Oct 122017
 
 October 12, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Piet Mondriaan Broadway boogie wooogie 1943

 

The Bubble Economy Is Set To Burst, US Elections Be The Trigger (Andy Xie)
Fed Divide On Inflation Intensified At September Policy Meeting (R.)
UK Resigned To Endless Productivity Gloom (Tel.)
The World Must Spend $2.7 Trillion on Charging Stations for Tesla to Fly (BBG)
Bullet Train Wheel Parts Made By Kobe Steel Failed Quality Tests (BBG)
General Motors Checking Impact Of Kobe Steel Data Cheating (R.)
De-dollarization Not Now (WS)
Xi’s Legacy May Rest on the World’s Biggest Infrastructure Project (BBG)
Retirement in Australia is Unrealisable For Most Workers (Satyajit Das)
With Brexit Talks Stuck, Britain Is Preparing For The Worst (BBG)
IMF Report Suggests New Greek Debt Measures Necessary (K.)

 

 

“In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools.”

“In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises.”

“China’s residential property value may have surpassed the total in the rest of the world combined.”

The Bubble Economy Is Set To Burst, US Elections Be The Trigger (Andy Xie)

While Western central bankers can stop making things worse, only China can restore stability in the global economy. Consider that 800 million Chinese workers have become as productive as their Western counterparts, but are not even close in terms of consumption. This is the fundamental reason for the global imbalance. China’s most important asset bubble is the property market China’s model is to subsidise investment. The resulting overcapacity inevitably devalues whatever its workers produce. That slows down wage rises and prolongs the deflationary pull. This is the reason that the Chinese currency has had a tendency to depreciate during its four decades of rapid growth, while other East Asian economies experienced currency appreciation during a similar period. Overinvestment means destroying capital. The model can only be sustained through taxing the household sector to fill the gap.

In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises. The most important asset bubble is the property market. It redistributes about 10% of GDP to the government sector from the household sector. The levies for subsidising investment keep consumption down and make the economy more dependent on investment and export. The government finds an ever-increasing need to raise levies and, hence, make the property bubble bigger. In tier-one cities, property costs are likely to be between 50 and 100 years of household income. At the peak of Japan’s property bubble, it was about 20 in Tokyo. China’s residential property value may have surpassed the total in the rest of the world combined.

In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius How is this all going to end? Rising interest rates are usually the trigger. But we know the current bubble economy tends to keep inflation low through suppressing mass consumption and increasing overcapacity. It gives central bankers the excuse to keep the printing press on. In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius. In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools. In 2000, the dotcom bubble burst because some firms were caught making up numbers. Today, you don’t need to make up numbers. What one needs is stories.

Hot stocks or property are sold like Hollywood stars. Rumour and innuendo will do the job. Nothing real is necessary. In 2007, structured mortgage products exposed cash-short borrowers. The defaults snowballed. But, in China, leverage is always rolled over. Default is usually considered a political act. And it never snowballs: the government makes sure of it. In the US, the leverage is mostly in the government. It won t default, because it can print money. The most likely cause for the bubble to burst would be the rising political tension in the West. The bubble economy keeps squeezing the middle class, with more debt and less wages. The festering political tension could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.

Read more …

Time to acknowledge these people really don’t have a clue. They are stuck in models that have long since failed, and they have no others.

Fed Divide On Inflation Intensified At September Policy Meeting (R.)

Federal Reserve policymakers had a prolonged debate about the prospects of a pickup in inflation and slowing the path of future interest rate rises if it did not, according to the minutes of the U.S. central bank’s last policy meeting on Sept. 19-20 released on Wednesday. The readout of the meeting, at which the Fed announced it would begin this month to reduce its large bond portfolio mostly amassed following the financial crisis and unanimously voted to hold rates steady, also showed that officials remained mostly sanguine about the economic impact of recent hurricanes. “Many participants expressed concern that the low inflation readings this year might reflect… the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the Fed said in the minutes.

As such several said that they would focus on incoming inflation data over the next few months when deciding on future interest rate moves. Nevertheless, many policymakers still felt that another rate increase this year “was likely to be warranted,” the Fed said. U.S. stocks and yields on U.S. Treasuries were little changed following the release of the minutes. Fed Chair Janet Yellen has repeatedly acknowledged since the meeting that there is rising uncertainty on the path of inflation, which has been retreating from the Fed’s 2% target rate over the past few months. However, Yellen and a number of other key policymakers have made plain they expect to continue to gradually raise interest rates given the strength of the overall economy and continued tightening of the labor market.

“The majority of Fed officials are worried that core inflation might not rebound quickly, but that isn’t going to stop them from continuing to normalize interest rates, particularly not when the unemployment rate is getting so low,” said Paul Ashworth, an economist at Capital Economics.

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More clueless hacks. On Twitter, Tropical Traderhas this: “UK is a f**king leveraged real estate hedge fund Ponzi scheme run by and for spivs and chancers. Of course productivity is going nowhere… ”

UK Resigned To Endless Productivity Gloom (Tel.)

Britain’s productivity crisis is not going to come to an end any time soon. That is the verdict of the Office for Budget Responsibility (OBR), the official watchdog of Britain’s government finances, which monitors the economy closely. Productivity is crucial to economic growth and to living standards – workers can be paid more and work less if they produce more output for every hour worked. But since the financial crisis productivity has barely budged. Back in 2010 the OBR predicted productivity would resume its pre-crash trend, rising by about 15pc from 2009 to 2016. That did not happen. Each time the OBR made a forecast – at the Budget or the Autumn Statement – it thought the strong old trend rate would pick up. But it did not. Productivity remained stubbornly low.

After seven years of persisting with this forecast, the OBR has thrown in the towel. “As the period of historically weak productivity growth lengthens, it seems less plausible to assume that potential and actual productivity growth will recover over the medium term to the extent assumed in our most recent forecasts,” the watchdog said. “Over the past five years, growth in output per hour has averaged 0.2%. This looks set to be a better guide to productivity growth in 2017 than our March forecast.” That paints a gloomy picture for future economic growth, pay rises and the government’s finances. The report notes that “some commentators have argued that advanced economies have entered an era of permanently subdued productivity growth for structural reasons”. However, the OBR does not quite go that far.

This puzzle is a global one. Productivity growth has been disappointing across much of the rich world. But that is barely a silver lining, particularly when the underlying causes are hard to establish. At least the global nature of the problem allows for more ‘cures’ to be attempted. The US is currently engaged in monetary tightening. Interest rates are rising and quantitative easing will soon start to be wound back – gently, but still significantly. The move by Janet Yellen and her colleagues at the Federal Reserve should begin to test the idea that low interest rates are in part to blame for low productivity. At some point the theory around employment will surely have to be tested.

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That’s a lot of green.

The World Must Spend $2.7 Trillion on Charging Stations for Tesla to Fly (BBG)

A $2.7 trillion chasm stands between electric vehicles and the infrastructure needed to make them popular. That’s how much Morgan Stanley says must be spent on building the supporting ecosystem for EVs to reach its forecast of 526 million units by 2040. The estimate, projected by scaling up Tesla Inc.’s current network of charging stations to assembly plants, shows how infrastructure can be the biggest bottleneck for the industry’s expansion, Morgan Stanley said in a Oct. 9 report. To support half a billion EVs, the projected investment will require a mix of private and public funding across regions and sectors, and any auto company or government with aggressive targets will be at risk without the necessary infrastructure, the report said.

The industry shift to battery-powered cars is being helped by government efforts to reduce air pollution by phasing out fossil fuel-powered engines. China, which has vowed to cap its carbon emissions by 2030 and improve air quality, recently joined the U.K. and France in seeking a timetable for the elimination of vehicles using gasoline and diesel. China will become the largest EV market, accounting for about a third of global infrastructure spending by 2040, according to Morgan Stanley.

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Just wait for the dominoes to drop. “In Central Japan Railway’s bullet trains, 310 of the tested parts were found to be sub-standard..”

Bullet Train Wheel Parts Made By Kobe Steel Failed Quality Tests (BBG)

Kobe Steel’s fake data scandal penetrated deeper into the most hallowed corners of Japanese industry as iconic bullet trains were found with sub-standard parts supplied by the steelmaker. While they don’t pose any safety risks, aluminum components connecting wheels to train cars failed Japanese industry standards, according to Central Japan Railway, which operates the high-speed trains between Tokyo and Osaka. West Japan Railway, which runs services from Osaka to Fukuoka, also found sub-standard parts made by Kobe Steel. The latest scandal to hit Japan’s manufacturing industry erupted on Sunday after the country’s third-largest steel producer admitted it faked data about the strength and durability of some aluminum and copper.

As scores of clients from Toyota to General Motors scrambled to determine if they used the suspect materials and whether safety was compromised in their cars, trains and planes, the company said two more products were affected and further cases could come to light. “I deeply apologize for causing concern to many people, including all users and consumers,” Kobe Steel CEO Hiroya Kawasaki said at a meeting with a senior official from the Ministry of Economy, Trade and Industry on Thursday. He said trust in the company has fallen to “zero” and he will work to restore its reputation. “Safety is the top priority.” Shares in the company rebounded 1% Thursday, after plunging 36% over the previous two days. About $1.6 billion of the company’s market value has been wiped out since the revelations were made.

Figures were systematically fabricated at all four of Kobe Steel’s local aluminum plants, with the practice dating back as long as 10 years for some products, the company said Sunday. Data was also faked for iron ore powder and target materials that are used in DVDs and LCD screens, it said three days later. In Central Japan Railway’s bullet trains, 310 of the tested parts were found to be sub-standard and will be replaced at the next regular inspection, spokesman Haruhiko Tomikubo said. They were produced by Kobe Steel over the past five years, he said.

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I suggest mass recalls before Kobe is bankrupt. Or GM will have to pay up.

General Motors Checking Impact Of Kobe Steel Data Cheating (R.)

General Motors is checking whether its cars contain falsely certified parts or components sourced from Japan’s Kobe Steel, the latest major automaker to be dragged into the cheating scandal. “General Motors is aware of the reports of material deviation in Kobe Steel copper and aluminum products,” spokesman Nick Richards told Reuters, confirming a Kyodo News report. “We are investigating any potential impact and do not have any additional comments at this time” GM joins automakers including Toyota and as many as 200 other companies that have received parts sourced from Kobe Steel as the scandal reverberates through global supply chains. On Wednesday fresh revelations showed data fabrication at the steelmaker was more widespread than it initially said, as the company joins a list of Japanese manufacturers that have admitted to similar misconduct in recent years.

Investors, worried about the financial impact and potential legal fallout, again dumped Kobe Steel stock, wiping about $1.6 billion off its market value in two days. On Thursday in Tokyo, the shares stabilized and were up 1.1% [..] Kobe Steel President Hiroya Kawasaki said on Thursday his company would do the utmost to investigate the reason for the tampering and take measures to prevent further occurrences. He was speaking before meeting an industry ministry official to discuss the matter. The steelmaker admitted at the weekend it had falsified data about the quality of aluminum and copper products used in cars, aircraft, space rockets and defense equipment, a further hit to Japanese manufacturers’ reputation for quality products. Kobe Steel said late on Wednesday it found 70 cases of tampering with data on materials used in optical disks and liquid crystal displays at its Kobelco Research Institute Inc, which makes and tests products for the company.

Read more …

“Dollar denominated debt owed by governments and non-bank corporations in advanced economies with currencies other than the dollar has reached 26% of their GDP, nearly three times the level of the year 2000.”

And now raise rates….

De-dollarization Not Now (WS)

China announced today that it would sell $2 billion in government bonds denominated in US dollars. The offering will be China’s largest dollar-bond sale ever. The last time China sold dollar-bonds was in 2004. Investors around the globe are eager to hand China their US dollars, in exchange for a somewhat higher yield. The 10-year US Treasury yield is currently 2.34%. The 10-year yield on similar Chinese sovereign debt is 3.67%. Credit downgrade, no problem. In September, Standard & Poor’s downgraded China’s debt (to A+) for the first time in 19 years, on worries that the borrowing binge in China will continue, and that this growing mountain of debt will make it harder for China to handle a financial shock, such as a banking crisis.

Moody’s had already downgraded China in May (to A1) for the first time in 30 years. “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” it said. These downgrades put Standard & Poor’s and Moody’s on the same page with Fitch, which had downgraded China in 2013. But the Chinese Government doesn’t exactly need dollars. On October 9th, it reported that foreign exchange reserves – including $1.15 trillion in US Treasuries, according the US Treasury Department – rose to $3.11 trillion at the end of September, an 11-month high, as its crackdown on capital flight is bearing fruit (via Trading Economics):

[..] In total, emerging market governments and companies have issued $509 billion in dollar-denominated bonds so far this year, a new record. Dollar-denominated junk bond issuance in the developing world has hit a record $221 billion so far this year, up 60% from the total for the entire year 2016. [..] Dollar denominated debt owed by governments and non-bank corporations in advanced economies with currencies other than the dollar has reached 26% of their GDP, nearly three times the level of the year 2000. Borrowing in foreign currencies increases the default risks.

When the dollar rises against the currency that the borrower uses – which is a constant issue with many emerging market currencies that have much higher inflation rates than the US – borrowers can find it impossible to service their dollar-denominated debts. And when these economies or corporate cash flows slow down, central banks in these countries cannot print dollars to bail out their governments and largest companies. Financial crises have been made of this material, including the Asian Financial Crisis and the Tequila Crisis in Mexico. But today, none of this matters. What matters are yield-chasing investors that, after years of zero-interest-rate-policy brainwashing by central banks, can no longer see any risks at all. And the dollar remains the foreign currency of choice.

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The new Silk Road isn’t a Chinese idea. The US toyed with it. Xi has realized it’s the way to export China’s Ponzi. They will insist on having countries use Chinese products, and paying for them. Often with Chinese loans.

Xi’s Legacy May Rest on the World’s Biggest Infrastructure Project (BBG)

There’s one ambitious scheme of Xi’s about whose importance we may already be certain, one that will leave a big mark one way or another. It’s fundamentally geopolitical in nature, though it may ultimately maintain China’s historical sense of empire. The project is the Belt and Road Initiative, which aims to be nothing less than the biggest infrastructure program the world has ever seen. Sometimes known as One Belt One Road, or OBOR, it will attempt to integrate China’s markets with those on three continents, Asia, Europe, and Africa. The idea is to build an integrated rail network crisscrossing Central and Southeast Asia and reaching far into Europe, while constructing large, modern deep-water ports to link shipping from China and the surrounding western Pacific to South Asia, Kenya, Tanzania, and beyond.

So far, more than 60 countries have signed on or appear inclined to participate. Together they account for about 70% of the Earth’s population and 75% of its known energy supplies. Finding reasonably accurate statistics about Chinese geopolitical initiatives has long been a challenge, but under Xi, OBOR appears to have amassed well over $100 billion in commitments from various Chinese or Chinese-derived institutions, including the recently formed Asian Infrastructure Investment Bank, which some already see as a rival to the World Bank. Backed by Xi’s personal prestige, heft on this scale has turned OBOR into a kind of organizing motif for China’s politics and economy. The clear hope is that it will cement the country’s place as a leading, and, perhaps someday soon, the preeminent center of gravity in the world.

[..] Although downplayed in boosterish Chinese discussions, Beijing’s desire for markets to help soak up some of its overcapacity in steel and cement is an important motive behind OBOR’s focus on infrastructure—especially railroad lines. In 2015, China’s steel surplus was equivalent to the total output of the next four producers, Japan, India, the U.S., and Russia. Much the same is true for other key industrial materials. This push to develop outlets for China’s badly unbalanced economy has led many to skip over basic questions about the economic rationale for a vast rail network in the first place. If the ultimate idea is to link East and West with rapid, modern freight trains, as is often suggested, what’s the category of products that will benefit enough from these connections to make them profitable? Perishable and highly time-sensitive goods will almost always be transported by air. Meanwhile, no train, no matter how modern, will beat ocean freight for capacity or price per mile.

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Sobering.

Retirement in Australia is Unrealisable For Most Workers (Satyajit Das)

Australians make up barely 0.3% of the globe’s population and yet hold $2.1 trillion in pension savings – the world’s fourth-largest such pool. Those assets are viewed as a measure of the country’s wealth and economic resilience, and seem to guarantee a high standard of living for Australians well into the future. Other developed nations, aging even faster than Australia and subject to fraying safety nets, have held up the system as a world-class model to fund retirement. In fact, its future looks nowhere near so bright. Australia’s so-called superannuation scheme is a defined contribution pension plan funded by mandatory employer contributions (currently 9.5%, scheduled to rise gradually to 12% by 2025). Employees can supplement those savings and are encouraged to do so with tax breaks, pension fund earnings and generous benefits.

The gaudy size of the investment pool, however, masks serious vulnerabilities. First, the focus on assets ignores liabilities, especially Australia’s $1.8 trillion in household debt as well as total non-financial debt of around $3.5 trillion. It also overlooks Australia’s foreign debt, which has reached over 50% of GDP – the result of the substantial capital imports needed to finance current account deficits that have persisted despite the recent commodity boom, strong terms of trade and record exports. Second, the savings must stretch further than ever before, covering not just the income needs of retirees but their rapidly increasing healthcare costs. In the current low-income environment, investment earnings have shrunk to the point where they alone can’t cover expenses. That’s reducing the capital amount left to pass on as a legacy.

Third, the financial assets held in the system (equities, real estate, etc.) have to be converted into cash at current values when they’re redeemed, not at today’s inflated values. Those values are quite likely to decline, especially as a large cohort of Australians retires around the same time, driving up supply. Meanwhile, weak public finances mean that government funding for healthcare is likely to drop, forcing retirees to liquidate their investments faster and further suppressing values. Fourth, the substantial size of these savings and the large annual inflow (more than $100 billion per year) into asset managers has artificially inflated values of domestic financial assets, given the modest size of the Australian capital markets. As retirees increasingly draw down their savings, withdrawals may be greater than new inflows, reducing demand for these financial assets.

[..] The real lesson of Australia’s experience may be that the idea of retirement is unrealisable for most workers, who will almost certainly have to work beyond their expected retirement dates if they want to sustain their lifestyles. Governments have implicitly recognised this fact by abandoning mandatory retirement requirements, increasing the minimum retirement age, tightening eligibility criteria for benefits and reducing tax concessions for this form of saving. If the world’s best pension system can’t succeed, we’re going to have to rethink retirement itself.

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I must admit, the circus continues to amaze. By now, everyone involved on the UK side is just trying to save their political careers. But the Tories want to hold on to power too, and those two things will conflict. They’ll need to make a choice.

With Brexit Talks Stuck, Britain Is Preparing For The Worst (BBG)

With Brexit talks stuck, the U.K. is preparing for the worst. As the fifth round of negotiations draws to a close on Thursday, progress is so scant that the European side is stepping back from concessions it was said to be considering last month. The Commission won’t talk about trade before getting assurances that the U.K. will pay its dues, and with less than 18 months to go until the country tumbles out of the bloc, the focus in London has turned to contingency planning. Philip Hammond, the pro-EU chancellor of the exchequer, says he’s reluctant to spend cash on a Plan B just to score negotiating points. But he’ll start releasing money as soon as January if progress hasn’t been made in talks. Judging by the latest EU rhetoric, the chances of that happening are growing.

The goodwill that Prime Minister Theresa May generated in her speech in Florence, where she promised to pay into the EU budget for two years after Brexit and asked in return for a transition period so businesses can prepare for the split, hasn’t translated into progress in talks. Meanwhile May’s Conservatives remain deeply divided on the shape of Brexit, with the premier struggling each week to tread a careful line between rival camps. The political establishment is so conflicted that late on Wednesday two politicians from opposing parties joined forces to try and effectively bind May’s hands by tabling an amendment that would enshrine a two-year transition in law. Pound investors are expecting swings in the currency to get more dramatic over the next three months, options show, as political uncertainty unnerves traders.

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The torture never stops. And in the end the Germans win.

IMF Report Suggests New Greek Debt Measures Necessary (K.)

The third review of Greece’s third bailout could hit a snag after the International Monetary Fund’s forecast Thursday that the country’s primary surplus in 2018 will be at 2.2% of GDP– significantly lower than the 3.5% predicted by European insititutions and stipulated in the government’s draft budget and the bailout agreement. The latest forecast included in the IMF’s Fiscal Monitor report released Wednesday could, analysts believe, be a source of misery not just for Athens, which may once again be forced to look down the barrel of fresh measures next year to the tune of €2.3 billion – 1.3% of GDP – but for its European Union partners as well, who will have to decide whether to go along with the IMF’s forecast or not.

If they do not, then the risk of the IMF leaving the Greek program will be higher. If, however, European lenders go along with IMF’s forecast, which it first made in July, then Athens is concerned that they may revise their own predictions downward in order to placate the organization – as was the case during the second review – in order to ensure that it remains on board with the Greek program. The latter outcome could, analysts reckon, be the more likely one given that Germany’s Free Democrats (FDP), expected to form part of Chancellor Angela Merkel’s governing coalition, have stated that they will agree to an aid program for Greece on the condition that the IMF takes part in the Greek bailout.

Read more …

Sep 122017
 
 September 12, 2017  Posted by at 8:52 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Juan Gris Grapes 1913

 

People ‘Fighting In The Streets’ For Last Remaining Food In Caribbean (Ind.)
20 Miles Made A $150 Billion Difference In Hurricane Irma’s Damage Bill (BBG)
The Role Of Climate Change In Extreme Weather Events (Rapier)
Stormy Weather (Davis)
US National Debt Tops $20 Trillion For First Time In History (Fox)
None So Blind As Those Who Will Not See (Steve Keen)
Behind the Potemkin Village (Hussman)
Market Cap to GDP: An Updated Look at the Buffett Valuation Indicator (AdPe)
After Roads And Railways, China’s Silk Road Dealmakers Eye Financial Firms (R.)
China Is Performing A High-Wire Balancing Act On The Yuan (CNBC)
2,000 Years of Economic History in One Chart (Visual C.)
Italy’s Main Opposition Parties Call For New Currency To Flank Euro (EN)
UK Landmark EU Withdrawal Bill Passes First Parliamentary Hurdle (Ind.)
Greek Taxpayers Failed To Pay €2 Billion In July (K.)
Austerity Is Laying Waste To Athens’ Architectural Heritage (G.)
Greece Ranked As The Worst Country To Live As An Expat (K.)

 

 

They could see Irma coming a week ahead. And nobody thought of storing extra food and water on the island? And police or soldiers? There are 70,000 people living on the combined St. Martin/St. Maarten island, and there were 6,000 American tourists alone -plus many others. St. Maarten has a ‘status aparte’ in the Dutch Kingdom: it’s self-governing. So much so, though, that no help can arrive until the Governor has explicitly asked for it. But all communication had broken down for days… Smart cookies.

People ‘Fighting In The Streets’ For Last Remaining Food In Caribbean (Ind.)

At dawn in St. Martin, people began to gather, quietly planning for survival after Hurricane Irma. They started with the grocery stores, scavenging what they needed for sustenance: water, crackers, fruit. But by nightfall on Thursday, what had been a search for food took a more menacing turn, as groups of looters, some of them armed, swooped in and took whatever of value was left: electronics, appliances and vehicles. “All the food is gone now,” Jacques Charbonnier, a 63-year-old resident of St. Martin, said in an interview on Sunday. “People are fighting in the streets for what is left.” In the few, long days since the storm Irma pummelled the north east Caribbean, killing more than two dozen people and levelling 90% of the buildings on some islands, the social fabric has begun to fray in some of the hardest-hit communities.

Residents of St. Martin, and elsewhere in the region, spoke about a general disintegration of law and order as survivors struggled in the face of severe food and water shortages, and the absence of electricity and phone service. As reports of increasing desperation continued to emerge from the region over the weekend, governments in Britain, France and the Netherlands, which oversee territories in the region, stepped up their response. They defended themselves against criticism that their reaction had been too slow, and insufficient. Both the French and Dutch governments said they were sending in extra troops to restore order, along with the aid that was being airlifted into the region. After an emergency meeting with his government on Sunday, President Emmanuel Macron of France said he would travel on Tuesday to St. Martin, an overseas French territory.

Macron also announced late on Saturday that he would double France’s troop deployment to the region, to 2,200 from 1,100; officials say the increase is in part a response to the mayhem on St. Martin. St. Maarten, the Dutch territorial side of the island, which uses a different spelling, has also experienced widespread looting of shops, though the problem was reported to have subsided by Sunday, though not completely. “There was some looting in the first few days, but the Dutch marines and police are on the street to prevent it,” Paul De Windt, publisher of The Daily Herald, a newspaper in St. Maarten, said Sunday. “Some people steal luxury things and booze, but a lot of people are stealing water and biscuits.”

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The Bermuda High.

20 Miles Made A $150 Billion Difference In Hurricane Irma’s Damage Bill (BBG)

Twenty miles may have made a $150 billion difference. Estimates for the damage Hurricane Irma would inflict on Florida kept mounting as it made its devastating sweep across the Caribbean. It was poised to be the costliest U.S. storm on record. Then something called the Bermuda High intervened and tripped it up. “We got very lucky,” said Jeff Masters, co-founder of Weather Underground in Ann Arbor, Michigan. If Irma had passed 20 miles west of Marco Island instead of striking it on Sunday, “the damage would have been astronomical.” By one estimate, the total cost dropped to about $50 billion Monday from $200 billion over the weekend. The state escaped the worst because Irma’s powerful eye shifted westward, away from the biggest population center of sprawling Miami-Dade County.

The credit goes to the Bermuda High, which acts like a sort of traffic cop for the tropical North Atlantic Ocean. The circular system hovering over Bermuda jostled Irma onto northern Cuba Saturday, where being over land sapped it of some power, and then around the tip of the Florida peninsula, cutting down on storm surge damage on both coasts of the state. “The Bermuda High is finite and it has an edge, which was right over Key West,” Masters said. Irma caught the edge and turned north. For 10 days, computer-forecast models had struggled with how the high was going to push Irma around and when it was going to stop, said Peter Sousounis, director of meteorology at AIR Worldwide. “I have never watched a forecast more carefully than Irma. I was very surprised not by how one model was going back and forth – but by how all the models were going back and forth.”

For 10 days, computer-forecast models had struggled with how the high was going to push Irma around and when it was going to stop, said Peter Sousounis, director of meteorology at AIR Worldwide. “I have never watched a forecast more carefully than Irma. I was very surprised not by how one model was going back and forth – but by how all the models were going back and forth.” “With Irma, little wobbles made a huge difference,”said Chuck Watson, a disaster modeler with Enki Research in Savannah, Georgia. With a tightly-wound storm like Andrew coming straight into the state, “a 30-mile wobble isn’t going to matter.” Still, when it comes to damage, “Irma may bump Andrew,” Watson said. The company’s most recent estimate is for $49.5 billion in Irma costs for Florida; Andrew’s were an inflation-adjusted $47.8 billion.

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Too many voices blaming Irma on climate change. Don’t make claims you can’t prove, it doesn’t help. Our former Oil Drum co-collaborator Robert Rapier takes a careful approach.

The Role Of Climate Change In Extreme Weather Events (Rapier)

First, is the climate changing? Almost everyone would agree that this is the case. What some would dispute is whether human activity is a significant contributor. I accept that it is, but I won’t attempt to make that case here. If you don’t accept that human activity is impacting the climate, I won’t be able to convince you in a short article here. But let’s agree that the climate is changing. There are multiple lines of evidence that indicate that the earth is warming. One piece of evidence is that the surface temperature of the oceans is climbing. NOAA (National Oceanic and Atmospheric Administration) has determined that since 1880, the average global surface temperature of the ocean has increased by about 1 degree Fahrenheit (°F). Relative to the average temperature from 1971 to 2000, the surface temperature over the past five years has risen about 0.5°F.

These measurements aren’t controversial, as they have been confirmed by many different studies. But the temperature change varies depending on where it is measured. For example off the coast of Greenland, the surface temperature has actually declined by about 1°F. But according to data from NOAA and IPCC (Intergovernmental Panel on Climate Change), across much of the Atlantic and Pacific Oceans, the surface temperature has risen 1.5°F-2.0°F since 1900. Again, you might dispute the reason, but there is really no disputing the measurements (other than perhaps the magnitude of the increase). There are some effects we can expect from a warmer ocean surface. I will discuss two, that are based on physics. Warmer water will lead to greater evaporation, which should show up as higher humidity in the atmosphere.

That has been observed, although as with the ocean surface temperature, some areas have seen humidity decline. The net effect is that more water vapor in the air means more rainfall on average. This helps explain why Houston, for example, could experience three “500-year” flood events in three years. Since there’s more water in the atmosphere, the probability of these heavy rainfall events has increased. In other words, they aren’t really “500-year” floods anymore. Normal has shifted. Some areas are going to experience more rain and some less, but on average precipitation is on the rise. The other impact of warmer ocean surfaces is stronger hurricanes. Hurricanes (as well as typhoons and cyclones elsewhere in the world) are massive heat engines that convert warm water into strong winds.

Hurricanes are fueled by warm seawater, which is why you see them dissipate when they move over land, or into cooler ocean waters. Thus, it would be expected that we would see stronger storms as a result of warmer ocean surfaces. That was certainly the case with Hurricane Irma, which set a record with top winds of 185 miles per hour (mph) for 37 hours. While some are quick to blame climate change any time there is an extreme weather event, these events have been taking place throughout history. It is wrong to blame any particular event on climate change, but the physics of why we can expect some of these events to become more extreme is well understood – even if some still reject that human activity is driving it.

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Great piece: “America is a delusion, the grandest one of all”

Stormy Weather (Davis)

In Capitalism: A Ghost Story, 2015, Arundhati Roy writes, “the middle class in India live side-by-side with spirits of the nether world, the poltergeist of dead rivers, dry wells, bald mountains and denuded forests; the ghosts of 250,000 debt ridden farmers who have killed themselves, and of the 800 million who have been impoverished and dispossessed to make way for them”. Is it any different in the good ol’ U.S. of A? Other than clarifying class-calibration whereby India’s emergent middle class can be equated with America’s mostly white ten-percenters, or upper-class, I suspect not. Indeed, as the precipitated waters of the gulf coast inundate the sunken oil and chemical lands of Texas and Louisiana, we are experiencing our own sub-continental, Bangladeshi nightmare.

The spirits of dead dinosaurs have arisen to re-arrange geographies and elide the physical certainties that used to exist between solid and liquid, between water and land, between salt water and fresh, and between the potable and the poisoned. Nature and Society now share equal billing. The elephant of climate change trumpets, as it rampages through what we used to think of as our room. Here and elsewhere, we are castaways amidst the hobgoblins of our own horror show. It is not only the demonic cries of over 100,000 suicides amongst Vietnam Vets and a further 25,000 ex-service men and women dead by their own hand since 2012 – from our more recent wars of empire – that we hear: the psychic airwaves tremor not only with their suffering, their sacrifices and their condemnations but also, as Roy writes of her country, are rent with screams from our own mountain-top lobotomies, sickened streams, clear-cut forests and our daily extinctions.

That pounding rhythm you may hear is propelled by the sonorous bass notes of our deeply troubled history. We too have a nether world populated with those trapped in the purgatory of three jobs, a superannuated car and sub-standard housing; or of those a step below them, who roam the black-top parking-lots and streets amidst shuttered malls and fast-food emporia, car-lots and other materially manifest survivors of our digital age; or lurk at night in the shadows between the mercury vapor security lights and surveillance cameras, thinking idle thoughts, perhaps, of what makes America great or, more pressingly, of where they might spend the night.

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And counting.

US National Debt Tops $20 Trillion For First Time In History (Fox)

The national debt surpassed $20 trillion Opens a New Window. for the first time in U.S. history on Friday. According to data released Monday, the total national debt climbed about $318 billion to $20.162 trillion as of Friday, the same day President Donald Trump signed a bill suspending the debt ceiling and allowing the federal borrowing limit to extend until Dec. 8. The deal Trump signed, which also allocated more than $15 billion in disaster aid for Hurricane Harvey, was passed 316-90 in a House vote; all opposed to the measure were Republicans. “Surpassing $20 trillion in debt is the latest indicator of our nation’s dire fiscal condition,” Michael A. Peterson, president and CEO of the Peter G. Peterson Foundation, said in a statement.

“As a result of our inability to address our growing debt, we are now on pace to spend $6 trillion on interest alone over the next 10 years.” The U.S. debt ceiling had been capped at around $19.84 trillion since March 15. The 2017 fiscal year budget expires at the end of September. “America’s debt is projected to grow and compound rapidly in the years ahead. Our budget deficit is on track to exceed $1 trillion annually in just five years,” Peterson said. “The good news is that many solutions exist. In the coming months, Congress and the administration have a critical opportunity to enact fiscally responsible tax reform that grows the economy, not the debt.”

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As you know by now, it’s not national debt that is most important. Private debt is.

None So Blind As Those Who Will Not See (Steve Keen)

The phrase “There are none so blind as those who will not see” normally turns up in religion, but there is no other way to describe the dominant sect in economics today as wilfully blind. One decade after the crisis, most still repeat their mantra that, though a Nobel Laureate had asserted in 2003 that such crises were now impossible, the one that occurred in 2008 could not have been predicted. Nonsense. The data that showed what would cause the crisis, and arguments by empirically oriented economists, were available before it hit: there was a runaway bubble in asset markets caused by too much credit being created by the banks. Credit—your capacity to buy something with money borrowed from a bank, rather than from your own cash—is exactly equal to the increase in private debt every year.

The bigger this is compared to GDP, the more the economy is dependent on credit; and the bigger the accumulated debt is when compared to GDP, the more likely it is that a reduction in credit will cause an economic crisis. The data, if you look at it, is incontrovertible—especially if you consider the epicentre of the 2008 crisis, the USA, in historical context. The Great Depression was preceded by a margin-debt-fuelled bubble on the US stockmarket, with private debt blowing out during the crisis and then collapsing. That’s exactly what happened in the Great Recession.

Private debt affects the economy in two ways: the higher debt is, relative to GDP, the more that a change in credit impacts on total demand. And credit adds to total demand by allowing people in the aggregate to spend more than just the money they currently have—with the price of leading to a higher level of debt in the future. The correlation between credit and employment is staggering—not just because it is so big (the correlation coefficient, for those who follow these things, is 0.8), but because according to mainstream economists like Ben Bernanke, the correlation should be close to zero.

Bernanke, who got the job as Chairman on the Federal Reserve because he was supposed to be the expert on what caused the Great Depression, didn’t even consider similar data that was available at the time, nor the “Debt Deflation Theory of Great Depressions” put forward by Irving Fisher at the time, because he believed that credit was a “pure redistribution”, and “pure redistributions should have no significant macro¬economic effects” (Bernanke 2000, p. 24). Empirically, this is manifestly untrue, but economists turn a blind eye (and not a Nelsonian one) to this data because it doesn’t suit their preferred model of how banks operate. They model them “as if” they are intermediaries who introduce savers to borrowers, not as originators of both money and debt.

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Growth keeps shrinking.

Behind the Potemkin Village (Hussman)

Market returns don’t just emerge from nowhere. They are driven by the sum of three factors: growth in fundamentals, income from cash distributions, and changes in valuations (the ratio of prices to fundamentals). Since 1960, for example, the S&P 500 has enjoyed an average rate of return of about 10% annually, which derives from three main components: growth in earnings (and the overall economy) averaging about 6.3% annually, dividend income averaging about 3.0% annually, and a gradual increase in price/earnings multiples that has contributed about 0.7% annually to total returns. One can also make a similar attribution using other fundamentals.

For example, the 10% annual total return of the S&P 500 since 1960 also derives from growth in S&P 500 revenues averaging 5.7% annually since the 2000 peak, dividend income averaging about 3.0% annually, and a much steeper increase in the S&P 500 price/revenue ratio contributing 1.3% annually (taking the current price/revenue multiple to the same level observed at the 2000 market peak). Consider these drivers today. Combining depressed growth prospects with an S&P 500 dividend yield of just 2.0%, the likelihood is that over the coming 10-12 years, even a run-of-the-mill reversion of valuations will wipe out the entire contribution of growth and dividend income, resulting in zero or negative total returns in the S&P 500 Index on that horizon, with an estimated interim market loss on the order of -60%.

Here are the facts: over the past several decades, due to a combination of demographic factors and persistently slowing productivity growth, the core drivers of real U.S. GDP growth have declined toward just 1% annually, with a likely decline below that level in the coming 10-12 years. Indeed, in the absence of any recession, U.S. nonfarm productivity growth has averaged just 0.8% annually since 2010 and 0.6% over the past 5 years, while the U.S. Bureau of Labor Statistics estimates labor force growth of just 0.3% annually in the coming years (which would be matched by similar growth in employment only if the unemployment rate does not rise from the current level of 4.3%). Add 0.6% to 0.3%, and the baseline expectation for real GDP growth is just 0.9%.

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Thanks QE!

Market Cap to GDP: An Updated Look at the Buffett Valuation Indicator (AdPe)

Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett. Back in 2001 he remarked in a Fortune Magazine interview that “it is probably the best single measure of where valuations stand at any given moment.” The four valuation indicators we track in our monthly valuation overview offer a long-term perspective of well over a century. The raw data for the “Buffett indicator” only goes back as far as the middle of the 20th century. Quarterly GDP dates from 1947, and the Fed’s balance sheet has quarterly updates beginning in Q4 1951. With an acknowledgment of this abbreviated timeframe, let’s take a look at the plain vanilla quarterly ratio with no effort to interpolate monthly data.

The denominator in the charts below now includes the Second Estimate of Q2 GDP. The latest numerator value is extrapolated based on the quarterly change in the Wilshire 5000. The current reading is 131.6%, up from 128.7% the previous quarter and an interim high. Here is a more transparent alternate snapshot over a shorter timeframe using the Wilshire 5000 Full Cap Price Index divided by GDP. We’ve used the St. Louis Federal Reserve’s FRED repository as the source for the stock index numerator (WILL5000PRFC). The Wilshire Index is a more intuitive broad metric of the market than the Fed’s rather esoteric “Nonfinancial corporate business; corporate equities; liability, Level”. This Buffett variant is also at its interim high.

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China is exporting its Ponzi. China is having a hard time attracting international institutions to get involved” in Belt and Road projects, Huo said. “If that persists it will become an one-man show, which is not sustainable.”

After Roads And Railways, China’s Silk Road Dealmakers Eye Financial Firms (R.)

After ports and industrial parks, the dealmakers leading China’s trillion-dollar push to build a modern Silk Road are turning to the financial sector, targeting Europe’s banks, insurers and asset managers to tap funds and expertise. Last week, sources familiar with the matter said two of China’s most acquisitive conglomerates, HNA and Anbang, had separately considered bidding for the German insurer Allianz. Neither of the two made an offer, but the talks marked a new level of ambition for China: Allianz is a German stalwart, a pillar for local pensions and a global powerhouse with €1.9 trillion ($2.3 trillion) of assets under management. HNA already owns a stake of just under 10% in Deutsche Bank.

Bankers, lawyers and company executives say more financial deals will come, led by state behemoths such as China Life and China Everbright, as well as private firms including Legend Holdings and China Minsheng Financial. “The message from the regulators is clear – they want these companies to go out and get access to large amount of funds and expertise,” said a financial M&A adviser at a global bank, who works with Chinese regulators and companies. “They would look very favorably at transactions that have some links to the Belt and Road program, because the country needs to boost its financial muscle,” the banker said. But Beijing “will ensure the excesses of the past couple of years do not happen again.” The banker said his firm was currently working on several “mid-sized to large” foreign financial takeover deals.

[..] “China is having a hard time attracting international institutions to get involved” in Belt and Road projects, Huo said. “If that persists it will become an one-man show, which is not sustainable.” [..] Chinese companies will not be expanding into the financial services sector at will, of course. Acquisitions of stakes in foreign banks – never mind full ownership – are already closely monitored by overseas regulators. But while banks may be tough targets, bankers and executives say Chinese institutions and conglomerates could instead target asset management, insurance or wealth managers. China Everbright plans to allocate $1.5 billion of its 2017 spending to the purchase of a fund manager, private bank or insurer overseas to help it raise cash more easily and extend its presence abroad.

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What happened to currency manipulation? “Policymakers have demonstrated that they have more control over the exchange rate in the short run than many people believed..”

Or is it the US who’s the manipulator these days?

China Is Performing A High-Wire Balancing Act On The Yuan (CNBC)

China’s yuan weakened against the U.S. dollar on Monday after the government scrapped measures meant to prop up the currency. The central bank removed reserve requirements for financial institutions settling currency forwards, and for foreign banks holding yuan deposits offshore, reversing actions put in place a few years ago to quash depreciation pressures. The actions were always meant to be temporary and scaled back when the yuan regained firmer footing. But the currency’s immediate market reaction to the rule unwinding is a reminder of how precarious Beijing’s high-wire balancing act really is when it comes to the yuan. “Policymakers have demonstrated that they have more control over the exchange rate in the short run than many people believed,” wrote Mark Williams, chief Asia economist at Capital Economics, in a note.

“But they still struggle to manage the expectations that determine medium-term exchange rate pressures.” That’s because China is balancing a number of priorities when it comes to its currency, including engineering stability in the markets ahead of a major leadership shuffle next month. A stronger yuan prompts investors to keep money onshore to chase returns at home. It also lets China defend against long-standing critics, including the U.S., that claim the world’s second-largest economy purposefully keeps the value of the yuan low in order to get a leg up in global trade with cheaper exports. The move is well-timed, as it comes ahead of an expected visit by U.S. President Donald Trump to China later this year, said Callum Henderson, managing director at political risk consultancy Eurasia Group.

Trade tensions have been bubbling between the U.S. and China. But the scales can tip easily the other way — a stronger yuan, coupled with waning demand, is already hurting trade activity. August exports were up 5.5%, posting weaker growth than the 7.2% increase seen in July. On Tuesday, the government lowered its official yuan parity rate to 6.5277 per dollar, snapping an 11-day climb, supporting analyst calls that depreciation worries are subsiding. Despite Monday’s weakness, the yuan is still up 6.5% so far this year against the greenback, and holding onto its erasure of last year’s losses.

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Mind the time scales. But nice graph.

2,000 Years of Economic History in One Chart (Visual C.)

Long before the invention of modern day maps or gunpowder, the planet’s major powers were already duking it out for economic and geopolitical supremacy. Today’s chart tells that story in the simplest terms possible. By showing the changing share of the global economy for each country from 1 AD until now, it compares economic productivity over a mind-boggling time period. Originally published in a research letter by Michael Cembalest of JP Morgan, we’ve updated it based on the most recent data and projections from the IMF. If you like, you can still find the original chart (which goes to 2008) at The Atlantic. It’s also worth noting that the original source for all the data up until 2008 is from the late Angus Maddison, a famous economic historian that published estimates on population, GDP, and other figures going back to Roman times.

If you looked at the chart in any depth, you probably noticed a big problem with it. The time periods between data points aren’t equal – in fact, they are not close at all. The first gap on the x-axis is 1,000 years and the second is 500 years. Then, as we get closer to modernity, the chart uses mostly 10 year intervals. Changing the scale like this is a big data visualization “no no”, as rightly pointed out in a blog post by The Economist. While we completely agree, we have a made an exception in this case. Why? Because getting good economic data from the early 20th century is already difficult enough – and so trying to find data in regular intervals before then seems like a fool’s errand. Likewise, a stacked bar chart with different years also doesn’t really do this story justice.

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How to make Brussels nervous. And Berlin.

Italy’s Main Opposition Parties Call For New Currency To Flank Euro (EN)

Italy’s leading opposition parties are calling for the introduction of a parallel currency to the euro, which they say will boost growth and jobs. Three of the country’s four largest parties – the Five Star Movement, the Northern League and former prime minister Silvio Berlusconi’s Forza Italia – have proposed introducing a new currency following an election scheduled for next year. The proposals for a parallel currency have replaced the opposition parties’ previous calls to leave the euro completely. By settling on a dual currency, analysts say the parties hope to appeal to anti-euro sentiment in the country while avoiding, for now, the upheaval of an outright exit.

While some lawmakers have said the primary goal of the new currency is to persuade Brussels to change European fiscal rules to allow them to spend more and cut taxes, others backing the scheme have admitted they hope it will help make an eventual euro exit more likely. The proposal is opposed by the European Commission, which says there can only be one legal tender in the eurozone. When the euro was introduced in Italy in 1999, it enjoyed widespread support. However, this has since waned, with many blaming the single currency for drops in living standards and rising unemployment. A poll by the Winpoll agency in March showed that only around half of Italians back the euro. As the election nears, and with opinion polls currently pointing to a hung parliament, only the ruling Democratic Party is not proposing changes to the current euro set-up.

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By the slimmest of margins. A deeply flawed idea, and dangerous, to push through things that way.

UK Landmark EU Withdrawal Bill Passes First Parliamentary Hurdle (Ind.)

Theresa May’s landmark EU (Withdrawal) Bill has passed its first parliamentary hurdle, paving the way for greater powers to be handed to ministers through the first major piece of Brexit legislation. MPs passed the legislation – often referred to as the Repeal Bill – by 326 votes to 290, giving the Government a majority of 36 after no Conservatives rebelled and several Labour politicians defied Jeremy Corbyn’s instruction to vote against. The Prime Minister described the vote as a “historic decision to back the will of the British people”, adding: “Although there is more to do, this decision means we can move on with negotiations with solid foundations and we continue to encourage MPs from all parts of the UK to work together in support of this vital piece of legislation.”

Keir Starmer, the Shadow Brexit Secretary, said it was “a deeply disappointing result” and described the Bill as as “an affront to parliamentary democracy and a naked power grab” by Government ministers. The Bill’s aim is to transpose relevant EU law onto the UK statute book when the UK formally leaves the bloc in March 2019 and will also overturn the 1972 act that took Britain into the European Economic Community. Major concerns had been raised, however, over the so-called Henry VIII powers in the Bill which grants ministers the power to amend law without normal parliamentary scrutiny – the reason for Labour’s decision to oppose the legislation. But as MPs concluded debates at midnight a series of votes were then held. The Bill passed while Labour’s amendment – attempting to block the legislation – was defeated by 318 votes to 296.

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Overtaxed. They don’t have it. This is the Shock Doctrine.

Greek Taxpayers Failed To Pay €2 Billion In July (K.)

The figure of €2 billion in unpaid taxes in July alone, shown the Independent Authority for Public Revenue, is a sharp illustration of the fatigue gripping tax-paying individuals and businesses in Greece. The slump in tax payments has brought expired debts to the state since the start of the year from €5.475 billion by end-June to €7.483 billion by end-July. IAPR officials explain that the debts of three enterprises that went bankrupt expanded the expired debts in July; they say that €700 million of debts concern those three companies that happened to have gone bankrupt in July, while the remaining €1.3 billion concerns unpaid taxes.

If this nightmarish picture continues into the rest of the year, the hole in budget revenues will grow considerably, having already come to €700 million in the first seven months of 2017. What concerns the government most is whether the taxpayers who failed to pay in July enter the Finance Ministry’s 12-installment payment plan. Otherwise – if they refrain from paying their taxes, for example – state coffers will find themselves in serious trouble after the addition of 172,704 taxpayers who added their names to those who defaulted on their obligations in July.

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I can attest to the demise of large swaths of the city. Utter insanity.

Austerity Is Laying Waste To Athens’ Architectural Heritage (G.)

Not that long ago I received a questionnaire through my door. How had the 1930s Bauhaus building in which I live survived the rigours of time? Who had designed it? Who was its first owner? And, the form went on, what were my memories of it? Circulated far and wide across Athens, the questionnaire and its findings are part of a vast inventory of 19th- and early 20th-century buildings that now stand at the heart of a burgeoning cultural heritage crisis in Greece. At least 10,600 buildings in the capital are under threat, as the country navigates its worst economic crisis in recent times. Under the weight of austerity – with bank loans frozen, repeated budget cuts and tax rises kicking in – many buildings have already been allowed to fall into disrepair, or have been pulled down altogether.

“In the present climate, people just don’t have the money to restore them,” says Irini Gratsia, co-founder of Monumenta, the association of archaeologists and architects that is collating the database. “There is a great danger that many will be demolished not because their owners want new builds, but because they want to avoid property taxes announced since the crisis began.” Monumenta estimates that, since the 1950s, as many as 80% of Athens’ buildings from the 19th and early 20th centuries have been destroyed. Now at risk are some of the last surviving examples of Greek neoclassical architecture and Greek modernism, the latter scorned as “cement boxes” when they began to fill the great Attic plain. Mostly constructed between 1830 and 1940, these buildings comprise the rich architectural mosaic of a city – dominated by the 5th-century BC Acropolis – that often goes unnoticed.

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Salary considerations? People making €500 a month is normal now. That’s third world.

Greece Ranked As The Worst Country To Live As An Expat (K.)

Greece was at the bottom of this year’s ranking of the top countries for expats, according to InterNations’ Expat Insider survey. The survey, carried out between February and March this year, asked nearly 13,000 expats about their quality of life and to rank 43 different aspects of life abroad. Factors included job opportunities, salary considerations, quality of life, and safety. Greece was ranked as the worst country to live in mostly due to the financial situation, with half of the respondents saying that their household income was not enough to cover their daily expenses. Bahrain, Costa Rica, and Mexico were ranked the top three destinations for expats.

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Jul 152017
 
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Hieronymus Bosch The Conjurer 1502

 

Big Banks Continue Winning Streak, With Street at Least (BBG)
‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)
US House Backs Massive Increase In Defense Spending (R.)
US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)
We Do These Things Because They’re Easy (CHS)
The New Silk Road Will Go Through Syria (Escobar)
One Of Worst Droughts In Decades Devastates South Europe Crops (R.)
People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)
Just 13% of Greeks Trust Their Government (K.)
World’s Large Carnivores Being Pushed Off The Map (BBC)

 

 

What happens when markets don’t function. Manipulation is the name of the game.

Big Banks Continue Winning Streak, With Street at Least (BBG)

U.S. bank earnings have kicked off without any tumult. Investors should be grateful for that increasing sense of dependability, though they appear to be looking for more. JPMorgan Chase, Wells Fargo, Citigroup and PNC Financial Services each delivered second-quarter results on Friday that topped Wall Street’s expectations. On a measure of earnings per share, each bank has improved its respective streaks of beating or meeting analysts’ estimates:Reliability Factor The U.S. banks that reported earnings on Friday lengthened their streak of surpassing or matching expectations which, to be fair, are managed by bank executives:

The business of fixed-income trading, which has been a bright spot over the past year, has received outsize attention as it has fallen from grace after a long stretch of low volatility and tepid volumes, as expected. Instead, its quarterly gyrations should be accepted by shareholders just as they withstand changes in the weather, according to JPMorgan’s chairman and CEO Jamie Dimon. He has a point – the diversity of JPMorgan combined with the size of its overall corporate and investment bank, which houses the fixed-income trading business, gives the bank a level of flexibility. That defense might not stick if JPMorgan’s other businesses weren’t performing, but they are. The bank posted quarterly net income of $7 billion in the three months ended June 30.

That was its biggest haul ever, driven in part by a significant jump in net interest income, a direct result of the Federal Reserve’s rate increases. Its efforts to bulk up asset and wealth management, where revenues have roughly doubled since 2006, have borne fruit. Net income for the business climbed 20% compared with results in the same period last year to a record $624 million. And for now, despite broad concerns about auto and credit card loans, there’s no need to worry about widespread cracks. The bank’s so-called net charge-off rate, which measures delinquencies, remains minimal. [..] Bank stocks have rallied in part because the expected growth in their respective earnings per share, or EPS, in 2018 far exceeds that of the benchmark index:

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Because you get to make record profits while others only get deeper into debt? Is that what Dimon is talking about?

‘It’s Almost An Embarrassment Being An American’ – Jamie Dimon (G.)

JP Morgan just had the most profitable 12 months ever for a US bank – but it wasn’t enough for Jamie Dimon, the bank’s boss. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with in this country,” Dimon told journalists after the bank released its latest quarterly results on Friday. The world’s largest bank reported a profit of $7.03bn for the second quarter, 13% higher than last year. It has made $26.5bn over the past 12 months, a record profit for a US bank. But Dimon, who last year turned down Donald Trump’s offer to become treasury secretary, seemed more concerned about low rates of growth in the US and the health of the American body politic.

He blamed bad policy for “holding back and hurting the average American” and financial journalists for concentrating on the bank’s trading results when they should be focusing on policy. “Who cares about fixed-income trading in the last two weeks of June? I mean, seriously,” Dimon said after a reporter asked about the health of the bonds markets. “That is the weather,” he said of changes in the markets. “It goes up and down, this and that, and that’s 80% of what you guys focus on.” Dimon said financial journalists would be better off concentrating on the “bad policies” that are hurting average Americans. “It’s almost an embarrassment being an American traveling around the world and listening to the stupid shit Americans have to deal with,” he said. “At one point, we would have to get our act together, do what we’re supposed to do to the average American.”

[..] “We need infrastructure reform,” he said. “We need corporate tax reform. We need better skills and education. If we don’t focus on these things, we are hurting average Americans every day. “The USA has to start to focus on policy which is good for all Americans, and that is regulation, tax, education, we have to get those things done. You guys [journalists] should be writing a lot more about that stuff. That is holding it back and hurting the average American citizen if we don’t do it.

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Or is Dimon embarrassed over this?

US House Backs Massive Increase In Defense Spending (R.)

The U.S. House of Representatives passed its version of a massive annual defense bill on Friday, leaving out controversial amendments on transgender troops and climate policy but backing President Donald Trump’s desire for a bigger, stronger military. The vote was 344-81 to pass the National Defense Authorization Act (NDAA), which sets military policy and authorizes up to $696 billion in spending for the Department of Defense. Underscoring bipartisan support for higher defense spending in Congress, 117 Democrats joined 227 Republicans in backing the measure. Only eight Republicans and 73 Democrats voted no. But the measure faces more hurdles before it can become law, notably because it would increase military spending beyond last year’s $619 billion bill, defying “sequestration” caps on government spending set in the 2011 Budget Control Act.

Trump wants to pay for a military spending increase by slashing nondefense spending. His fellow Republicans control majorities in both the House and Senate, but they will need support from Senate Democrats, who want to increase military spending, for Trump’s plans to go into effect. The House NDAA also increases spending on missile defense by 25%, adds thousands more active-duty troops to the Army, provides five new ships for the Navy and provides a 2.4% salary increase for U.S. troops, their largest pay raise in eight years. And it creates a new Space Corps military service, pushed by lawmakers worried about China and Russia’s activities in space, but opposed by Defense Secretary Jim Mattis.

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Oh well, money’s cheap after all.

US Deficits To Jump $248 Billion Over Next Two Years Due To Tax Shortfall (R.)

The budget deficit for President Donald Trump’s first two years in office will be nearly $250 billion higher than initially estimated due to a shortfall in tax collections and a mistake in projecting military healthcare costs, budget chief Mick Mulvaney reported on Friday. In a mid-year update to Congress, Mulvaney, director of the Office of Management and Budget, revised the estimates supplied in late May when the Trump administration submitted its first spending plan. Since then, Mulvaney said, the deficit projected for the current fiscal year has increased by $99 billion, or 16.4%, to $702 billion. For 2018, the deficit will be $149 billion more than first expected, increasing by 33% to $589 billion.

The figures come as the administration is facing widespread doubts among economists and analysts that it can erase government deficits largely by boosting economic growth and changing laws like the Affordable Care Act. ACA reform is facing a difficult path in Congress, and the Congressional Budget Office on Thursday said the administration’s growth and deficit reduction plans were optimistic. The letter from Mulvaney said the bulk of the problem this year and next stems from lower-than-expected tax collections. Individual and corporate income taxes and other collections for this year are expected to be $116 billion less than the administration anticipated in May. Tax receipts in 2018 are expected to be $140 billion less than initially estimated.

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A reference to JFK. Our next discovery will be that debt is a harsh mistress.

We Do These Things Because They’re Easy (CHS)

We are now totally, completely dependent on expanding debt for the maintenance of our society and economy. Every sector of the economy–households, businesses and government–all borrow vast sums just to maintain the status quo for another year. Compare buying a new car with easy, low-interest credit and saving up to buy the car with cash. How easy is it to borrow $23,000 for a new $24,000 car? You go to the dealership, announce all you have to put down is a trade-in vehicle worth $1,000. The salesperson puts a mirror under your nose to make sure you’re alive, makes sure you haven’t just declared bankruptcy to stiff previous lenders, and if you pass those two tests, you qualify for a 1% rate auto loan. You sign some papers and drive off in your new car. Easy-peasy!

Scrimping and saving to pay for the new car with cash is hard. You have to save $1,000 each and every month for two years to save up the $24,000, and the only way to do that is make some extra income by working longer hours, and sacrificing numerous pleasures–being a shopaholic, going out to eat frequently, $5 coffee drinks, jetting somewhere for a long weekend, etc. The sacrifice and discipline required are hard. What’s the pay-off in avoiding debt? Not much–after all, the new auto loan payment is modest. If we take a 5-year or 7-year loan, it’s even less. By borrowing $23,000, we get to keep all our fun treats and spending pleasures, and we get the new car, too. At the corporate level, it’s the same story: borrow a billion dollars and use it to buy back shares.

Increasing the value of the corporation’s shares by increasing profit margins and actual value is hard; boosting the share price with borrowed money is easy. It’s also the same story with politicians and the government: cutting anything is politically painful, so let’s just float a bond, i.e. borrow money to pay for what was once paid out of tax revenues: maintaining parks, repaving streets, funding pensions, etc. This dependence on expanding debt for maintaining the status quo is a global trend. Debt is exploding in China in every sector, and the same is true in other nations, developed and developing alike. Borrowing more money from the future is easy, painless and requires no trade-offs, sacrifices or accountability–until the debt-addicted economy collapses under its own weight of debt service and insolvency.

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“..all those elaborate plans depend on no more war. And there’s the rub.”

The New Silk Road Will Go Through Syria (Escobar)

Amid the proverbial doom and gloom pervading all things Syria, the slings and arrows of outrageous fortune sometimes yield, well, good fortune. Take what happened this past Sunday in Beijing. The China-Arab Exchange Association and the Syrian Embassy organized a Syria Day Expo crammed with hundreds of Chinese specialists in infrastructure investment. It was a sort of mini-gathering of the Asia Infrastructure Investment Bank (AIIB), billed as “The First Project Matchmaking Fair for Syria Reconstruction”. And there will be serious follow-ups: a Syria Reconstruction Expo; the 59th Damascus International Fair next month, where around 30 Arab and foreign nations will be represented; and the China-Arab States Expo in Yinchuan, Ningxia Hui province, in September.

Qin Yong, deputy chairman of the China-Arab Exchange Association, announced that Beijing plans to invest $2 billion in an industrial park in Syria for 150 Chinese companies. Nothing would make more sense. Before the tragic Syrian proxy war, Syrian merchants were already incredibly active in the small-goods Silk Road between Yiwu and the Levant. The Chinese don’t forget that Syria controlled overland access to both Europe and Africa in ancient Silk Road times when, after the desert crossing via Palmyra, goods reached the Mediterranean on their way to Rome. After the demise of Palmyra, a secondary road followed the Euphrates upstream and then through Aleppo and Antioch. Beijing always plans years ahead. And the government in Damascus is implicated at the highest levels.

So, it’s not an accident that Syrian Ambassador to China Imad Moustapha had to come up with the clincher: China, Russia and Iran will have priority over anyone else for all infrastructure investment and reconstruction projects when the war is over. The New Silk Roads, or One Belt, One Road Initiative (Obor), will inevitably feature a Syrian hub – complete with the requisite legal support for Chinese companies involved in investment, construction and banking via a special commission created by the Syrian embassy, the China-Arab Exchange Association and the Beijing-based Shijing law firm. Few remember that before the war China had already invested tens of billions of US dollars in Syria’s oil and gas industry. Naturally the priority for Damascus, once the war is over, will be massive reconstruction of widely destroyed infrastructure.

China could be part of that via the AIIB. Then comes investment in agriculture, industry and connectivity – transportation corridors in the Levant and connecting Syria to Iraq and Iran (other two Obor hubs). What matters most of all is that Beijing has already taken the crucial step of being directly involved in the final settlement of the Syrian war – geopolitically and geo-economically. Beijing has had a special representative for Syria since last year – and has already been providing humanitarian aid. Needless to add, all those elaborate plans depend on no more war. And there’s the rub.

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Southern Europe: getting poorer and hotter.

One Of Worst Droughts In Decades Devastates South Europe Crops (R.)

Italian durum wheat and dairy farmer Attilio Tocchi saw warning signs during the winter of the dramatic drought to come at his holding a mile away from the Tuscan coast. “When it still hadn’t rained at the beginning of spring we realized it was already irreparable,” he said, adding that he had installed fans to try and cool his cows that were suffering in the heat. Drought in southern Europe threatens to reduce cereal production in Italy and parts of Spain to its lowest level in at least 20 years, and hit other regional crops including olives and almonds. Castile and Leon, the largest cereal growing region in Spain, has been particularly badly affected, with crop losses estimated at around 60 to 70%.

“This year was not bad, it was catastrophic. I can’t remember a year like this since 1992 when I was a little child,” said Joaquin Antonio Pino, a cereal farmer in Sinlabajos, Avila. Pino said many of his fields had not even been harvested, because crop revenues would not cover the wages of laborers who gathered them. While the EU is collectively a major wheat exporter, Spain and Italy both rely on imports from countries including France, Britain and Ukraine. Spanish soft wheat imports are expected to rise by more than 40% to 5.6 million tonnes in the 2017-2018 marketing year, according to Agroinfomarket. The drought has helped support EU wheat futures, which have risen around 6% since the beginning of June, although the prospect of a larger harvest in France this year should ensure adequate overall supplies in the trading bloc.

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Germans love cash.

People Not Amused by EU Efforts to “De-Cash” their Lives (DQ)

In January 2017 the European Commission announced it was exploring the option of imposing upper limits on cash payments, with a view to implementing cross-regional measures as soon as 2018. To give the proposal a veneer of respectability and accountability the Commission launched a public consultation on the issue. Now, the answers are in, but they are not what the Commission was expecting. A staggering 95% of the respondents said they were opposed to a cash ceiling at EU level. Even more emphatic was the answer to the following question: “How would the introduction of restrictions on payments in cash at EU level benefit you, or your business or your organisation (multiple replies are possible)?” In the curious absence of an explicit “not at all” option, 99.18% chose to respond with “no answer.”

In other words, less than 1% of the more than 30,000 people consulted could think of a single benefit of the EU unleashing cross-regional cash limits. Granted, 37% of respondents were from Germany and 19% from Austria (56% in total), two countries that have a die-hard love for physical lucre. Even among millennials in Germany, two-thirds say they prefer paying in cash to electronic means, a much higher level than in almost any other advanced economy with the exception of Japan. Another 35% of the survey respondents were from France, a country that is not quite so enamored with cash and whose government has already imposed a maximum cash limit of €1,000. By its very nature the survey almost certainly attracted a disproportionate number of arch-defenders of physical cash.

As such, the responses it elicited are unlikely to be a perfect representation of how all Europeans would feel about the EU’s plans to introduce maximum cash limits. Nonetheless, the sheer strength of opposition should (but probably won’t) give the apparatchiks in Brussels pause for thought. The biggest cited concern for respondents was the threat the cash restrictions would pose to privacy and personal anonymity. A total of 87% of respondents viewed paying with cash as an essential personal freedom. The European Commission would beg to differ. In the small print accompanying the draft legislation it launched in January, it pointed out that privacy and anonymity do not constitute “fundamental” human rights.

Be that as it may, many Europeans still clearly have a soft spot for physical money. If the EU authorities push too hard, too fast in their war on cash, they could provoke a popular backlash. In Germany, trust in Europe’s financial institutions is already at a historic low, with only one in three Germans saying they have confidence in the ECB. The longer QE lasts, the more the number shrinks.

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When they were elected in January 2015, Syriza’s approval rating was some 75%. But when you turn your back on your promises, and then unleash more austerity….

Just 13% of Greeks Trust Their Government (K.)

Just 13% of Greeks trusted the government in 2016, according to the Organization for Economic Cooperation and Development’s (OECD) biennial Government at a Glance report, placing Greece among the four member states with the sharpest decline in confidence in their administrations. According to the report, which was published by the Paris-based organization on Thursday and shows 2016 data, Greece joins Chile, Finland and Slovenia in recording a significant loss of trust between citizens and the government, slipping to 13% in 2016 from 19% in 2014. Confidence has also declined over the past decade across the OECD’s member states, though at a rate of 3%, coming to 42% in 2016 from 45% in 2007.

In terms of specific sectors, Greeks have lost faith across the board, with the Greek health system having the trust of just 31% of citizens from 35% in the 2015 study for 2014, public education of 44% from 45% and the judicial system of 42% from 44%. A new area added in this year’s survey is the police, where confidence was high last year at 69%. Across the OECD, average confidence in the health system came to 70%, education to 67% and justice to 55%.

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You’d almost wish they would fight back.

World’s Large Carnivores Being Pushed Off The Map (BBC)

Six of the world’s large carnivores have lost more than 90% of their historic range, according to a study. The Ethiopian wolf, red wolf, tiger, lion, African wild dog and cheetah have all been squeezed out as land is lost to human settlements and farming. Reintroduction of carnivores into areas where they once roamed is vital in conservation, say scientists. This relies on human willingness to share the landscape with the likes of the wolf. The research, published in Royal Society Open Science, was carried out by Christopher Wolf and William Ripple of Oregon State University. They mapped the current range of 25 large carnivores using International Union for Conservation of Nature (IUCN) Red List data. This was compared with historic maps from 500 years ago.

The work shows that large carnivore range contractions are a global issue, said Christopher Wolf. “Of the 25 large carnivores that we studied, 60% (15 species) have lost more than half of their historic ranges,” he explained. “This means that scientifically sound reintroductions of large carnivores into areas where they have been lost is vital both to conserve the large carnivores and to promote their important ecological effects. “This is very dependent on increasing human tolerance of large carnivores – a key predictor of reintroduction success.” The researchers say re-wilding programmes will be most successful in regions with low human population density, little livestock, and limited agriculture. Additionally, regions with large networks of protected areas and favourable human attitudes toward carnivores are better suited for such schemes.

“Increasing human tolerance of large carnivores may be the best way to save these species from extinction,” said co-researcher William Ripple. “Also, more large protected areas are urgently needed for large carnivore conservation.” When policy is favourable, carnivores may naturally return to parts of their historic ranges. This has begun to happen in parts of Europe with brown bears, lynx, and grey wolves. The Eurasian lynx and grey wolf are among the carnivores that have the smallest range contractions. The dingo and several types of hyena are also doing relatively well, compared with the lion and tiger.

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May 152017
 
 May 15, 2017  Posted by at 8:18 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Fred Stein Ballfield NY 1946

 

Global Property Bubble Is Ready To Pop (MF)
3 Cities Push Canada To Another Record On House Prices (HPo)
Cyber Attack Aftershocks Disrupt Devices Across Asia on Monday (R.)
Lessons From Last Week’s Cyberattack (Microsoft)
The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)
Peak China: Chinese Data Misses Across The Board (ZH)
Why India Is Cool Towards China’s Belt And Road (SCMP)
China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)
Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)
New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)
Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)
Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)
Eyes on Euro Fighter Macron (K.)
Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)
What Germany Owes Namibia For Genocide (Econ)

 

 

Only real question: will they all fall together like dominoes?

Global Property Bubble Is Ready To Pop (MF)

Ever since interest rates were slashed to near zero in the wake of the financial crisis, the world has gone property mad. Residential house prices from Abu Dhabi to Zurich have spiralled as hot money travelled the world looking for a home. For those who got in early it has been incredibly rewarding, even if – whisper it – stock markets have actually done far better. The global property bubble cannot blow much bigger. The best we can hope is that it deflates slowly… but it could burst. Property is still going crazy in China, where prices have been pumped up by yet another bout of government stimulus. Guangzhou, close to Hong Kong on the Chinese mainland, leapt a whopping 36% in the past 12 months, according to Knight Frank. Prices rose around 20% in Beijing and Shanghai, as well as in Toronto, Canada.

Seoul in South Korea continues to boom, as does Sydney and Stockholm, both up 10.7% over the last year. Berlin (8.7%), Melbourne (8.6%) and Vancouver (7.9%) are also performing strongly. In most other global cities, property is finally starting to slow. Hong Kong rose a relatively modest 5.3% while Singapore grew 4%, and thereafter price hikes trail away. Half of the 41 countries in the report grew by less than 2%, while nearly one in three saw prices fall, by up to 8.3%. Prime central London was the world’s raciest property market but is now leading the charge in the other direction, falling 6.4%. Former hotspots Zurich, Moscow and Istanbul fell 7% or more over the last 12 months. Cheap money has driven prices ever higher for eight years but is finally losing traction, as affordability is stretched again. Interest rates cannot go any lower and could start rising if the US Federal Reserve continues to tighten. Regulatory authorities are looking to rein in overheated markets, with China only the latest to tighten borrowing requirements. The glory days are over.

Investing in property has one major benefit over stocks and shares – you can leverage up borrowing money to fund your purchase. Thereafter, the advantages are all one way. First, you can trade stocks online within seconds, whereas offloading property can take months (longer in a market crash). You can invest small amounts, rather than the hundreds of thousands of dollars, pounds, euros, yen or renminbi you need to buy a decent property these days. If you buy an investment property you have the effort of doing up and maintaining it, finding tenants, and paying a host of local taxes. You don’t have any of that nonsense with stocks. Best of all, you can invest quickly and easily in a wide spread global stocks, sectors and markets.

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Greater fools and empty bags.

3 Cities Push Canada To Another Record On House Prices (HPo)

Home prices in Canada rose for the 15th straight month in a row in April, according to the Teranet-National Bank house price index, which once again hit its highest levels ever. But virtually all the strength seen over the past year came from just three cities — Toronto, Hamilton and Victoria. The index, which tracks repeat sales of single-family homes over time, found Toronto led the way, with the price index rising 2.6% in April. The city has seen prices jump 7.3% since the start of the year, and 26.3% in the past 12 months. Nearby Hamilton, which is experiencing spillover from Toronto’s housing boom, saw its price index rise 2% in April and 23% over the past year. Vancouver, which as recently as a year ago was showing the fastest price growth in the country, is now showing signs of slowing.

The price index fell 0.1% in April, and compared to a year ago, prices are up 9.7%, slower than the national average of 13.4%. Many market experts say Vancouver’s foreign buyer tax has pushed buyers to other cities, including to Victoria, where the price index rose 1.5% in April, and 19% over the past year. “Based on the cooldown in home sales that began early last year, we expect the Vancouver growth rate to fall much lower over the next few months,” wrote David Madani, senior Canada economist at Capital Economics. But Madani expects Toronto to experience a similar cooling. He noted that the city saw a sudden, 30% spike in new home listings in April. That’s “further evidence that the surge in house price inflation is close to a peak and will drop back sharply before the end of this year,” he wrote in a client note.

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So far not so bad. But if the next generation of the attack has no killswitch that can be triggered, anything is possible.

Cyber Attack Aftershocks Disrupt Devices Across Asia (R.)

Asian governments and businesses reported some disruptions from the WannaCry ransomware worm on Monday but cybersecurity experts warned of a wider impact as more employees turned on their computers and checked e-mails. The ransomware that has locked up hundreds of thousands of computers in more than 150 countries has been mainly spread by e-mail, hitting factories, hospitals, shops and schools worldwide. While the effect on Asian entities appeared to be contained on Monday, industry professionals flagged potential risks as more systems came online across the region. Companies that were hit by the worm may be wary of making it public, they added.

“We’re looking at our victims’ profiles, we’re still seeing a lot of victims in the Asia-Pacific region. But it is a global campaign, it’s not targeted,” said Tim Wellsmore, Director of Threat Intelligence, Asia Pacific at cybersecurity firm FireEye. “But I don’t think we can say it hasn’t impacted this region to the extent it has some other regions.” Michael Gazeley, managing director of Network Box, a Hong Kong-based cybersecurity firm, said there were still “many ‘landmines’ waiting in people’s in-boxes” in the region, with most of the attacks having arrived via e-mail.

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Microsoft blames the NSA, and for good reason, but…

Lessons From Last Week’s Cyberattack (Microsoft)

[..] this attack provides yet another example of why the stockpiling of vulnerabilities by governments is such a problem. This is an emerging pattern in 2017. We have seen vulnerabilities stored by the CIA show up on WikiLeaks, and now this vulnerability stolen from the NSA has affected customers around the world. Repeatedly, exploits in the hands of governments have leaked into the public domain and caused widespread damage. An equivalent scenario with conventional weapons would be the U.S. military having some of its Tomahawk missiles stolen. And this most recent attack represents a completely unintended but disconcerting link between the two most serious forms of cybersecurity threats in the world today – nation-state action and organized criminal action.

The governments of the world should treat this attack as a wake-up call. They need to take a different approach and adhere in cyberspace to the same rules applied to weapons in the physical world. We need governments to consider the damage to civilians that comes from hoarding these vulnerabilities and the use of these exploits. This is one reason we called in February for a new “Digital Geneva Convention” to govern these issues, including a new requirement for governments to report vulnerabilities to vendors, rather than stockpile, sell, or exploit them. And it’s why we’ve pledged our support for defending every customer everywhere in the face of cyberattacks, regardless of their nationality. This weekend, whether it’s in London, New York, Moscow, Delhi, Sao Paulo, or Beijing, we’re putting this principle into action and working with customers around the world.

We should take from this recent attack a renewed determination for more urgent collective action. We need the tech sector, customers, and governments to work together to protect against cybersecurity attacks. More action is needed, and it’s needed now. In this sense, the WannaCrypt attack is a wake-up call for all of us. We recognize our responsibility to help answer this call, and Microsoft is committed to doing its part.

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…Microsoft itself carries part of the blame as well. It doesn’t support XP, but does ask for a lot of money for patches.

The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)

The attack was halted by a stroke of luck: the ransomware had a kill switch that a British employee in a cybersecurity firm managed to activate. Shortly after, Microsoft finally released for free the patch that they had been withholding from users that had not signed up for expensive custom support agreements. But the crisis is far from over. This particular vulnerability still lives in unpatched systems, and the next one may not have a convenient kill switch. While it is inevitable that software will have bugs, there are ways to make operating systems much more secure — but that costs real money.

While this particular bug affected both new and old versions of Microsoft’s operating systems, the older ones like XP have more critical vulnerabilities. This is partly because our understanding of how to make secure software has advanced over the years, and partly because of the incentives in the software business. Since most software is sold with an “as is” license, meaning the company is not legally liable for any issues with it even on day one, it has not made much sense to spend the extra money and time required to make software more secure quickly. Indeed, for many years, Facebook’s mantra for its programmers was “move fast and break things.”

[..] If I have painted a bleak picture, it is because things are bleak. Our software evolves by layering new systems on old, and that means we have constructed entire cities upon crumbling swamps. And we live on the fault lines where more earthquakes are inevitable. All the key actors have to work together, and fast. First, companies like Microsoft should discard the idea that they can abandon people using older software. The money they made from these customers hasn’t expired; neither has their responsibility to fix defects. Besides, Microsoft is sitting on a cash hoard estimated at more than $100 billion (the result of how little tax modern corporations pay and how profitable it is to sell a dominant operating system under monopolistic dynamics with no liability for defects).

At a minimum, Microsoft clearly should have provided the critical update in March to all its users, not just those paying extra. Indeed, “pay extra money to us or we will withhold critical security updates” can be seen as its own form of ransomware. In its defense, Microsoft probably could point out that its operating systems have come a long way in security since Windows XP, and it has spent a lot of money updating old software, even above industry norms. However, industry norms are lousy to horrible, and it is reasonable to expect a company with a dominant market position, that made so much money selling software that runs critical infrastructure, to do more.

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tick tick tick.

Peak China: Chinese Data Misses Across The Board (ZH)

Following months of warnings that China’s economy is slowing down as a result of not only a collapse in China’s credit impulse but also tighter monetary conditions, as well as rolling over loan growth which has pressured both CPI and PPI – i.e., the global “reflation trade” – as the following chart from Bloomberg’s David Ingels shows…

… and culminating over the weekend with a warning in no uncertain terms from Citi, which said that at least four key economic indicators are “starting to wave red flags” among which:
• The Markit PMI is starting to turn over
• China’s Inflation Surprise Index – a leading indicator to global inflation metric – has posted a recent sharp drop
• China’s import trade has likewise tumbled after surging recently
• Chinese Iron Ore imports into Qingado port have plunged

… moments ago China’s National Bureau of Statistics validated the mounting fears, when it reported misses across all key economic categories for the month of April, as follows:
• Retail Sales 10.7% Y/Y, Exp. 10.8%, Last 10.9%
• Fixed Asset Investment 8.9% Y/Y, Exp. 9.1%, Last 9.2%
• Industrial Output 6.5% Y/Y, Exp. 7.0%, Last 7.6%
• Industrial Production YTD 6.7% Y/Y, Exp. 6.9%, Last 6.8%

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Big meeting, Putin, Erdogan et al, but not India, US, Germany and more. Shaky.

Why India Is Cool Towards China’s Belt And Road (SCMP)

It is one of the most imaginative and ambitious programmes ever to be rolled out by a government. It represents a broad strategy for China’s economic cooperation and expanded presence in Asia, Africa and Europe, and has been presented as a win-win initiative for all participating nations. But for India, the connotations of China’s Belt and Road Initiative” are somewhat different. A flagship programme and the most advanced component of the initiative, the China-Pakistan Economic Corridor (CPEC), passes through Pakistan-occupied Kashmir, a region that belongs to India and is under the control of Pakistan. As a country acutely conscious of its own sovereignty-related claims, China should have no difficulty in appreciating India’s sensitivities in this regard.

While investment in the Gwadar port, roads and energy projects is reported to have increased from US$46 billion to US$55 billion, CPEC lacks economic justification for China and its geopolitical drivers cause legitimate anxieties in India. The Belt and Road plan is a practical economic strategy for China’s objectives to connect the region, seek new growth engines for its slowing economy, utilise its surplus capacity, and develop and stabilise its western regions. It may also bring benefits to partner countries. However, it also has a strategic and political agenda which remains opaque. Apart from the CPEC, India also has misgivings about the manner in which the Belt and Road Initiative is being pursued in its neighbourhood. For instance, the development of ports under Chinese operational control as part of the Maritime Silk Road strategy has raised concerns in India which need to be addressed.

India has repeatedly conveyed its strong objections regarding the CPEC to China. The Belt and Road plan is a Chinese initiative rather than a multilateral enterprise undertaken after prior consultation with potential partner countries, and India has not endorsed it. There is an expectation in India that China will take India’s sensitivities into account while formulating its plans. Clearly, there is room for closer consultations between China and India on the objectives, contours and future directions of the Belt and Road. However, India has considered synergy-based cooperation on a case-by-case basis, where its interests for regional development converge with that of other countries, including China.

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India’s right, the Silk road is financed with Monopoly money.

China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)

Alas, the meticulously scripted plan to showcase China’s growing economic and trade dominance did not go off quite as smoothly as Xi had planned. First, just hours before the summit opened, North Korea launched its latest ballistic missile, provoking Beijing and further testing the patience of China, its chief ally. Ironically, the United States had complained to China on Friday over the inclusion of a North Korean delegation at the event. Then, in a sign that China’s rampant, credit-fuelled growth is making some just a little uncomfortable, some Western diplomats expressed unease about both the summit and the plan as a whole, seeing it as an attempt to promote Chinese influence globally according to Reuters. They are also concerned about transparency and access for foreign firms to the scheme.

Australian Trade Minister Steven Ciobo said Canberra was receptive to exploring commercial opportunities China’s new Silk Road presented, but any decisions would remain incumbent on national interest. Responding to criticism, Xi said that “China is willing to share its development experience with all countries” and added “we will not interfere in other countries’ internal affairs. We will not export our system of society and development model, and even more will not impose our views on others.” But the biggest surprise was India, the world’s fastest growing nation and the second most populous in the world, which did not even bother to send an official delegation to Beijing and instead criticised China’s global initiative, warning of an “unsustainable debt burden” for countries involved.

Indian foreign ministry spokesman Gopal Baglay, asked whether New Delhi was participating in the summit, said “India could not accept a project that compromised its sovereignty.” India is incensed that one of the key Belt and Road projects passes through Kashmir and Pakistan. The nuclear-armed rivals have fought two of their three wars over the disputed region, Reuters notes. “No country can accept a project that ignores its core concerns on sovereignty and territorial integrity,” Baglay said. Furthermore, he also warned of the danger of debt. One of the criticisms of the Silk Road plan is that host countries may struggle to pay back loans for huge infrastructure projects being carried out and funded by Chinese companies and banks. “Connectivity initiatives must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities,” Baglay said.

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Really, Brussels, Washington, you think it’s a good idea to let China buy up Greece? No security jiggers at all?

Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)

Fosun International, the Chinese conglomerate that’s part of a venture to transform the former Athens airport site into one of the biggest real-estate projects in Europe, is now turning its attention to Greek tourism. Fosun wants to use its stake in tour operator Thomas Cook to start building vacation packages specifically for the vast Chinese market, Senior Vice President Jim Jiannong Qian said in a May 4 interview in Athens. The Chinese government predicts 1.5 million of its citizens will start vacationing in Greece in the medium term. Tourism accounted for over one-quarter of Greece’s GDP in 2016, according to the Greek Tourism Confederation. Visitor numbers in 2016 reached 28.1 million, up 7.6% from 2015. Tourists generated €13.2 billion in travel receipts, according to the Bank of Greece. Of these travelers, 150,000 came from China, Beijing says.

“Greece is a very safe place for visitors,” said Qian who is also president of Fosun’s Tourism and Commercial Group. There are also good opportunities for tourism investments in Greece, he said. Fosun is in discussions to buy existing hotels and resorts, or for the construction of new ones, in Greece by its fully owned portfolio company Club Med. An increase in Chinese visitors to Greece would eventually lead to direct flights from Beijing and Shanghai to Athens, Qian said. The 54 year-old Qian said the situation in Greece has changed since the company first invested in Athens-based luxury goods retailer Folli Follie Group in 2011. “Greece’s economy is recovering now and can also deliver very good opportunities for foreign investors,” he said. “We look at the figures from retail sales and of the tourism sector,” and see the improvement.

Fosun, which manages €64.3 billion in total assets globally, has invested more than €200 million in Greece through its direct holding in Folli Follie and indirectly through Thomas Cook and Club Med, Qian said. “If you can help the economy grow, for example if we have the package product for Greece, then we create more jobs for restaurants, for retail stores, for taxi drivers.” The company, the biggest private Chinese company that invests in Europe, owns German lender Hauck & Aufhaeuser and Portuguese insurance company Fidelidade, and doesn’t rule out an investment in the Greek banking sector if an opportunity arises in the future, Qian said, refuting reports that the group has already made a bid to acquire shares in Greek banks. Fosun has already placed a bid for the acquisition of National Bank of Greece’s insurance unit National Insurance, and according to Qian, has no money ceiling when it comes to investments, as long as the opportunity is worth it.

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Rerouted trips to Greece?

New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)

New Zealand has slashed its forecast for Chinese tourist spending over the next six years, denting growth expectations for its biggest foreign-exchange earner. Spending by Chinese tourists will rise to NZ$3.73 billion ($2.5 billion) by 2022 from NZ$1.65 billion last year, according to the Ministry of Business, Innovation and Employment’s latest annual forecasts. That’s 30% less than the NZ$5.32 billion expected in last year’s projections. “There is significant geopolitical risk around the China market,” the ministry said in the report, published Friday, adding that indicators like early-2017 visa approvals were “suggesting a short-term slowing in the market.” The downward revision indicates overall revenue from tourists won’t grow as quickly as previously expected, and that Australia will remain the biggest source of tourist dollars until 2021. Last year, officials forecast China would take the top ranking in 2017.

Tourism, which last year overtook dairy as New Zealand’s top export, has been growing faster than expected. Visitor numbers surged to 3.5 million in 2016, four years sooner than had been envisaged in 2014, and are projected to jump to 4.9 million by 2023. Still, the uncertainty around China “adds some risk to both China’s and the national forecast numbers,” the ministry said in its latest report. The slower forecast trajectory for Chinese spending growth reflects fewer visitors and less spending per day than projected 12 months ago. Arrivals from China are expected to reach 812,000 in 2022. That’s less than the 921,000 estimated in last year’s report. Average spending per day is forecast to be NZ$343 in 2022 rather than the NZ$394 estimated a year ago. As a result, total foreign visitor spending will rise to NZ$15.3 billion in 2023, according to the forecasts. The 2016 prediction was that spending would rise to NZ$16 billion by 2022.

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As if we needed any more evidence that credibility is the least of their worries.

Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)

To protect the poorest Americans, should central bankers raise interest rates faster? At least one of them is making that argument. During a speech last month, Federal Reserve Bank of Kansas City President Esther George said she was “not as enthusiastic or encouraged as some when I see inflation moving higher” because “inflation is a tax and those least able to afford it generally suffer the most.” She was referring in particular to rental inflation, which she said could continue rising if the Fed doesn’t take steps to tighten monetary conditions. And while the idea of inflation as a tax that hits the poor the hardest is not a new one, its role in the current debate over what to do with interest rates marks a bit of a twist from recent years.

Widening disparities in income and wealth have over the past several years permeated national politics and helped fuel the rise of populist movements around the developed world. Against this backdrop, there has been a growing body of research, some of it produced by economists at central banks, backing the idea that easier monetary policy tends to be more progressive. That work, set against the notion that a stricter approach toward containing inflation has the best interests of the lowest-income members of society at heart, is thrusting Fed policy makers toward the center of a debate they usually like to leave to politicians. It’s becoming more contentious as Fed officials seek to declare victory on their goal of maximum employment even while the percentage of prime working-age Americans who currently have jobs is still nowhere close to the peaks of the previous two economic expansions.

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“The company, with the unfortunate Toronto Ticker “BAD”..”

Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)

Having single-handedly hounded Home Capital Group – the company which we predicted in 2015 would be “ground zero” for any potential Canadian financial crisis, and has emerged as the Canada’s equivalent to the infamous New Century which in 2007 presaged the upcoming global financial crisis – into near oblivion, noted chicken-farmer and short-seller, Marc Cohodes, over the weekend revealed the full details behind his latest short thesis: Canadian oil and gas service provider, Badger Daylighting. Badger, for those unfamiliar, is a company which uses a technique called hydrovac excavation, in which pressurized water and a powerful vacuum are used to expose buried pipes and cables. The company, with the unfortunate Toronto Ticker “BAD”, already had a bad day on Friday when it revealed earnings and revenues that badly missed consensus expectations.

Insult was added to injury after Cohodes, who most recently gained prominence for his short bet on Home Capital Group, previewed pages of a negative presentation on Badger to his Twitter feed Friday, saying that the shares are overvalued and that there are low barriers to entry. As a result, BAD shares plunged as much as 28% to C$22 in Toronto, the biggest intraday decline since November 2006, after previously dropping 4.8% YTD. To be sure, on Friday Badger CEO Paul Vanderberg, without in depth knowledge of Cohodes’ thesis, responded to Cohodes saying “my focus on that is really not to focus on it” during the earnings call and adding that “I don’t agree with the thesis.” Obviously, especially since neither he nor anyone else had seen or read it.

Chief Financial Officer Jerry Schiefelbein also responded, saying Badger is working to train new workers and managers on how to operate more efficiently, which should help reduce costs. He said the company’s first-quarter sales were “pretty good” following a couple of tough years. As for Cohodes’ criticism about low barriers to entry, Schiefelbein was quoted by Bloomberg saying tat Badger’s size gives it an advantage over mom-and-pop shops that would seek to compete with the company. Badger can tackle bigger projects for municipalities, has safety systems that larger customers require and it can move assets to markets where there is more demand, he said. “It’s not just digging holes in the ground.”

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Only interesting if his French backers want something Germany doesn’t. But then they all want the eurozone.

Eyes on Euro Fighter Macron (K.)

Macron has taken over from Francois Hollande hoping to reform not just his own country but the euro as well. “We must collectively recognize that the euro is incomplete and cannot last without major reforms,” he said during a speech at Humboldt University in Berlin this January. “It has not provided Europe with a full international sovereignty against the dollar on its rules, it has not provided Europe with a natural convergence between the different member-states.” The centrist politician warned that without reform the euro may be obsolete in 10 years. He has proposed a series of changes to improve the single currency, with the centerpiece being a budget for the eurozone that will be monitored by the European Parliament and backed by borrowing capacity so that it can finance investments, provide emergency loans via the European Stability Mechanism and help eurozone members if they suffer significant economic shocks.

Macron has also suggested the pooling of debt in the eurozone through the issuing of eurobonds, which are anathema to German conservatives. “The establishment of this budget will have to come with a convergence agenda for the eurozone, an anti-dumping agenda that will set common rules for fiscal and social matters,” added Macron in a message to his German hosts that proceeded to become clearer during his speech. “In a monetary union, a country’s success cannot be sustainably achieved to the detriment of another, which is a limit of the competitiveness approach, because competitiveness is always about comparing yourself with a neighbor,” he said. “The difficulties of one are always the problems of all.” Although Macron admits that France must carry out its own labor, market and education reforms and respect fiscal targets, his words are a direct attempt to overturn the logic and policy that has dictated the eurozone’s response to its crises since 2010 and to shape how its overall approach will evolve from this point onward.

In doing so, Macron is taking the fight to Germany, which previous French presidents failed to do. “When you look at the situation, the dysfunctioning of the euro is good news for Germany, I have to say. You benefit from this dysfunctioning,” he told his audience in Berlin. “[The] euro today is a sort of weak Deutschmark, which favors the German industry,” he added. These are views that have rarely been aired publicly by key players in the eurozone and it is little surprise that the initial response from Berlin was to suggest that Macron has enough on his plate at home to be focusing on euro reform. “German support cannot replace French policymaking,” was Merkel’s first comment on the subject after Macron comfortably won last Sunday’s vote in France.

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But Schäuble on Friday said transfers were needed. You need a fiscal union to make that work.

Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)

Now what? “More Europe” say those who believe that problems were caused by an inadequate integration process that allowed policy mistakes by incompetent national governments. To avoid similar mistakes in the future, they are now urging a unified fiscal policy to complete the monetary union. That is what the French call the “fuite en avant” – a semiotic delight roughly translated as fleeing from an unsolvable problem. Here is what that problem looks like: The fiscal union implies a euro area federal state with a common management of public finances. The area’s budget, public debt financing, tax policies, transfer payments, etc. would be managed by a euro area finance ministry. That would also require harmonization of labor, health care and education policies, and a whole range of other social welfare programs. Institutionally, this integration drive cannot stop at the finance ministry. There would also have to be a euro area executive and legislative authority to exercise administrative and democratic controls over tax and spend decisions.

[..] How could Germany, with a budget surplus last year of 0.8% of GDP and the public debt of 68.3% of GDP, accept a fiscal union with Spain running the euro area’s largest budget deficit of 4.5% of GDP and a public debt of 100% of GDP? France and Italy have similar public finance profiles. Last year, France had a second-largest euro area budget deficit of 3.4% of GDP and a public debt of 96% of GDP. During the same period, Italy ran a budget deficit of 2.4% of GDP and a public debt of 133% of GDP. This means that half of the euro area economy (France, Italy and Spain), with serious structural problems of public finances, would become part of a de-facto federal state with a fiscally sound Germany. Hard to imagine, isn’t it? And yet, that’s the program that the new French President Emmanuel Macron will apparently discuss Monday when he visits German Chancellor Angela Merkel in Berlin.

France, Italy and Spain already know the answer. Chancellor Merkel is relieved and delighted that the most dangerous anti-EU parties in France and The Netherlands lost the recent elections, but her government is firmly opposed to the euro area fiscal union. German public opinion fully shares that position. And German media of all political stripes are having a field day lampooning the idea that German taxpayers should be asked to pay for countries that cannot control their debts and deficits. This is also an awkward moment to even talk about the call on the German public purse while the country is gearing up for general elections on Sept. 24, 2017. The best that Germany can offer, under these circumstances, is a strict enforcement of existing euro area fiscal rules: Budget deficits limited to 3% of GDP and the gross public debt to 60% of GDP. About half of the euro area members are now falling far short of these criteria.

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Will the rich world ever come clean? No.

What Germany Owes Namibia For Genocide (Econ)

On October 2nd 1904 General Lothar von Trotha issued what is now notorious as “the extermination order” to wipe out the Herero tribe in what was then German South West Africa, now Namibia. “Within the German borders every Herero, with or without a gun, with or without cattle, will be shot,” his edict read. During the next few months it was just about carried out. Probably four-fifths of the Herero people, women and children included, perished one way or another, though the survivors’ descendants now number 200,000-plus in a total Namibian population, scattered across a vast and mainly arid land, of 2.3m. The smaller Nama tribe, which also rose up against the Germans, was sorely afflicted too, losing perhaps a third of its people, in prison camps or in the desert into which they had been chased.

A variety of German politicians have since acknowledged their country’s burden of guilt, even uttering the dread word “genocide”, especially in the wake of the centenary in 2004. But recent negotiations between the two countries’ governments over how to settle the matter, the wording of an apology and material compensation are becoming fraught. Namibia’s 16,000 or so ethnic Germans, still prominent if not as dominant as they once were in business and farming, are twitchy. The matter is becoming even more messy because, while the German and Namibian governments set about negotiation, some prominent Herero and Nama figures say they should be directly and separately involved—and have embarked on a class-action case in New York under the Alien Tort Statute, which lets a person of any nationality sue in an American court for violations of international law, such as genocide and expropriation of property without compensation.

The main force behind the New York case, Vekuii Rukoro, a former Namibian attorney-general, demands that any compensation should go directly to the Herero and Nama peoples, whereas the Namibian government, dominated by the far more numerous Ovambo people in northern Namibia, who were barely touched by the wars of 1904-07 and lost no land, says it should be handled by the government on behalf of all Namibians. The Namibian government’s amiable chief negotiator, Zedekia Ngavirue, himself a Nama, has been castigated by some of Mr Rukoro’s team as a sell-out. “Tribalism is rearing its ugly head,” says the finance minister, who happens to be an ethnic German.

The German government says it cannot be sued in court for crimes committed more than a century ago because the UN’s genocide convention was signed only in 1948. “Bullshit,” says Jürgen Zimmerer, a Hamburg historian who backs the genocide claim and says the German government is making a mess of things. “They think only like lawyers, not about the moral and political question.” “None of the then existing laws was broken,” says a senior German official. “Maybe that’s morally unsatisfactory but it’s the legal position,” he adds.

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 May 11, 2017  Posted by at 8:49 am Finance Tagged with: , , , , , , , , , , , ,  2 Responses »
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Paul Almasy Les Halles, Paris 1950

 

Trump and Lavrov Meeting Round-Up (TASS)
$9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)
Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)
It’s Not Just The VIX – Low Volatility Is Everywhere (R.)
Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)
China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)
‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)
UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)
Panic! Like It’s 1837 (DB)
Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)
Greek Capital Controls To Stay Till At Least End Of 2018 (K.)
Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)
Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)
Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)
Where Have All The Insects Gone? (Sciencemag )

 

 

The presence of a TASS reporter when Lavrov visited the White House was critized in the US media. Here’s what he wrote.

Trump and Lavrov Meeting Round-Up (TASS)

Before meeting with Donald Trump, Sergey Lavrov held talks with the US top diplomat Rex Tillerson. Lavrov’s talks with the US president lasted for about 40 minutes behind closed doors. Moscow and Washington can and should solve global issues together, Lavrov said following his meetings with US Secretary of State Rex Tillerson and US President Donald Trump. “I had a bilateral meeting with Rex Tillerson, then the two of us were received by President Trump,” the Russian top diplomat said. “We discussed, first and foremost, our cooperation on the international stage.” “At present, our dialogue is not as politicized as it used to be during Obama’s presidency. The Trump administration, including the president himself and the secretary of state, are people of action who are willing to negotiate,” the Russian top diplomat pointed out.

Lavrov said agreement reached with Tillerson to continue using diplomatic channel to discuss Russian-US relations. According to Lavrov, the current state of bilateral relations is no cause for joy. “The reason why our relations deteriorated to this state is no secret,” the Russian top diplomat added. “Unfortunately, the previous (US) administration did everything possible to undermine the basis of our relations so now we have to start from a very low level.” “President Trump has clarified his interest in building mutually beneficial and practical relations, as well as in solving issues,” Lavrov pointed out. “This is very important,” he said. Lavrov believes Syria has areas where US might contribute to operation of de-escalation zones. “We are ready for this cooperation and today have discussed in detail the steps and mechanisms which we can manage together,” Lavrov said.

“We have confirmed our interest in the US’ most active role in those issues,” Lavrov said. “I imagine the Americans are interested in this too.” “We proceed from the fact they will take up the initiative,” he added. “We have thoroughly discussed the Syrian issue, particularly the ideas related to setting up de-escalation zones,” the Russian top diplomat said. “We share an understanding that this should become a common step aimed at putting an end to violence across Syria,” he added.

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One word: mayhem.

$9 Trillion Question: What Happens When Central Banks Stop Buying Bonds? (WSJ)

Central banks have been the world’s biggest buyers of government bonds, but may soon stop—a tidal shift for global markets. Yet investors can’t agree on what that shift will mean. Part of the problem is that there is little agreement about how the massive stimulus policies, known as quantitative easing or QE, affected bonds in the first place. That makes it especially hard to assess what happens when the tide changes. Many expect bond yields could rise and shares fall, some see little effect at all, while others suggest it is riskier investments, such as corporate bonds or Italian government debt, that will bear the brunt. But recently, yields on European high-yield corporate bonds hit their lowest since before the financial crisis, in one potential sign that the threat of tapering has yet to affect markets.

When the unwinding begins money managers may not be positioned for it, and markets could move swiftly. In the summer of 2013, investors suddenly got spooked about the Federal Reserve withdrawing stimulus, leading to a swift bond sell off that sent yields on the 10-year Treasury up by more than 1%age point. By buying bonds after the 2008 financial crisis, central banks across the developed world sought to push yields lower and drive money into riskier assets, reducing borrowing costs for businesses. “If it’s unclear what benefits we’ve had in the buying, it’s unclear what will happen in the selling,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

Recent data showed that the ECBholds total assets of $4.5 trillion, more than any other central bank ever. The Fed and the Bank of Japan each have $4.4 trillion, although the BOJ isn’t expected to wind down QE soon. With the world economy finally recovering, investors believe that holdings at the Fed and ECB have peaked. U.S. officials are discussing how to wind down their portfolio, which they have kept constant since 2014. The ECB’s purchases of government and corporate debt are now more likely to be tapered later in the year, analysts say, after pro-business candidate Emmanuel Macron’s victory in the French presidential election Sunday.

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Dutch politicians either don’t care about their European Union peer Greece, or they don’t know about it. Neither is a good option. They are doing so well over the backs of the Greeks they want Draghi to enact policies that will make them even richer, and the Greeks even more miserable. Oh, and of course “The euro is irrevocable” only until it isn’t.

Draghi Stays Calm on Stimulus as Dutch MPs Warn of Risks With Tulip (BBG)

Mario Draghi kept his cool in the Netherlands – at least on monetary policy. Repeatedly pressed by Dutch lawmakers to say when he’ll start winding down euro-area monetary stimulus, the Ecb president replied that it’s still too soon to consider, despite a “firming, broad-based upswing” in the economy. “Is it time to exit? Or is it time to start thinking about exit or not? The assessment of the Governing council is that this time hasn’t come yet.” His reward was a gift of a plastic tulip in a reminder of a past European financial crisis. Draghi’s voluntary appearance at the hearing on Wednesday put him front and center in one of the nations most critical of the ECB’s ultra-loose policies, which are seen by opponents as overstepping the institution’s mandate, burdening savers and pension providers, and stoking asset bubbles.

Legislators did appear occasionally to get under his skin. The tension rose when he was quizzed multiple times him on the possibility that a government will one day have to restructure its debt, while on the topic of a nation leaving the currency bloc – as Greece came close to doing in 2015 – Draghi’s response was blunt. “The euro is irrevocable. This is the Treaty. I will not speculate on something that has no basis.” The intense questioning underscored the gap between relatively rosy economic data and the discontent among individuals who can’t see the fruits of the ECB’s €2.3 trillion bond-buying program and minus 0.4% deposit rate. It’s a challenge for Draghi, who reiterated his concern that underlying inflation remains feeble and falling unemployment has yet to boost wage growth. The region is far from healing the scars of a double-dip recession that wiped out 9 million jobs and helped the rise of anti-euro populists such as Marine Le Pen, who lost this month’s French presidential election but still managed to pick up more than a third of the vote.

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The silence before.

It’s Not Just The VIX – Low Volatility Is Everywhere (R.)

The current slump in expectations of market volatility is not just a stock market phenomenon – it is the lowest it’s been for years across fixed income, currency and commodity markets around the world. It shows little sign of reversing, which means market players are essentially not expecting much in the way of shocks or sharp movements any time soon. It’s an environment in which asset prices can continue rising and bond spreads narrow further. The improving global economy, robust corporate profitability, ample central bank stimulus even as U.S. interest rates are rising, and some fading political risk from elections have all contributed to create a backdrop of relative calm.

There is little evidence of investors hedging – or seeking to protect themselves – from adverse conditions. It is most notably seen in the VIX index of implied volatility on the U.S. S&P 500 stock index, the so-called “fear index”. But implied volatility across the G10 major currencies is its lowest in three years, and U.S. Treasury market volatility its lowest in 18 months and close to record lows. The VIX, meanwhile, has dipped to lows not seen since December 2006, is posting its lowest closing levels since 1993, and is on a record run of closes below 11. By comparison, it was at almost 90 at the height of the financial crisis. Not much current “fear”, then.

Implied volatility is an options market measure of investors’ expectation of how much a certain asset or market will rise or fall over a given period of time in the future. It and actual volatility can quickly become entwined in a spiral lower because investors are less inclined to pay up for “put” options – effectively a bet on prices falling – when the market is rising. If a shock does come the cost of these “puts” would shoot higher as investors scramble to buy them. Surging volatility is invariably associated with steep market drawdowns. According to Deutsche Bank’s Torsten Slok, an investor betting a year ago that the VIX would fall – shorting the index – would have gained around 160% today. Conversely, an investor buying the VIX a year ago assuming it would rise would have lost 75%.

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What’s that rumbling sound in the distance?

Six Canadian Banks Cut by Moody’s on Consumers’ Debt Burden (BBG)

Six of Canada’s largest banks had credit ratings downgraded by Moody’s Investors Service on concern that over-indebted consumers and high housing prices have left lenders vulnerable to potential losses on assets. Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Royal Bank of Canada had their long-term debt and deposit ratings lowered one level, Moody’s said Wednesday in a statement. It also cut its counterparty risk assessment for the firms, excluding Toronto-Dominion. “Expanding levels of private-sector debt could weaken asset quality in the future,” David Beattie, a Moody’s senior vice president, said in the statement.

“Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.” A run on deposits at alternative mortgage lender Home Capital has sparked concern over a broader slowdown in the nation’s real estate market, at a time when Canadians are taking on higher levels of household debt. The firm’s struggles have taken a toll on Canada’s biggest financial institutions, which have seen stocks slide on concern about contagion. In its statement, Moody’s pointed to ballooning private-sector debt that amounted to 185% of Canada’s GDP at the end of last year. House prices have climbed despite efforts by policy makers, it said. And business credit has grown as well.

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Straight from the Monopoly printing press.

China Holds Giant Meeting On Spending Billions To Reshape The World (CNBC)

[..] the most populous nation on the planet wants to increase its influence by digging further into its pockets — flush with cash after decades of rapid growth — to splash out with its “One Belt, One Road” policy. President Xi Jinping first announced the policy in 2013; it was later named one of China’s three major national strategies, and morphed into an entire chapter in the current five-year plan, to run through 2020. [..] The plan aims to connect Asia, Europe, the Middle East and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. The scheme involves 65 countries, which together account for one-third of global GDP and 60% of the world’s population, or 4.5 billion people, according to Oxford Economics.

This is part of China’s push to increase global clout — building modern infrastructure can attract more investment and trade along the “One Belt, One Road” route. It could be beneficial for western China, which is less developed, as it links up with neighboring countries. And in the long run, it will help China shore up access to energy resources. The policy could boost the domestic economy with demand abroad, and might also soak up some of the overcapacity in China’s heavy industry, but analysts say these are fringe benefits. Experts say China has an opportunity to step into a global leadership role, one that the U.S. previously filled and may now be abandoning, especially after President Donald Trump pulled out of a major trade deal, the Trans-Pacific Partnership.

It’s clear China wants to wield greater influence — Xi’s speech in January at the World Economic Forum in Davos touted the benefits of globalization, and called for international cooperation. And an article by Premier Li Keqiang published shortly after also called for economic openness. But despite all the talk of global connectivity, skeptics highlight that China still restricts foreign investment, censorship continues to be an issue and concerns remain over human rights. [..] In 2015, the China Development Bank said it had reserved $890 billion for more than 900 projects. The Export-Import Bank of China announced early last year that it had started financing over 1,000 projects. The China-led Asian Infrastructure Investment Bank is also providing financing.

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The British should be happy for housing prices returning to more normal levels.

‘Stagnant’ Buyer Demand Puts The Brakes On UK Housing Market (G.)

The UK housing market is continuing to slow down, with falling property sales, “stagnant” buyer demand and general election uncertainty all adding up to one of the most downbeat reports issued by surveyors since the financial crash. In its latest monthly snapshot of the market, the Royal Institution of Chartered Surveyors (Rics) said momentum was “continuing to ebb,” with no sign of change in the near future. Its report is the latest in a series of recent surveys suggesting that the slowdown is getting worse as household budgets continue to be squeezed and affordability pressures bite. It comes days after the Halifax said house prices fell by 0.1% in April, which meant they were nearly £3,000 below their December 2016 peak. Nationwide reported a bigger decline in April – it said prices fell by 0.4%, following a 0.3% drop in March.

Some parts of London appear to have been hit particularly hard, with estate agents and developers resorting to offering free cars and other incentives to try to tempt buyers. Rics said its members had reported that sales were slipping slightly following months of flat transactions. A lack of choice for would-be buyers across the UK appears to be one of the major factors putting a dampener on sales: the latest report said there was “an acute shortage of stock,” with the typical number of properties on estate agents’ books hovering close to record lows. New instructions continue to drop, which could make the situation worse: the flow of fresh listings to agents remained negative for the 14th month in a row at a national level, said Rics, though it added that the situation had apparently improved slightly in London.

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How dead is the left? Nice contest.

UK Labour Party’s Plan To Nationalise Rail, Mail And Energy Firms (G.)

Jeremy Corbyn will lay out plans to take parts of Britain’s energy industry back into public ownership alongside the railways and the Royal Mail in a radical manifesto that promises an annual injection of £6bn for the NHS and £1.6bn for social care. A draft version of the document, drawn up by the leadership team and seen by the Guardian, pledges the phased abolition of tuition fees, a dramatic boost in finance for childcare, a review of sweeping cuts to universal credit and a promise to scrap the bedroom tax. Party sources said Corbyn wants to promise a “transformational programme” with a package covering the NHS, education, housing and jobs as well as industrial intervention and sweeping nationalisation. But critics said the policies represented a shift back to the 1970s with the Conservatives describing it as a “total shambles” and a plan to “unleash chaos on Britain”.

Corbyn’s leaked blueprint, which is likely to trigger a fierce debate of Labour’s national executive committee and shadow cabinet at the so-called Clause V meeting at noon on Thursday, also includes:
• Ordering councils to build 100,000 new council homes a year under a new Department for Housing.
• An immediate “emergency price cap” on energy bills to ensure that the average duel fuel household energy bill remains below £1,000 a year.
• Stopping planned increases to the pension age beyond 66.
• “Fair rules and reasonable management” on immigration with 1,000 extra border guards, alongside a promise not to “fan the flames of fear” but to recognise the benefits that migrants bring.

On the question of foreign policy, an area on which Corbyn has campaigned for decades, the draft document said it will be “guided by the values of peace, universal rights and international law”. However, Labour, which is facing Tory pressure over the question of national security, does include a commitment to spend 2% of GDP on defence. The draft manifesto, which will only be finalised after it is agreed on Thursday, also makes clear that the party supports the renewal of Trident, despite Corbyn’s longstanding opposition to nuclear weapons.

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Cycles.

Panic! Like It’s 1837 (DB)

180 years ago today, everyone panicked. On May 10, 1837, New York banks finally realized that the easy money they were lending was unsustainable, and demanded payment in “specie,” or hard money like gold and silver coin. They had previously been accepting paper currency that for every $5 was backed by only $1 in silver or gold. Things culminated to that point after years of borrowing the paper currency to expand west, buy land, and build infrastructure. As silver came in from Mexico, banks lent out five times the amount of their deposits–fractional reserve banking. At the same time, the value of silver was falling because its supply was increasing in America. Great Britain, which had been lending much of the money, was less interested in silver because they could pay for trade with China in opium.

So even though Britain had a year earlier begun demanding payment in specie, the abundant silver in America did not hold the same weight, so to speak, it had previously. Now, reflect on this for a second. The USA was depending on loans from a country that they had successfully revolted and seceded from fewer than 50 years earlier. Britain had also provoked The War of 1812 just 25 years earlier when they wouldn’t stop attacking American ships. But somehow it still seemed like a good idea to depend on British banks to form the foundation of American development. So at the same time when American banks had to backstep their risky practices, Britain also just so happened to need 25% less cotton, which was the foundation of the American economy. This only exacerbated the trade deficit.

But still, despite whether or not Britain’s actions were nefarious, the whole situation would have been remarkably cushioned if fractional reserve banking had not been used. Because of this “easy money,” land was bought at enormous rates on credit, but credit that was not backed by actual value–only 1/5 of the actual value existed of what was being lent! President Andrew Jackson was not entirely without blame either. When he deconstructed the federal bank, he deposited the money into state banks, and encouraged them to go ahead and lend, lend, lend! Of course, when the time came for the banks to return the deposits, the money was gone. So when this massive real estate bubble burst in 1837, it caused a panic and ensuing recession that lasted until 1844. Does any of this sound familiar to you?

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The moment the ECB is allowed to buy Greek bonds again is also the moment it decides to quit its bond-buying program.

Italy Financial Regulator Threatens EU with Return to “National Currency” (DQ)

Despite trillions of euros worth of QE, Italy has continued to suffer a 30% loss in competitiveness compared to Germany during the last two decades. And now Italy must begin to prepare itself for the biggest nightmare of all: the gradual tightening of the ECB’s monetary policy. “Inflation is gradually returning to the area of the 2% target, while in the United States a monetary tightening is taking place,” Vegas said. The German government is exerting mounting pressure on the ECB to begin tapering QE before elections in September. So, too, is the Netherlands whose parliament today treated ECB President Mario Draghi to a rare grilling. The MPs ended the session by presenting Draghi with a departing gift of a solar-powered tulip, to remind him of the country’s infamous mid-17th century asset price bubble and financial crisis.

For the moment Draghi and his ECB cohorts refuse to yield, but with the ECB’s balance sheet just hitting 38.7% of Eurozone GDP, 15 %age points higher than the Fed’s, they may ultimately have little choice in the matter. As Vegas points out, for Italy (and countries like it), that will mean having to face a whole new situation, “in which it will no longer be possible to count on the external support of monetary leverage.” This is likely to be a major problem for a country that has grown so dependent on that external support. According to the Bank for International Settlements, in 2016, international banks in particular those in Germany reduced their exposure to Italy by 15%, or over $100 billion, half of it in the last quarter of the year. ECB intervention helped plug the shortfall, at least for a while.

But the ECB has already reduced its monthly purchases of European sovereign debt instruments, from €80 billion to just over €60 billion. As the appetite for Italian government debt falls, the yields on Italian bonds will rise. The only market participants seemingly still willing and able (for now) to increase their purchase of Italian debt are Italian banks. In his address, Vegas proposed introducing a safeguard threshold of €100,000 for the banks’ bondholders, many of whom are ordinary Italian citizens, with combined holdings worth some €200 billion, who were told by the banks that their bonds were a secure investment. Not any more. “The management of crises may require timely intervention that is not compatible with the mechanisms in Frankfurt and Brussels,” Vegas added.

To get his point across, he issued a barely veiled threat in Frankfurt and Brussels’ direction — that of Italy’s exit from the Eurozone, a prospect that should not be altogether discounted given the recent growth of anti-euro sentiment and rising political instability in Italy. So he threatened: “Merely the announcement of a return to a national currency would provoke an immediate outflow of capital that would seriously jeopardize Italy’s ability to refinance the world’s third biggest public debt.”

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In other words: any positive numbers you may read about Greek GDP are false.

Greek Capital Controls To Stay Till At Least End Of 2018 (K.)

Greece will spend at least three-and-a-half years under the restrictions of capital controls as their abolition is not expected to come any earlier than the end of 2018, according to a competent credit sector source. The next step in terms of their easing will come after the completion of the bailout review and the disbursement of the funding tranche, provided banks see some recovery in deposits. Sources say that the planning provides primarily for helping enterprises by increasing the limit on international transactions concerning product imports or the acquisition of raw materials. Almost two years after the capital controls were imposed, by next Tuesday, according to the agreement with the creditors, the Bank of Greece and the Finance Ministry have to present a road map for the easing of restrictions.

The road map is already being prepared and according to sources it will not contain any dates for the easing of controls but rather will record the conditions necessary for each step to come. Kathimerini understands that the conditions will be the following: the return of deposits, the reduction of nonperforming loans, the state’s access to money markets, the country’s inclusion in the ECB’s QE program, and the settlement of the national debt. “Ideally, by end-2018 we will be able to speak of an end to the controls. In any case, the restrictions on deposits will be the last to be lifted,” notes a senior banking source, referring to the cash withdrawal limit that currently stands at €840 per 14 days. The Hellenic Bank Association’s Executive Committee will meet on Wednesday to discuss proposals for the gradual easing of restrictions.

The bankers’ proposals will constitute an updated version of those tabled in November 2016; they will likely include the introduction of a monthly limit of 2,000 euros for cash withdrawals and an increase in the withdrawal limit for funds originating from abroad from 30% to 60%. The drop in deposits over the first quarter of the year will make it harder for such proposals to be implemented for the time being.

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Saving the healthcare system from Troika-induced collapse is a good idea. Not sure this is the way.

Greek PM Tsipras Heralds ‘Landmark’ Plan For Healthcare (K.)

Speaking of an “institutional intervention of landmark significance,” Prime Minister Alexis Tsipras heralded on Wednesday the creation of a new primary healthcare system to be based on local health centers staffed with general practitioners. The aim is to set up 239 such centers by the end of the year, employing 3,000 family doctors and nursing staff, Tsipras said in a speech at a health center in Thessaloniki. The first 60 of those centers are to start operating by the summer, the premier said, noting that poorer areas will be prioritized. “If you were to ask me what I want to be left behind after the years of governance by SYRIZA and ANEL,” he said, referring to junior coalition partner Independent Greeks, “I would say a very essential landmark health sector reform with the creation of primary healthcare.”

Tsipras also took the opportunity to lash out at the political opposition, accusing previous governments of having a plan for “the passive privatization of the health sector.” As for the national federation of Greek hospital workers (POEDIN), which has railed against the current government for cutbacks in the health sector, Tsipras hit back, calling it “a trade union that has secured privileges.” The prime minister added that his government remained determined to fight corruption in the health sector, referring to alleged scandals embroiling the Hellenic Center for Disease Control and Prevention (KEELPNO) and the Swiss pharmaceuticals firm Novartis. “Everything will come to light,” he said.

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Erdogan’s at the White House today, or is that tomorrow?!

Turkish Coast Guard Publishes Maps Claiming Half Of The Aegean Sea (KTG)

The Turkish Coast Guard published alleged official maps and documents claiming half of the Aegean Sea belong to Turkey. In this sense, Ankara claims to won dozens of Greek islands, the entire eastern Aegean from the island of Samothraki in the North to Kastelorizo in the South. The maps and claims have been uploaded on the website of the Turkish Coast Guard in the context of a 60-page report about the activities of the TCG in 2016. On page 7 and 13 of the report, the maps allegedly show Turkey’s Search And Rescue responsibility area. The maps show half of the Aegean Sea and also a very good part of the Black Sea, where Turkey’s SAR area coincides with the Turkish Exclusive Economic Zone (EEZ). Turkey did not signed the convention in order to not be obliged to recognize the Greek EEZ.

The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place between 1973 and 1982. The Law of the Sea Convention defines the rights and responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The most significant issues covered were setting limits, navigation, archipelagic status and transit regimes, exclusive economic zones (EEZs), continental shelf jurisdiction, deep seabed mining, the exploitation regime, protection of the marine environment, scientific research, and settlement of disputes. Turkey started to claim areas in the Aegean Sea after 1997 when a Turkish ship sank near the Greek islet of Imia and Ankara sent SAR vessels.

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Sea Watch seems to go a bit far.

Libya Intercepts Almost 500 Migrants After Sea Duel (AFP)

Libya’s coastguard on Wednesday intercepted a wooden boat packed with almost 500 migrants after duelling with a German rescue ship and coming under fire from traffickers, the navy said. The migrants, who were bound for Italy, were picked up off the western city of Sabratha, said navy spokesman Ayoub Qassem. The German non-governmental organisation “Sea-Watch tried to disrupt the coastguard operation… inside Libyan waters and wanted to take the migrants, on the pretext that Libya wasn’t safe,” Qassem told AFP. Sea-Watch posted a video on Twitter of what it said was a Libyan coastguard vessel narrowly cutting across the bow of its ship.

“This EU-funded Libyan patrol vessel almost crashed (into) our civil rescue ship,” read the caption. Qassem also said the coastguard had come under fire from people traffickers, without reporting any casualties. The 493 migrants included 277 from Morocco and many from Bangladesh, said Qassem, and 20 women and a child were aboard the boat. All were taken to a naval base in Tripoli. There were also migrants from Syria, Tunisia, Egypt, Sudan, Pakistan, Chad, Mali and Nigeria, he added. According to international organisations, between 800,000 and one million people, mostly from sub-Saharan Africa, are currently in Libya hoping to make the perilous Mediterranean crossing to Europe.

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No insects, no bats, no birds, etc etc.

Where Have All The Insects Gone? (Sciencemag )

Entomologists call it the windshield phenomenon. “If you talk to people, they have a gut feeling. They remember how insects used to smash on your windscreen,” says Wolfgang Wägele, director of the Leibniz Institute for Animal Biodiversity in Bonn, Germany. Today, drivers spend less time scraping and scrubbing. “I’m a very data-driven person,” says Scott Black, executive director of the Xerces Society for Invertebrate Conservation in Portland, Oregon. “But it is a visceral reaction when you realize you don’t see that mess anymore.” Some people argue that cars today are more aerodynamic and therefore less deadly to insects. But Black says his pride and joy as a teenager in Nebraska was his 1969 Ford Mustang Mach 1—with some pretty sleek lines. “I used to have to wash my car all the time. It was always covered with insects.”

Lately, Martin Sorg, an entomologist here, has seen the opposite: “I drive a Land Rover, with the aerodynamics of a refrigerator, and these days it stays clean.” Though observations about splattered bugs aren’t scientific, few reliable data exist on the fate of important insect species. Scientists have tracked alarming declines in domesticated honey bees, monarch butterflies, and lightning bugs. But few have paid attention to the moths, hover flies, beetles, and countless other insects that buzz and flitter through the warm months. “We have a pretty good track record of ignoring most noncharismatic species,” which most insects are, says Joe Nocera, an ecologist at the University of New Brunswick in Canada. Of the scant records that do exist, many come from amateur naturalists, whether butterfly collectors or bird watchers.

Now, a new set of long-term data is coming to light, this time from a dedicated group of mostly amateur entomologists who have tracked insect abundance at more than 100 nature reserves in western Europe since the 1980s. Over that time the group, the Krefeld Entomological Society, has seen the yearly insect catches fluctuate, as expected. But in 2013 they spotted something alarming. When they returned to one of their earliest trapping sites from 1989, the total mass of their catch had fallen by nearly 80%. Perhaps it was a particularly bad year, they thought, so they set up the traps again in 2014. The numbers were just as low. Through more direct comparisons, the group—which had preserved thousands of samples over 3 decades—found dramatic declines across more than a dozen other sites.

Such losses reverberate up the food chain. “If you’re an insect-eating bird living in that area, four-fifths of your food is gone in the last quarter-century, which is staggering,” says Dave Goulson, an ecologist at the University of Sussex in the United Kingdom, who is working with the Krefeld group to analyze and publish some of the data. “One almost hopes that it’s not representative—that it’s some strange artifact.”

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Jun 232016
 
 June 23, 2016  Posted by at 8:48 am Finance Tagged with: , , , , , , ,  4 Responses »
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Harris&Ewing Horse and Motor Oil, Washington, DC 1918

World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)
Who Is The “European Movement”? (Werner)
Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)
IMF Warns The US Over High Poverty (BBC)
China’s Xi Lauds New Silk Road (R.)
Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)
Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)
ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)
European Commission To Freeze Payments To Greece (NE)
Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)
EU Approves Common Border Agency (WSJ)

Won’t be sleeping peacefully.

World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)

Bank of Japan Governor Haruhiko Kuroda will be in Switzerland as the results are announced of the U.K.’s June 23 vote on whether to remain in the European Union. Kuroda will be traveling from June 23 to June 28 to attend meetings of the Bank for International Settlements, where other central bankers also will gather, the BOJ said Wednesday. Given the travel time between Europe and Japan, Kuroda would be unable to chair an emergency meeting if the central bank decides to hold one Friday Tokyo time in the event the U.K. votes to leave the EU. “This raises the likelihood of the BOJ not taking drastic measures right after the results come out,” said Daiju Aoki, an economist at UBS in Tokyo.

“Kuroda probably sees the benefit of being with other central bankers where they could talk about coordinated action.” In a press conference June 16, Kuroda declined to comment about whether he’d convene an emergency meeting after the Brexit vote and said the central bank was in touch with counterparts including the Bank of England amid Brexit concerns he said had had an impact in the bond market. The BOJ can hold an emergency meeting without the governor, according to the bank’s rules. In May 2010, then-Deputy Governor Hirohide Yamaguchi led an emergency gathering in the absence of Governor Masaaki Shirakawa, who was traveling in Europe.

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A comprehensive overview of things EU for those who can still stomach more.

Who Is The “European Movement”? (Werner)

Prime Minister David Cameron, together with the heads of the IMF, the OECD and various EU agencies have given dire warnings that economic growth will drop, the fiscal position will deteriorate, the currency will weaken and UK exports will decline precipitously. George Osborne, the chancellor of the exchequer has threatened to cut pensions if pensioners dare to vote for exit. But what are the facts? I have been trained in international and monetary economics at the London School of Economics and have a doctorate from the University of Oxford in economics. I have studied such issues for several decades. I have also recently tested, using advanced quantitative techniques, the question of the size of impact on GDP from entry to or exit from the EU or the eurozone.

The conclusion is that this makes no difference to economic growth, and everyone who claims the opposite is not guided by the facts. The reason is that economic growth and national income are almost entirely determined by a factor that is decided at home, namely the amount of bank credit created for productive purposes. This has sadly been very small in the UK in recent decades, thus much greater economic growth is possible as soon as steps are taken to boost bank credit for productive purposes – irrespective of whether the UK stays in the EU or not (although Brexit will make it much easier to take such policy steps).

We should also remember that a much smaller economy like Norway – thought more dependent on international trade – fared extremely well after its people rejected EU membership in a referendum in 1995 (which happened against the dire warnings and threats from its cross-party elites, most of its media and the united chorus of the heads of international organisations). Besides, Japan, Korea, Taiwan and China never needed EU membership to move from developing economy status to top industrialised nations within about half a century. The argument of dire economic consequences of Brexit is bogus.

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10 years late. We called it Hongcouver by then.

Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)

Vancouver, home of Canada’s priciest housing market, is proposing a tax on empty homes to help address an “unprecedented” low vacancy rate as residents struggle to find affordable housing. Vancouver’s preferred option is to have the provincial government of British Columbia create a new tax for empty or under-occupied residential homes, Mayor Gregor Robertson said in a statement Wednesday. Failing that, the city plans to impose a business tax on empty homes held as investment properties. The city wants a response from the province by Aug. 1.

“Vancouver housing is first and foremost for homes, not a commodity to make money with,” Robertson said. “We need a tax on empty homes to encourage the best use of all our housing, and help boost our rental supply at a time when there’s almost no vacancy.” Prices in Vancouver are the highest in Canada, topping C$1.5 million ($1.2 million) for a detached home in May, a 37% rise over the prior year, according to that city’s real estate board. At 0.6%, the current vacancy rate means there are only 330 purpose-built rental apartments available at a given time, Robertson said. That’s in a municipal region of about 2.5 million people.

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Lagarde’s just a lot of emptiness.

IMF Warns The US Over High Poverty (BBC)

The US has been warned about its high poverty rate in the International Monetary Fund’s annual assessment of the economy. The fund said about one in seven people were living in poverty and that it needed to be tackled urgently. It recommended raising the minimum wage and offering paid maternity leave to women to encourage them to work. The report also cut the country’s growth forecast for 2016 to 2.2% from a previous prediction of 2.4%. Slower global growth and weaker consumer spending were blamed. US economic growth slowed to an annual pace of 0.5% during the first three months of the year, down sharply from 1.4% in the last three months of 2015.

But the stronger labour market meant that overall “the US economy is in good shape”, said the IMF’s managing director Christine Lagarde. May’s unemployment figures showed the rate at an eight-year low of 4.7%. However Ms Lagarde warned that “not only does poverty create significant social strains, it also eats into labour force participation, and undermines the ability to invest in education and improve health outcomes”. “Our assessment is that, if left unchecked, these four forces – participation, productivity, polarisation and poverty – will corrode the underpinnings of growth and hold back gains in US living standards,” she added.

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All the things monopoly money can buy.

China’s Xi Lauds New Silk Road (R.)

Chinese companies invested nearly $15 billion in countries participating in Beijing’s new Silk Road initiative last year, up one-fifth from 2014, President Xi Jinping said in Uzbekistan, lauding a scheme that is one of his key foreign policy. Under the program, announced by Xi in 2013, and also known as the “One Belt, One Road” program, China aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe. China has dedicated $40 billion to a Silk Road Fund and the idea was the driving force behind the establishment of the $50 billion Asian Infrastructure Investment Bank.

In comments carried by state media late on Wednesday, Xi said China’s trade with countries participating in the new Silk Road exceeded $1 trillion in 2015, accounting for a quarter of its total foreign trade. “The Belt and Road Initiative’s primary planning and deployment has been completed and is now stepping onto the stage of taking root and intensive cultivation for sustained development,” Xi told the Uzbek parliament. Regions like the Balkans and Central Asia are key to the project, the government has said. Xi’s trip to Uzbekistan followed trips to Serbia and Poland. The initiative envisages the revival of the ancient Silk Road routes from China to Europe to open new trade markets for its firms as the domestic market slows.

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Musk has easy access to the green bubble.

Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)

Visions of a future dominated by electric cars have long powered Tesla Motors’ stock price. Sooner or later, the reality of corporate finance is likely to intervene. Tesla’s offer to acquire solar-energy company SolarCity brings this issue to the forefront. Though details on the financial benefits of the proposed tie-up are scant, Tesla CEO Elon Musk was his usual bold self on a conference call with analysts on Wednesday. He said the proposed deal could help Tesla become the world’s first company with a trillion-dollar market capitalization. That would require a more than 30-fold increase from today’s value. Yet that boast may not be the most jarring one Mr. Musk has offered of late.

Powered by the new Model 3 mass-market sedan, Tesla aims to deliver 500,000 vehicles in 2018, Mr. Musk said last month. That target is two years ahead of the previous goal. Tesla forecasts 80,000 to 90,000 deliveries this year. In a world of slow growth and cautious corporate management teams, bold ambition is a central part of Tesla’s appeal to investors. But reaching for the stars has proven expensive. Tesla’s core business has burned more than $3 billion in cash over the past six quarters. Capital needs are expected to further intensify over the coming years. No surprise there; automobile manufacturing is a low-return, capital-intensive business.

The SolarCity transaction could further pressure Tesla’s financial profile. Mr. Musk said Wednesday that Tesla would be willing to provide a bridge loan to SolarCity before the deal closes if needed, although he thought such a scenario to be unlikely. Still, even the possibility of such a loan should raise eyebrows. Mr. Musk said he expects SolarCity to be cash-flow positive within three to six months. That could be the case in a given quarter, but analysts at Barclays forecast 2016 free cash flow at negative-$1.8 billion. As for Tesla, Barclays expects the auto maker to burn $2.1 billion without much improvement over the coming two years. The combined company could burn as much as $3.4 billion in 2018, before factoring in the financial impact of the merger.

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Always funny how close shameful and shameless are in the English language.

Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)

Tesla’s bid to buy struggling solar energy firm SolarCity has been called “shameful” by financier Jim Chanos. Mr Chanos, who is betting against the shares of both firms, described the bid as a “shameful example of corporate governance at its worst”. Tesla made a $2.8bn (1.9bn) offer for SolarCity on Tuesday. Tesla’s chief executive Elon Musk said the deal, which will be paid for in Telsa shares, was a “no brainer”. The two firms have close ties. Mr Musk owns 22% of SolarCity and sits on the company’s board. SolarCity’s chief executive Lyndon Rive and Mr Musk are cousins. “As a combined automotive and power storage and power generation company, the potential is there for Tesla to be a trillion-dollar market cap company,” Mr Musk said.

Mr Chanos has taken short positions in both Tesla and SolarCity. When investors take short positions they borrow shares of a company, sell those shares and try to buy them back at a lower price. Mr Chanos said SolarCity was “headed toward financial distress,” and neither company could handle the burden of a tie-up. “[SolarCity] is burning hundreds of millions in cash every quarter, a burden that now Tesla shareholders will have to bear, at a total cost of over $8bn,” he said.

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Why now?

ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)

The ECB has restored a key waiver that will let Greek banks tap emergency central bank credit, one step toward putting the country’s financial institutions back on their feet. The decision announced Wednesday permits Greek government bonds to be used by banks as collateral to get cheap money from the ECB — even though those bonds are rated too low under the usual rules. Greek banks were shattered by the country’s financial and debt crisis which has led to three bailouts since 2010. They have been relying on more expensive financing from the Greek national central bank to do business. The ECB restored the waiver after the Greek government got a €7.5 billion installment on its latest bailout, ensuring the government can pay its bills for now.

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Still a very corrupt country. And not given the time to do something about it; ‘reform’ has eaten that away.

European Commission To Freeze Payments To Greece (NE)

The European Commission will stop all payments of the European Regional Development Fund/Cohesion fund to Greece for the 2014-2020 programmes. This is confirmed by an internal letter obtained by New Europe signed by Walter Deffaa, Director-General for Regional Development. The reason for the Commission’s pause is an investigation of the Greek competition authority, which concerns possible manipulation of tendering procedures for major infrastructure projects. While the letter was circulated internally on June 17, it is expected that the decision will not be announced until after the European Commission President, Jean-Claude Juncker, has concluded his trip to the Greek capital, but possibly before the competition authority will examine the case on July 21.

The European Commission did not immediately respond to New Europe on whether the President had discussed the issue with Greek Prime Minister Alexis Tsipras, or as to the amount of money that would be affected by this decision. According to the letter, the Greek authorities working on the case have “already identified companies participating in the cartel as all major constructions companies and large foreign companies present in Greece.” The cartel was allegedly active for over 27 years from 1989, to this year, in the domain of road construction, railroads, metro, and concession projects. The Director-General confirms that some of these projects “will certainly have been co-financed by EU funds”.

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We’ll file this under entertainment…

Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)

President Recep Tayyip Erdogan has said that Turkey might hold a referendum on whether to end or continue negotiations with European Union (EU). Erdogan commented on Turkey’s EU accession negotiations during a graduation ceremony of Fatih Sultan Mehmet Foundation University on Wednesday. “Just like United Kingdom, we could also ask our people whether to continue or end negotiations with EU”, Erdogan said.

“Turkey is not after visa-free travel or the shipping back [to Turkish territory of migrants who arrive in Greece]. However, you are after Turkey right now. You are thinking about what would happen if Turkey was to open the gates and let the refugees pass. You are losing your temper because Erdoan throws off your mask and reveals your true, ugly face. That’s why you are thinking of ways to get rid of Erdogan. Europe, you do not want us only because the majority of our people are Muslims”, Erdogan added.

Erdogan’s remarks came after European Commission President Jean-Claude Juncker said that the only person standing in the way of Turkey’s visa-free travel to EU was Erdogan. “If Turks cannot travel to EU without a visa right now, that is because they have not fulfilled the necessary criteria. If Erdogan breaks the deal, he has to explain his people why they can’t travel to EU [without a visa]”, Juncker said.

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Foreign armed ‘soldiers’ operating in another country’s sovereign territory. Is that what people want?

EU Approves Common Border Agency (WSJ)

The European Union on Wednesday agreed on setting up a common external border agency and coast guard to be deployed in countries struggling with a massive influx of migrants. The plan was originally put forward in December and has been pushed by Germany and France in response to the migration crisis that saw over one million asylum seekers arrive via Greece last year, and the threat from Islamic State terrorists mingling with the stream of refugees. Sovereignty concerns raised by some EU governments have been addressed in a compromise whereby a majority of governments would have to approve any deployment of EU border guards, including the country where the external border is deemed too porous and an intervention needed.

If an EU country which belongs to the Schengen border-free area refuses to accept such a deployment, and its failure to protect the common border is considered to endanger the border-free area, other countries can erect borders to isolate themselves from it. The U.K. and Ireland won’t be part of the new agency, as they are not part of the Schengen area. The compromise deal, approved Wednesday by the bloc’s 28 ambassadors, still requires the formal adoption by EU governments and the European Parliament, but EU officials say this is a formality that will likely happen in the coming weeks. The European Border and Coast Guard will build on an existing EU agency—Frontex—which is based in Warsaw and currently only has limited powers when it comes to patrolling land and sea borders—a national prerogative.

The new agency will also comprise a network of national authorities responsible for border management and will have a reserve pool of 1,500 border guards to be deployed in emergency cases within a week. But setting up the pool of 1,500 will take time and resources, as EU countries aren’t equally motivated to see this project come to life, EU officials say. In previous years, EU countries were slow in dispatching border guards to Greece and Italy, whose governments requested EU assistance for search and rescue missions at sea or for patrolling the land border between Greece and Turkey. This is partly because some EU countries need the guards back home and also because polyglot border guards are rare.

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Nov 262015
 
 November 26, 2015  Posted by at 10:46 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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G.G. Bain Scramble for pennies – Thanksgiving, New York Nov 1911

China’s Desperate Commodity Sector Demands State Buy Up Surplus Metals (ZH)
China’s New Silk Road Dream (Bloomberg)
End of EU Border-Free System Could See Euro Fail, Warns Juncker (WSJ)
ECB Alternatives Could Include Penalties On Banks Hoarding Cash (Reuters)
UK Mortgage Lending Hit Seven-Year High In October (Guardian)
Osborne Plans To Eradicate Deficit Dissolve Into Puddle Of Excuses (Bell)
George Osborne Delays The Fiscal Pain But It Will Still Be Ferocious (AEP)
Osborne Quietly Cuts Funding For All Of Britain’s Opposition Parties (Ind.)
Big Banks Accused Of Interest Rate-Swap Fixing In Class Action Suit (Reuters)
Turkish President Erdogan’s Son Major Smuggler Of Illegal ISIS Oil (Engdahl)
How Walmart Keeps an Eye on Its Massive Workforce (Bloomberg)
Fossil Fuel Companies Risk Wasting $2 Trillion Of Investors’ Money (Guardian)
Germany Gives Greece Names Of 10,000 Suspected Tax Dodgers (Guardian)
Greek Residential Property Price Slide Gains Pace In Third Quarter (Reuters)
Dutch Court Rules Migrants’ Right To Food, Shelter Not Unconditional (Reuters)
Good Thing Native Americans Didn’t Treat Pilgrims Like We Treat Syrians (Nevius)

I smell international trouble.

China’s Desperate Commodity Sector Demands State Buy Up Surplus Metals (ZH)

China, which as documented extensively in the past, has clammed down on its unprecedented credit creation now that its debt/GDP is well over 300% and as a result conventional industries are dying a fast and violent death. In fact, months ago we, jokingly, suggested that what China should do, now that it has scared sellers and shorters to death, is to launch QE where it matters – the commodity space. That joke has become a reality according to Reuters, which reports that China’s aluminum and nickel producers have asked Beijing to buy up surplus metal, sources said, the first coordinated effort since 2009 to revive prices suffering their worst rout since the global financial crisis.

The state-controlled metals industry body, China Nonferrous Metals Industry Association, proposed on Monday that the government scoop up aluminum, nickel and minor metals including cobalt and indium, an official at the association and two industry sources with direct knowledge of the matter said. The request was made to the state planner, the National Development and Reform Commission (NDRC). One Reuters source familiar with the producers’ request said the China Nonferrous Metals Industry Association had suggested that the state buys 900,000 tonnes of aluminum, 30,000 tonnes of refined nickel, 40 tonnes of indium, and 400,000 tonnes of zinc. In other words, everything that is plunging because there is simply no end-demand should simply be bought by the state.

And why not: in “developed” countries, the same thing is being done by central banks, only instead of directly “monetizing” metals, the central banks indirectly push up stock prices which is where 70% of household net worth is located. For China, and largely investment driven economy, the same can be said about commodity prices. Furthemore, as reported two months ago, at current commodity prices, more than half of all companies with debt in the space are unable to make even one interest payment using organic cash flow which makes the decision for Beijing moot: either buy up the excess metals or reap the consequences of mass defaults.

Reuters: “In the United States, aluminum smelters have blamed ballooning exports from China for hurting international prices. Nickel prices on the London Metal Exchange, which sets the benchmark for global trade, plunged to their lowest in more than a decade on Monday amid concerns about waning demand from China, the world’s second-largest economy. Few, if any smelters, are making a healthy profit at prices as low as $8,200 per tonne, down almost 60% since last year. Aluminum prices have fallen nearly 30% over the past year.”

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“..about a quarter of all overseas investments and construction and engineering projects undertaken by Chinese companies from 2005 to 2014—worth $246 billion—have been stalled by snafus or failed.”

China’s New Silk Road Dream (Bloomberg)

[..] At home, Beijing is attempting to decrease the economy’s dependence on astronomical levels of credit-driven investment for growth, and that spells tougher times for Chinese construction companies, equipment makers, and other businesses that had gorged on the country’s building boom. A key motivation behind Beijing’s big infrastructure schemes is to find fresh outlets for these companies overseas. China understandably expects that its own companies will take the lead in planning, constructing, and supplying projects it’s also funding. In fact, a study by London-based merchant bank Grisons Peak showed that 70% of the overseas loans it examined from two Beijing policy banks were made on the condition that at least part of the funds be used to purchase Chinese goods.

Even with China’s banks and special funds running full tilt, it’s uncertain where all of the money will come from to finance the Silk Road scheme. A report on Chinese state media says the number of projects under its umbrella has already reached 900, with an estimated price tag of $890 billion. With many projects destined for economically weak countries with dubious governance, China’s money could get lost to corruption or wasted in poorly conceived plans. Chinese companies already have a suspect record of implementing such projects. According to data compiled by the American Enterprise Institute (AEI), about a quarter of all overseas investments and construction and engineering projects undertaken by Chinese companies from 2005 to 2014—worth $246 billion—have been stalled by snafus or failed.

Almost half were in transport and energy—just the sort of projects that will be key to One Belt, One Road. “China is currently trying to create the story of an economic success, and if it has some public failures, that could be damaging to its brand,” says Homi Kharas, deputy director of the Global Economy and Development program at the Brookings Institution. Nor is there any guarantee that China’s cash will win it camaraderie. In Africa, where China has a long record of investment, a Gallup poll released in August showed the approval rating of Beijing’s leaders had dropped among Africans in 7 of the 11 countries included in the survey. “The goodwill expressed at the highest levels doesn’t trickle down into warm sentiments,” says J. Peter Pham, director of the Africa Center at the Atlantic Council, a think tank based in Washington. “Chinese soft power is relatively weak.”

China’s infrastructure bonanza also presents dangers to its own economy. Local governments are jumping on the bandwagon, announcing a slew of projects aimed at connecting their provinces to Silk Road routes. In an April report, HSBC estimated that the projects already planned within China could total $230 billion. That may help sustain growth in the short run but delay the economy’s crucial transition away from investment-led growth, which would lead to even harder times in coming years. In fact, One Belt, One Road is in its essence the export of China’s old growth strategy—using state banks to fund investment by Chinese companies on foreign soil.

None of these concerns is likely to matter in the end. China’s international infrastructure push is, after all, a diplomatic endeavor, one to which the reputation of the state has become intimately tied. “The Chinese are going to work very hard—throw money at any and all problems—to make sure prized ‘belt and road’ projects all work out,” says Derek Scissors, an AEI scholar. That could turn China’s grand Silk Road dreams into an even grander disappointment.

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Not could but will.

End of EU Border-Free System Could See Euro Fail, Warns Juncker (WSJ)

The head of the European Union’s executive said Wednesday that the region’s Schengen border-free system was under threat and warned that if it fails, the single currency could fall with it. Speaking in the European Parliament in Strasbourg about the recent terror attacks in Paris, European Commission President Jean-Claude Juncker acknowledged that the “Schengen system is partly comatose.” “If the spirit of Schengen leaves us…we’ll lose more than the Schengen agreement. A single currency doesn’t make sense if Schengen fails,” he said. “You must know that Schengen is not a neutral concept. It’s not banal. It’s one of the main pillars of the construction of Europe.”

Faced with the biggest migration influx since the aftermath of the World War II and the recent terror attacks in Paris, a number of countries, including Germany, France and others have tightened controls of their borders. Member states are also looking to revise Schengen’s rules to tighten control of the EU’s external border and to change the way the free movement rules apply to asylum seekers. The Schengen Agreement, an arrangement that allows the free movement of European citizens between 26 countries across the continent, is under threat. The Wall Street Journal’s George Downs explains why. Schengen currently has 26 members, including several non-EU countries. It allows freedom of movement across the region and therefore plays a key role in underpinning the EU’s single market of goods, services and labor.

Mr. Juncker said that following the Nov. 13 Paris attacks, European politicians must resist the temptation to “mix up” asylum seekers and terrorists. He said those inciting violence in Europe’s capitals “are the same people who are forcing the unlucky of this planet to flee” Syria and other places. Mr. Juncker called for stepped-up coordination between intelligence agencies—a promise, he said, that had been made in the past but never followed up on. He confirmed the commission would make a proposal in December for an EU-wide border guard system and he pressed lawmakers to toughen the proposed EU passenger name records legislation to include people taking flights within the bloc. EU interior and justice ministers last week demanded this measure be included in the legislation which has been long delayed by the European Parliament.

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Yeah, we know that works…

ECB Alternatives Could Include Penalties On Banks Hoarding Cash (Reuters)

Euro zone central bank officials are considering options such as whether to stagger charges on banks hoarding cash or to buy more debt ahead of the next European Central Bank meeting, according to officials. Little over a week before the meeting to set the ECB’s policy course, numerous alternatives are open, from snapping up the bonds of towns and regions to introducing a two-tier penalty charge on banks that park money with the ECB. Officials, who spoke on condition of anonymity, said that even buying rebundled loans at risk of non-payment has been discussed in preparatory meetings, although such a radical step is highly unlikely for now. The ECB declined to comment. “They are still trying to figure out what will be in the package. A lot of people have different views,” said one official with knowledge of talks that have put ECB president Mario Draghi at loggerheads with sceptical German policy-makers.

“There are some who say you should surprise markets. But you cannot surprise indefinitely. Sooner or later, you are bound to disappoint.” A virtually stagnant euro zone economy and a heightened sense of concern at the ECB sets the backdrop for a series of high-level meetings of central bank officials in Frankfurt that take place this week. “We have deflation, so you have to do something,” said a second person. “How this all looks in a few years, nobody knows.” Yet after many weeks of discussion about what measures are needed to address persistently low price inflation, however, divisions are making it difficult to sign off any package to enhance quantitative easing and rock-bottom interest rates. Failing to do so risks disappointing investors who expect ECB policy setters to bolster a one-trillion-euro plus program of quantitative easing when they meet on December 3, in a move so significant it has been dubbed ‘QE2’.

Draghi has made it clear that he would be willing to extend ECB money printing, now used to buy chiefly government bonds, as well as increase the charge on banks holding money at the ECB – known as the negative deposit rate. In order to soften the impact of this on banks, officials are discussing a split-level rate, a contested step that would impose a higher charge on banks depending on the amount of cash they deposit with the ECB. “It could be combined with a ceiling, so that from a certain point onwards liquidity can only be parked overnight at a stronger rate,” said a second official. “Whether and how to shape a deposit rate cut in December is in discussion.” Any such staggered approach would blunt a straightforward increase in the charge, which would particularly hit banks from Germany or France, who park most with the ECB. Banks hold roughly €170 billion with the ECB in this way.

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Ponzi’s bubble.

UK Mortgage Lending Hit Seven-Year High In October (Guardian)

Britain’s banks lent more money through mortgages in October than at any point since the summer of 2008, figures show, as low interest rates and rising incomes tempted more people into the market. Gross mortgage lending hit £12.9bn during the month, 26% higher than in October 2014 and the highest figure since August 2008, according to the latest data from the British Bankers’ Association (BBA). Mortgage lending for house purchases slowed in the latter half of 2014, but has been growing again this year, and in October there were 77,951 approvals – 21% more than in the same month last year. Remortgaging was up by 34% year on year, at 24,275 approvals. The BBA said the average value of mortgages approved for house purchases was £175,600, while remortgagers typically borrowed £172,800.

Recent months have seen a price war among mortgage lenders, which has led to some of the cheapest deals on record. Borrowers looking to fix their mortgage for five years can pay as little as 2.14%, while those fixing for two years can get a rate as low as 1.15%. Richard Woolhouse, chief economist at the BBA, said: “These statistics show that housing market activity remained strong in October, with gross mortgage borrowing 26% higher than a year ago and at its highest level for seven years. “Consumers remain confident and their incomes are growing. Mortgage rates are at multi-year lows and people are snapping up the competitive deals being offered by banks.” Personal loan rates have also been plummeting, leading to a rise in borrowing, which the Bank of England warned on Tuesday “ultimately might be an issue that the financial policy committee might want to look at fairly carefully”.

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“For the record, yet again: this Chancellor has missed every economic target he ever proclaimed.”

Osborne Plans To Eradicate Deficit Dissolve Into Puddle Of Excuses (Bell)

War is the great distraction. Right or wrong, foolish or wise, it suspends all the usual political and economic rules. Suddenly a chancellor who has spent five and a half years telling us “there is no money” can find ready billions for warfare. Though he might not wish it, George Osborne has been luckier than most. In what passed until recently for normal times, he would have approached today’s Autumn Statement under a black cloud of derision. To follow the tax credits debacle with the worst October borrowing figures in six years is more than just another bit of bad luck. Even in his own, narrow terms, Mr Osborne is bad at his job. Carnage and fear have, reasonably enough, given us other things to worry about. A chancellor’s task in an international crisis is to ensure that his Prime Minister has sufficient funds with which to keep the islands safe.

It is not (or not directly) Mr Osborne’s job to say whether F-35 Stealth aircraft are a lousy buy, or whether increasing billions should be earmarked for a Trident system that could be hacked by a laptop jockey. He just finds the cash. Recently, however, the Chancellor has taken to saying that you can’t have national security without economic security. It isn’t a new proposition, but Mr Osborne tried it for size again during his latest chat with the BBC’s Andrew Marr. Convoluted logic had him claiming, in essence, that you can’t fight terrorism unless he “balances the books”. It was a bold claim, not least because you could turn it on its head. Various police chiefs have stepped up to say that another round of Mr Osborne’s cuts will leave them ill-prepared to deal with events of the sort witnessed in Paris.

How’s that for a “long-term economic plan”? The funding for defence the Chancellor has meanwhile just discovered in the Treasury accounts in large part reinstates cash he has already cut. How’s that for shrewd economic management? The point is that the observation does not just apply to defence. Mr Osborne is improvising, even as his plans to eradicate a budget deficit – it was supposed to be gone by now – dissolve into a pile of excuses. So today, reportedly, he “finds” £3.8 billion to hold a politically-inconvenient winter crisis in NHS England at bay, as though winter has just been discovered. The reality is that the Chancellor is bringing forward one part of the £8.4bn the English NHS was meant to spend a couple of years from now.

And that sum – part of it still devoted to breaking junior doctors – was only supposed to keep the service alive while trusts edge towards insolvency. There is nothing “long-term” about this: it’s ad hoc, another skinned rabbit from a battered hat. Mr Osborne clings to the assumption that the only answer to a big borrowing problem is to cut spending hard and fast. When that doesn’t work, you cut again. If you meanwhile wish to lead the Tory Party and win a general election, you aim for an absurd budget surplus, detrimental to the wider economy, that might give scope for tax cuts circa 2020. And where does this austerity lead? To an £8.2bn government borrowing requirement in October, despite all previous cuts in state spending.

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Ambrose wants to embrace Osborne, but even he finds it hard.

George Osborne Delays The Fiscal Pain But It Will Still Be Ferocious (AEP)

George Osborne has wisely pulled back from a fiscal cliff and a welfare crisis next year but the austerity measures planned until the end of the decade will nevertheless be draconian. Citigroup and RBS both estimate that net retrenchment will be 3.5pc of GDP over the coming three years, roughly what we have already endured since the Lehman crisis. Much of it is from higher taxes – normally the reflex of Labour or the French socialists. This is in stark contrast to the eurozone, where policy is finally on a neutral setting after the bloodbath of 2011-2013. The US is even going into a period of net fiscal stimulus as state and local governments launch a blitz of spending. Unfortunately, Britain needs its bitter medicine. Cyclically-adjusted net borrowing is 3.4pc of GDP this year, the highest in the Western world.

This is courting fate at such a late stage of the economic cycle, leaving no safety margin against an external shock or a global recession. The current account deficit is the worst in the OECD club at 5.1pc of GDP. The country is systematically borrowing from global investors to fund a lifestyle beyond its means. The Bank of England warned in its Stability Report that the deficit leaves the UK vulnerable to a sudden cut-off at any time, if the mood changes. “We’re selling off assets to finance excessive spending,” said Philip Rush from Nomura. “Foreigners may be comfortable to do this now but what happens if the economy rolls over or there is a vote for Brexit?” Plundering the family silver has led to a slow deterioration of Britain’s “net international investment position”, now -25pc of GDP and ever closer to the danger line of 30pc flagged by the IMF.

Fiscal contraction is one way to deal with this, so long as the axe falls on over-consumption, and not on the pockets of spending that boost productivity. Osborne’s latest retreat on welfare ensures that it will not go beyond the correct therapeutic dose and bring the economy to a screeching halt. The lesson from Europe’s double-dip recession is that fiscal overkill is counter-productive, since the contraction of nominal GDP causes the debt ratio to rise even faster. One can only smile at Osborne’s mellifluous suggestion that he can ditch two-thirds of the spending cuts penciled in a recently as March, yet still achieve a budget surplus of £10.1bn by 2019-2020. [..] What Osborne has failed to do yet again in this Autumn Statement is to grasp the nettle of reform and start to sort out the chronic pathologies of the British economy.

That means a shift in the entire tax and regulatory system to reward output, to curb our proclivity to import and to raise the rate of savings and investment. It means a radical assault on Britain’s dire productivity levels, our lack of skills and our bad infrastructure, even if this means that the deficit comes down more slowly in the short run. We know the problems. They are listed in the World Economic Forum’s index of competitiveness. The UK ranks 126 for savings, 63 for maths and science in schools, 62 for days to start a business, 57 for procedures, 44 for government procurement of hi-tech products, 42 for business costs of crime, 33 for work incentives, 30 for quality of roads and so on. What we have is a typical British story: manufacturing stagnation and dismal exports, with economic growth once again reliant on a deeply unhealthy property market. Household debt ratios are about to take off again. We all know how this will end.

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“The UK already spends just a tenth of the European average on funding parties..”

Osborne Quietly Cuts Funding For All Of Britain’s Opposition Parties (Ind.)

The Government has moved to make sharp cuts to state funding to Britain’s opposition parties. So-called “short money”, an annual payment that has been paid to opposition parties since the 1970s, will be cut by 19% subject to parliamentary approval. Short money is not received by parties in Government and was introduced to allow oppositions to “more effectively fulfil their parliamentary functions”. It is generally used to employ parliamentary staff and meet political office costs. The cut will affect Labour the most and also take significant chunks of funding from the SNP, Green Party and smaller regional parties. The cut was not mentioned by George Osborne in his speech to the House of Commons but emerged later when full documentation was released.

“The government has taken a series of steps to reduce the cost of politics, including cutting and freezing ministerial pay, abolishing pensions for councillors in England and legislating to reduce the size of the House of Commons,” the spending review says. “However, since 2010, there has been no contribution by political parties to tackling the deficit. Subject to confirmation by Parliament, the government proposes to reduce Short Money allocations by 19%, in line with the average savings made from unprotected Whitehall departments over this Spending Review.” The payments will then be frozen in cash terms for the rest of the Parliament, removing automatic rises with inflation.

Grants for policy development will also be cut by the same amount. The Government says the cost of short money has risen from £6.9 million in 2010-11 to £9.3 million in 2015-16. Katie Ghose, chief executive of the Electoral Reform Society, which campaigns for democratic reform, said the cut would be likely to damage government accountability. “The decision to cut public funding for opposition parties by 19% is bad news for democracy. The UK already spends just a tenth of the European average on funding parties,” she said. “Short Money is designed to level the playing field and ensure that opposition parties can hold the government of the day to account. This cut could therefore be deeply damaging for accountability.”

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If governments won’t do it…

Big Banks Accused Of Interest Rate-Swap Fixing In Class Action Suit (Reuters)

A class action lawsuit, filed Wednesday, accuses 10 of Wall Street’s biggest banks and two trading platforms of conspiring to limit competition in the $320 trillion market for interest rate swaps. The class action lawsuit, filed in U.S. District Court in Manhattan, accuses Goldman Sachs, Bank of America Merrill Lynch, JPMorgan Chase, Citigroup, Credit Suisse, Barclays, BNP Paribas, UBS, Deutsche Bank, and the Royal Bank of Scotland of colluding to prevent the trading of interest rate swaps on electronic exchanges, like the ones on which stocks are traded. As a result, the lawsuit alleges, banks have successfully prevented new competition from non-banks in the lucrative market for dealing interest rate swaps, the world’s most commonly traded derivative. The banks “have been able to extract billions of dollars in monopoly rents, year after year, from the class members in this case,” the lawsuit alleged.

The suit was brought by The Public School Teachers’ Pension and Retirement Fund of Chicago, which purchased interest rate swaps from multiple banks to help the fund hedge against interest rate risk on debt. The plaintiffs are represented by the law firm of Quinn, Emanuel, Urquhart, & Sullivan LLP, which has taken the lead in a string of antitrust suits against banks. As a result of the banks’ collusion, the suit alleges, the Chicago teachers’ pension and retirement fund overpaid for those swaps. The suit alleged that since at least 2007 the banks “have jointly threatened, boycotted, coerced, and otherwise eliminated any entity or practice that had the potential to bring exchange trading to buyside investors.” “Defendants did this for one simple reason: to preserve an extraordinary profit center,” the lawsuit said.

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Doesn’t seem to be much doubt left on the Turkey-ISIS connection.

Turkish President Erdogan’s Son Smuggler Of Illegal ISIS Oil (Engdahl)

In October 2014 US Vice President Joe Biden told a Harvard gathering that Erdogans regime was backing ISIS with hundreds of millions of dollars and thousands of tons of weapons& Biden later apologized clearly for tactical reasons to get Erdogans permission to use Turkey’s Incirlik Air Base for airstrikes against ISIS in Syria, but the dimensions of Erdogan’s backing for ISIS since revealed is far, far more than Biden hinted. Erdogans involvement in ISIS goes much deeper. At a time when Washington, Saudi Arabia and even Qatar appear to have cut off their support for ISIS, they remaining amazingly durable. The reason appears to be the scale of the backing from Erdogan and his fellow neo-Ottoman Sunni Islam Prime Minister, Ahmet Davutoglu.

The prime source of money feeding ISIS these days is sale of Iraqi oil from the Mosul region oilfields where they maintain a stronghold. The son of Erdogan it seems is the man who makes the export sales of ISIS-controlled oil possible. Bilal Erdogan owns several maritime companies. He has allegedly signed contracts with European operating companies to carry Iraqi stolen oil to different Asian countries. The Turkish government buys Iraqi plundered oil which is being produced from the Iraqi seized oil wells. Bilal Erdogans maritime companies own special wharfs in Beirut and Ceyhan ports that are transporting ISIS smuggled crude oil in Japan-bound oil tankers.

Girsel Tekin, vice-president of the Turkish Republican Peoples Party, CHP, declared in a recent Turkish media interview: “President Erdogan claims that according to international transportation conventions there is no legal infraction concerning Bilal’s illicit activities and his son is doing an ordinary business with the registered Japanese companies, but in fact Bilal Erdogan is up to his neck in complicity with terrorism, but as long as his father holds office he will be immune from any judicial prosecution.” Tekin adds that Bilal’s maritime company doing the oil trades for ISIS, BMZ Ltd, is a family business and president Erdogans close relatives hold shares in BMZ and they misused public funds and took illicit loans from Turkish banks.

French geopolitical analyst, Thierry Meyssan [..] claims that the Syria strategy of Erdogan was initially secretly developed in coordination with former French Foreign Minister Alain Juppe and Erdogans then Foreign Minister Ahmet Davutoglu, in 2011, after Juppe won a hesitant Erdogan to the idea of supporting the attack on traditional Turkish ally Syria in return for a promise of French support for Turkish membership in the EU. France later backed out, leaving Erdogan to continue the Syrian bloodbath largely on his own using ISIS.

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1984 as the new normal.

How Walmart Keeps an Eye on Its Massive Workforce (Bloomberg)

In the autumn of 2012, when Walmart first heard about the possibility of a strike on Black Friday, executives mobilized with the efficiency that had built a retail empire. Walmart has a system for almost everything: When there’s an emergency or a big event, it creates a Delta team. The one formed that September included representatives from global security, labor relations, and media relations. For Walmart, the stakes were enormous. The billions in sales typical of a Walmart Black Friday were threatened. The company’s public image, especially in big cities where its power and size were controversial, could be harmed. But more than all that: Any attempt to organize its 1 million hourly workers at its more than 4,000 stores in the U.S. was an existential danger.

Operating free of unions was as essential to Walmart’s business as its rock-bottom prices. OUR Walmart, a group of employees backed and funded by a union, was asking for more full-time jobs with higher wages and predictable schedules. Officially they called themselves the Organization United for Respect at Walmart. Walmart publicly dismissed OUR Walmart as the insignificant creation of the United Food and Commercial Workers International (UFCW) union. “This is just another union publicity stunt, and the numbers they are talking about are grossly exaggerated,” David Tovar, a spokesman, said on CBS Evening News that November.

Internally, however, Walmart considered the group enough of a threat that it hired an intelligence-gathering service from Lockheed Martin, contacted the FBI, staffed up its labor hotline, ranked stores by labor activity, and kept eyes on employees (and activists) prominent in the group. During that time, about 100 workers were actively involved in recruiting for OUR Walmart, but employees (or associates, as they’re called at Walmart) across the company were watched; the briefest conversations were reported to the “home office,” as Walmart calls its headquarters in Bentonville, Ark.

The details of Walmart’s efforts during the first year it confronted OUR Walmart are described in more than 1,000 pages of e-mails, reports, playbooks, charts, and graphs, as well as testimony from its head of labor relations at the time. The documents were produced in discovery ahead of a National Labor Relations Board hearing into OUR Walmart’s allegations of retaliation against employees who joined protests in June 2013. The testimony was given in January 2015, during the hearing. OUR Walmart, which split from the UFCW in September, provided the documents to Bloomberg Businessweek after the judge concluded the case in mid-October. A decision may come in early 2016.

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But so do ‘renewable’ energy companies.

Fossil Fuel Companies Risk Wasting $2 Trillion Of Investors’ Money (Guardian)

Fossil fuel companies risk wasting up to $2tn (£1.3tn) of investors’ money in the next decade on projects left worthless by global action on climate change and the surge in clean energy, according to a new report. The world’s nations aim to seal a UN deal in Paris in December to keep global warming below the danger limit of 2C. The heavy cuts in carbon emissions needed to achieve this would mean no new coal mines at all are needed and oil demand peaking in 2020, according to the influential thinktank Carbon Tracker. It found $2.2tn of projects at risk of stranding, ie being left valueless as the market for fossil fuels shrinks. The report found the US has the greatest risk exposure, with $412bn of projects that could be stranded, followed by Canada ($220bn), China ($179bn) and Australia ($103bn).

The UK’s £30bn North Sea oil and gas projects are at risk, the report says, despite government efforts to prop up the sector. Shell, ExxonMobil and Pemex are the companies with the greatest sums potentially at risk, with over $70bn each. The failure of the fossil fuel industry to address climate change is laid out in a second report on Wednesday, in which senior industry figures state there is “a significant disconnect between the changes needed to reduce greenhouse gas emissions to the [2C] level and efforts currently underway”. Lord John Browne, former BP boss, Sir Mark Moody-Stuart, former Shell and Anglo American chair and others say there must be “fundamental reassessment of the fossil fuel industry’s business models” and that companies should seize commercial opportunities in low-carbon energy.

The Carbon Tracker report looked at existing and future projects being considered by coal, oil and gas companies up to 2025 and determined which could proceed if carbon emissions are cut to give a 50% chance of keeping climate change under 2C. Many high-cost projects, including Arctic and deepwater drilling, tar sands and shale oil are unneeded and therefore uneconomic in the 2C scenario, the report found, although some are required to replace fields that are already depleting.

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It’s been over 5 years since the Lagarde list.

Germany Gives Greece Names Of 10,000 Suspected Tax Dodgers (Guardian)

Germany has handed Athens the names of more than 10,000 of its citizens suspected of dodging taxes with holdings in Swiss banks. The inventory, which details bank accounts worth €3.6bn – almost twice the last instalment of aid Athens secured from creditors earlier this week – was given to the Greek finance ministry in an effort to help the country raise tax revenues. “This is an important step for the Greek government to create more honesty regarding tax in the country,” said Norbert Walter-Borjans, finance minister of the regional state of North Rhine-Westphalia. The state disclosed the data through Germany’s federal tax office. Greece’s leftist-led government vowed it would go after tax dodgers as one of the many policy commitments it signed up to when a €86bn bailout between Athens and its partners was agreed after months of wrangling in July.

The financial lifeline was the third since Athens’ near economic meltdown following the first revelations of runaway deficits in May 2010. A total of 10,588 depositors were said to be on the list, including private individuals and companies. Sources said it resembled a “who’s who” of the well-heeled upper echelons of Greek society – able to spend Christmas in villas in Gstaad in Switzerland and summer at sea in luxury pleasure boats. Prime minister Alexis Tsipras, who won snap polls in September pledging to do away with the “old order”, has promised to dismantle Greece’s oligarchical establishment. Mired in a sixth year of recession, with unprecedented levels of poverty and unemployment, it is ordinary Greeks hit by ever-increasing taxes who have borne the brunt of the country’s long-running economic crisis.

New levies are at the basis of the savings Athens agreed to make in exchange for its latest international bailout. With affluent Greeks spiriting their money abroad, the German chancellor Angela Merkel has seen fit to publicly chastise them for failing to pitch in. Tryfon Alexiadis, the deputy finance minister in charge of tax revenues, said the list would be acted on as quickly as possible – even if the government had to assume the innocence of those revealed to be on it. “It will not stay in a drawer for three years,” he told reporters outside parliament on Wednesday. “The list will be evaluated … and we will see what is hidden behind it. All the services of the ministry of finance and the ministry of justice will cooperate so that we have results as soon as possible.”

In October 2010 Greece was given a similar inventory by Christine Lagarde, then French finance minister, of more 2,000 Greeks with deposits at the Geneva branch of HSBC. Successive governments did little to follow up on it with Tsipras accusing predecessors of deliberately keeping the data in a drawer. Estimated at more than $35bn a year, tax dodging is thought to be the biggest drain on the Greek economy. Last month, Alexiadis got a letter in the post with a bullet in it and a note comparing him to a collaborator with Germany’s Nazi forces. Berlin has been the biggest contributor of the €326bn in bailout funding Athens has received to date.

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There is no market left.

Greek Residential Property Price Slide Gains Pace In Third Quarter (Reuters)

Greek residential property prices fell at a faster pace in the third quarter compared to the previous three-month period as economic contraction hit household income and employment, knocking values on banks’ outstanding real estate loans. Property accounts for a large chunk of household wealth in Greece, which has one of the highest home ownership rates in Europe – 80% versus a European Union average of 70%, according to the European Mortgage Federation. Bank of Greece data showed apartment prices fell by 6.1% in the third quarter of 2015 from a year earlier, with the annual pace of price declines accelerating from 5.0% in the second quarter. The price slide had started to ease after a 10.8% fall in 2013 up until the first quarter of 2015. Greece’s real estate market has been hit by property taxes to plug budget deficits, a tight credit market and a jobless rate hovering around 25%.

Residential property prices have dropped by 41.2% from a peak hit in 2008, when the country’s recession began. Greece has been pushed to the brink of default by a debt crisis that at one stage put into question its membership of the eurozone single currency bloc. Its economic prospects have improved after it signed up to a new bailout package worth up to 86 billion euros this summer. Apart from their negative effect on wealth, falling property prices also affect collateral values on banks’ outstanding real estate loans. Greece’s economy shrank 0.5% in the third quarter compared with the first three months of 2015, contracting by a milder-than-expected pace. The EC projects Greece will see a 1.4% recession this year, but the left-wing government expects the €173 billion economy to flatline.

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Slippery slope with regards to UN treaties. But what else is new?

Dutch Court Rules Migrants’ Right To Food, Shelter Not Unconditional (Reuters)

A Dutch high court on Thursday upheld a government policy of withholding food and shelter to rejected asylum-seekers who refuse to be repatriated, giving legal backing to one of Europe’s toughest immigration policies. The Raad van State or Council of State, which reviews the legality of government decisions, found that the new policy of conservative Prime Minister Mark Rutte does not contravene the European Convention on Human Rights. A rejected asylum seeker does not have the right to appeal to the European Social Charter, it said. The Dutch government “has the right, when providing shelter in so-called locations of limited freedom, to require failed asylum-seekers to cooperate with their departure from the Netherlands,” a summary of the ruling said.

As the Netherlands toughened its stance on newcomers in recent years, Dutch policy toward asylum-seekers and immigrants has been criticized by NGOs and the United Nations as overly strict. Thursday’s ruling counters an August report by the U.N.’s Committee on the Elimination of Racial Discrimination, which told the Dutch they should meet migrants’ basic needs unconditionally. “As long as they are in The Netherlands, they have to enjoy minimum standards of living,” co-author Ion Diaconu, wrote at the time. The EU’s leading human rights forum, the 47-nation Council of Europe admonished the Netherlands in 2014 for placing asylum seekers in administrative detention and leaving many “irregular immigrants” in legal limbo and destitution.

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“..they were leaving a homeland where they were fined, jailed and sometimes even executed for their views.”

Good Thing Native Americans Didn’t Treat Pilgrims Like We Treat Syrians (Nevius)

Thanksgiving is as known for being a day to delicately navigate talking to relatives with vastly different political beliefs as it is for overeating. And the hot-button topic certain to be on everyone’s lips will be what do about Syrian refugees. If it were up to 25 Republican governors and the US House of Representatives, the answer would be to keep them out. This is ironic. Today’s Syrian refugees today don’t look, sound or worship like us, but the Pilgrims that landed on Plymouth Rock 400 years ago also didn’t look, sound or worship like we do – and certainly neither looked, sounded nor worshipped like the native inhabitants of America do. They brought Calvinist determination to this country, and we celebrate that, but that determination came pre-packaged with with bigotry and narrow-mindedness.

What came to be known as the Protestant work ethic was driven by the same zeal that caused some of the British exiles who landed on American shores to persecute anyone already here, or who came here after, who wasn’t like them. We praise the Pilgrims’ work ethic as part of our American DNA, but rarely acknowledged the work ethic and determination of the people who already lived here, nor what the Pilgrims and those who came after them did to destroy the indigenous people they met. Though we may never know exactly what transpired on that First Thanksgiving, let’s never forget that it was the Native Americans’ land – and that they brought the food.

If we continue to celebrate the Pilgrims – or even just to use them as an excuse to eat too much pie – we and our lawmakers should acknowledge that turning our backs on Syrian refugees is akin to turning our back on our own foundations. While it’s true that the Pilgrims weren’t exactly fleeing a war-torn country, they were leaving a homeland where they were fined, jailed and sometimes even executed for their views. Calling themselves “saints” or “the godly”, the Pilgrims were religious separatists who argued for a complete break from the state-run Church of England, which ran them afoul of the law and the king. After a decade of exile in the Netherlands that saw “sundry of them taken away by death” and their children tempted by “the great licentiousness of youth in that country”, the Pilgrims partnered with financial backers in England to help them outfit the Mayflower for the long voyage.

In return, they agreed to work for the company to repay their debts. Then they sailed across the pond, exploited the locals and paved the way for the America we have today. Though their behavior in “the new world” was far from saintly, the Pilgrims were still refugees. But today’s conservatives – some of whom would go so far as to float the idea of World War II-style internment camps for Syrian refugees or registration lists for Muslims – can’t stomach the idea that if the Pilgrims were to show up today, the Republican Party would turn would them back at the border. They actually were a lot of what conservatives are mistakenly accusing Syrian refugees of being.

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townhall.com

Oct 132015
 
 October 13, 2015  Posted by at 8:45 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Russell Lee Columbia Gardens outdoor amusement resort, Butte, Montana 1942

US Debt Markets Shaken Amid More Corporate Downgrades And Defaults (WSJ)
Why US Banks Soon Will Be Singing The Blues (CNBC)
China Imports Slump 20% Amid Falling Commodity Prices, Weak Demand (Guardian)
China Trade Data Unsettle Asian Bourses (FT)
China’s Stock Rally-to-Rout Is About to Repeat (Bloomberg)
KKR Warns About Renewed Commodity, Emerging-Market Rout on China (Bloomberg)
Pimco’s Bear Case Only Gets Stronger as Emerging Currencies Jump (Bloomberg)
Switzerland to Impose 5% Leverage Ratio on Biggest Banks (Bloomberg)
Europeans Move To Undercut Global Bank Capital Rules (FT)
The Failure to Learn From Boom-Bust Cycles (WSJ)
Higher Interest Rates Would Throw Bank Profits a Lifeline (Bloomberg)
China’s Great Game: A New Silk Road To A New Empire (FT)
Angus Deaton Showed We’re Helping the Wrong People (Bloomberg)
US Annual Oil Output to Drop for First Time Since 2008 (WSJ)
Oil Sands Boom Dries Up in Alberta, Taking Thousands of Jobs With it (NY Times)
German Brand Dealt ‘Hammer Blow’ By VW Scandal And Weakening Economy (Telegraph)
Emissions Test Changes Could Make Diesels ‘Unaffordable’ (BBC)
Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks (Bloomberg)
TTIP Deal Would Remove People’s Rights To Access Basic Human Needs (Ind.)
Merkel Seeks Turkey’s Aid on Borders to Stem Refugee Flow to EU
Athens Rules Out Joint Sea Patrols With Turkey (Kath.)
Marine Food Chains At Risk Of Collapse (Guardian)
Antarctic Ice Melts So Fast Whole Continent May Be At Risk By 2100 (Guardian)

“Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis..”

US Debt Markets Shaken Amid More Corporate Downgrades And Defaults (WSJ)

Falling profits and increased borrowing at U.S. companies are rattling debt markets, a sign the six-year-long economic recovery could be under threat. Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising. Analysts expect profits at large companies to decline for a second straight quarter for the first time since 2009. The market for riskier debt has become snarled, raising fears that companies could have trouble repaying their obligations following several years of record debt issuance, low corporate defaults and persistently low interest rates. Reflecting those concerns, investors are now demanding more yield to own corporate bonds relative to benchmark U.S. Treasury securities.

The softening U.S. corporate fundamentals have been largely overlooked as investors focused on sharp declines in the shares, bonds and currencies of many emerging-markets nations. Many analysts say the health of China remains the largest source of uncertainty in the global economy. But rising downgrades and an increase in U.S. corporate defaults indicate “some cracks on the surface” of the domestic-growth outlook, said Jody Lurie, corporate credit analyst at financial-services firm Janney Montgomery Scott LLC. Many investors closely monitor debt-market trends as an indicator of U.S. economic health. In August and September, Moody’s Investors Service issued 108 credit-rating downgrades for U.S. nonfinancial companies, compared with just 40 upgrades.

That’s the most downgrades in a two-month period since May and June 2009, the tail end of the last U.S. recession. Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades. Meanwhile, the trailing 12-month default rate on lower-rated U.S. corporate bonds was 2.5% in September, up from 1.4% in July of last year, according to S&P. About a third of the downgrades targeted oil and gas companies or firms in other commodity-linked industries, following a plunge in oil prices in the second half of 2014, said Diane Vazza, head of global fixed-income research at S&P.

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“S&P 500 financials are expected to show a 3.8% annualized growth in profits [..] As recently as July analysts had been forecasting 9.9% growth..”

Why US Banks Soon Will Be Singing The Blues (CNBC)

With Wall Street banks about to report on how much money they’ve been making, estimates are moving in the wrong direction. Coming off a quarter in which the industry collectively reported $43 billion in profits, analysts had been hoping a rising rate environment and increasing demand would keep things moving for the $15.1 trillion sector. However, fading hopes for a rate hike in 2015 and other factors are making analysts nervous about just how the quarterly profit reports will shape up. JPMorgan Chase gets things started for the Big Four on Tuesday, with Bank of America and Wells Fargo on tap Wednesday and Citigroup due Thursday. Goldman Sachs reports Thursday as well and PNC will report Wednesday.

As a sector, S&P 500 financials are expected to show a 3.8% annualized growth in profits, according to S&P Capital IQ. While that’s better than the 5.1% decline projected for the entire index, it’s a big comedown from initial projections. Revenue is expected to grow 4.4%. As recently as July analysts had been forecasting 9.9% growth, and a year ago that expectation was a gaudy 27%. So even if results come in better than expected, they likely will remain well below the initially lofty hopes for financials, which were supposed to be 2015’s best-performing sector. Individual companies have seen substantial revisions in recent days.

Analysts have cut MetLife estimates from 88 cents a share to 77 cents, Goldman Sachs from $3.46 to $3.20 and Morgan Stanley from 68 cents to 63 cents, according to FactSet. Earnings expectations have been reduced for 53 of the 88 companies in the S&P 500’s financial sector. The weakness comes as loan growth has held fairly steady thanks to a robust climate in commercial real estate. The sector jumped 9.7% in the third quarter, its best of the year after rising 6.7% in 2014, according to Federal Reserve data. Investment banking also has been fairly solid throughout the year. While global revenue is down 10% year over year, it’s been flat at $28 billion in the U.S., thanks to a record $9.7 billion haul in mergers and acquisition revenue, according to Dealogic.

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Imports down 17.7% in yuan, over 20% in USD. Different numbers reflect the difference between calculations in yuan and in dollars.

China Imports Slump 20% Amid Falling Commodity Prices, Weak Demand (Guardian)

China’s imports fell heavily in September, official figures said, keeping pressure on policymakers to do more to stave off a sharper economic slowdown. Although exports fell less than expected by 3.7% from the same period last year, the value of imports tumbled more than 20% to register the 11th straight month of falls. Imports plunged 20.4% in September from a year earlier to $145.2bn, customs officials said, due to weak commodity prices and soft domestic demand. These factors will complicate Beijing’s efforts to stave off deflation, one of the headwinds threatening the world’s second biggest economy. Highlighting persistent weakness in demand at home and abroad, China’s combined exports and imports fell 8.1% in the first nine months of the year from the same period in 2014, well below the full-year official target of 6% growth.

“In general, there are no green shoots in this set of data,” said Zhou Hao, senior economist at Commerzbank in Singapore. “The growth of [trade] volume still remains low.” However, monthly figures were much more rosy. Exports to every major market except Taiwan rose from August, as did imports. Julian Evans-Pritchard of Capital Economics said monthly trends showed a steady rise to most major export markets in the US and Europe over the summer. “Basically, exports have been doing better since the second quarter, but that recovery trend has been masked on a year-on-year basis because the second half of 2014 was so strong.” Evans-Pritchard also said that import data had become unreliable given massive swings in prices due to the commodity downturn and a divergence between prices and trading volumes.

“For the major commodities like oil, copper, etc. we’re actually seeing a pretty healthy trend in import volumes.” Import volumes are a leading indicator for exports in China, given a large share of materials and parts re-exported as finished goods. “September’s import figure does not bode well for industrial production and fixed asset investment,” wrote ANZ economists in a research note reacting to the figures. “Overall growth momentum last month remained weak and third quarter GDP growth to be released [on 19 October] will likely have edged down to 6.4%, compared with 7% in the first half.” China posted trade surplus of $60.34bn for the month, the general administration of Customs said on Tuesday, higher than forecasts for $46.8 billion.

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China has a record surplus. Sounds good. Exports down ‘only’ 1.1% (still curious if you want to grow GDP by 7%). Imports down 17.7%. That will be largely raw materials. So what will they be able to produce for export next year?

China Trade Data Unsettle Asian Bourses (FT)

Chinese trade data rattled Asian markets as a bigger-than-expected fall in imports offset the cheer afforded by a record mainland trade surplus and slower pace of decline in exports. The Shanghai Composite was down 0.4% and the tech-focused Shenzhen Composite was up 0.3% after data showed China posted its biggest-ever trade surplus, in renminbi terms, of Rmb376.2 in September, up from Rmb368bn in August and comfortably ahead of economists’ expectations of Rmb292.4bn. That was underpinned by exports declining by 1.1% last month from a year earlier, an improvement from August’s 6.1% pace of decline. Economists expected exports to drop by 7.4%.

Imports fell 17.7% in September from a year ago, a bigger-than-forecast drop and larger than August’s 14.3% decline – less than encouraging in the context of China’s goal to shift its growth model from export-driven to consumption-based. Ahead of the trade data release, economists at ANZ said: “China’s exports have likely contracted in September, but its strong trade surplus should ease the pressure of capital outflows.” They reckon economic activity on the mainland remained sluggish in September, leading to their forecast of 6.4% economic growth in the third quarter. China’s official gross domestic product data are due on October 19, and analysts are increasingly bearish, tipping real growth at 6.7%, according to a Bloomberg survey of 25 economists, lower than the official full-year target of “around 7%”. Among other equities benchmarks, Hong Kong’s Hang Seng was down 0.3% and Australia’s S&P/ASX 200 was down 0.9%. Japan’s Nikkei, reopening after a long weekend, was down 0.9%.

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“As oil starts to move and materials follow, investors will by default feel more positive about China,” he said. “This is a bear market rally.”

China’s Stock Rally-to-Rout Is About to Repeat (Bloomberg)

In August, Thomas Schroeder correctly predicted a rebound in Chinese stocks wouldn’t last. Now, he says, the benchmark equity gauge will plumb new lows as a bear-market rally fails. The Shanghai Composite Index will climb to 4,100 in the next three months before slumping as much as 41% to 2,400 in early 2016, Schroeder, founder and managing director of Chart Partners, said. The benchmark index added 3.3% to close at 3,287.66 on Monday. Schroeder, a former Asian technical analysis chief at UBS, cited triangle and wedge patterns in making his call. The Shanghai Composite tumbled 29% in the third quarter, the biggest slump among benchmark global gauges, as a stock boom turned to bust amid concern about the slowdown in China’s economy and a crackdown on using borrowed money to buy equities.

The bottoming of oil prices and a rebound in emerging market currencies will help bolster a rally in the nation’s equities in the next two months, which will reverse as the Federal Reserve starts raising interest rates, Schroeder said. “As oil starts to move and materials follow, investors will by default feel more positive about China,” he said. “This is a bear market rally.” Schroeder predicted in August that the Chinese equity rout will worsen, with the Shanghai Composite likely sliding below 3,100 within two months. The measure fell to as low as 2,927.29 on Aug. 26. Technical analysts use past patterns to try to predict future movements. [..] “We haven’t seen a major low for the emerging markets,” said Schroeder, whose Chart Partners Group is a provider of trading strategies linked to technical analysis. “There’s likely to be more pain next year as the U.S. starts lifting rates.”

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Squeeze.

KKR Warns About Renewed Commodity, Emerging-Market Rout on China (Bloomberg)

There are few reasons to get excited about the recent rebound in commodities and emerging-market assets, according to KKR which correctly forecast the stock selloff in developing countries five months ago. China will continue to rein in credit growth, reducing the investments in factories and machinery that have been among the key drivers for the commodity boom in recent years, Henry McVey, global head of macro and asset allocation at KKR, one of the world’s largest private equity firms, wrote in a note posted on its website. “Many hard commodity prices are likely to suffer another leg down,” McVey and Frances Lim, who visited Asia recently, said in the note. “We would view any recovery as a bounce, not a sustained re-acceleration in the Chinese economy, as the structural headwinds remain significant.”

The MSCI Emerging Markets Index rose Monday to a two-month high, while commodities are trading around 6% above a 16-year low set in August, on speculation that China will take steps to shore up its faltering economy. The emerging-market stock gauge has still lost about 10% this year, heading for its third annual decline, as lower raw-material prices and the Chinese economic slowdown undermines exports in countries from Brazil to Malaysia. While some “targeted stimulus” in housing and infrastructure in recent months may help stabilize China’s economy, it won’t alter a slowing trajectory because the government needs to reduce debt and production overcapacity, McVey said. KKR,which manages $102 billion in assets, expects growth in China to slow to 6% in 2018, from 6.8% this year, which would be the least since 1990.

McVey, who previously worked as chief investment strategist at Morgan Stanley and a managing director at Fortress Investment, told investors in May to stay away from most of the publicly traded emerging-market companies. He said a buildup in debt and weakening currencies in emerging countries will lead to underperformance in stocks, a call foreshadowing an over 20% decline in the MSCI benchmark gauge over the next four months. McVey said growth in China’s fixed-asset investments, the biggest driver in the country’s rise over the past decade, will decline to as little as 5% a year, from 11% in August, and down from a peak of 34% in 2009.

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Dead cats bouncing all over the place.

Pimco’s Bear Case Only Gets Stronger as Emerging Currencies Jump (Bloomberg)

Pacific Investment Management Co. is sticking with its pessimistic outlook on emerging-market currencies, saying the biggest rally in 17 years has only bolstered the case for making bearish wagers. “These currencies look more interesting to be underweight from here than they were a week ago,” Luke Spajic, an emerging markets money manager at Pimco, whose developing-nation currency fund has outperformed 97% of peers during the past five years, said in a phone interview on Monday. Pimco, which oversees $1.52 trillion, said in an Oct. 1 report that it had short positions in currencies such as Malaysia’s ringgit, the Thai baht and the South Korean won. Emerging-market currencies surged last week, recording the biggest rally since 1998 as traders pushed back expectations for when the U.S. Federal Reserve will start raising interest rates.

While Spajic said he doesn’t know how long the rebound will last, he sees a “wave of deflationary pressure” across Asia that will eventually weigh on currencies as exports and economic growth projections decline. Pimco’s concerns echo those of the IMF, which cut its 2015 outlook for the global economic expansion to 3.1% on Oct. 6 from a July forecast of 3.3%. The fund cited a slowdown in emerging markets, saying the following day that high debt levels at banks and other companies have left developing economies susceptible to financial stress and capital outflows.

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Switzerland does as US does.

Switzerland to Impose 5% Leverage Ratio on Biggest Banks (Bloomberg)

Switzerland’s finance ministry will require the country’s biggest banks to have capital equal to about 5% of total assets after UBS Group AG and Credit Suisse Group AG sought to win easier terms, according to people briefed on the deliberations. The decision would mimic the U.S. leverage ratio for its biggest banks, which exceeds the 3% minimum set in a global agreement by the Basel Committee on Banking Supervision, according to the people, who asked not to be identified because the talks aren’t public. The Swiss government will also align its calculation of the ratio with the method employed in the U.S., resulting in fewer types of debt counting toward capital, one of the people said. The measure of financial strength has gained importance since the 2008 financial crisis as a means of making big banks less prone to collapse.

A government-appointed expert panel recommended in December that Switzerland follow the lead of the U.S., which in recent years has introduced some of the world’s toughest capital requirements. Zurich-based UBS and Credit Suisse reported Basel III leverage ratios of 3.6% and 3.7% at the end of the second quarter, indicating they would be more than 1%age point short of the new target. “Higher requirements mean that the banks will have fewer funds to return to shareholders,” said Andreas Brun at Zuercher Kantonalbank. “For UBS, whose investment case is based on rising dividend expectations, this is a big issue. For Credit Suisse, whose capital situation is worse, this means a higher dilution because of a bigger requirement of a capital increase.”

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Meanwhile in the EU, banks are still holier than thou.

Europeans Move To Undercut Global Bank Capital Rules (FT)

Several European countries are taking action to water down new global capital rules for their top financial institutions, causing concern among investors and EU officials. France is set to become the latest country to introduce legislation that would save its leading banks from having to issue tens of billions of euros of new bonds to meet the rules agreed by global regulators a fortnight ago, people familiar with the situation said. Brussels officials are so worried with the divergence in policies that they have started talks with EU countries on a more co-ordinated stance, two EU officials said. Market insiders said that investors were frustrated and that all banks could end up paying more when they issue debt.

The rules on “total loss absorbing capital” (TLAC) agreed on September 25 by the Financial Stability Board are one of the final pieces of a wave of post-crisis regulation designed to ensure there is never a repeat of the bank bailouts of recent times. The rules apply only to the world’s largest banks but have wider reach, according to Laurent Frings, analyst at Aberdeen Asset Management. “The view from investors to a large degree is that local regulators will force domestically important banks to work to the sale rules,” said Mr Frings. In the UK and Switzerland, banks such as UBS, Credit Suisse and Barclays are building up their “loss absorbing capital” by issuing new debt from bank holding companies that can be “bailed in” in a crisis. The banks will have to issue tens of billions of the new bonds to meet their TLAC requirements.

In Germany and Italy, however, legislators are passing laws to make traditional senior debt easier to bail in. This frees their banks of the obligation to issue new debt for TLAC. Several people close to the situation said that France would also propose a solution to help its banks. “Being a European authority we would always argue that it’s a good idea to put in place a European solution, and not try to come up with 19 or 28 solutions on that,” said Elke Koenig, president of the Single Resolution Board, the new EU-wide resolution authority for failing banks. “We’ve clearly given our support to the basic idea [of the German bank law] at the same time saying it would be preferential longer term to have a European solution.”

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Or the failure to see that this is not a boom-bust cycle?

The Failure to Learn From Boom-Bust Cycles (WSJ)

The plunge in commodity prices is thumping oil exporters around the globe. The scale of the beating rests largely on whether governments heeded the lessons from prior boom-bust cycles. Norway and Saudi Arabia built up sizable rainy-day funds and managed their windfalls from high prices conservatively. Now they’ve got considerable buffers against a downturn. Nigeria and Venezuela splurged and made few economic overhauls as prices surged. They’re now suffering as growth skids. The commodity bust is weighing heavily on resource-rich countries that represent 20% of the world’s economic output. The oil-price decline is supporting some of the largest consumers, such as the U.S. and Europe, that are key to keeping the global economy out of recession.

But it is providing less of an overall global boost than predicted just a year ago, while forcing more vulnerable economies to scramble in an uncertain environment. “The oil price drop came as a surprise,” said Angolan finance minister Armando Manuel. “It captured my country in a state in which we were not sufficiently diversified.” The commodity collapse and its effect on emerging economies drew wide attention in Lima, where the world’s finance ministers and central bankers gathered for the IMF’s annual meeting, which ended Sunday, against a backdrop of dimming global growth. The problem isn’t isolated to oil, fueling a much broader slump in major emerging markets from Brazil to South Africa.

Metal prices are in a long-term funk, hitting exporters of iron, copper and similar industrial commodities. Oil exporters are showing what may be in store for other major commodity exporters. Nigeria, which got nearly 65% of its government revenue from crude exports before the price plunge, has seen its projected 2015 growth slashed to less than 4% from more than 6% a year ago, according to the IMF. Kazakhstan’s growth rate has tumbled to 1.5% this year from 6% before the petroleum collapse. In Venezuela, where the state gets half its revenue from oil sales, the economy is shriveling by 10%.

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That’s the number 1 reason the Fed would love to hike rates.

Higher Interest Rates Would Throw Bank Profits a Lifeline (Bloomberg)

Having bailed them out and then helped to repair their balance sheets with record-low interest rates and bond-buying, policy makers may assist the financial industry once more when the U.S. Federal Reserve begins tightening monetary policy. That’s according to two recently published reports by the Bank for International Settlements and McKinsey & Co., both of which have highlighted the downsides of ultra-easy borrowing costs in the past. Based on seven years of data from 109 large international banks in 14 countries, the BIS confirmed a relationship between short-term rates and the slope of the curve for bond yields with bank profitability.

The conclusion drawn by Claudio Borio, the head of the monetary and economic department at the BIS, and colleagues is that the positive impact of being able to earn income by lending money out for higher rates over time is bigger than the hit of defaults and income that doesn’t carry interest. Even better news for the banks is that the effect is strongest when rates are lower and the yield curve isn’t that steep, as is now the case. That provides another reason for the BIS’s economists to again decry the unintended side-effects of accommodative monetary policy. They reckon that between 2011 and 2014, the average bank of those studied lost one year of profits as a result of low rates. “All this suggests that over time, unusually low interest rates and an unusually flat term structure erode bank profitability,” said Borio et al in the report, which was published on Oct. 1.

Return on equity at 500 global lenders was unchanged in 2014 at 9.5%, about the average of the last 35 years, according to the Sept. 30 study by McKinsey. Profit margins also continued a steady decline, dropping by 185 basis points in 2014, in part because of lower rates. It reckons tighter policy would boost return on equity by about 2 %age points. “Many in the industry are waiting for an interest rate rise or some other structural lift to profits,” McKinsey said. There is a sting in the tail. It warned that even if rates do rise, profit margins may still not return to their pre-crisis highs. “Much of the benefit will get competed away, and risk-costs will likely increase, especially in economies where the recovery is still fragile,” McKinsey said.

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China doesn’t, and won’t, have sufficient growth to execute these plans.

China’s Great Game: A New Silk Road To A New Empire (FT)

The granaries in all the towns are brimming with reserves, and the coffers are full with treasures and gold, worth trillions, wrote Sima Qian, a Chinese historian living in the 1st century BC. “There is so much money that the ropes used to string coins together rot and break, an innumerable amount. The granaries in the capital overflow and the grain goes bad and cannot be eaten”. He was describing the legendary surpluses of the Han dynasty, an age characterised by the first Chinese expansion to the west and south, and the establishment of trade routes later known as the Silk Road, which stretched from the old capital Xi an as far as ancient Rome.

Fast forward a millennia or two, and the same talk of expansion comes as China’s surpluses grow again. There are no ropes to hold its $4tn in foreign currency reserves -the world’s largest- and in addition to overflowing granaries China has massive surpluses of real estate, cement and steel. After two decades of rapid growth, Beijing is again looking beyond its borders for investment opportunities and trade, and to do that it is reaching back to its former imperial greatness for the familiar Silk Road metaphor. Creating a modern version of the ancient trade route has emerged as China’s signature foreign policy initiative under President Xi Jinping.

“It is one of the few terms that people remember from history classes that does not involve hard power …and it s precisely those positive associations that the Chinese want to emphasise”, says Valerie Hansen, professor of Chinese history at Yale University. If the sum total of China s commitments are taken at face value, the new Silk Road is set to become the largest programme of economic diplomacy since the US-led Marshall Plan for postwar reconstruction in Europe, covering dozens of countries with a total population of over 3bn people. The scale demonstrates huge ambition. But against the backdrop of a faltering economy and the rising strength of its military, the project has taken on huge significance as a way of defining China’s place in the world and its relations -sometimes tense- with its neighbours.

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Winner of the Fauxbel. Yawn.

Angus Deaton Showed We’re Helping the Wrong People (Bloomberg)

Presidential candidates from both parties are focusing, as usual, on the middle class. But what’s that? And why, exactly, does it deserve such attention? Princeton’s Angus Deaton, who on Monday was announced as the latest winner of the Nobel Memorial Prize for economics, has offered some intriguing answers. The most important is this: If you care about how people actually experience their lives, you should be concerned about people who earn less than $75,000 per year. Above that amount, Deaton’s evidence suggests that more money may not particularly matter. To understand why, we need to distinguish between two very different measures of human well-being. Researchers have traditionally proceeded by asking people to evaluate their overall life-satisfaction (say, on a scale of 1 to 10).

More recently, researchers have tried to capture people’s actual experiences in a more refined way, for example by asking them about their levels of stress, sadness, happiness and enjoyment during the day (again on a scale of 1 to 10). A key question: Does money buy happiness? Deaton, along with his coauthor Daniel Kahneman (a Nobel Prize winner in 2002), found that in the United States, the answer depends on which question you use. If people are asked about their overall life-satisfaction, money definitely matters. As people’s annual earnings go up, their self-reported life-satisfaction increases as well. But the same is not true for actual experiences. More income is definitely associated with less sadness and more happiness up to $75,000, but above that level people’s experienced happiness is the same regardless of income.

In terms of stress, another important indicator of people’s well-being, it’s a lot worse to earn $20,000 than $60,000 – but above $60,000, stress levels are not reduced by more money. What’s going on here? Deaton and Kahneman don’t exactly know, but they speculate that above a certain threshold, increases in income do not much affect people’s ability to engage in activities that matter most – which include spending time with friends, enjoying good health and taking time off from work. They also suggest that beyond that threshold, more money might have some negative effects, such as a reduced ability to enjoy small pleasures. But below the $75,000 threshold, many of life’s misfortunes have a much bigger negative impact. For the poor, getting divorced, having asthma, and being alone have far more severe effects. Even the benefits of the weekend turn out to be lower.

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Let’s see how much banks have buried away in shale loans.

US Annual Oil Output to Drop for First Time Since 2008 (WSJ)

U.S. oil output will decline in 2016 for the first time in eight years as producers slash spending, OPEC said Monday, while the producer group continues pumping at high levels. In its closely watched monthly oil market report, OPEC slashed its U.S. oil production forecast by 280,000 barrels a day next year, to 13.538 million barrels a day, a number that includes natural gas liquids. That would be about 60,000 barrels a day less than in 2015, the first decline since 2008. The finding is consistent with what the U.S. Energy Information Administration said last week, predicting that U.S. crude production would average about 8.9 million barrels a day in 2016, down from 9.2 million barrels a day in 2015.

OPEC said lower oil prices were forcing U.S. oil producers to cut spending and causing their wells to deplete faster than expected. OPEC producers continued to pump at high rates, the report said, with Saudi Arabia at 10.226 million barrels a day—slightly down from last month—and Iraq producing a near-record 4.143 million barrels a day. Overall the producer group was pumping 31.571 million barrels a day, the highest reported level since April 2012. The increasing levels of OPEC production—and the forecast declines in the U.S.–are part of a new order for the world’s petroleum industry since crude prices collapsed from over $100 a barrel last year to less than $50 this year.

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“We see kind of a lot of volatility over the next four or five years..”

Oil Sands Boom Dries Up in Alberta, Taking Thousands of Jobs With it (NY Times)

FORT McMURRAY, Alberta — At a camp for oil workers here, a collection of 16 three-story buildings that once housed 2,000 workers sits empty. A parking lot at a neighboring camp is now dotted with abandoned cars. With oil prices falling precipitously, capital-intensive projects rooted in the heavy crude mined from Alberta’s oil sands are losing money, contributing to the loss of about 35,000 energy industry jobs across the province. Yet Alberta Highway 63, the major artery connecting Northern Alberta’s oil sands with the rest of the country, still buzzes with traffic. Tractor-trailers hauling loads that resemble rolling petrochemical plants parade past fleets of buses used to shuttle workers.

Most vehicles carry “buggy whips” — bright orange pennants attached to tall spring-loaded wands — to help prevent them from being run over by the 1.6-million-pound dump trucks used in the oil sands mines. Despite a severe economic downturn in a region whose growth once seemed limitless, many energy companies have too much invested in the oil sands to slow down or turn off the taps. In addition to the continued operation of existing plants, construction persists on projects that began before the price fell, largely because billions of dollars have already been spent on them. Oil sands projects are based on 40-year investment time frames, so their owners are being forced to wait out slumps.

“It really is tough right now,” said Greg Stringham, the vice president for markets and oil sands at the Canadian Association of Petroleum Producers, a trade group that generally speaks for the industry in Alberta. “We see kind of a lot of volatility over the next four or five years.” After an extraordinary boom that attracted many of the world’s largest energy companies and about $200 billion worth of investments to oil sands development over the last 15 years, the industry is in a state of financial stasis, and navigating the decline has proved challenging. Pipeline plans that would create new export markets, including Keystone XL, have been hampered by environmental concerns and political opposition.

The hazy outlook is creating turmoil in a province and a country that has become dependent on the energy business. Canada is now dealing with the economic fallout, having slipped into a mild recession earlier this year. And Alberta, which relies most heavily on oil royalties, now expects to post a deficit of 6 billion Canadian dollars, or about $4.5 billion. The political landscape has also shifted. Last spring, a left-of-center government ended four decades of Conservative rule in Alberta. Federally, polls suggest that the Conservative party — which championed Keystone XL and repeatedly resisted calls for stricter greenhouse gas emission controls in the oil sands — is struggling to get re-elected in October.

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Merkel will find it harder to impose her will.

German Brand Dealt ‘Hammer Blow’ By VW Scandal And Weakening Economy (Telegraph)

The VW emissions scandal has dealt a “hammer blow” not just to Volkswagen’s reputation but potentially to the entire German national brand, according to a consultancy that calculates brand worth. The revelations that as many as 11 million diesel vehicles have been fitted with software designed to deceive emissions testers has damaged the German repuation of efficiency and reliability, said the report from Brand Finance. As a result, the value of the ‘Made in Germany’ brand has fallen 4pc – or $191bn – to $4.2 trn this year. The report added the scandal threatens to undo decades of accumulated goodwill and cast doubt over the efficiency and reliability of German industry.

However, the authors said Germany has attracted worldwide admiration for its sympathetic stance to migrants escaping Syria and other war-torn countries, which is boosting the country’s positive image. Not only has the county benefited from goodwill perceptions, but the migrants will also boost the economy, said the report. The country’s birth rate has been flagging and the influx of generally young people and families will boost Germany’s labour force, encouraging investment in Europe’s largest economy. Germany’s birth rate has collapsed to the lowest level in the world. A study by the World Economy Institute in Hamburg earlier this year said the country’s workforce will start plunging at a faster rate than Japan’s by the early 2020s due to the declining birth rate, seriously threatening the long-term viability of Europe’s leading economy.

Data last week showed German exports suffered their worst month since the global recession, as global demand slowed. Exports in Europe’s largest economy collapsed by 5.2pc in August – their largest drop since January 2009, according to figures from the country’s Federal Statistics Office. Overall the US remains the world’s most valuable national brand, having benefited from a large, wealthy market wanting to “buy American”. The country is worth $19.7 trn, when combining its strength as a brand with GDP data. Fast-growing superpower China, which has previously threatened to knock the US off the top spot, has instead been rocked by the recent stock market turbulence and slowing economic growth. Its brand worth slipped 1pc to $6.3 trn, when compared to the previous year. The UK comes in at fourth place, worth $3bn, a rise of 6pc from last year.

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Diesel is dead for luxury cars. French carmakers will be hit very hard, if only because Paris MUST scrap its huge diesel subsidies.

Emissions Test Changes Could Make Diesels ‘Unaffordable’ (BBC)

Making European emissions tests more stringent could make some diesel vehicles “effectively unaffordable”, a trade body has warned. The European Commission is trying to get vehicle makers to agree to bigger cuts in emissions from diesel engines. The pressure comes in the wake of the Volkswagen emissions scandal. The European Automobile Manufacturers’ Association (ACEA) said car companies needed enough time to implement changes to emissions testing. Diesel vehicles have been encouraged in many European markets because they can produce less carbon dioxide – a major greenhouse gas – than those with petrol engines.

The trade body said diesel was an important part of meeting future CO2 targets and it was important for the Commission to let manufacturers plan and implement necessary changes. The VW scandal, in which saw the German car maker admit rigging emissions tests, has put significant pressure on diesel vehicle manufacturers. Diesel engines emit higher levels of nitrogen oxide and dioxide (NOx) that are harmful to human health. European government officials have set out plans to introduce real-world measurements of NOx emissions rather than rely on laboratory tests. The new testing regime is due to start early next year, with the results coming into effect in 2017.

However, talks between officials in Brussels last week to discuss the plans are reported to have stalled. The ACEA said it would continue “to stress the need for a timeline and testing conditions that take into account the technical and economic realities of today’s markets”. The trade body added: “Without realistic timeframes and conditions, some diesel models could effectively become unaffordable, forcing manufacturers to withdraw them from sale.” Such a move would hit both consumers and jobs in the automotive sector, it said.

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They’ve denied the bubble for so long now, why not do it a while longer?

Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks (Bloomberg)

Sydney home prices soared 44% in the three years ended September, enticing speculators who’ve been partly inspired by home renovation shows on how to spruce up and sell homes for quick profits. The frenzy surrounding Sydney’s property boom, reminiscent of the exuberance in U.S. real estate before the 2008 financial crisis, has prompted regulators and Goldman Sachs to warn the market is overheated, while Bank of America Merrill Lynch on Monday said it expects prices to fall. Since September 2013, more than 1,500 houses and 800 apartments have been resold in less than a year in Sydney, for about 20% more on average, according to online property listing firm Domain Group. That compares with about about 530 houses and almost 400 apartments in the previous two years.

People need to be careful because “house prices aren’t going to continue to rise much more quickly than income; debt levels can’t keep rising faster than income,” Reserve Bank of Australia Deputy Governor Philip Lowe said at a conference in Sydney Tuesday. “Ideally, we’ll now go through a period of quite modest house price growth. I think that would de-risk household balance sheets a little and would probably be good for the economy.” Rushing to buy and sell homes is underscoring a build-up of mortgage risks as households take on record debt, lured by home-loan costs at the lowest in five decades. The housing debt to income ratio touched a record high of 132.8% in the three months ended June 30 up from 119.4% three years earlier, according to government data.

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That is the ultimate danger.

TTIP Deal Would Remove People’s Rights To Access Basic Human Needs (Ind.)

People’s access to basic rights such as water and energy could be at the mercy of multinational corporations, according to a new report into two controversial EU free trade deals. The report claims that the agreements could allow all public services to be locked into commercial deals that would place profit above the rights of individuals to access basic services – regardless of any possible consequences for welfare. According to the report, Public Services Under Attack, such deals would be “effectively irreversible.” They would allow multinational corporations to sue governments that try to regulate the cost of public services if it could be proved companies’ profits would be harmed.

The two trade agreements, the CETA (Comprehensive Economic and Trade Agreement) with Canada and the TTIP (Transatlantic Trade and Investment Partnership) with the US, are currently being negotiated. In their current state, it is claimed, all public services including health, education and energy could be at risk of privatisation. Under current WTO agreements, access to water is regarded as a basic human right. The new trade agreements would effectively undermine this, according to John Hilary, the executive director of War on Want, one of the campaign groups behind the report . He claims that in a worst-case scenario, if individuals were unable to pay their water bill, they would be denied access to it.

“Suddenly, instead of water being considered a human right, it would be treated as a commodity and people could be cut off if they can’t afford it,” Mr Hilary told The Independent. Previously, the UK Government has insisted that public services such as education and the NHS would be protected from such action. In November last year, the UK Government published a document on the deal, Separating Myth from Fact, in which it states: “TTIP will not change the way that the NHS, or other public services, is run. “The European Commission is following our approach that it must always be for the UK to decide for itself whether or not to open up our public services to competition.”

But Mr Hilary believes the public should be sceptical of such assurances. He said: “There is no truth in the government’s claim that public services are safe in TTIP. “Corporate lobbyists have made sure that key services such as health, education, post, rail and water are to be opened up to the private sector, and treaties such as TTIP will lock in that privatisation for ever. “As a result of the lobbying by these special interest groups in the services sector, it’s quite clear that public services are in the frame and any claim to the contrary is bogus.”

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Children are stil drowning, Angela. That should be your priority, not borders or camps.

Merkel Seeks Turkey’s Aid on Borders to Stem Refugee Flow to EU

German Chancellor Angela Merkel said Turkey needs to help stem the flow of Syrian refugees to Europe, setting the tone for her talks with Turkish leaders this week. “It’s necessary to look not just at the European dimension, but also to talk with Turkey about sensible border controls,” Merkel said Monday in a speech to party members in Stade near Hamburg. “We have to start getting more involved internationally. That’s why I will go to Turkey on Sunday.” With a record 800,000 or more refugees and migrants expected to arrive in Germany this year, Merkel is under pressure to offer solutions to an increasingly skeptical public as her approval ratings decline and she says Germany can’t stop the stream on its own. “We don’t know how many there will be,” she said.

In her speech to members of her Christian Democratic Union, Merkel said for the first time that her government is considering screening at Germany’s borders. This way, “we could possibly decide immediately” which people are economic migrants who wouldn’t qualify to stay in Germany as asylum seekers, Merkel said. While saying that all 28 European Union countries need to help stem the continent’s biggest refugee crisis since World War II, Merkel singled out Turkey as part of the solution. After EU leaders discuss the crisis at a summit in Brussels on Thursday, Merkel plans to travel to Ankara on Oct. 18 for talks with Turkish President Recep Tayyip Erdogan and Prime Minister Ahmet Davutoglu, her first official trip to Turkey since February 2013.

In Turkey, control over the border with EU member Greece “was given up at some point” because Turkey felt overwhelmed and its economy “isn’t doing so well anymore,” leaving Greece and the EU’s border patrol mission to deal with the refugee flow, Merkel said. “Naturally, we need to talk to Turkey about that.”

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And the ideas won’t fly anyway. Next. Bring in the German navy?!

Athens Rules Out Joint Sea Patrols With Turkey (Kath.)

Diplomatic sources in Athens Monday ruled out the prospect of Greek and Turkish naval forces conducting joint patrols in the eastern Aegean in a bid to curb a dramatic influx of migrants and refugees. Speaking to Kathimerini, the same sources from the Greek Foreign Ministry stated that no official European documents raise the issue of joint sea patrols – which was first reported in the German press ahead of the draft action plan signed last week between the European Union and Turkey on the support of refugees and migration management.

According to the plan, Turkey will “strengthen the interception capacity of the Turkish Coast Guard, notably by upgrading its surveillance equipment, increasing its patrolling activity and search and rescue capacity, and stepping up its cooperation with the Hellenic Coast Guard.” In an interview with Germany’s Bild newspaper published Monday, Chancellor Angela Merkel heralded closer cooperation between Greece, Turkey and EU border agency Frontex. “In the Aegean Sea, between Greece and Turkey, both NATO members, traffickers do whatever they want,” she told the paper. Diplomatic circles in Athens suggest that Ankara is tempted to use the refugee crisis as a tool for prompting additional EU aid, concessions on the issue of EU visas, or the creation of a buffer zone behind the Syrian border.

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Acidification.

Marine Food Chains At Risk Of Collapse (Guardian)

The food chains of the world’s oceans are at risk of collapse due to the release of greenhouse gases, overfishing and localised pollution, a stark new analysis shows. A study of 632 published experiments of the world’s oceans, from tropical to arctic waters, spanning coral reefs and the open seas, found that climate change is whittling away the diversity and abundance of marine species. The paper, published in the Proceedings of the National Academy of Sciences, found there was “limited scope” for animals to deal with warming waters and acidification, with very few species escaping the negative impact of increasing carbon dioxide dissolution in the oceans. The world’s oceans absorb about a third of all the carbon dioxide emitted by the burning of fossil fuels.

The ocean has warmed by about 1C since pre-industrial times, and the water increased to be 30% more acidic. The acidification of the ocean, where the pH of water drops as it absorbs carbon dioxide, will make it hard for creatures such as coral, oysters and mussels to form the shells and structures that sustain them. Meanwhile, warming waters are changing the behaviour and habitat range of fish. The overarching analysis of these changes, led by the University of Adelaide, found that the amount of plankton will increase with warming water but this abundance of food will not translate to improved results higher up the food chain.

“There is more food for small herbivores, such as fish, sea snails and shrimps, but because the warming has driven up metabolism rates the growth rate of these animals is decreasing,” said associate professor Ivan Nagelkerken of Adelaide University. “As there is less prey available, that means fewer opportunities for carnivores. There’s a cascading effect up the food chain. “Overall, we found there’s a decrease in species diversity and abundance irrespective of what ecosystem we are looking at. These are broad scale impacts, made worse when you combine the effect of warming with acidification. “We are seeing an increase in hypoxia, which decreases the oxygen content in water, and also added stressors such as overfishing and direct pollution. These added pressures are taking away the opportunity for species to adapt to climate change.”

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Run away.

Antarctic Ice Melts So Fast Whole Continent May Be At Risk By 2100 (Guardian)

Antarctic ice is melting so fast that the stability of the whole continent could be at risk by 2100, scientists have warned. Widespread collapse of Antarctic ice shelves – floating extensions of land ice projecting into the sea – could pave the way for dramatic rises in sea level. The new research predicts a doubling of surface melting of the ice shelves by 2050. By the end of the century, the melting rate could surpass the point associated with ice shelf collapse, it is claimed. If that happened a natural barrier to the flow of ice from glaciers and land-covering ice sheets into the oceans would be removed. Lead scientist, Dr Luke Trusel, Woods Hole Oceanographic Institution in Massachusetts, US, said: “Our results illustrate just how rapidly melting in Antarctica can intensify in a warming climate.”

“This has already occurred in places like the Antarctic Peninsula where we’ve observed warming and abrupt ice shelf collapses in the last few decades. “Our model projections show that similar levels of melt may occur across coastal Antarctica near the end of this century, raising concerns about future ice shelf stability.” The study, published in the journal Nature Geoscience, was based on satellite observations of ice surface melting and climate simulations up to the year 2100. It showed that if greenhouse gas emissions continued at their present rate, the Antarctic ice shelves would be in danger of collapse by the century’s end..

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