is hardly the only hedge fund manager betting on a renminbi devaluation; when Beijing wanted to send a shot across speculators bows last month, it was George Soros who was singled out on the front of the People’s Daily, a government mouthpiece. Yet, thanks to a 12-page dissection of China’s banks, shadow banks and central bank reserves sent to investors in his $1.7bn hedge fund Hayman Capital last week, it is Mr Bass who has given the most strident, forensic and colourful voice to those who suspect China will be forced to revalue the currency sharply lower. “What we are witnessing is the resetting of the largest macro imbalance the world has ever seen,” he wrote.

Banking system losses could be four times as big as those on subprime mortgages in the US during the financial crisis, and the central bank does not have the reserves to plug the hole and defend its currency. “China’s back is completely up against the wall today” and the country is “on the precipice of a large devaluation”. Economists and Beijing have challenged the alarming analysis; Zhou Xiaochuan, the People’s Bank of China governor, gave a rare interview to insist capital outflows were evidence of economic rebalancing rather than capital flight. This is all of a piece with previous declarations by Mr Bass. Since the Great Recession he has predicted sovereign debt crises in Ireland, Greece, Portugal, Spain, the UK, Switzerland and France.

He has compared the Japanese economy to a “Ponzi scheme”. Armageddon does not always come — he admits he was wrong on Switzerland and the UK; and Japan is notably still standing, though a devaluation of the yen meant his bet eventually made money overall there. Hayman’s returns since the financial crisis have been modest by the standards of the greatest hedge fund investors and 2015 was, by his own admission, one of his worst. But enough of Mr Bass’s predictions have come true to justify taking him seriously. One manager of a fund of hedge funds says investing with Mr Bass is like funding a “think-tank” on how to navigate the global economy.

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Creative bankruptcies.

As US Shale Sinks, Pipeline Fight Sends Woes Downstream (Reuters)

Within weeks, two low-profile legal disputes may determine whether an unprecedented wave of bankruptcies expected to hit U.S. oil and gas producers this year will imperil the $500 billion pipeline sector as well. In the two court fights, U.S. energy producers are trying to use Chapter 11 bankruptcy protection to shed long-term contracts with the pipeline operators that gather and process shale gas before it is delivered to consumer markets. The attempts to shed the contracts by Sabine Oil & Gas and Quicksilver Resources are viewed by executives and lawyers as a litmus test for deals worth billions of dollars annually for the so-called midstream sector. Pipeline operators have argued the contracts are secure, but restructuring experts say that if the two producers manage to tear up or renegotiate their deals, others will follow.

That could add a new element of risk for already hard-hit investors in midstream companies, which have plowed up to $30 billion a year into infrastructure to serve the U.S. fracking boom. “It’s a hellacious problem,” said Hugh Ray, a bankruptcy lawyer with McKool Smith in Houston. “It will end with even more bankruptcies.” A judge on New York’s influential bankruptcy court said on Feb. 2 she was inclined to allow Houston-based Sabine to end its pipeline contract, which guaranteed it would ship a minimum volume of gas through a system built by a Cheniere Energy subsidiary until 2024. Sabine’s lawyers argued they could save $35 million by ending the Cheniere contract, and then save millions more by building an entirely new system. Fort Worth, Texas-based Quicksilver’s request to shed a contract with another midstream operator, Crestwood Equity Partners, is set for Feb. 26.

[..] So far, relatively few oil and gas producers have entered bankruptcy, and most were smaller firms. But with oil prices down 70% since mid-2014 and natural gas prices in a prolonged slump, up to a third of them are at risk of bankruptcy this year, consultancy Deloitte said in a Feb. 16 report. Midstream operators have been considered relatively secure as investors and analysts focus on risks to the hundreds of billions of dollars in equity and debt of firms most directly exposed to commodity prices. That’s because firms such as Enterprise Products, Kinder Morgan and Plains All American relied upon multi-year contracts – the kind targeted in the two bankruptcies – that guarantee pipeline operators fixed fees to transport minimum volumes of oil or gas.

Now, with U.S. oil output shrinking and gas production stalling, many of the cash-strapped producers entering bankruptcy will be seeking to rid themselves of pricey agreements, particularly those with so-called minimum volume commitments that require paying for space even if it is not used. “They will be probably among the first things thrown out,” said Michael Grande, director for U.S. midstream energy and infrastructure at Moody’s.

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Volatility writ large.

Chinese Military Ambitions Fuel Asian Arms Race Amid Slowdown (WSJ)

The rapid rise in Chinese military spending and a greater assertiveness in its territorial claims is fueling an arms race in the Asia-Pacific region even though many of the countries involved have been hit by an economic slowdown, new research reports suggest. Of the 10 biggest importers of defense equipment in the past five years, six countries were in the Asia-Pacific region, the Stockholm International Peace Research Institute, or SIPRI, said in an annual report on arms transfers. India was the largest buyer of foreign equipment, with China in third position after Saudi Arabia, the think tank said. Although a country’s spending power is often tied to its economic strength, buyers in the Asia-Pacific region aren’t slashing military budgets even as their economies have come under strain from falling commodity prices and lower growth in China.

“The slight moderation in economic activity had little effect on regional military spending in 2015,” the International Institute for Strategic Studies, or IISS, said in a new report. China, Japan, South Korea, and Indonesia last year were among the countries to announce plans for higher military spending, the IISS said. Lower economic output has driven up Asian military spending as a percentage of GDP to 1.48%, the London-based research organization said, its highest level since at least 2010. China leads the way, accounting for 41% of the region’s military spending, well ahead of No. 2 India at 13.5% and Japan with 11.5%.

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William K. Black: always a pleasure.

Krugman and the Gang of 4 Need to Apologize (Bill Black)

If you depend for your news on the New York Times you have been subjected to a drumbeat of article attacking Bernie Sanders – and the conclusion of everyone “serious” that his economics are daft. In particular, you would “know” that four prior Chairs of the President’s Council of Economic Advisers (CEA) (the Gang of 4) have signed an open letter to Bernie that delivered a death blow to his proposals. Further, you would know that anyone who dared to disagree with these four illustrious economists was so deranged that he or she was acting like a Republican in denial of global climate change. The open letter set its sights on a far less famous economist, Gerald Friedman, of U. Mass at Amherst. It unleashed a personalized dismissal of his competence and integrity.

Four of the Nation’s top economists against one non-famous economists – at a school that studies heterodox economics. That sounds like a fight that the referee should stop in the first round before Friedman is pummeled to death. But why did Paul Krugman need to “tag in” to try to save the Gang of 4 from being routed? Krugman proclaimed that the Gang of 4 had crushed Friedman in a TKO. Tellingly, Krugman claimed that anyone who disagreed with the Gang of 4 must be beyond the pale (like Friedman and Bernie). Indeed, Krugman was so eager to fend off any analysis of the Group of 4’s attacks that he competed with himself rhetorically as to what inner circle of Hell any supporter of Friedman should be consigned. In the 10:44 a.m. variant, Krugman dismissed Bernie as “not ready for prime time” and decreed that it was illegitimate to critique the Gang of 4’s critique.

In Sanders’s case, I don’t think it’s ideology as much as being not ready for prime time — and also of not being willing to face up to the reality that the kind of drastic changes he’s proposing, no matter how desirable, would produce a lot of losers as well as winners. And if your response to these concerns is that they’re all corrupt, all looking for jobs with Hillary, you are very much part of the problem.

The implicit message is that four famous economists had to be correct, therefore anyone who disagreed with them must be a conspiracy theorist who is “very much part of the problem.” Paul doesn’t explain what “the problem” is, but he sure makes it sound awful. Logically, “the problem” has to be progressives supporting Bernie. Two hours later, Paul decided that his poisoned pen had not been toxic enough, he now denounced Sanders as a traitor to the progressives who was on his way “to making Donald Trump president.” To point out the problems in the Gang of 4’s attack on Friedman was to treat them “as right-wing enemies.”

Why was Krugman so fervid in its efforts to smear Friedman and prevent any critique of the Gang of 4’s smear that he revised his article within two hours and amped up his rhetoric to a shrill cry of pain? Well, the second piece admits that Gang of 4’s smear of Friedman “didn’t get into specifics” and that progressives were already rising in disgust at Paul’s arrogance and eagerness to sign onto a smear that claimed “rigor” but actually “didn’t get into specifics” while denouncing a scholar. Paul, falsely, portrayed Friedman as a Bernie supporter. Like Krugman, Friedman is actually a Hillary supporter.

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Greece is a cash country. For one thing, there are still capital controls. People cannot get more than $420 a week or so out of their ATM. That is very limiting in many ways.

Greek Attempt To Force Use Of Electronic Money Instead Of Cash Fails (ZH)

While the “developed world” is only now starting its aggressive push to slowly at first, then very fast ban the use of physical cash as the key gating factor to the global adoption of NIRP (by first eliminating high-denomination bills because they “aid terrorism and spread criminality”) one country has long been doing everything in its power to ween its population away from tax-evasive cash as a medium of payment, and into digital transactions: Greece. The problem, however, is that it has failed. According to Kathimerini, “Greek businesses are not ready for the expansion of plastic money through the compulsory use of credit and debit cards for everyday transactions.” Unlike in the rest of the world where “the stick” approach will likely to be used, in Greece the government has been more gentle by adopting a “carrot” strategy (for now) when it comes to migrating from cash to digital.

The government has told taxpayers that they will have to spend up to a certain amount of their incomes via bank and card transactions in order to qualify for an annual tax-free exemption. This appears to not be a sufficient incentive however, as a large proportion of stores still don’t have the card terminals, or PoS (Points of Sale), required for card payments, while plastic is accepted by very few doctors, plumbers, electricians, lawyers and others who tend to account for the lion’s share of tax evasion recorded in the country. Almost as if the local population realizes that what the government is trying to do is to limit at first, then ultimately ban all cash transactions in the twice recently defaulted nation as well. It also realizes that an annual tax-free exemption means still paying taxes; taxes which could be avoided if one only transacted with cash.

For the government this is bad news, as the lack of tracking of every transaction means that the local population will pay far less taxes: a recent study by the Foundation for Economic and Industrial Research (IOBE) showed that increasing the use of cards for everyday transactions could increase state revenues by anything between 700 million and 1.6 billion euros per year, and that the market’s poor preparation means that the tax burden has been passed on to lawful taxpayers. As a reminder, in Greece, the term “lawful taxpayers” is not quite the same as in most other countries. What is more surprising is that according to data seen by Kathimerini, PoS terminals in Greece amount to just 220,000, and that despite the fact these were effectively forced on enterprises with the imposition of the capital controls, an estimated half of all businesses do not have card terminals. Almost as if the Greeks would rather maintain capital controls than be forced into a digital currency by their Brussels overlords.

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Some things are just plain weird. They invest $150 million in Espirito Santo in July -when everyone already knew something was fishy, but that’s not even the gist-, and then lose it all one month later?! That’s not fish I’m smelling, it’s a rat.

New Zealand Super Fund’s $200 Million Loss (NZ Herald)

Almost $200 million of taxpayer money invested through the Kiwi Superannuation Fund has been lost after a Portuguese bank where the money was invested, supposedly as a “risk free” loan, collapsed. The Super Fund, set up with public money to cover partly the retirement costs of baby boomers, has revealed it had been caught up in last year’s collapse of Banco Espirito Santo (BES) and a US$150m (NZ$198m) investment made in July had been completely wiped out. The investment was a contribution to a Goldman Sachs-organised loan to the Portuguese bank, but only weeks after the money was injected it imploded, with president and founder Ricardo Salgado arrested as part of a criminal investigation into tax evasion.

After disclosing billions of Euros in losses, and facing a run on funds by depositors, the bank collapsed in a heap and was broken up in August. Goldman Sachs, described by Rolling Stone as “the great vampire squid” for their sharp business practices in the run-up to the global financial crisis, today said it would “pursue all appropriate legal remedies without delay” in an attempt to recover the loans to BES. The company also announced that, alongside the Super Fund, they were suing the Central Bank of Portugal over their loans being excluded from the bailout of BES. Despite this legal action, Super Fund chief executive Adrian Orr conceded today the entire investment had been written off as a “conservative” precaution. Finance Minister Bill English, the minister responsible for the Super Fund declined to comment on the spectacular loss, but Green Party MP Russel Norman said Mr English should be demanding answers.

“They have to give some sort of explanation as to why they gambled US$150m in this case, and why it’s come unstuck,” he said. The episode also illustrated what the NZSF should try to avoid, Mr Norman said. “For a fund operating on behalf of the NZ taxpayer, taking these high-risk investments is probably not appropriate,” he said. Mr Orr denied the investment was high-risk and said the NZSF had been covered in the event of BES defaulting. “It was risk-free with insurance,” he said. However, an unusual retrospective rule change in Portugal had resulted in the insurance being voided. Orr added the Super Fund had withdrawn lending to banks in Portugal until the result was overturned. The Fund said the loss amounted to only 0.7% of the firm’s total pool of $27b in assets.

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“Christchurch, home to 366,000 people, who are still shaken daily by thousands of aftershocks..” (Nicole and I were there at the first anniversary)

Long Way To Go: 5th Anniversary of the Christchurch Earthquake (G.)

It was as the clock struck 12.51pm that the last of the 185 names were read out. Then, the 1,000 people who had gathered in the city’s botanic gardens to mark the anniversary of the 2011 Christchurch earthquake fell silent for a minute to remember the moment, five years ago, that the 6.3-magnitude quake struck. Earlier, posies of flowers had been laid in road cones and taped to the safety fences that still litter the city centre half a decade after the disaster turned it largely to rubble.Once the memorial ceremony had finished, talk turned – as it usually does – to the rebuilding of this once-rich, agricultural hub – and what the new Christchurch will look like when it finally rises from the ashes. “There is still some way to go until Christchurch is truly reborn,” said the governor-general, Jerry Mateparae.

His is a sentiment widely shared in Christchurch, home to 366,000 people, who are still shaken daily by thousands of aftershocks – including a significant 5.9 rumble on Valentines day this year and a 5.0-magnitude quake that hit in nearby Blenheim on the anniversary itself. Despite years of clean-up and a recent boom in construction, Christchurch is still in a state of flux, with hundreds of people waiting for insurance payouts and widespread concern about the pace of the rebuild, especially in the heart of the city. The health of Christchurch residents has also fared poorly since the quake. Suicide and domestic violent rates have risen sharply – as has illegal drug use and the spread of sexually transmitted diseases.

Mental health problems are a persistent concern – particularly widespread are incidences of depression, anxiety and post traumatic stress disorder. Waiting lists for state-funded counselling in Christchurch are long, and last week it was reported the government would significantly cut funding to community mental health providers – from $1.6m in 2015 to $200,000 this year. Yet in tandem with the trauma of the quake’s aftermath has come a remarkable flourishing of the creative arts in the garden city. Rachael Welfare, operations director for Gap Filler, a charitable organisation filling the “gaps” of Christchurch with pop-up creative projects, said: “Before the quake, people thought of Christchurch as quite conservative, but now the opportunities have given people a blank canvas, if nothing else, and people are very open-minded about what the spaces could be.”

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Who told them to do this and say damn the Geneva conventions?

Macedonia, Serbia Close Borders To Afghan Refugees (AP)

Former Yugoslav Republic of Macedonia (FYROM) closed its border to Afghan migrants early Sunday, Greek police said, slowing the admission of refugees to a trickle and leaving a growing bottleneck of people stuck at their shared border. A FYROM police spokeswoman denied there was any new prohibition regarding Afghans, blaming the problem on Serbia, the next nation along the Balkans migration route into Western Europe. By early afternoon, about 1,000 migrants were waiting at the Greek border camp in Idomeni – and at a gas station only 17 kilometers (11 miles) away, 80 buses with 4,000 more migrants were waiting to take them to the border. Greek police said FYROM refused to let Afghans through because Serbia made the same decision and officials feared the migrants would get stuck in FYROM.

“The authorities of the Former Yugoslav Republic of Macedonia informed us that, beginning at dawn Sunday, they no longer accept Afghan refugees because the same problem exists at their border with Serbia,” Petros Tanos, spokesman for Greek police’s Central Macedonia division, told The Associated Press. Despite the reports, about 500 migrants of all nationalities made the trek on foot from the gas station to the border Sunday. “I can no longer wait,” said 17-year-old Ali Nowroz, one of the trekkers from the Afghan city of Jaghori Zeba. “We have spent three nights in the cold, we are hungry. They told me that the borders have been closed to us. However, when I started from Afghanistan I knew borders were open for us. I am going to the Idomeni border crossing to find out and ask why they have closed it.”

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Every single day. Numbers are rising as borders are closing. Greece can’t be far away from becoming a failed state

Shadowing The Hellenic Coast Guard’s Refugee Rescues (CCTV)

As Europe tries to deal with the biggest refugee crisis since World War II, improving weather means the pace of migrants and refugees reaching Greece from Turkey will pick up again. On Feb 15., over 4,500 people were rescued across the Aegean Sea in Greece. Since last year, the Hellenic Coast Guard has rescued almost 150,000. CCTV’s Filio Kontrafouri went on patrol with the Hellenic Coast Guard off the Greek island of Lesvos and witnessed what happens after those dinghies, usually loaded with women and children, enter the Greek waters. “For us, all these people are like they are condemned to death,” said Sub-lieutenant Kyriakos Papadopoulos of the Hellenic Coast Guard. “You’ll see when we get to that boat, about which some other colleagues in the area have informed us, even with everyone on board, there is panic. People could move from one side to the other, these boats are not suitable for travel at sea, their life jackets are not suitable and at any moment their life is in danger.”

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Feb 082016
 
 February 8, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , ,  


DPC City Hall subway station, New York 1904

Deutsche Bank Is Shaking To Its Foundations (SI)
Why A Selloff In European Banks Is So Ominous (MW)
Lending To Emerging Markets Comes To A Halt (FT)
What the Heck is Going On in the Stock Market? (WS)
Dot Com 2.0 – The Sequel Unfolds (St.Cyr)
CEOs, Venture Backers Lose Big As Linkedin, Tableau Shares Tumble (Reuters)
Record Numbers Of Longs And Shorts Are Piling Into Oil (BBG)
Prolonged Slump Sparks 2nd Wave Of Cuts To 2016 Oil Company Budgets (Reuters)
World’s Largest Energy Trader Sees a Decade of Low Oil Prices (BBG)
150 North Sea Oil Rigs Could Be Scrapped In 10 Years (Scotsman)
Iran Wants Euro Payment For New And Outstanding Oil Sales (Reuters)
Fining Bankers, Not Shareholders, for Banks’ Misconduct (Morgenson)
Volkswagen’s Emissions Lies Are Coming Back To Haunt It (BBG)
Moody’s Cuts Rating On Western Australia Iron Ore (WSJ)
British Expat Workers Flood Home As Australia Mining Boom Turns To Dust (Tel.)
Ukraine: A USA-Installed Nazi-Infested Failed State (Lendman)
Through The Past, Darkly, For Europe’s Central Bankers (Münchau)
German, French Central Bankers Call For Eurozone Finance Ministry (Reuters)

Arguably world’s biggest bank. “Deutsche Bank is now trading at less than 50% of the share price it was trading at in July last year. And no, the market isn’t wrong about this one. ..” The market will be going after Deutsche. Which is too vulnerable to save.

Deutsche Bank Is Shaking To Its Foundations (SI)

The earnings season has started, and several major banks in the Eurozone have already reported on how they performed in the fourth quarter of 2015, and the entire financial year. Most results were quite boring, but unfortunately Deutsche Bank once again had some bad news. Just one week before it wanted to release its financial results, it already issued a profit warning to the markets, and the company’s market capitalization has lost in excess of 5B EUR since the profit warning, on top of seeing an additional 18B EUR evaporate since last summer. Deutsche Bank is now trading at less than 50% of the share price it was trading at in July last year. And no, the market isn’t wrong about this one.

The shit is now really hitting the fan at Deutsche Bank after having to confess another multi-billion euro loss in 2015 on the back of some hefty litigation charges (which are expected to persist in the future). And to add to all the gloom and doom, even Deutsche Bank’s CEO said he didn’t really want to be there . Talk about being pessimistic! Right after Germany’s largest bank (and one of the banks that are deemed too big to fail in the Eurozone system) surprised the market with these huge write-downs and high losses, the CDS spread started to increase quite sharply. Back in July of last year, when Deutsche Bank’s share price reached quite a high level, the cost to insure yourself reached a level of approximately 100, but the CDS spread started to increase sharply since the beginning of this year.

It reached a level of approximately 200 in just the past three weeks, indicating the market is becoming increasingly nervous about Deutsche’s chances to weather the current storm. Let’s now take a step back and explain why the problems at Deutsche Bank could have a huge negative impact on the world economy. Deutsche has a huge exposure to the derivatives market, and it’s impossible, and then we mean LITERALLY impossible for any government to bail out Deutsche Bank should things go terribly wrong. Keep in mind the exposure of Deutsche Bank to its derivatives portfolio is a stunning 55T EUR, which is almost 20 times (yes, twenty times) the GDP of Germany and roughly 5 times the GDP of the entire Eurozone! And to put things in perspective, the TOTAL government debt of the US government is less than 1/3rd of Deutsche Bank’s exposure.

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Because it will pop the European finance bubble.

Why A Selloff In European Banks Is So Ominous (MW)

European banks have been caught in a perfect storm of market turmoil, lately. Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago. The region’s banking gauge, the Stoxx Europe 600, has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data. “The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry at Saxo Bank. The doom-and-gloom outlook for banks comes as the stock market has had an ominous start to the year.

East or west, investors ran for the exit in a market marred by panic over tumbling oil prices and signs of sluggishness in China. But for Europe’s banking sector, the new year has started even worse, sending the bank index down 20% year-to-date, compared with 11% for the broader Stoxx Europe 600 index. So what happened? At the end of last year, banks were singled out as one of the most popular sectors for 2016 because of expected benefits from higher bond yields, rising inflation expectations and improved economic growth. That outlook, however, was before the one-two punch of plunging oil and a slowdown in China sapped investor confidence world-wide. Garnry said the slump in bank shares is “a little bit odd” given the recent growth in the European economy and aggressive easing from the ECB.

Normally, banks benefit from measures such as quantitative easing, but it’s just not doing the trick in Europe. “And its worrisome, because banks are much more important for the credit mechanism in the economy here in Europe than it is in the U.S. There, you have a capital market where it’s easier to issue corporate bonds and get funding outside the commercial banking system. We don’t have that to the same extent in Europe, and therefore [the current weakness] is a little bit scary,” he said. Some of the sector’s collective underperformance comes down to exceptionally bad performances for a number of the bigger banks. Deutsche Bank, for example, has tumbled 32% year to date, amid a painful restructuring. And Credit Suisse is down 31% for the year as it posted a massive fourth-quarter loss.

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Has long since reversed.

Lending To Emerging Markets Comes To A Halt (FT)

The surge in lending to emerging markets that helped fuel their own — and much of the world’s — growth over the past 15 years has come to a halt, and may now give way to a “vicious circle” of deleveraging, financial market turmoil and a global economic downturn, the Bank for International Settlements has warned. “In the risk-on phase [of the global economic cycle], lending sets off a virtuous circle in financial conditions in which things can look better than they really are,” said Hyun Song Shin, head of research at the BIS, known as the central bank of central banks. “But flows can quickly go into reverse and then it becomes a vicious circle, especially if there is leverage,” he told the FT. That reversal has already taken place, according to BIS data released on Friday.

The total stock of dollar-denominated credit in bonds and bank loans to emerging markets — including that to governments, companies and households but excluding that to banks — was $3.33tn at the end of September 2015, down from $3.36tn at the end of June. It marks the first decline in such lending since the first quarter of 2009, during the global financial crisis, according to the BIS. The BIS data add to a growing pile of evidence pointing to tightening credit conditions in emerging markets and a sharp reversal of international capital flows. On Thursday, The IMF’s Christine Lagarde warned of the threat to global growth of an impending crisis in emerging markets. The Institute of International Finance, an industry body, said last month that emerging markets had seen net capital outflows of an estimated $735bn during 2015, the first year of net outflows since 1988.

In November, the IIF warned of an approaching credit crunch in EMs as bank lending conditions deteriorated sharply. This month, it said a contraction over the past year in the liquidity made available to the world’s financial system by central banks, primarily those in developed markets, now presented more of a threat to global growth than the slowdown in China and falling oil prices. Jaime Caruana, general manager of the BIS, said that recent turmoil on equity markets, disappointing economic growth, large movements in exchange rates and falling commodity prices were not unconnected, exogenous shocks but indicative of maturing financial cycles, particularly in emerging economies, and of shifts in global financial conditions. He noted that, while some advanced economies had reduced leverage after the crisis, debt had continued to build up in many emerging economies.

“Recent events are manifestations of maturing financial cycles in some emerging economies,” he said. The problem was aggravated, Mr Shin added, by the deteriorating quality of the assets financed by the lending boom. He noted that the indebtedness of companies in emerging markets as a%age of GDP had overtaken that of those in developed markets in 2013, just as the profitability of EM companies had fallen below that of DM ones for the first time. Since then, leverage in emerging economies had increased further as profitability had decreased, with exchange rates playing an important role. “Stronger EM currencies fed into more debt and more risk taking. Now that the dollar is strengthening, we have turned into a deleveraging cycle in EMs. So there is a sudden surge in measurable risk; all the weaknesses are suddenly being uncovered.”

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Wolf has another nice list of plunging stocks. Tech bubble.

What the Heck is Going On in the Stock Market? (WS)

Even Moody’s which is always late to the party with its warnings – but when it does warn, it’s a good idea to pay attention – finally warned: “Don’t fall into the trap of believing all is well outside of oil & gas.” What happened on Friday was the culmination of another dreary week in the stock markets, with the Dow down 1.3% for the day and 1.6% for the week, the S&P 500 down 1.8% and 3.1% respectively, and the Nasdaq down 3.2% and 5.4%. The S&P 500 is now nearly 12% off its record close in May, 2015; the Nasdaq nearly 17%. So on the surface, given that the Nasdaq likes to plunge over 70% before crying uncle, not much has happened yet. But beneath the surface, there have been some spectacular fireworks.

Not too long ago, during the bull market many folks still fondly remember and some think is still with us, a company could announce an earnings or revenue debacle but throw in a big share-buyback announcement, and its shares might not drop that much as dip buyers would jump in along with the company that was buying back its own shares, and they’d pump up the price again. Those were the good times, the times of “consensual hallucination,” as we’ve come to call it, because all players tried so hard to be deluded. It was the big strategy that worked. But not anymore. And that’s the sea change. Reality is returning, often suddenly, and in the most painful manner.

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“Don’t wait too long on that “right price.” For if the current value of Alibaba™ is any indication – “right” is becoming more inline with “any” much faster than anyone dared think just a year prior..”

Dot Com 2.0 – The Sequel Unfolds (St.Cyr)

Once high flyers such as the aforementioned Twitter and others are crashing to Earth like the proverbial canary. Companies like Square™, Box™, GoPro™, Pandora™, and now far too many others have watched their stock prices hammered ever lower. Yes, hammered, as in representing one selling round after another with almost no respite. Some have lost 90% of their once lofty high share prices. What’s further disheartening to those still clinging (or praying) to the “meme-dream” is the ever-increasing reputation of the old “Great companies on sale!” chortles from many a next in rotation fund manager on TV, radio, or print. For it seems every round of selling is being met with ever more selling – no buying. And the lower they go with an ever intensifying pressure, so too does the value of the debutantes in waiting: The yet to be IPO’d unicorns.

Valuation after unicorn valuation are getting marked down in one fell swoops such as that from Fidelity™ and others. However, there probably wasn’t a better representation on how little was left to the unicorn myth (and yes I believed/believe all these valuation metrics were myth and fairy-tales) than the very public meme shattering experienced in both the IPO, as well as the subsequent price action of Square. Here it was touted the IPO price was less than the unicorn implied valuation. This was supposedly done as to show “value” for those coming in to be next in line to pin their tails on the newest unicorn of riches. The problem? It sold, and sold, and is still selling – and not in a good way. It seems much like the other company Mr. Dorsey is CEO of (and how anyone with any business acumen argued that was a good idea is still beyond me. But I digress.) this unicorn also can’t fly. And; is in a perilous downward spiral of meeting the ground of reality.

It seems the only interest in buying these once high flyers can garner is wrapped up into any rumor (usually via a Tweet!) that they are to be sold – as in acquired by someone else who might be able to make money with them. Well, at least that would free up the ole CEO dilemma, no? And speaking of CEO dilemma and acquiring – how’s Yahoo!™ doing? Remember when the strategy for success for Yahoo as posited by the very public adoration styled magazine cover girl articles of its current CEO Marisa Mayer was an acquisition spree? This was all but unquestionable (and much digital ink spilled) in its brilliance and vision inspired forward thinking. Well, it seems all that “brilliance” has been eviscerated much like how the workforce still employed there is yet to be.

Let me be blunt: All you needed to know things were amiss both at Yahoo as well as “the Valley” itself was to look at the most recent decision of Ms. Mayer to throw a lavish multi-million dollar costumed theme party mere months ago. As unquestionably foolish as this was – the rationale given by many a Silicon Valley aficionado that it was nothing, after all, “it’s common in the Valley” was ever the more stupefying! Now it seems Yahoo is “cutting its workforce by double-digit%ages.” And: open to the possibility of selling off core assets of its business. Of course – at the right price. However, I’d just offer this advice: Don’t wait too long on that “right price.” For if the current value of Alibaba™ is any indication – “right” is becoming more inline with “any” much faster than anyone dared think just a year prior.

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DotCom 2.0 revisited.

CEOs, Venture Backers Lose Big As Linkedin, Tableau Shares Tumble (Reuters)

LinkedIn Executive Chairman Reid Hoffman lost almost half his $2.8 billion fortune on paper Friday as shares of his social media company suffered their largest drop on record. He was not alone in taking heavy losses. Other executives at LinkedIn, some at business analytics company Tableau Software, and a number of the companies’ venture capital backers also took losses running into tens of millions of dollars as both stocks tumbled on dismal financial outlooks. It was a humbling moment highlighting the personal exposure many technology leaders and venture capitalists face as Wall Street reassesses their value at an uncertain time for the sector. Silicon Valley-based LinkedIn’s shares closed down 43.6% at $108.38 on Friday, after hitting a three-year low, following a sales forecast well short of analysts’ expectations. Shares of Seattle-based Tableau Software, a business analytics tools company, fell 49.4% to $41.33 after cutting its full-year profit outlook.

As a result, LinkedIn’s Hoffman lost $1.2 billion from his value on paper on Friday, slashing his stake to $1.6 billion, based on his holdings detailed in a filing with securities regulators from March, which the company said was the most up-to-date. LinkedIn’s Chief Executive Jeff Weiner saw the value of his stake fall by $70.9 million to $91.5 million. At Tableau, the value of CEO Christian Chabot’s stake was slashed nearly in half to $268 million, based on his holdings in a filing with securities regulators in March. Besides Hoffman and Weiner, several venture capitalists who sit on LinkedIn’s board and own stakes in the company suffered substantial losses. Michael Moritz, the chairman of Sequoia Capital who owns more shares than any individual investor besides Hoffman and Weiner, lost $56 million as his stake’s value shrank to $72.8 million. David Sze at Greylock Partners saw the value of his stake slide to $5 million after losing $3.9 million on Friday.

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“Any commodity market where inventories are at the highest level in more than 85 years is going to be bearish.”

Record Numbers Of Longs And Shorts Are Piling Into Oil (BBG)

Money managers may not agree where oil prices are headed, but they are increasingly eager to place their bets. Total wagers on the price of crude climbed to the highest since the U.S. Commodity Futures Trading Commission began tracking the data in 2006. Speculators’ combined short and long positions in West Texas Intermediate crude, the U.S. benchmark, rose to 497,280 futures and options contracts in the week ended Feb. 2. WTI moved more than 1% each day in the past three weeks. U.S. crude stockpiles climbed to the highest level in more than 85 years and Venezuela called for cooperation between OPEC and other oil-exporting countries to stem the drop in prices. The slump has slashed earnings from Royal Dutch Shell to Chevron, while Exxon Mobil reduced its drilling budget to a 10-year low.

“This is a reflection of a lot of conviction on both sides,” said John Kilduff at Again Capital, a hedge fund that focuses on energy. “We’re seeing a battle royal between those who think a bottom has been put in and those who think we have lower to go.” WTI slumped 5% to $29.88 a barrel in the report week on the New York Mercantile Exchange. The March contract added 10 cents, or 0.3%, to $30.99 at 12:18 p.m. Singapore time on Monday. [..] “There’s a difference of opinion about the direction of the market,” said Tim Evans at Citi Futures Perspective in New York. “It looks like some of the high price levels offered an opening for shorts to get back into the market. The shorts were the winners on a net basis.”

In other markets, net bearish wagers on U.S. ultra low sulfur diesel increased 11% to 23,765 contracts. Diesel futures advanced 4.5% in the period. Net bullish bets on Nymex gasoline slipped 18% to 14,328 contracts as futures dropped 4.4%. The risks are weighted to the downside because of the global glut, Citi’s Evans said. U.S. crude stockpiles climbed 7.79 million barrels to 502.7 million in the week ended Jan. 29, the highest since 1930, according to Energy Information Administration. Gasoline supplies climbed 5.94 million barrels to 254.4 million, the highest in weekly records going back to 1990. “The rise in U.S. inventories is confirmation of a larger physical supply surplus,” Evans said. “Any commodity market where inventories are at the highest level in more than 85 years is going to be bearish.”

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Time for the big margin calls?!

Prolonged Slump Sparks 2nd Wave Of Cuts To 2016 Oil Company Budgets (Reuters)

Less than two months into the year, the top U.S. shale oil companies have already cut their budget for 2016 a second time as the relentless drop in oil prices continues to erode their cash flow. With oil prices firmly wedged in the low $30-per-barrel range, oil producers are deferring spending on new wells and projects. “Companies’ language has shifted towards preserving balance sheets and cash, and keeping expenditure within cash-flows, which means that budgets are going to fall further,” said Topeka Capital Markets analyst Gabriele Sorbara. 18 of the top 30 U.S. oil companies by output have so far outlined their spending plans for 2016. They have reduced their budget by 40% on average, steeper than most analysts’ expectations, according to a Reuters analysis. These 30 companies had, on average, lowered their spending plans for 2016 by more than 70% last year.

Some such as Hess Corp and ConocoPhillips, who had already planned to spend less this year than in 2015, have now further cut their capital expenditure targets. Others are expected to follow suit. But, is there room for further cuts? While reduced prices for oilfield services and increased efficiencies have helped companies scale back spending, many industry experts say there may not be room for further cuts. “It’s almost like a 80/20 rule – 80% of the cost reduction has already occurred, another 20% remains,” said Rob Thummel at Tortoise Capital Advisors. Although the reduced spending has not yet impacted shale output, production is expected to start falling by the end of the year. “The capital cuts that the industry is making should result in … a supply shock to the downside,” ConocoPhillips’ chief executive, Ryan Lance, said on Thursday.

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Looking 10 years ahead? Sure.

World’s Largest Energy Trader Sees a Decade of Low Oil Prices (BBG)

Oil prices will stay low for as long as 10 years as Chinese economic growth slows and the U.S. shale industry acts as a cap on any rally, according to the world’s largest independent oil-trading house. “It’s hard to see a dramatic price increase,” Vitol CEO Ian Taylor told Bloomberg in an interview, saying prices were likely to bounce around a band with a mid-point of $50 a barrel for the next decade. “We really do imagine a band, and that band would probably naturally see a $40 to $60 type of band,” he said. “I can see that band lasting for five to ten years. I think it’s fundamentally different.” The lower boundary would imply little price recovery from where Brent crude, the global price benchmark, trades at about $35 a barrel.

The upper limit would put prices back to the level of July 2015, when the oil industry was already taking measures to weather the crisis. The forecast, made as the oil trading community’s annual IP Week gathering starts in London on Monday, would mean oil-rich countries and the energy industry would face the longest stretch of low prices since the the 1986-1999 period, when crude mostly traded between $10 and $20 a barrel. Vitol trades more than five million barrels a day of crude and refined products – enough to cover the needs of Germany, France and Spain together – and its views are closely followed in the oil industry.

Taylor, a 59-year-old trader-cum-executive who started his career at Royal Dutch Shell in the late 1970s, said he was unsure whether prices have already bottomed out, as supply continued to out-pace demand, leading to ever higher global stockpiles. However, he said that prices were likely to recover somewhat in the second half of the year, toward $45 to $50 a barrel. For the foreseeable future, Taylor doubts the oil market would ever see the triple-digit prices that fattened the sovereign wealth funds of Middle East countries and propelled the valuations of companies such as Exxon Mobil and BP. “You have to believe that there is a possibility that you will not necessarily go back above $100, you know, ever,” he said.

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How many will be capped in for good?

150 North Sea Oil Rigs Could Be Scrapped In 10 Years (Scotsman)

Almost 150 oil rigs in UK waters could be scrapped within the next 10 years, according to industry analysts Douglas Westwood, which carries out market research and consultancy work for the energy industry worldwide, said it anticipated that “146 platforms will be removed from the UK during 2019-2026”. The North Sea has been hit hard by plummeting oil prices, with the industry body Oil and Gas UK estimating 65,000 jobs have been lost in the sector since 2014. But Douglas Westwood said that decommissioning could provide an opportunity for the specialist firms involved in the work. Later this month it will publish its decommissioning market forecast for the North Sea – covering Denmark, Germany, Norway and the UK – over the period 2016 to 2040.

Ahead of that a paper on its website predicted that the “UK will dominate decommissioning expenditure”. This is down to the “high number of ageing platforms in the UK, which have an average age of over 20 years and are uneconomic at current commodity prices, as a result of high maintenance costs and the expensive production techniques required for mature fields”. Douglas Westwood said: “The oil price collapse has been bad news for nearly every company involved in the industry, but one group that could actually benefit from it are specialist decommissioning companies. “For these companies there is an opportunity to be part of removing the huge tonnage of infrastructure that exists in the North Sea. With oil prices forecast to remain low, life extension work that has kept many North Sea platforms producing long past their design life no longer makes commercial sense.”

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Some people will try and make a big deal out of this.

Iran Wants Euro Payment For New And Outstanding Oil Sales (Reuters)

Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month’s sanctions relief. A source at state-owned National Iranian Oil told Reuters that Iran will charge in euros for its recently signed oil contracts with firms including French oil and gas major Total, Spanish refiner Cepsa and Litasco, the trading arm of Russia’s Lukoil. “In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery,” the NIOC source said. Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars.

Iran was allowed to recover some of the funds frozen under U.S.-led sanctions in currencies other than dollars, such as the Omani rial and UAE dhiram. Switching oil sales to euros makes sense as Europe is now one of Iran’s biggest trading partners. “Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros,” said Robin Mills, CEO of Dubai-based Qamar Energy. Iran has pushed for years to have the euro replace the dollar as the currency for international oil trade. In 2007, Tehran failed to persuade OPEC members to switch away from the dollar, which its then President Mahmoud Ahmadinejad called a “worthless piece of paper”.

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What are the odds? If not done retroactively, how would it work out?

Fining Bankers, Not Shareholders, for Banks’ Misconduct (Morgenson)

Ho-hum, another week, another multimillion-dollar settlement between regulators and a behemoth bank acting badly. The most recent version involves two such financial institutions, Barclays and Credit Suisse. They agreed last Sunday to pay $154.3 million after regulators contended that their stock trading platforms, advertised as places where investors would not be preyed on by high-frequency traders, were actually precisely the opposite. On both banks’ systems, investors trying to execute their transactions fairly were harmed. As has become all too common in these cases, not one individual was identified as being responsible for the activities. Once again, shareholders are shouldering the costs of unethical behavior they had nothing to do with.

It could not be clearer: Years of tighter rules from legislators and bank regulators have done nothing to fix the toxic, me-first cultures that afflict big financial firms. Regulators are at last awakening to this reality. On Jan. 5, for example, the Financial Industry Regulatory Authority, a top Wall Street cop, announced its regulatory priorities for 2016. Among the main issues in its sights, the regulator said, was the culture at these companies. “Nearly a decade after the financial crisis, some firms continue to experience systemic breakdowns manifested through significant violations due to poor cultures of compliance,” said Richard Ketchum, Finra’s chairman.

“Firms with a strong ethical culture and senior leaders who set the right tone, lead by example and impose consequences on anyone who violates the firm’s cultural norms are essential to restoring investor confidence and trust in the securities industry.” But changing behavior — as opposed, say, to imposing higher capital requirements — is a complex task. And regulators must do more than talk about what banks have to do to address their deficiencies. Andreas Dombret is a member of the executive board of the Deutsche Bundesbank, Germany’s central bank, and head of its department of banking and financial supervision. In an interview late last year, he said he was determined to tackle the problem of ethically challenged bankers.

“If behavior doesn’t change, banks will not be trusted and they won’t be efficient in their financing of the real economy,” he said. “A functioning banking system must be based on trust.” Mr. Dombret is a regulator who knows banking from the inside, having held executive positions at J.P. Morgan and Bank of America. Most companies have codes of ethics, Mr. Dombret said, but they often exist only on paper. Regulators could help encourage a more ethical approach by routinely monitoring how a bank cooperates with its overseers, Mr. Dombret said. “How often is the bank the whistle-blower?” he asked. “Not only to get a lesser penalty but also to show that it won’t accept that kind of behavior. We are seeing more of that.”

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What VW didn’t get: the key player is the California Air Resources Board. You don’t want to piss them off. “Use of defeat devices is a civil violation” of the Clean Air Act, Uhlmann said. “Lying about CAA compliance is a criminal violation.”

Volkswagen’s Emissions Lies Are Coming Back To Haunt It (BBG)

No one has died from the emissions-cheating software Volkswagen has admitted it installed in some of its cars, yet the U.S. Justice Department may treat it more harshly than two automakers whose vehicles have killed people. General Motors vehicles were fitted with faulty ignition switches linked to at least 124 deaths. Toyota cars were involved in unintended acceleration responsible for at least four deaths. Neither had to plead guilty in settling criminal allegations, but Volkswagen may be forced to if it’s charged with criminal conduct and also wants to settle, according to attorneys who specialize in environmental law. The German automaker lied to the Environmental Protection Agency and California regulators for almost a year before admitting it created a device to fool emissions tests, Mary D. Nichols, chair of the California Air Resources Board, said in September.

Now the company faces a Justice Department that’s become more willing to push businesses across industries into guilty pleas tied to multibillion-dollar penalties. The U.S. attorney general also made it a priority last year to pursue criminal convictions against corporate executives. “We’ve had difficulty in controlling the automobile industry,” said Daniel Riesel at Sive, Paget & Riesel, a law firm that isn’t involved in the case. “Clearly the government regards this as a very serious environmental dereliction and is making a big deal of it.” [..] The U.S. civil complaint against Volkswagen alleges four violations of the Clean Air Act and cites potential civil fines that could be in the billions of dollars, according to Justice Department officials. If the BP case is a guide, criminal penalties could be less costly.

A criminal claim probably would be based on allegations that Volkswagen lied to government officials, said David Uhlmann, a law professor at the University of Michigan in Ann Arbor and former head of the environmental-crimes section of the Justice Department’s Environment and Natural Resources Division. When confronted about excess emissions by EPA and California regulators in meetings over several months, Volkswagen engineers cited technical issues rather than admitting the engines contained the defeat devices, according to the Justice Department. The company also initially denied in November that it installed software in larger engines to alter emissions, the department said. “Use of defeat devices is a civil violation” of the Clean Air Act, Uhlmann said. “Lying about CAA compliance is a criminal violation.”

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Just getting started.

Moody’s Cuts Rating On Western Australia Iron Ore (WSJ)

Moody’s Investors Service cut its rating on Western Australia, one of the world’s major iron-ore hubs, as a sharp downturn in prices for the steelmaking commodity puts increasing strain on the state’s finances. The ratings agency said on Monday it had downgraded the long-term issuer and senior unsecured debt ratings of the Western Australian Treasury, which issues debt on behalf of the state of Western Australia and state-owned corporations, to Aa2 from Aa1, citing “the ongoing deterioration in Western Australia’s financial and debt metrics and an increasing risk that the state’s debt burden will be higher than indicated.”

Ratings agencies have put many resources-focused companies and countries on watch amid a deep fall in world commodity prices. Last week, Standard & Poor’s Ratings Services said it has lowered BHP Billiton credit rating and cautioned it could cut again as early as this month. It also downgraded Glencore’s rating to just one notch above junk status. Moody’s said Western Australia’s reliance on royalty income from miners meant sharp falls in commodity prices, particularly iron-ore prices, was creating considerable pressure on its budget.

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Gives ‘down under’ a new meaning. Watch Perth housing market.

British Expat Workers Flood Home As Australia Mining Boom Turns To Dust (Tel.)

Mining has been the driving force of Australia’s economic growth for longer than anyone cares to remember – helping GDP growth average 3.6pc a year for most of this century – but the global collapse in commodity prices has led to a painful readjustment Australians have heard the warnings before – but this time, it seems, the boom is truly over. The country is repointing its economy for a new reality, and renegotiating its trading partnership with China and the wider Asia-Pacific. Australia’s mining titans – the likes of BHP Billiton and Rio Tinto, whose shares have led the FTSE 100 lower in the recent market turmoil – have a huge fight on their hands. Meanwhile the migrants who answered their call for workers are considering their options. Will the mining downturn see Britons packing their bags for home?

“There is no doubt that current operating conditions in the mining sector are tough and companies are taking steps to ensure their long-term survival,” says Dr Gavin Lind, of the Minerals Council of Australia. Slowing demand in China – the world’s largest consumer of raw materials, and the buyer of 54pc of Australia’s resources exports in 2015 – has led to dizzying price falls in coal, iron ore, zinc, nickel, copper and bauxite, all minerals mined Down Under. Instead of cutting production and shoring up the price of their product, miners are taking a counter-intuitive tack, and boosting their output. Closing down mines is an expensive business and companies would rather cling on to their market share than cede ground to their rivals. Yet “the increase in volumes is unlikely to be sufficient to offset the effect of lower commodity prices”, Mark Cully, chief economist at the Department of Industry, Innovation and Science, warned in December.

He calculates that Australia’s earnings from mining and energy exports will fall by 4pc to A$166bn (£81bn) this year as lower prices bite. Giant miners such as Rio and BHP believe their low-cost models will enable them to survive while higher-cost competitors go to the wall. However, in common with their peers in the FTSE 100, they have been punished by investors, with their shares tumbling 44pc and 52pc respectively in the last year. While Rio’s balance sheet is regarded as the stronger of the two, both are under pressure to cut their dividends. Analysts expect Rio to unveil a 37pc slump in operating profits when it reports its full-year results this week. BHP, which announces its half-year results on February 23, is facing a 56pc tumble in profits for the year.

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Call a spade a spade.

Ukraine: A USA-Installed Nazi-Infested Failed State (Lendman)

In February 2014, Washington replaced Ukrainian democracy with fascism in Europe’s heartland – illegitimately installed officials waging war on their own people. Fundamental human and civil rights were abolished. Police state viciousness replaced them. Regime critics risk prosecution, sentencing, imprisonment or assassination. Two years after fascists seized power, conditions for ordinary Ukrainians are deplorable. According to Germany’s daily broadsheet Junge Welt, they’re “staggering.” “Since the end of the Yanukovych era, the average income has decreased by 50%,” it reported – on top of 2015’s 44% inflation, nearly reducing purchasing power by half, making it impossible for most Ukrainians to get by. They’re suffering hugely, deeply impoverished, denied fundamental social services, abolished or greatly reduced en route to eliminating them altogether.

Ukraine’s economy is bankrupt, teetering on collapse, sustained by US-controlled IMF loans, violating its longstanding rules, a special dispensation for Ukraine. It loaned billions of dollars to a deadbeat borrower unable to repay them, an unprecedented act, funding its war machine, turning a blind eye to a hugely corrupt regime persecuting its own people. Ukraine’s GDP is in near free-fall, contracting by 12% last year, projected to continue declining sharply this year and beyond. The average pension was cut to €80 monthly, an impossible amount to live on, forcing pensioners to try getting by any way they can, including growing some of their own food in season. US anointed illegitimate oligarch president Petro Poroshenko is widely despised. So are other key regime officials.

They blame dismal economic conditions mainly on ongoing civil war – US-orchestrated and backed naked aggression against Donbass freedom fighters, rejecting fascist rule, wanting fundamental democratic rights, deserving universal praise and support. According to Junge Welt, regime critics call Kiev claims lame excuses. “What matters is (it’s) done little or nothing to prevent corruption and insider trading,” elite interests benefitting at the expense of everyone else, stealing the country blind, grabbing all they can. Complicit regime-connected oligarchs profit hugely in Ukraine, benefitting from grand theft, super-rich Dmitry Firtash apparently not one of them, calling Kiev “politically bankrupt.”

Days earlier, Ukrainian Economy Minister Aivaras Abromavicius resigned, followed the next day by his first deputy, Yulia Kovaliv, his remaining team, two deputy ministers and Kiev’s trade representative. Parliament speaker Volodymyr Groysman warned of Ukraine “entering a serious political crisis.” Resignations followed nothing done to address vital reforms needed. In his resignation letter, Abromavicius said corrupt officials blocked them, wanting control over state enterprises for their own self-interest, including natural gas company NAK Naftogaz. “Neither I nor my team have any desire to serve as a cover-up for the covert corruption, or become puppets for” regime officials “trying to exercise control over the flow of public funds,” he explained.

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Not a bad thought experiment. But having ‘populist’ Beppe Grillo as an example shows how clueless Münchau is about reality. That sort of talk itself is populist. David Cameron in a much more valid example, for one.

Through The Past, Darkly, For Europe’s Central Bankers (Münchau)

Re-reading John Weitz’s biography of Hjalmar Schacht, Hitler’s Banker , I noted some interesting parallels between the 1930s and now that I had not considered before. It is well known that Hitler relied on Schacht, his central banker, to help fund his rearmament plans. But Weitz also pointed out — and this is potentially relevant to the situation in the eurozone today – that Schacht was only able to pursue his unorthodox policies at the Reichsbank because he had the backing of a dictator. If an extremist leader came to power in a large eurozone country – France or Italy, say – what would happen if they were to appoint a central banker with the acumen of Schacht? And what would be the chances that such a team could succeed in increasing economic growth in the short term? Let me say straightaway that I am not comparing anyone to Hitler – or indeed to Schacht.

My point concerns what an unorthodox central banker can do if he or she has the political support to break with the prevailing orthodoxy. Schacht had two stints as president of the Reichsbank — in the 1920s, when he brought an end to the hyperinflation then crippling Germany, and again from 1933 to 1939. It is hard to identify him with a single economic outlook: in the 1920s he was in favour of the gold standard but then, in the early 1930s, he opposed the consensus that promoted the policies of austerity and deflation. Schacht argued, rightly, that Germany was unable to meet the reparation payments specified in the Young Plan, which was adopted in 1929. On returning to the Reichsbank, Schacht organised a unilateral restructuring of private debt owed by German companies to foreigners.

The German economy had already benefited from withdrawal from the gold standard in 1931, and Schacht piled stimulus upon stimulus. One reason for Hitler’s initial popularity in Germany was the speedy recovery from the depression, which was no doubt helped by a loose fiscal and monetary policy mix. The current policy orthodoxy in Brussels and Frankfurt, which is shared across northern Europe, has some parallels to the deflationary mindset that prevailed in the 1930s. Today’s politicians and central bankers are fixated with fiscal targets and debt reduction. As in the early 1930s, policy orthodoxy has pathological qualities. Whenever they run out of things to say, today’s central bankers refer to “structural reforms”, although they never say what precisely such reforms would achieve.

In principle, the eurozone’s economic problems are not hard to solve: the ECB could hand each citizen a cheque for €10,000. The inflation problem would be solved within days. Or the ECB could issue its own IOUs — which is what Schacht did. Or else the EU could issue debt and the ECB would buy it up. There are lots of ways to print money. They are all magnificent — and illegal.

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“..communal solidarity..” That says it all. More Europe! Not. Going. To. Happen.

German, French Central Bankers Call For Eurozone Finance Ministry (Reuters)

The euro zone needs to press ahead with structural reforms and closer integration, including an euro zone finance ministry, to deliver sustainable growth, the heads of the French and German central banks wrote in a German newspaper on Monday. In a guest article for the Sueddeutsche Zeitung entitled “Europe at a crossroads”, they said the European Central Bank (ECB) was not in a position to create sustainable long-term growth for the 19-country single currency bloc. The ECB has undershot its 2% inflation target for three straight years and is unlikely to return to it to for years to come given low oil prices, lackluster economic growth, weak lending and only modest wage rises in the euro zone.

“Although monetary policy has done a lot for the euro zone economy, it can’t create sustainable economic growth,” Bundesbank President Jens Weidmann and Bank of France Chief Francois Villeroy de Galhau wrote. Instead the euro zone needs a decisive program for structural reforms, an ambitious financing and investment union as well as better economic policy framework, Weidmann and Villeroy de Galhau said. The idea of such a ministry was floated in 2011 to tighten coordination of national policy after the economic crisis had forced the European Union to fund bailouts worth hundreds of billions of euros for Greece, Ireland and Portugal. “The current asymmetry between national sovereignty and communal solidarity is posing a danger for the stability of our currency union,” they wrote.

“Stronger integration appears to be the obvious way to restore trust in the euro zone, for this would favor the development of joint strategies for state finances and reforms so as to promote growth,” they said. Specifically, they called for the creation of a common finance ministry in connection with an independent fiscal council as well as the formation of a stronger political body that can take decisions.

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Apr 202015
 
 April 20, 2015  Posted by at 9:12 am Finance Tagged with: , , , , , , , , ,  


DPC Broad Street lunch carts, New York 1906

World Braces for Taper Tantrum II Even as Yellen Soothes Nerves (Bloomberg)
Caveat Creditor As IMF Chiefs Mull Unpayable Debts (AEP)
Fed Crisis-Liquidity Function Reviewed for Potential Use by IMF (Bloomberg)
Draghi Tells Euro Shorts To “Make His Day”, Again (Zero Hedge)
Greece’s Varoufakis Warns Of Grexit Contagion (Reuters)
Can Beijing Tame China’s Bull Market? (MarketWatch)
China Cuts Bank Reserves Again To Fight Slowdown (Reuters)
Why China’s RRR Cut Reeks Of Desperation (CNBC)
China to Investors: Don’t Forget That Stocks Can Lose Money Too (Bloomberg)
China Cracks Down On Golf, The ‘Sport For Millionaires’ (NY Times)
China’s President Xi Jinping To Unveil $46 Billion Deal In Pakistan (BBC)
You Do Need A Weatherman (Steve Keen)
Auckland Property: Cashed-Up And Heading Off (NZ Herald)
Secret Files Reveal the Structure of Islamic State (Spiegel)
Russia Has Bigger Concerns Than Oil, Ruble: Deputy PM (CNBC)
5 Years After BP Spill, Drillers Push Into Riskier Depths (AP)
US Army Commander Urges NATO To Confront Russia (RT)

We should get rid of the lot.

World Braces for Taper Tantrum II Even as Yellen Soothes Nerves (Bloomberg)

The world economy is about to discover if to be forewarned by the Federal Reserve is to be forearmed. Two years since the Fed triggered a selloff of their assets in the so-called “taper tantrum,” the finance chiefs of emerging markets left Washington meetings of the IMF praising Chair Janet Yellen for the way she is signaling plans to raise U.S. interest rates. The test now is whether developing nations have done enough to insulate their economies from the threats of a higher U.S. dollar and capital flight once the Fed boosts borrowing costs for the first time since 2006. How successful they are will help determine the strength of global growth that’s already taking a hit from weaker expansions in China and Brazil.

“The Fed is trying its best to be as transparent as possible, to explain its considerations,” Tharman Shanmugaratnam, Singapore’s finance minister, said in an interview. “But it doesn’t mean that ensures us of an orderly exit. One way or another there’s going to be some disturbance.” Yellen is seeking to avoid the May 2013 episode of her predecessor Ben S. Bernanke, when his suggestion that the Fed might soon wind down its bond-buying program prompted investors to flee the risk in emerging markets. India’s rupee and the Turkish lira both tumbled to record lows. While Yellen didn’t speak publicly during the IMF’s spring gathering, officials said her message behind closed doors was reassuring.

Russian Finance Minister Anton Siluanov told reporters that Yellen informed fellow Group of 20 officials that any U.S. rate increases would be “transparent and understandable.” The latest Bloomberg survey shows 71% of participating economists expect the Fed to raise rates from near zero in September after a slowing of U.S. activity diluted speculation it would act as soon as June. “The Fed has been very clear about saying it would be a very steady process rather than an abrupt process, and I think that should calm people down,” Reserve Bank of India Governor Raghuram Rajan said in Washington. Malaysian central bank Governor Zeti Akhtar Aziz said in an interview that markets may be calmer following the Fed’s move than before. “I believe that when this interest-rate adjustment occurs, conditions will actually stabilize,” she said.

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“We must not let our rulers load us with perpetual debt.”

Caveat Creditor As IMF Chiefs Mull Unpayable Debts (AEP)

The IMF has sounded the alarm on the exorbitant levels of debt across the world, this time literally. The theme trailer to its fiscal forum on the ‘political economy of high debt’ plays on our fears with the haunting tension of a Hitchcock thriller. A quote from Thomas Jefferson flashes across the screen in blood-red colours: “We must not let our rulers load us with perpetual debt.” We learn that public debt in the rich economies fell from 124pc of GDP at the end of Second World War to 29pc in 1973, a dream era that we have left behind. The debt burden has since climbed at a compound rate of 2pc a year, accelerating into an upward spiral to 105pc of GDP after the Lehman crash. It is as if we had fought another world war. A baby boom and surging work-force enabled us to grow out of debt in the 1950s and 1960s without noticing it.

No such outcome looks plausible today. The IMF’s World Economic Outlook describes a prostrate planet caught in a low-growth trap as the population ages across the Northern Hemisphere, and productivity splutters. Nor is this malaise confined to the West. The fertility rate has collapsed across the Far East. China’s work-force is shrinking by three million a year. The report warned of a “persistent reduction” in the global growth rate since the Great Recession of 2008-2009, with no sign yet of a return to normal. “Lower potential growth will make it more difficult to reduce high public and private debt ratios,” it said.

Christine Lagarde, the Fund’s managing-director, calls it the “New Mediocre”. The height of elegance as always, and seemingly inexhaustible as she holds court at IMF Headquarters, Mrs Lagarde has learned the hard way that something is badly out of kilter in the world. The painful ritual of her IMF tenure has been to admit at each meeting that the previous forecasts were too hopeful. First it was Europe’s debt crisis. Now it is because China, Brazil, Russia, and a host of mini-BRICS have hit the limits of easy catch-up growth. This year the curse was finally broken. There will be no downgrade. The IMF is crossing its fingers that world growth will still be 3.5pc for 2015.

Yet the Fund’s underlying message is that sky-high debt ratios and old-age populations are a dangerous mix, leaving the world prone to the “Japanese” diseases of deflation and atrophy. The monetary and fiscal buffers are largely exhausted. Authorities have little left in their policy arsenal to fight the next downturn, whenever it comes. There is of course a time-honoured way to clear unpayable debts and wipe the slate clean. It is called default. Some wicked wit at the IMF ended the Hitchcock trailer with a killer quote, this one from the Canadian poet and novelist Margaret Atwood, strangely constructed but pithy in its way: “And then the REVENGE that comes when they are not paid back.

This touches a raw nerve, for that is more or less what may happen within weeks if an angry Greece – aggrieved at the way it was sacrificed to save Europe’s banks in 2010 – becomes the first developed country to miss a payment to the IMF, and perhaps the first of a long string of debtor-nations to turn the tables on their foreign creditors. Athens is where it all begins. George Osborne said talk of a Grecian debacle was on everybody’s lips at this year’s Spring Meeting. “The mood is notably more gloomy, and it is now clear to me that a misstep or a miscalculation by either side could easily return European economies to the kind of perilous situation we saw three or four years ago. The crunch appears to be coming in May,” he said.

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Yeah, more power to the IMF, that’s a great idea.

Fed Crisis-Liquidity Function Reviewed for Potential Use by IMF (Bloomberg)

IMF member nations are discussing how to expand the lender’s mandate to include keeping markets liquid during a financial crisis, a role played by a group of major central banks led by the Federal Reserve in 2008. The IMF’s main committee of central bank governors and finance ministers is working on ways for the fund to provide a better financial “safety net” during a crisis, said Singapore Finance Minister Tharman Shanmugaratnam, who last month finished a four-year term as chairman of the panel. Singapore remains a member of the International Monetary and Financial Committee.

“In the last crisis, the Fed and some other central banks had a system of swaps that was applied to only certain financial centers, but you can’t leave it to an individual central bank to make those decisions,” he said in an interview Friday in Washington, as officials from around the world gathered for the IMF’s spring meetings. “It has to be a global player, and the IMF is the only credible institution to perform that role.” The Washington-based IMF needs to evolve into more of a “system-wide policeman” that enforces global financial stability, rather than solely a lender to individual countries that run into trouble, said Shanmugaratnam, 58, who also serves as Singapore’s deputy prime minister.\ IMF Managing Director Christine Lagarde said this month that the world could be in for a “bumpy ride” when the Fed starts raising interest rates, with commodity-exporting emerging economies likely to take a major hit.

The Fed set up foreign-exchange swap lines during the crisis with major central banks, including the ECB, Bank of Japan and Bank of Canada, as well as some smaller and emerging-market nations such as Singapore, South Korea, Mexico and New Zealand. Under the program, foreign central banks exchanged their countries’ currencies for U.S. dollars, which they loaned to local financial institutions to shore up their liquidity. Outstanding swaps peaked at almost $600 billion in late 2008. Some emerging-market economies were rebuffed for swap agreements with the Fed, including Indonesia, India, Peru and the Dominican Republic, according to the book “The Dollar Trap” by Eswar Prasad, a former IMF official.

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I’d be more worried about periphery bonds perhaps. But the euro too has a ways to fall.

Draghi Tells Euro Shorts To “Make His Day”, Again (Zero Hedge)

With a “defiant” Syriza determined to hold onto any shred of dignity and legitimacy that may remain in the wake of months of painful negotiations with its creditors and with a €5 billion advance from Russia (a large chunk of which will promptly be paid to the IMF which use it to bailout Ukraine which will hand it right back to Russia) shaping up to be the last lifeline for Greece before Athens is reduced to issuing IOUs to pay pensions and salaries, the focus is beginning to shift away from Grexit and towards contagion risk. The worry is that once Greece goes, both the credit market and periphery depositors will suddenly realize that the EMU is not “indissoluble,” but is in fact nothing more than a confederation of fixed exchange rates.

This realization could (and to a certain extent already has) cause credit investors to begin pricing redenomination risk back into sovereign spreads and, far more importantly (because as UBS recently noted, bonds don’t cause breakups, bank runs do), may lead depositors to question the wisdom of holding their euros in bank accounts where they’re earning next to no interest and where, should some “accident” occur, they are subject to conversion into a national currency that would swiftly collapse against the euro once introduced.

And so, with every sell side European credit strategist trying to figure out what happens when €60 billion in monthly asset purchases by a central bank collide head on with an unprecedented sovereign default and with speculators’ net short position on the EUR now at levels last seen in 2012, it’s time to bring out the big guns with Mario Draghi staging a sequel to his now famous “whatever it takes” speech which came in the summer of 2012, when spreads were blowing out across the periphery and when euro net shorts looked a lot like they do today. While conceding that a Greek exit from the euro would put everyone in “uncharted waters,” Draghi says he has the tools to combat contagion and as for shorting the euro, well, perhaps the best way to sum up Draghi’s position is to quote Clint Eastwood: “go ahead, make my day.”

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“”Once the idea enters peoples’ minds that monetary union is not forever, speculation begins..”

Greece’s Varoufakis Warns Of Grexit Contagion (Reuters)

Greece’s Finance Minister Yanis Varoufakis said in an interview broadcast on Sunday that if Greece were to leave the euro zone, there would be an inevitable contagion effect. “Anyone who toys with the idea of cutting off bits of the euro zone hoping the rest will survive is playing with fire,” he told La Sexta, a Spanish TV channel, in an interview recorded 10 days ago. “Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of euro zone to carry on.”

“I very much doubt that that is the case. Not just because of Greece but for any part of the union,” he said, speaking in English. “Once the idea enters peoples’ minds that monetary union is not forever, speculation begins … who’s next? That question is the solvent of any monetary union. Sooner or later it’s going to start raising interest rates, political tensions, capital flight.” His comments were recorded before those of Mario Draghi, the European Central Bank’s president, who this weekend said the euro zone was better equipped than it had been in the past to deal with a new Greek crisis but warned of uncharted waters if the situation deteriorates.

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“This bull run is taking place as the Chinese economy slumps under a sea of debt..”

Can Beijing Tame China’s Bull Market? (MarketWatch)

Authorities in China face the delicate task of taming an equity bull market of their own making, which could now be spiraling out of control. Last week, the announcement of new measures to allow fund managers to short stocks not only hit Chinese shares, but also spooked the global markets. This was followed up by warnings from China’s securities regulator to small investors not to borrow money or sell property to buy stocks. A warning for equity bulls to cool off certainly looks overdue. Stock turnover reached a record 1.53 trillion yuan ($247 billion) on Friday, with stock-trading accounts reportedly being opened at a rate of 1 million every two days. Margin account balances reached a record 1.16 trillion yuan. But should global markets worry if day traders in Shenzhen or Shanghai are about to lose their shirts?

China’s casino-like equity markets are largely sealed off from the outside world, after all. Foreign ownership of domestic Chinese shares is still a fraction of 1%, even with new initiatives such as the recent opening of the Shanghai-Hong Kong Stock Connect. The concern for global markets, however, is not equity-market contagion but the potential hole a stock-market bust could blow in the world’s second-largest economy. This bull run is taking place as the Chinese economy slumps under a sea of debt, with exports now also going south along with the property market. This hardly sounds like conditions ripe for rallying shares — but this is no normal rally. The real wild card to consider is the fact that this bull market has the fingerprints of the ruling Communist Party all over it.

They initiated it, meaning an official policy shift could also see it reverse — although that looks unlikely for now. Official state media have been cheerleading this rally by extolling the benefits of share ownership in a series of articles since last year. But what has really unleashed “animal spirits” of day traders has been the re-opening of the domestic initial public offering (IPO) market. Thanks to systematic underpricing orchestrated by the state regulator, investors have been all but guaranteed spectacular gains. According to a first-quarter report from accountants Ernst & Young, there were 70 domestic Chinese IPOs, all of which rose by the maximum 44% allowed on the first day of trading. Average gains for IPOs have been around 200% this year.

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What’s the reserve requirement over here these days? 0.05%?

China Cuts Bank Reserves Again To Fight Slowdown (Reuters)

China’s central bank on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months, adding more liquidity to the world’s second-biggest economy to help spur bank lending and combat slowing growth. The People’s Bank of China (PBOC) lowered the reserve requirement ratio for all banks by 100 basis points to 18.5%. The reduction is effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn. The latest cut in the reserve requirement shows how the central bank is stepping up efforts to ward off a sharp slowdown in the economy.

Weighed down by a property downturn, factory overcapacity and local debt, growth is expected to slow to a quarter-century low of around 7% this year from 7.4% in 2014, even with expected additional stimulus measures. The PBOC last cut the reserve requirement ratio for all commercial banks by 50 basis points on February 4, the first industry-wide cut since May 2012. The central bank has also cut interest rates twice since November in a bid to lower borrowing costs and spur demand.

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Too late: “..they don’t want to see bubble territory..”

Why China’s RRR Cut Reeks Of Desperation (CNBC)

The People’s Bank of China (PBoC) is “desperate” to control Shanghai’s red-hot equity rally, analysts said, after the central bank slashed the reserve requirement ratio (RRR) on Sunday. The 100 basis-point RRR cut to 18.5% is the biggest since 2008 and comes in response to a sharp selloff in stock futures on Friday after the China Securities Regulatory Commission (CSRC) tightened margin trading rules. The CSRC aims to cool Shanghai’s stock market, which is up over 30% year to date at seven-year highs. Futures plunged during late trading on Friday, with the China A50 futures contract down 6% in New York.

“After the announcement on Friday, stock futures were looking horrible so something needed doing to put a floor under that from a short-term point of view. But everybody’s going to take a look at this and say ‘hold on, why are they [PBoC] overreacting so strongly?’ People are going to start sensing desperation here,” Paul Gambles, co-founder of MBMG Group, told CNBC on Monday. Indeed, policy watchers were scratching their heads over the series of conflicting announcements. The PBoC is scrambling to ensure stability in China’s notoriously volatile share market, said Mark Andersen, global co-head of Asset Allocation at UBS CIO Wealth Management. “They want to see markets go up to some extent, but not out of control. With some of this margin financing, they want to see a relatively stable capital market with property prices falling so they don’t mind equity prices moving up a bit to support the broader economy, but they don’t want to see bubble territory,” Anderson said.

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Also too late. People think Beijing has it all under control, and when the markets crash, they will be very angry.

China to Investors: Don’t Forget That Stocks Can Lose Money Too (Bloomberg)

After the longest-ever rally in Chinese equities, investors are getting a reminder that the $7.3 trillion market isn’t just a one-way bet. China’s securities regulator jolted traders after the close of local bourses Friday when it banned a source of financing for margin trades and made it easier for short sellers to wager that stocks will fall. Offshore futures and exchange-traded funds linked to the world’s second-largest stock market sank, with the iShares China Large-Cap ETF tumbling 4.2% in the U.S. While China bulls will draw some comfort from the central bank’s biggest cut to lenders’ reserve requirements since 2008 on Sunday, last week’s sell-off in offshore markets shows how vulnerable the Shanghai Composite Index is to a pullback after going 452 days without a 10% drop from a recent high.

The benchmark gauge posted an average peak-to-trough retreat of 28% after six previous rounds of policy intervention to curtail stock speculation since 1996, according to Bank of America. “Institutional investors as well as authorities have had some concerns over the sharp rise in prices and trading,” Michael Kass at Baron Capital, whose $1.53 billion emerging-markets fund has outperformed 95% of peers tracked by Bloomberg over the past three years, said by e-mail on Friday. “This will likely cool some of the recent enthusiasm.” The Shanghai Composite’s 115% surge from last year’s low on Jan. 20 is challenging authorities as they seek to weigh the benefits of rising share prices against the risk that individual investors will get burned by excessive speculation.

Traders in Shanghai have borrowed a record 1.2 trillion yuan ($194 billion) to buy equities via margin trades, while new investors have opened an unprecedented number of stock accounts this year. The Shanghai Composite trades at 16.5 times estimated earnings for the next 12 months, the highest valuation in five years, even after data last week showed economic growth slowed to the weakest pace since 2009 in the first quarter. On Friday, the China Securities Regulatory Commission prohibited the margin-trading businesses of brokerages from using so-called umbrella trusts, which allow investors to take on more leverage. Authorities also allowed fund managers to lend shares for short sales, a move that will make it easier to execute bearish bets, and expanded the number of stocks available for this kind of trading.

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“..drugs, gambling, prostitution, ill-gotten wealth overflowing banquet tables and golf.” That’s the life we’re all supposed to long for, isn’t it?

China Cracks Down On Golf, The ‘Sport For Millionaires’ (NY Times)

President Xi Jinping’s crackdown on vice and corruption in China has gone after drugs, gambling, prostitution, ill-gotten wealth and overflowing banquet tables. Now it has turned to a less obvious target: golf. In a flurry of recent reports, state-run news outlets have depicted the sport as yet another temptation that has led Communist Party officials astray. A top official at the Commerce Ministry is under investigation on suspicion of allowing an unidentified company to pay his golf expenses. The government has shut down dozens of courses across the country built in violation of a ban intended to protect China’s limited supplies of water and arable land.

And in the southern province of Guangdong, home to the world’s largest golf facility, the 12-course Mission Hills Golf Club, party officials have been forbidden to golf during work hours “to prevent unclean behavior and disciplinary or illegal conduct.” The provincial anticorruption agency has set up a hotline for reporting civil servants who violate nine specific regulations, including prohibitions on betting on golf, playing with people connected to one’s job, traveling on golf-related junkets or holding positions on the boards of golf clubs. “Like fine liquor and tobacco, fancy cars and mansions, golf is a public relations tool that businessmen use to hook officials,” the newspaper of the party’s antigraft agency declared on April 9. “The golf course is gradually changing into a muddy field where they trade money for power.”

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Fresh from the Monopoly press.

China’s President Xi Jinping To Unveil $46 Billion Deal In Pakistan (BBC)

China’s President Xi Jinping is due in Pakistan, where he is expected to announce $46bn of investment. The focus of the spending is on building a China-Pakistan Economic Corridor (CPEC), running from Gwadar in Pakistan’s Balochistan province to China’s western Xinjiang region. Pakistan hopes the investment will boost its struggling economy and help end chronic power shortages. Leaders are also expected to discuss co-operation on security. Mr Xi will spend two days holding talks with his counterpart Mamnoon Hussain, Prime Minister Nawaz Sharif and other ministers. He will address parliament on Tuesday. Deals worth some $28bn are ready to be signed during the visit, with the rest to follow. The sum significantly outweighs American investment in Pakistan.

Under the CPEC plan, China’s government and banks will lend to Chinese companies, so they can invest in projects as commercial ventures. A network of roads, railways and energy developments will eventually stretch some 3,000km (1,865 miles). Some $15.5bn worth of coal, wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts of energy to Pakistan’s national grid, according to officials. A $44m optical fibre cable between the two countries is also due to be built. The projects will give China direct access to the Indian Ocean and beyond, marking a major advance in its plans to boost its economic influence in central and south Asia. Pakistan, meanwhile, hopes the investment will enable it to transform itself into a regional economic hub.

Ahsan Iqbal, the Pakistani minister overseeing the plan, told the AFP news agency that these were “very substantial and tangible projects which will have a significant transformative effect on Pakistan’s economy”. Mr Xi is also expected to discuss security issues with Mr Sharif, including China’s concerns that Muslim separatists from Xinjiang are linking up with Pakistani militants. “China and Pakistan need to align security concerns more closely to strengthen security co-operation,” he said in a statement to Pakistani media on Sunday. “Our cooperation in the security and economic fields reinforce each other, and they must be advanced simultaneously.”

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Steve on non-linear economics.

You Do Need A Weatherman (Steve Keen)

I’ve just come back from the annual Institute for New Economic Thinking conference in Paris, where the President of INET Rob Johnson is infamous for opening every session he chairs with an apt set of lyrics from the 1960s. I’ve aped Rob here by misquoting one of Bob Dylan’s great lines “You don’t need a weatherman to know which way the wind blows”. In fact, you do. Why? Because Weathermen know a lot more about which way the wind blows now that they did back in the 1960s, thanks to the work of a lesser-known icon of the 1960s, Edward Lorenz. A mathematician and a meteorologist, Lorenz was dissatisfied with the methods then used to predict the weather—which were a combination of looking for patterns in historical data, and using what mathematicians call linear models.

He demonstrated the importance of nonlinear effects in the weather in a seminal paper in 1963 (two years before Dylan released Subterranean Homesick Blues), and meteorologists rapidly moved from linear to nonlinear thinking. Why is nonlinear thinking better than linear? Ironically, given how defensive the Old Guard in economics is of its generally linear approach, one of the best explanations of what linear thinking is, and why it is misleading, was recently given by the chief economist at the IMF, Olivier Blanchard. Looking back at the failure of mainstream economic models to forewarn of the 2008 economic crisis, Blanchard noted that these models only made sense if “small shocks had small effects and a shock twice as big as another had twice the effect on economic activity”:

These techniques however made sense only under a vision in which economic fluctuations were regular enough so that, by looking at the past, people and firms (and the econometricians who apply statistics to economics) could understand their nature and form expectations of the future, and simple enough so that small shocks had small effects and a shock twice as big as another had twice the effect on economic activity.

The reason for this assumption, called linearity, was technical: models with nonlinearities—those in which a small shock, such as a decrease in housing prices, can sometimes have large effects, or in which the effect of a shock depends on the rest of the economic environment—were difficult, if not impossible, to solve under rational expectations. (Blanchard, “Where Danger Lurks”, September 2014)

Then along came the economic crisis, and suddenly in the real world—unlike in their models—“the effect of a shock depended on the rest of the economic environment”, and what appeared to economists to be a small shock (the Subprime mortgage crisis) had a very large impact on the global economy. Lorenz’s criticism of linear weather models was essentially the same: linear models grossly underestimated the interconnectedness of the weather. Meteorologists took this message to heart, and developed highly nonlinear models in which “‘cause and effect’ relationships between the basic variables can become ferociously complex”. This required some very difficult work in mathematics and computing—but it was worth it, given the devastating real-world impact of an unanticipated hurricane on the real world. The world has benefited enormously from this work by meteorologists over the last half century.

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They’re not all stupid.

Auckland Property: Cashed-Up And Heading Off (NZ Herald)

As house prices in the country’s biggest city spiral out of control, Auckland homeowners are cashing in their chips and buying mansions in the regions.Thousands of property owners are now sitting on million-dollar goldmines thanks to rampant capital gain. The lure of a traffic-free, laid-back lifestyle with outdoor space for the children is proving tempting for many, and one-in-10 Hawkes Bay sales are now to ex-pat Aucklanders. The Bay of Islands and Marlborough are also drawing “Jafa” homeowners keen to escape the rat race. They have newly acquired equity thanks to soaring Auckland house prices which hit a median of $720,000 last month – a 13% jump in the past year alone.

In Marlborough, with its climate, vineyards and scenery, the median selling price last month was $316,500. Bayleys Marlborough director Andy Poswillo said the median price of a home in Auckland would buy a dated two-to-four-bedroom house or unit, with single car garaging set on a “pocket-handkerchief of lawn”.In Marlborough, the same money could buy a modern three-to-five-bedroom house, some with great views, a swimming pool, hobby orchard and up to 4000sq m of land.”It is easy to see why the temptation is there to cash up, do away with the mortgage and move down the line.”Mr Poswillo said at least eight Auckland families had bought local properties in the past three months.

Many buyers had negotiated “work from home” or satellite office arrangements to maintain their city careers. “They all share the same sentiment; they are tired of chipping away at their colossal mortgages for homes that are failing to serve their needs.”Put simply they want a better lifestyle for their kids and to dump the financial stress of living in the big smoke.”On Saturday the Weekend Herald revealed the average Auckland home had earned nearly $230 a day in the past year – nearly twice what the average worker earned from their job.

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Good article.

Secret Files Reveal the Structure of Islamic State (Spiegel)

Aloof. Polite. Cajoling. Extremely attentive. Restrained. Dishonest. Inscrutable. Malicious. The rebels from northern Syria, remembering encounters with him months later, recall completely different facets of the man. But they agree on one thing: “We never knew exactly who we were sitting across from.” In fact, not even those who shot and killed him after a brief firefight in the town of Tal Rifaat on a January morning in 2014 knew the true identity of the tall man in his late fifties. They were unaware that they had killed the strategic head of the group calling itself “Islamic State” (IS). The fact that this could have happened at all was the result of a rare but fatal miscalculation by the brilliant planner. The local rebels placed the body into a refrigerator, in which they intended to bury him.

Only later, when they realized how important the man was, did they lift his body out again. Samir Abd Muhammad al-Khlifawi was the real name of the Iraqi, whose bony features were softened by a white beard. But no one knew him by that name. Even his best-known pseudonym, Haji Bakr, wasn’t widely known. But that was precisely part of the plan. The former colonel in the intelligence service of Saddam Hussein’s air defense force had been secretly pulling the strings at IS for years. Former members of the group had repeatedly mentioned him as one of its leading figures. Still, it was never clear what exactly his role was.

But when the architect of the Islamic State died, he left something behind that he had intended to keep strictly confidential: the blueprint for this state. It is a folder full of handwritten organizational charts, lists and schedules, which describe how a country can be gradually subjugated. SPIEGEL has gained exclusive access to the 31 pages, some consisting of several pages pasted together. They reveal a multilayered composition and directives for action, some already tested and others newly devised for the anarchical situation in Syria’s rebel-held territories. In a sense, the documents are the source code of the most successful terrorist army in recent history.

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Investment finance.

Russia Has Bigger Concerns Than Oil, Ruble: Deputy PM (CNBC)

Faced with the triple whammy of plunging oil prices, currency volatility and Western sanctions, there’s no dearth of challenges for Russia’s ailing economy, but Deputy Prime Minister Arkady Dvorkovich said what hurts most is the scarcity of financing for new investments. “The shortness of financing for new investments is where the Russian economy is being hit in the most important way,” Dvorkovich told CNBC on the sidelines of World Economic Forum on East Asia in Jakarta. “How do we deal with this? We are working with new partners. This is why we are in China, in other countries, looking for new partners who can bring new investments into the country,” he added.

Russia’s economy, which grew by just 0.6% in 2014, is expected to enter a deep recession this year under the weight of lower oil prices and sanctions, which have compounded the country’s underlying structural weaknesses and undermined business and consumer confidence. Earlier this month, the IMF slashed its growth outlook for the country, forecasting a contraction of 3.8% in 2015 and 1.1% in 2016. Its earlier estimate was for a contraction of 3% this year and 1% next. Nevertheless, Dvorkovich says the country has built up enough reserves to weather the rout in the commodities market.

“We were not counting on higher oil prices in our economic policies. We were saving some money for the times like what we face now, so we have reserves that allow us to smooth this stage and to help poor families and increase unemployment benefits,” he said. As for the precipitous fall in the ruble over the past year, Dvorkovich said the implications are not all negative as it gives Russian manufacturing and agricultural exports a pricing edge in global markets. Responding to criticism over the Kremlin’s decision to lift a self-imposed ban on supplying a sophisticated missile air defense system to Iran, Dvorkovich said: “We are not breaking any sanctions.” “We will fulfill our commitments and responsibilities in full compliance with international legislations. Our partners shouldn’t doubt that we would work in that manner,” he said.

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The price of oil better stay down, or they’ll do it too.

5 Years After BP Spill, Drillers Push Into Riskier Depths (AP)

Five years after the nation’s worst offshore oil spill, the industry is working on drilling even further into the risky depths beneath the Gulf of Mexico to tap massive deposits once thought unreachable. Opening this new frontier, miles below the bottom of the Gulf, requires engineering feats far beyond those used at BP’s much shallower Macondo well. But critics say energy companies haven’t developed the corresponding safety measures to prevent another disaster or contain one if it happens — a sign, environmentalists say, that the lessons of BP’s spill were short-lived.

These new depths and larger reservoirs could exacerbate a blowout like what happened at the Macondo well. Hundreds of thousands of barrels of oil could spill each day, and the response would be slowed as the equipment to deal with it — skimmers, boom, submarines, containment stacks — is shipped 100 miles or more from shore. Since the Macondo disaster, which sent at least 134 million gallons spewing into the Gulf five years ago Monday, federal agencies have approved about two dozen next-generation, ultra-deep wells. The number of deepwater drilling rigs has increased, too, from 35 at the time of the Macondo blowout to 48 last month, according to data from IHS Energy, a Houston company that collects industry statistics.

Department of Interior officials overseeing offshore drilling did not provide data on these wells and accompanying exploration and drilling plans, information that The Associated Press requested last month. But a review of offshore well data by the AP shows the average ocean depth of all wells started since 2010 has increased to 1,757 feet, 40% deeper than the average well drilled in the five years before that. And that’s just the depth of the water. Drillers are exploring a “golden zone” of oil and natural gas that lies roughly 20,000 feet beneath the sea floor, through a 10,000-foot thick layer of prehistoric salt — far deeper than BP’s Macondo well, which was considered so tricky at the time that a rig worker killed in the blowout once described it to his wife as “the well from hell.”

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Crazed.

US Army Commander Urges NATO To Confront Russia (RT)

US army commander in Europe says Russia is a “real threat” urging NATO to stay united. The alliance is not interested in a “fair fight with anyone” and wants to have “overmatch in all systems,” Lieutenant-General Frederick “Ben” Hodges believes. “There is a Russian threat,” Hodges told the Telegraph, maintaining that Russia is involved in ongoing conflict in eastern Ukraine. A key objective for NATO is not to let Russia outreach it in terms of capabilities, the general said. “We’re not interested in a fair fight with anyone,” General Hodges stated. “We want to have overmatch in all systems. I don’t think that we’ve fallen behind but Russia has closed the gap in certain capabilities. We don’t want them to close that gap,” he revealed.

“The best insurance we have against a showdown is that NATO stands together,” he said, pointing to recent moves by traditionally neutral Sweden and Finland to cooperate more closely on defense with NATO. Moscow has expressed “special concern” over Finnish and Swedish moves towards the alliance viewing it as a threat aimed against Russia. “Contrary to past years, Northern European military cooperation is now positioning itself against Russia. This can undermine positive constructive cooperation,” Russia’s Foreign Ministry said in a statement. Hodges also said US expects its allies to contribute financially to the security umbrella provided by the NATO alliance, as its member states have been failing to allocate 2% of every member nation’s GDP to NATO budget.

“I think the question for each country to ask is: are they security consumers or security providers?” the general demanded. “Do they bring capabilities the alliance needs?” However, the general does not believe that the world is on the brink of another Cold War, saying that “the only thing that is similar now is that Russia and NATO have different views about what the security environment in Europe should be.” “I don’t think it’s the same as the Cold War,” he said, recalling “gigantic forces” and “large numbers of nuclear weapons” implemented in Europe a quarter of a century ago. “That [Cold War] was a different situation.”

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