Oct 092018
 
 October 9, 2018  Posted by at 9:02 am Finance Tagged with: , , , , , , , , , , ,  


Ford Madox Brown Finding of Don Juan by Haidee 1873

 

 

World Leaders ‘Have Moral Obligation To Act’ After UN Climate Report (G.)
US Economists Win Nobel Memorial For Work On Climate And Growth (G.)
Nobel Prizes in Economics, Awarded and Withheld (NC)
The End Of The World Will Save Theresa May From Brexit (Ind.)
Stock Markets Stage Sharp Sell-Off Amid Fear Of Italy-EU Budget Fight (G.)
QE Party Is Drying Up, Even at the Bank of Japan (WS)
Higher Rates Will Hurt Stocks Far More Than You Think (SA)
Pakistan Seeks Bailout From IMF (WSJ)
IMF Not Concerned About China’s Ability To Defend The Yuan (R.)
Sharp Slowdown In Consumer Spending Cools UK Retail Sales (G.)
Google Drops Out Of Bidding For $10 Billion Pentagon Data Deal (R.)

 

 

Groundhog Day. They just want to get (re-)elected. Which won’t happen if they tell people to cut their driving and flying.

World Leaders ‘Have Moral Obligation To Act’ After UN Climate Report (G.)

World leaders have been told they have moral obligation to ramp up their action on the climate crisis in the wake of a new UN report that shows even half a degree of extra warming will affect hundreds of millions of people, decimate corals and intensify heat extremes. But the muted response by Britain, Australia and other governments highlights the immense political challenges facing adoption of pathways to the relatively safe limit of 1.5C above pre-industrial temperatures outlined on Monday by the IPCC. With the report set to be presented at a major climate summit in Poland in December, known as COP24, there is little time for squabbles. The report noted that emissions need to be cut by 45% by 2030 in order to keep warming within 1.5C.

That means decisions have to be taken in the next two years to decommission coal power plants and replace them with renewables, because major investments usually have a lifecycle of at least a decade. Mary Robinson, a UN special envoy on climate, said Europe should set an example by adopting a target of zero-carbon emissions by 2050. “Before this, people talked vaguely about staying at or below 2C – we now know that 2C is dangerous,” she said. “So it is really important that governments take the responsibility, but we must all do what we can.” The UK, which has gone further than most nations by cutting its annual emissions by 40% since 1990, will need to step up if the more ambitious goal is to be reached.

Read more …

Both think adapting to climate change is easy.

US Economists Win Nobel Memorial For Work On Climate And Growth (G.)

Two American economists at the forefront of work on climate change and the role of governments in boosting growth have been jointly awarded the prestigious Nobel Memorial prize for economics. The Royal Swedish Academy of Sciences said William Nordhaus and Paul Romer were being honoured for their research into two of the most “basic and pressing” economic issues of the age. Nordhaus made his name by warning policymakers during the first stirrings of concern about climate change in the 1970s that their economic models were not properly taking account of the impact of global warming and he is seen as one of the pioneers of environmental economics.

The Yale economist was honoured a day after the latest UN warning on global warming said that urgent and unprecedented changes were needed to keep climate change to a maximum of 1.5C (2.7F). The co-winner – Romer – is seen as the prime mover behind the endogenous growth theory, the notion that countries can improve their underlying performance if they concentrate on supply-side measures such as research and development, innovation and skills. [..] Responding to news of his award, Romer said it was perfectly possible for global warming to be kept to a maximum of 1.5C, in line with the latest recommendation of the UN Intergovernmental Panel on Climate Change. “Once we start to try to reduce carbon emissions, we’ll be surprised that it wasn’t as hard as we anticipated. The danger with very alarming forecasts is that it will make people feel apathetic and hopeless.

“One problem today is that people think protecting the environment will be so costly and so hard that they want to ignore the problem and pretend it doesn’t exist. Humans are capable of amazing accomplishments if we set our minds to it.” [..] Nordhaus has been a prominent advocate of the use of a uniformly applied carbon tax as the best way to put a true cost on the use of burning fossil fuels and so reducing greenhouse gas emissions. The committee that awarded the prize said he was the first person to design “simple but dynamic and quantitative models of the global economic-climate system, now called integrated assessment models (IAMs). “His tools allow us to simulate how the economy and climate would co-evolve in the future under alternative assumptions about the workings of nature and the market economy, including relevant policies.”

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This is useful h/t Yves. Peter Dorman on how Martin Weitzman, who has a far more aggressive take on economics and climate, was snubbed so Nordhaus’ light version would get the attention.

Nobel Prizes in Economics, Awarded and Withheld (NC)

Nordhaus was widely expected to be a winner for his work on the economics of climate change. For decades he has assembled and tweaked a model called DICE (Dynamic Integrated Climate-Economy), that melds computable general equilibrium theory from economics and equations from the various strands of climate science. His goal has been to estimate the “optimal” amount of climate change, where the marginal cost of abating it equals the marginal cost of undergoing it. From this comes an optimal carbon price, the “social cost of carbon”, which should be implemented now and allowed to rise over time at the rate of interest. In his first published work using DICE, from the early 1990s, he recommended a carbon tax of $5 a tonne of CO2, inching slowly upward until peaking at $20 in 2085. His “optimal” policy was expected to result in an atmospheric concentration of CO2 of over 1400 ppm (parts per million) at the end of this planning horizon, yielding global warming in excess of 3º C. (Nordhaus, 1992)

Over time Nordhaus has become slightly more concerned with the potential economic costs of climate change but also more sanguine about the prospects for decarbonized economic growth, even in the absence of policy. In his latest work he advocates a carbon tax of $31 per tonne in 2015, increasing at 3% per year over the following century. This too would result in more than 3º warming. To give a sense of how modest his suggestion is, consider that, in the same paper, Nordhaus calculates that the most efficient carbon tax to limit warming to 2.5º is between $107-184 per tonne depending on assumptions. The target of the Paris Accord is 2º, and most scientists consider this an upper bound for the amount of warming we should permit.

What do these “optimal” tax numbers mean? Based on the carbon content of gas, each $1 carbon tax translates into a one cent tax on a gallon of gas at the pump. If we adopted Nordhaus’ suggestion for carbon pricing, the result would be minuscule compared to the year-to-year fluctuations in energy prices due to other causes. In other words, while his prize is being trumpeted as a statement from the Swedish bankers on the importance of climate change, in fact he is a key spokesman for the position, rejected by nearly all climate scientists, that the problem is modest and can be solved by easy-to-digest, nearly imperceptible adjustments to energy prices. If we go down his road we face a significant risk of a climate apocalypse.

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The benefits of climate change.

The End Of The World Will Save Theresa May From Brexit (Ind.)

Brexit has been in its “something will turn up phase” for some time now and possibly, at last, something has. This is meant to be Theresa May’s “Hell Week”, with important post-Brexit proposals to be published in both Brussels and the UK, both of which will of course necessitate demented rows within her own party (current “strategies” include threatening to vote down the Budget), but Hell Week could hardly have got off to a better start. The most sensible reading of Hell Week is that it looks likely to end with May agreeing to keep the UK in the EU’s customs union until 2022. In the circumstances, the prime minister will not have failed to notice that, according to this morning’s report from the UN’s IPCC, that is a mere eight years before all of the planet’s inbuilt life preserving systems are currently scheduled to turn against humanity in act of vengeance that will be swift and total.

To borrow briefly from the probability-based lexicon of the climate science community, let’s take a look at the likelihood of Brexit being concluded by then in any meaningful way. Even in the unlikely event of Britain voting to leave the European Union, right up until around 8am on 24 June 2016, the latest point at which it was all meant to have been sorted out was 24 June 2018. But when David Cameron decided not to trigger the two-year Article 50 process “straight away” as he had consistently claimed he would, but resigned instead, that date was eventually pushed back by May to 29 March 2019, expanding Brexit by 37.5 per cent.

Then, in March 2018, the Brexit “transition period” was agreed to last until until 31 December 2020, and now, just seven months later, that deadline has been extended until the next general election in 2022, a further eighteen months. At the most conservative estimate, that gives Brexit a rate of expansion of around two hundred per cent, or four years for every two. If the depth to which it can be kicked into the long grass can be maintained on this exponential gradient, May has every reason to be optimistic that tornadoes of sulphuric gas will be moving freely over the Irish border long before she has to deliver any acceptable proposals for how to avoid the reintroduction of customs infrastructure across it.

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Not the only issue.

Stock Markets Stage Sharp Sell-Off Amid Fear Of Italy-EU Budget Fight (G.)

Global stock markets staged a sharp sell-off on Monday amid growing concerns over a budget showdown between Italy and the EU and the prospect of weaker growth in the Chinese economy. Italian borrowing costs jumped and the euro dropped on foreign exchanges as the war of words between Rome and Brussels escalated, while shares on Wall Street and other major international markets declined amid growing concerns over the US-China trade war. Italian bond yields jumped by as much as 30 basis points to the highest levels since early 2014 after the Italian deputy prime minister, Matteo Salvini, attacked the European commission president, Jean-Claude Juncker, and the economics commissioner, Pierre Moscovici, as enemies of Europe.

Speaking at a news conference with the French far-right leader Marine Le Pen, he said the country would not cave to pressure from the financial markets or retreat from its plan for government spending. “We are against the enemies of Europe — Juncker and Moscovici — shut away in the Brussels bunker,” he said. Brussels has told Italy it is concerned over the plan because it would mean the nation running a larger budget deficit – the gap between income from taxes and government spending – than previously planned for the next three years. Rome is to submit its draft budget to the commission, the EU’s executive arm, which will check whether it is in line with EU rules by 15 October.

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When the easy money goes, how do we keep the bubbles inflated?

QE Party Is Drying Up, Even at the Bank of Japan (WS)

As of September 30, total assets on the Bank of Japan’s elephantine balance sheet dropped by ¥5.4 trillion ($33 billion) from a month earlier, to ¥537 trillion ($4.87 trillion). It was the fourth month-over-month decline in a series that started in December. This chart shows the month-to-month changes of the balance sheet. Despite all the volatility, the trend since mid-2016 is becoming clear: Abenomics became the economic religion of Japan in later 2012, and “QQE” (Qualitative and Quantitative Easing) was an integral part of it. So has the “QQE Unwind” commenced? Are central bankers, even at the Bank of Japan, getting cold feet about the consequences?

At BOJ policy meetings, concerns have been voiced over the “sustainability” of the stimulus program, according to the minutes of the July meeting, released on September 25. So the BOJ staff “proposed measures to enhance the sustainability of the current monetary easing while taking into consideration, for example, their effects on financial markets.” And “flexibility” has been proposed as solution to those concerns. The minutes reiterated that the BOJ would continue to buy Japanese Government Bonds (JGBs) in “a flexible manner” so that its holdings would increase by about ¥80 trillion a year. But this is precisely what has not been happening, in line with this “flexibility.”

Over the past 12 months, the BOJ’s holdings of JGBs rose by “only” ¥26.2 trillion – not ¥80 trillion. And they declined in September from the prior month (more in a moment). Shortly after the minutes had been released, BOJ Governor Haruhiko Kuroda, once the most reckless among the money printers, changed his tune and said in a speech that, “in continuing with powerful monetary easing, we now need to consider both its positive effects and side-effects in a balanced manner.” The Fed has already whittled down its balance sheet by $285 billion since it started its QE unwind last October. The ECB has tapered its QE from a peak of buying €85 billion a month to buying €15 billion currently and will end it altogether in December. The discussion has switched to raising rates and unwinding QE.

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Like the graph.

Higher Rates Will Hurt Stocks Far More Than You Think (SA)

Federal Reserve Chair Jerome Powell thinks the economy is awesome. And he has no problem telling us so. What Powell will never discuss, however, is the “way-too-low-for-way-too-long” stimulus that the central bank engaged in to get here. In particular, the Fed has kept the neutral rate of interest far beneath the rate of inflation (CPI) for an entire decade. Consumers, corporations and Uncle Sam predictably borrowed as if there’d never be consequences. What consequences? Asset bubbles. Stocks, bonds, real estate, collectibles, cryptos, alternatives, everything. Straight across the Ouija board.

Perhaps ironically, we have seen this streaming video before. “Too-low-for-to-long” rate policy in the previous economic expansion (11/01-12/07) created an environment whereby the quality and the quantity of household mortgage debt became toxic. Granted, mortgage debt is less of an issue in the current credit cycle. Nevertheless, total household debt levels may not be sustainable at higher average interest costs. Meanwhile, the federal government is making households look downright responsible.

Long after the Great Recession ended, the country averaged $1.07 trillion in deficits (2010-2017). We’ve now hit $21.5 trillion in our national debt. Uncle Sammy’s bar tab won’t be getting smaller anytime soon. The new tax law, which has provided a near-term kick start for economic growth (GDP), will keep the trillion-dollar deficit train running for years to come. None of this would be so ominous were it not for the rapid-fire advance of interest expense. Interest expense alone accounts for 11% of the federal budget. Just interest. No debt repayment. Tack on higher interest rates to new borrowing needs? Pretty soon interest expense will surpass the money that goes to the Department of Defense (13.6%).

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Belt and Road. Silk Road.

Pakistan Seeks Bailout From IMF (WSJ)

Pakistan, the flagship country for China’s global infrastructure building initiative, said Monday that it needed a bailout from the International Monetary Fund, amid growing concerns that Beijing’s program is pushing recipient countries into financial crisis. The fiscal constraints of an IMF program would also undercut the promises made by Prime Minister Imran Khan’s new government, which include millions of new jobs and the establishment of a welfare state.

But a ballooning trade deficit and fast-depleting foreign exchange reserves left the Pakistani government no other choice, officials said, after markets were spooked by the government’s recent suggestions that it might try to make do without the fund. “Uncertainty was growing and the stock market was falling,” said Chaudhry Fawad Hussain, the Information Minister. “We decided to end the uncertainty.” The Pakistani request for an IMF loan could further test already-strained U.S.-China relations. In July, U.S. Secretary of State Mike Pompeo warned that the U.S. didn’t want to see any IMF lending to Pakistan “go to bail out Chinese bondholders or—or China itself.”

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Growing at 6.9%(?) and still in need of pretty extreme support. I’d be concerned.

IMF Not Concerned About China’s Ability To Defend The Yuan (R.)

IMF Chief Economist Maurice Obstfeld said on Tuesday that he was not concerned about the Chinese government’s ability to defend its currency despite the recent depreciation of the yuan. “No, I don’t think it’s a problem,” Obstfeld said when asked about the issue on the sidelines of a news conference at the IMF and World Bank annual meetings in Bali. But Obstfeld also told the news conference that Beijing would face a “balancing act” between actions to shore up growth and ensure financial stability. China’s yuan currency has faced strong selling pressure this year, losing over 8% between March and August at the height of market worries, though it has since pared losses as authorities stepped up support.

On Tuesday, China’s central bank fixed the yuan’s official mid-point for trading at 6.9019 per dollar, edging close to the psychologically important 7.0 barrier and helping to send Asian stocks to a 17-month low. A U.S. Treasury official on Monday repeated that the Trump administration was concerned about the yuan’s recent weakening as the department prepares a semi-annual report on currency manipulation due out next week. Obstfeld said financial markets have overly emphasized short-term movements in China’s currency, adding that the yuan has often quickly recovered from periods of volatility in recent years.

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Reading this, I kept thinking: what sharp slowdown? Where is it? Not in the numbers…

Sharp Slowdown In Consumer Spending Cools UK Retail Sales (G.)

Britain’s retailers experienced a sharp slowdown in consumer spending last month, bringing to a close the World Cup-inspired summer spree on the high street. According to the British Retail Consortium (BRC) and the accountancy firm KPMG, growth in total sales dropped to the weakest level in almost a year. Total sales grew at an annual rate of 0.7% in September, compared with 2.3% growth during the same month a year ago. The BRC said this was the lowest growth rate since October 2017. Excluding new store openings, like-for-like sales dropped by 0.2% in the year to September, compared with a 19.9% increase for the same period a year ago.

The latest snapshot for the retail sector comes before the important autumn and winter shopping periods, vital for industry profits, when sales of gifts and electrical goods are lifted by the Black Friday sales event in November and shoppers buying Christmas presents. Retailers have been hit hard by a combination of problems that have led to job cuts and store closures across Britain. The ongoing shift to online shopping has increased competition, while sluggish wage growth and high levels of inflation have damaged the spending power of British households. Sales of stationery, footwear and clothing fell last month, while retailers sold more computers, jewellery, furniture, home accessories and food.

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If this doesn’t scare you…

Google Drops Out Of Bidding For $10 Billion Pentagon Data Deal (R.)

Alphabet Inc’s Google said on Monday it was no longer vying for a $10 billion cloud computing contract with the U.S. Defense Department, in part because the company’s new ethical guidelines do not align with the project, without elaborating. Google said in a statement “we couldn’t be assured that [the JEDI deal] would align with our AI Principles and second, we determined that there were portions of the contract that were out of scope with our current government certifications.” The principles bar use of Google’s artificial intelligence (AI) software in weapons as well as services that violate international norms for surveillance and human rights.

Google was provisionally certified in March to handle U.S. government data with “moderate” security, but Amazon.com Inc and Microsoft Corp have higher clearances. Amazon was widely viewed among Pentagon officials and technology vendors as the front-runner for the contract, known as the Joint Enterprise Defense Infrastructure cloud, or JEDI. Google had been angling for the deal, hoping that the $10 billion annual contract could provide a giant boost to its nascent cloud business and catch up with Amazon and fellow JEDI competitor Microsoft. That the Pentagon could trust housing its digital data with Google would have been helpful to its marketing efforts with large companies. But thousands of Google employees this year protested use of Google’s technology in warfare or in ways that could lead to human rights violations.

Read more …

Sep 302018
 
 September 30, 2018  Posted by at 9:30 am Finance Tagged with: , , , , , , , , , , ,  


M. C. Escher Bond of union 1956

 

White House Directs FBI to Interview Two Kavanaugh Accusers, Not Third (WSJ)
Where Does Our Attention Belong: Kavanaugh or Yemen? (PCR)
“Dirty Money” Crackdown As Vancouver Housing Market Grinds To A Halt (ZH)
May Acts To Tackle Housing Crisis By Imposing Levy On Foreign Buyers (O.)
Brexit Costing Britain £500m A Week And Rising (O.)
Steve Bannon Thinks Michael Avenatti Has A Serious Shot In 2020 (ZH)
New WikiLeaks Release: Corruption in UAE Arms Deal Fueling War on Yemen (MPN)
Musk Out As Tesla Chair, Remains CEO in $40M SEC Settlement (AP)
How Facebook Was Hacked And Why It’s A Disaster For Internet Security (F.)
Fearing Debt Trap, Pakistan Rethinks Chinese ‘Silk Road’ Projects (R.)
FYROM Citizens Go to the Polls to Decide on Name Change (GR)
Indonesia Earthquake: Huge Surge In Death Toll (BBC)

 

 

Swetnick’s gang rape story looks far-fetched. And not one person corroborates it.

White House Directs FBI to Interview Two Kavanaugh Accusers, Not Third (WSJ)

The Federal Bureau of Investigation has been instructed by the White House to interview two of the women who have alleged sexual misconduct by Brett Kavanaugh, according to people familiar with the matter. The parameters of the FBI probe don’t include interviewing Julie Swetnick, who said this week the Supreme Court nominee attended a party decades ago where she was gang-raped, according to one of the people. The focus on the first two accusations suggests that the White House doesn’t consider Ms. Swetnick’s accusations credible, people familiar with the instructions said, a decision that drew criticism from Ms. Swetnick’s attorney, Michael Avenatti.

The Wall Street Journal has attempted to corroborate Ms. Swetnick’s account, contacting dozens of former classmates and colleagues, but couldn’t reach anyone with knowledge of her allegations. No friends have come forward to publicly support her claims. She has recorded a TV interview to be aired Sunday, the first woman making accusations against the Supreme Court nominee to do so. NBC’s “Morning Joe” on Thursday aired a clip of her interview with John Heilemann of Showtime’s “The Circus,” in which Ms. Swetnick called for an investigation into the allegations against Judge Kavanaugh.

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Paul Craig Roberts is right, but undermines himself by saying women should have more responsible sex.

Where Does Our Attention Belong: Kavanaugh or Yemen? (PCR)

There are reports that the Washington-initiated and militarily- supported Saudi Arabian war against Yemen have a starving Yemeni population eating leaves. The Saudis, with Washington’s GPS support, continue to target school busses, massacring children as an element of the terror assault against the population, trying to break Yemeni resistance by murdering children on school busses. Washington continues to supply the Saudis with the weapons to target school buses and the diplomatic support to protect the criminal Saudi regime from war crimes charges. The European cowards turn their heads. Even Russia is silent. Putin’s “partnership” with the criminal state of Saudi Arabia is more important.

Isn’t this a far greater offense, an offense that most definitely does not lack evidence, than the accusation that Kavanaugh, a nominee to the US Supreme Court attempted to rape a women 30 or 40 years ago, for which there is no evidence, only accusation, an accusation that the female defense atttorney who questioned for the Senate committee the woman claiming abuse found insufficient for an indictment.

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Signs the housing bubbles are nearing their end. This article and the next.

“Dirty Money” Crackdown As Vancouver Housing Market Grinds To A Halt (ZH)

Thanks to an influx of demand from Chinese nationals and other foreigners, Vancouver’s housing market soared in the post-crisis years, with prices more than doubling to levels that were clearly unsustainable, cementing the Pacific Northwest metropolis’ status as the most unaffordable housing market in North America. But the torrid growth ground to a halt earlier this year as home sales plummeted, along with construction of new homes and apartments. The typical single-family home in Vancouver costs more than C$1.5 million ($1.15 million) – roughly 20x the median household income. In an effort to let some air out of one of the continent’s most egregious property bubbles, British Columbia’s government has announced an unprecedented crackdown on money laundering in Vancouver’s property market in an attempt to stop a housing-market collapse from taking the city’s GDP with it.

The initiative, launched by Attorney General Daid Eby, seeks to create more transparency to expose all the “numbered corporations” (often used as fronts for foreign investors) buying property in Vancouver. The probe will also examine horse-racing and luxury car sales. Attorney General David Eby said that his office is launching an independent review into potential money laundering in real estate, horse-racing and luxury car sales. The review comes in response to recommendations from a previous review into money laundering in the province’s casinos. In addition, Finance Minister Carole James has appointed an expert panel to look directly at money laundering in the housing sector. Both probes will be done by March.

“There is good reason to believe the bulk of the cash we saw in casinos is a fraction of the cash generated through illicit activities that may be circulating in British Columbia’s economy,” Eby told reporters Thursday in the capital of Victoria. “We cannot ignore red flags that came out of the casino reviews of connections between individuals bringing bulk cash to casinos, and our real estate market.” […] “Our goal is simple, as you’ve heard: Get dirty money out of our housing market,” James said. “When the real estate market is vulnerable to illicit activity and unethical behavior, people, our communities and our economies suffer. This is something we have to tackle.”

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Foreign buyers have carried the boom for years. And now you act?

May Acts To Tackle Housing Crisis By Imposing Levy On Foreign Buyers (O.)

Foreign buyers of properties in the UK will have to pay a new levy, in a renewed attempt by Theresa May to tackle the housing crisis. With concern growing among senior Tories that the party has allowed Brexit to drown out a compelling domestic agenda, plans unveiled on Saturday night will see foreign buyers pay extra stamp duty to fund a drive to tackle rough sleeping. The announcement marks the start of the party’s conference in Birmingham, where the prime minister is desperate to avoid another row over her Brexit plans that might threaten to engulf her premiership. Ministers are also concerned that the party has been failing to respond to the radicalism of some of Labour’s economic programme, set out at its own conference in Liverpool last week.

On Sunday the prime minister will attempt to return to her vow to tackle social injustices and champion what she describes as the “British dream” – the idea that the next generation should do better than the last. Fixing the housing market is a major part of the programme. It comes as the latest Opinium poll for the Observer suggest the Conservatives take a three-point lead into their conference. Despite being carried out during the Labour conference week, which can often provide a poll bounce, the poll puts the Tories on 39% support, with Labour on 36%. According to Opinium, Labour had entered its conference with a two-point lead.

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Just the start.

Brexit Costing Britain £500m A Week And Rising (O.)

Brexit is already costing the public purse £500m a week, new research has found – a stark contrast to the £350m “dividend” promised by the Leave campaign. The Centre for European Reform’s analysis also suggests that the government’s austerity drive would be on the way to completion had Britain voted to stay in the European Union. It shows that the UK economy is already 2.5% smaller than it would have been had Remain won the referendum. Public finances have been dented by £26bn a year, more than half of the defence budget. This translates to a penalty of £500m a week, a figure that is growing. The stark finding comes as the Tory conference begins in Birmingham, with Theresa May’s premiership under severe strain.

The prime minister faces competing proposals from cabinet ministers over how she should resolve the Brexit impasse with the EU. The febrile conference coincides with explosive claims that the boss of one UK-based carmaker has been flown by private jet to meet President Emmanuel Macron, in an attempt to persuade the company to move manufacturing to France after Brexit. Carolyn Fairbairn, director general of the Confederation of British Industry, told the Observer this development was a sign of the economic damage Britain faces from the wrong Brexit deal. While some cabinet ministers are pushing for a loose, Canada-style trade deal, support is growing in May’s ministerial team and on her backbenches for a deal under which Britain would stay closely tied to the EU for a limited period.

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A three way race.

Steve Bannon Thinks Michael Avenatti Has A Serious Shot In 2020 (ZH)

Former Trump strategist Steve Bannon said on Friday that attorney Michael Avenatti could become the Democratic nominee for president in 2020. Speaking with Bill Maher about the state of the Democratic party, Bannon agreed with the HBO host that Avenatti – lawyer to porn star Stormy Daniels and Judge Brett Kavanaugh’s “gang rape” accuser – can capture the left with his bravado and plain spoken language. “The guy who’s the outsider, who like blows through the regular politician because he looks different and he’s got balls,” said Maher – to which Bannon replied: “If Bernie Sanders had an ounce of Avenatti’s fearlessness, he would have been the Democratic nominee and we would have had a much tougher time beating him.”

“Bernie doesn’t have fearlessness?” asked Maher. “Not like Avenatti,” Bannon replied. “I’ve not done any due diligence on this guy, but I tell you he’s got a fearlessness and he’s a fighter. I think he’ll go through a lot of this field if he decides to stick with it.” “I don’t happen to think a professional politician is going to be there at the end of the day. I’ve always said it’s going to be an Oprah or an Avenatti — somebody who’s more media savvy,” said Bannon. “You’re gonna have Trump on the right, a politician, maybe a Kamala Harris or somebody on the left, and I think you’ll have a Bloomberg or a Romney or somebody in the center,” Bannon concluded. “I think it will be a three-way race.”

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Assange is no longer in charge, which makes room for more releases. This is about Germany and France.

New WikiLeaks Release Exposes Corruption in UAE Arms Deal Fueling War on Yemen

The transparency organization WikiLeaks just released a new document that sheds light on the corruption behind a lucrative French-German arms deal with the United Arab Emirates (UAE), weapons that are currently being used to wage a disastrous and genocidal war against the people of Yemen. The document details a court case from the International Chamber of Commerce (ICC) International Court of Arbitration regarding a dispute over a “commission payment” made to Abbas Ibrahim Yousef Al-Yousef, an Emirati businessman, as part of a $3.6 billion arms deal between France’s state-owned weapons company Nexter Systems (then GIAT Industries SA) and the UAE.

Per the deal, which was signed in 1993 and set to conclude in 2008, the UAE purchased 388 Leclerc combat tanks, 46 armored vehicles, 2 training tanks, and spare parts, as well as ammunition. Those weapons have been an important part of the UAE and Saudi coalition’s war in Yemen since it began in 2015. The war has killed over ten thousand civilians, largely the result of the Saudi/UAE bombing campaign, which has targeted and crippled the country’s civilian infrastructure. The result of those bombings, as well as of the UAE/Saudi blockade of Yemen, has been over 17 million people near starvation – including 5.2 million children – and preventable disease epidemics that have claimed tens of thousands of additional lives.

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Big surge in share prices Monday, from whish Musk will profit?

Musk Out As Tesla Chair, Remains CEO in $40M SEC Settlement (AP)

Tesla and its CEO Elon Musk have agreed to pay a total of $40 million and make a series of concessions to settle a government lawsuit alleging Musk duped investors with misleading statements about a proposed buyout of the company. The settlement with the Securities and Exchange Commission allows Musk to remain CEO of the electric car company but requires him to relinquish his role as chairman for at least three years. Tesla must hire an independent chairman to oversee the company, something that should please a number of shareholders who have criticized Tesla’s board for being too beholden to Musk. The deal was announced Saturday, just two days after SEC filed its case seeking to oust Musk as CEO.

Musk, who has an estimated $20 billion fortune, and Tesla, a company that ended June with $2.2 billion in cash, each are paying $20 million to resolve the case, which stemmed from a tweet Musk sent on Aug. 7 indicating he had the financing in place to take Tesla private at a price of $420 per share. “A reckless tweet cost a lot of money — the $20-million tweet,” said Michelle Krebs, executive analyst at Autotrader. [..] Tesla’s stock plummeted 14 percent Friday after the SEC filed its lawsuit, erasing more than $7 billion in shareholder wealth. Many analysts predicted the shares were bound to fall even further if Musk had been forced to step down. Tesla’s stock has dropped 30 percent since Aug. 7, closing Friday at $264.77.

The steep downturn in Tesla’s market value may have influenced Musk to have an apparent change of heart and negotiate a settlement. Musk had rejected a similar settlement offer before the SEC sued Thursday, maintaining he had done nothing wrong when he posted a tweet declaring that he had secured the financing to lead a buyout of Tesla.

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Serious. Incompetent.

How Facebook Was Hacked And Why It’s A Disaster For Internet Security (F.)

Facebook dropped a bombshell on Friday when it revealed an unknown hacker had breached the site, compromising the accounts of 50 million users. The company’s security team found three bugs were used in the attacks, saying they were used in combination to successfully break into Facebook accounts. Forbes spoke with professional web app hacker and cybersecurity researcher Thomas Shadwell, who pieced together a likely hypothesis on how the mystery hacker or hackers carried out what’s believed to be the most significant ever attack to have hit the social media beast. The perpetrator’s ultimate aim was to steal what are known as “OAuth bearer tokens.” Essentially, these tokens prove the Facebook user is the rightful owner of an account and denote what they have access to.

As Shadwell describes them: “OAuth tokens are like car keys, if you’re holding them you can use them, there’s no discrimination of the holder.” And in the context of this attack, those keys unlocked not just Facebook accounts, but any site that affected users accessed with a Facebook login. That might include Instagram or news websites. To get those keys, the hackers abused a feature in Facebook called “View As.” It allows any user to see what another can access on their profile. For instance, if you’ve blocked your dad from looking at your photos, you can check it’s working by effectively impersonating your father and viewing your profile. “It looks like when Facebook built the View As feature, they did this by making it a modification of how Facebook would work if actually viewed by that other user,” said Shadwell.

“Which of course means if there’s a mistake they might end up sending the impersonated user’s credentials to the user of the ‘View As’ feature.” This is where things get a bit weirder. If a user, via View As, impersonated a friend who themselves had a friend who had a birthday, the feature would also show a box prompting them to post a “happy birthday” video. Thanks to an error made by Facebook in July 2017, the video provided the user with one of those precious tokens, Shadwell said. More specifically, the video player generated and sent the user a token, one that would log them into the Facebook mobile app as if they were the person they were impersonating via View As. From there the user (in this case a malicious hacker) would have total access over that other person’s account.

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Increasingly, the reality of the model shines through.

Fearing Debt Trap, Pakistan Rethinks Chinese ‘Silk Road’ Projects (R.)

After lengthy delays, an $8.2 billion revamp of a colonial-era rail line snaking from the Arabian Sea to the foothills of the Hindu Kush has become a test of Pakistan’s ability to rethink signature Chinese “Silk Road” projects due to debt concerns. The rail megaproject linking the coastal metropolis of Karachi to the northwestern city of Peshawar is China’s biggest Belt and Road Initiative (BRI) project in Pakistan, but Islamabad has balked at the cost and financing terms. Resistance has stiffened under the new government of populist Prime Minister Imran Khan, who has voiced alarm about rising debt levels and says the country must wean itself off foreign loans.

“We are seeing how to develop a model so the government of Pakistan wouldn’t have all the risk,” Khusro Bakhtyar, minister in Pakistan’s planning ministry, told reporters recently. The cooling of enthusiasm for China’s investments mirrors the unease of incoming governments in Sri Lanka, Malaysia and Maldives, where new administrations have come to power wary of Chinese deals struck by their predecessors. Pakistan’s new government had wanted to review all BRI contracts. Officials say there are concerns the deals were badly negotiated, too expensive or overly favored China. But to Islamabad’s frustration, Beijing is only willing to review projects that have not yet begun, three senior government officials have told Reuters.

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Pushed through by EU and US so Balkan can join NATO. Still very contested in Greece.

FYROM Citizens Go to the Polls to Decide on Name Change (GR)

FYROM citizens are going to the polls today (Sunday) to vote on the referendum on the name change to “Republic of North Macedonia”, as agreed between their government and Greece on June 17. The question of the referendum to which Macedonian voters are asked to answer is: “Are you in favor of membership in NATO and the European Union by accepting the deal between (the) Republic of Macedonia and Republic of Greece?” Opinion polls so far show that a “Yes” in the referendum is most likely, as the majority of the Former Yugoslav Republic of Macedonia citizens are in favor of NATO and EU membership.

However, the question of the Zoran Zaev government is whether the participation is satisfactory. Specifically, 50 percent plus one of registered voters are needed to cast a ballot for the referendum results to be valid. In his referendum campaign, Prime Minister Zoran Zaev stressed the NATO and EU membership prospects for the Balkan country. Meanwhile, opponents, including the country’s president, Gjorge Ivanov, have called for a boycott of the referendum, describing the Prespa agreement with Greece a “flagrant violation of sovereignty.”

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A lot of people live there.

Indonesia Earthquake: Huge Surge In Death Toll (BBC)

At least 832 people were killed in the devastating earthquake and tsunami that hit the Indonesian island of Sulawesi, the national disaster agency says. It added that the affected area was bigger than initially thought. Many people were reported trapped in the rubble of buildings that collapsed in Friday’s 7.5-magnitude earthquake, agency spokesman Sutopo Purwo Nugroho told a news conference. The quake triggered tsunami waves as high as 6m (20ft), he added. Rescuers have been digging by hand in the frantic search for survivors in the city of Palu.

“What we now desperately need is heavy machinery to clear the rubble. I have my staff on the ground, but it’s impossible just to rely on their strength alone to clear this,” Muhammad Syaugi, head of the national search-and-rescue agency, told AFP news agency. There have also been concerns about the town of Donggala, where the impact is still unclear. The Red Cross estimates that more than 1.6 million people have been affected by the earthquake and tsunami which it described as a tragedy that “could get much worse”. Indonesia’s Vice-President Jusuf Kalla said the final death toll could be in the thousands.

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Jul 122018
 
 July 12, 2018  Posted by at 9:09 am Finance Tagged with: , , , , , , , , , , , ,  


Blu Mural in Rome, Italy 2015 Click to enlarge See also here

 

Trade War Risk On (Hedgeye)
Corporate Bonds Are Getting Junkier (DDMB)
It’s Not Wage Rises That Are A Problem – It’s The Lack Of Them (Frank)
Britain Facing ‘State Of Emergency’ If No Deal Reached – Grieve (Ind.)
Trump Tells NATO Allies To Spend 4% of GDP On Defence (G.)
Germans Want Trump To Pull US Troops Out Of Germany (Ind.)
China’s Silky Charming of Arabia (Escobar)
The Supreme Court Is Much Too Powerful (Mises.org)
New Zealand Hospitals In Chaos As 30,000 Nurses Strike (G.)
EU Approves ‘Enhanced Surveillance’ for Post-Bailout Greece (GR)
Trash Piles Up In US As China Closes Door To Recycling (AFP)

 

 

Great cartoon.

Trade War Risk On (Hedgeye)

– Global equities are retreating materially today on fears of a commensurate escalation in the burgeoning trade war between the U.S. and China. Specifically, the Trump administration released a list of goods that it may target w/ sanctions totaling some $200 billion, while China’s Commerce Ministry described the move as “totally unacceptable bullying”, and promised to lodge complaints at the WTO without detailing what its retaliatory steps would be. Are trade wars bad for growth? Of course they are. Does anyone really possess a reliable framework for quantifying the ultimate impact ex ante? Probably not.

This we do know, however: prior to the last Friday’s tit-for-tat escalation targeting $34 billion in Chinese goods and a list of [mostly] U.S. agricultural products, Export growth was trending lower in 70% of the near-50 economies we maintain detailed predictive tracking algorithms for, while 77% of Manufacturing PMI series were trending lower. This figures reflect data through MAY and JUN, respectively, and are supportive of our view that trade tensions aren’t the driving force behind Global #Divergences; they are merely adding fuel to the fire. Global equities peaked in late-JAN for a reason.

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Anyone remember AAA?

Corporate Bonds Are Getting Junkier (DDMB)

Life insurers invest heavily in high-grade corporate bonds to fund annuities, life insurance policies and other products. Here’s a look at the possibility that the issues might be affected by credit rating grade inflation… Much has been made of the degradation of the $7.5 trillion U.S. corporate debt market. High yield offers too little, well, yield. And “high grade” now requires air quotes to account for the growing dominance of bonds rated BBB, which is the lowest rung on the investment-grade ladder before dropping into “junk” status. And then there’s the massive market for leveraged loans, where covenants protecting investors have all but disappeared.

How does that break down? Corporate bonds rated BBB now total $2.56 trillion, having surpassed in size the sum of higher-rated debentures, which total $2.55 trillion, according to Morgan Stanley. Put another way, BBB bonds outstanding exceed by 50% the size of the entire investment grade market at the peak of the last credit boom, in 2007. But aren’t they still investment grade? At little to no risk of default? In 2000, when BBB bonds were a mere third of the market, net leverage (total debt minus cash and short term investments divided by earnings before interest, taxes, depreciation and amortization) was 1.7 times. By the end of last year, the ratio had ballooned to 2.9 times.

Given the marked deterioration in fundamentals, bond powerhouse PIMCO worries that “This suggests a greater tolerance from the credit rating agencies for higher leverage, which in turn warrants extra caution when investing in lower-rated IG names, especially in sectors where earnings are more closely tied to the business cycle.” [..] why not treat the BBB portion of the bond market for what it is: a high-risk slice of the corporate debt pie. Keeping count of “fallen angels,” or those investment-grade bonds that are downgraded into junk territory, will become a spectator sport.

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“Except in the very tightest labour markets, workers simply don’t have the power to demand their fair share.”

It’s Not Wage Rises That Are A Problem – It’s The Lack Of Them (Frank)

If you study the Bureau of Labor Statistics’ numbers on wages for nonsupervisory workers over the past few decades, you will notice that wage growth has been strangely slow to pick up. Hot economies usually drive wages up pretty promptly; this recovery has been running since 2009 and it has barely moved the needle. It’s even more perverse on the other side of the Atlantic. According to a 2017 story in the Financial Times, Britain was “the only big, advanced economy in which wages contracted while the economy expanded” – an amazing achievement if you think about it. And UK thinktank the Resolution Foundation has said this decade is “set to be the worst for pay growth since the Napoleonic wars”.

How could such a thing happen in this modern and enlightened age? Well, for starters, think of all that whining we’re hearing from the US’s management, who will apparently blame anyone and do anything to avoid paying workers more. Every labour-management innovation seems to have been designed with this amazing goal in mind. Every great bipartisan political initiative, from free trade to welfare reform, points the same way. When Republicans are in charge, it’s open season on working-class organisations. And you can forget about increases in the minimum wage, regardless of who’s in the White House.

Of course it’s happening the same way in the UK; be it Thatcher’s war on unions or New Labour’s “third way”, Britain has followed the US model closely. Political decisions within both countries have had highly predictable results, and we are now fated to live with them. Good times aren’t really all that good for ordinary people any more, only for the people on top – the owners of companies, of real estate, of stocks. Except in the very tightest labour markets, workers simply don’t have the power to demand their fair share. If you ask me, this is the thing to panic about: not the possibility that workers might prosper, but that they’re not prospering yet.

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“..ordinary life will grind to a halt. That is the extent to which our lives are intermeshed with the lives of our European partners..”

Britain Facing ‘State Of Emergency’ If No Deal Reached – Grieve (Ind.)

Britain will face a “state of emergency” if no Brexit deal is reached by February, Dominic Grieve has warned at an exclusive event for Independent subscribers. Appearing on a stage with other key Brexit figures, including Jacob Rees-Mogg and Gina Miller, the leading Tory rebel said “ordinary life will grind to a halt” if the talks are still deadlocked as D-Day nears. The warning came as Mr Rees-Mogg launched his most outspoken attack yet on big businesses opposing a hard Brexit, claiming they have “got everything wrong in the whole of their history”. Andrea Leadsom, the Commons leader, suggested she would not accept any further “compromises” beyond the deal struck at Chequers by Theresa May – preferring a no-deal outcome. [..]

Last month, Mr Grieve, a former attorney general, led an aborted revolt to guarantee MPs a “meaningful vote” to prevent Britain crashing out of the EU without an agreement. In his most dramatic language yet, to underline the high stakes, Mr Grieve told the audience: “If by the end of February or early March it is clear that there is no deal on anything, there will be a declaration of a state of emergency in this country. “Actually, ordinary life will grind to a halt. That is the extent to which our lives are intermeshed with the lives of our European partners, and that is what will happen if there is no deal on anything.” Mr Grieve said hardline anti-Brexit MPs had “abdicated” their responsibilities to the public by boasting that they will do “absolutely nothing while we skated off the edge of the cliff into this major national crisis”. “That is the madness that has crept into some of the discourse in parliament,” he added.

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They won’t.

Trump Tells NATO Allies To Spend 4% of GDP On Defence (G.)

Donald Trump left the opening day of the Nato summit in Brussels in disarray on Wednesday after making a surprise demand for members to raise their defence spending to 4% of GDP, and clashing with German chancellor Angela Merkel over a proposed pipeline deal with Russia. Trump left the assembled presidents and prime ministers floundering, unsure whether he was serious about the 4% target, double the existing Nato target of 2%, which many do not meet, or whether it was just a ploy. After making the announcement, Trump walked out.

The White House press secretary, Sarah Sanders, confirmed the 4% figure. “During the president’s remarks today at the Nato summit he suggested that countries not only meet their commitment of 2% of their GDP on defence spending, but that they increase it to 4%,” she said. Sanders added: “President Trump wants to see our allies share more of the burden and, at a very minimum, meet their already stated obligations.”

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So there. WHy on earth would you need so many US bases?

Germans Want Trump To Pull US Troops Out Of Germany (Ind.)

Germans would actually welcome the withdrawal of American troops stationed in their country, a new poll has found – as Donald Trump threatens to pull the plug on military support. The finding comes on the first day of a Nato summit in which the US president is urging Europe to spend more on defence if it wants to continue to receive American military protection. But far from being seen as a threat, a YouGov poll for the dpa news agency found that more Germans would welcome the departure of the 35,000-strong American force than would oppose it.

42% said they supported withdrawal while just 37% wanted the soldiers to stay, with 21% undecided. Last month the US media reported that the US government was in the process of assessing the cost of keeping troops in Germany ahead of a possible withdrawal, citing Pentagon sources. But the policy of actually pulling out of the country has not actually reached the negotiating table in his week’s Brussels summit and is not expected to be discussed as a possibility – for now.

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At some point the Chinese will run into Americans there.

China’s Silky Charming of Arabia (Escobar)

Under the radar, away from World Cup frenzy and the merger and acquisition of Cristiano Ronaldo Inc. and Fiat, the eighth ministerial meeting of the China-Arab States Cooperation Forum (CASCF), established in 2004, sailed on in Beijing, hosted by President Xi Jinping. Amid the torrential pledge of loans and aid, China committed to invest right across the Arab world in transportation infrastructure, oil and gas, finance, digital economy and artificial intelligence (AI). Significantly, Beijing will offer $15 million in aid for Palestinian economic development, as well as $91 million distributed among Jordan, Lebanon, Syria and Yemen.

A China-Arab bank consortium will be set up, with a dedicated fund of $3 billion tied up with the financial aid and loan package. Beijing also foresees importing a whopping $8 trillion from Arab states up to 2025. Predictably, once again Xi fully connected the whole Arab world with the expansion of the New Silk Roads, or Belt and Road Initiative (BRI). And careful to navigate the geopolitical minefield, he urged “relevant sides” to respect the international consensus in the Israel-Palestine confrontation, calling for justice. That may indicate a gradual, but sure departure from trademark Chinese passive or reactive policy across the Arab world, focused exclusively on energy and political non-interference.

Xi is now openly tying up Chinese financial aid and deals with nations across the Global South to an overall economic development drive; the only roadmap to solve intractable political and religious conflict. And that includes full respect of international deals. As much as the Arab world, Iran is in Southwest Asia. A day before the China-Arab forum, Premier Li Keqiang, in Berlin, was warning of “unforeseeable consequences” if the Iran nuclear deal, known as JCPOA, were to be discarded, as the Trump administration wants.

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Stating the obvious.

The Supreme Court Is Much Too Powerful (Mises.org)

The current frenzy over the vacancy on the Supreme Court in the wake of Justice Kennedy’s retirement highlights just how much power has been centralized in the hands of a small number of people in Washington, DC. The left has grown positively hysterical over the thought of yet another Trump-appointed judge being installed, who could potentially serve on the court for decades. Right-wingers who claim the left is overreacting, however, are unconvincing. One can only imagine the right’s reaction were Hillary Clinton president. She would have already had the opportunity to appoint Scalia’s replacement, and we might now be talking about her nominee to replace Justice Ginsberg.

The right-wing media would be filled with article after article about how the new court would be a disaster for health-care freedom, private gun ownership, and, of course, the unborn. But, as it is, we live in a country where five people on a court decide what the law is for 320 million people. And for some reason, many people think this is entirely normal. It’s our own American version of the Soviet politburo, but few are even bothering to ask whether it’s a good idea. After all, if it makes sense for a small handful of people to decide law for the entire country, why even bother with a House of Representatives? Even the Senate — composed primarily of multimillionaires living full-time in Washington, DC, is [by comparison] extravagantly “democratic.”

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“be fair to those who care”

New Zealand Hospitals In Chaos As 30,000 Nurses Strike (G.)

Hospitals in New Zealand have cancelled elective surgeries and discharged patients early after 30,000 nurses walked off the job in the first such nationwide strike in 30 years. The 24-hour strike began on Thursday, and comes after months of negotiations between the government and nurses broke down on Wednesday, leaving hospitals to battle winter illnesses without crucial staff. Long delays at hospital emergency departments are expected around the country. Striking nurses held rallies in major cities, chanting “be fair to those who care” in the largest public demonstrations by the health sector ever seen on the country’s streets. Nurses said they were overworked and underpaid, with unsafe working conditions leading to burnout and exhaustion.

Patient care and staff wellbeing were routinely compromised, they said. Acting prime minister Winston Peters said the government was “very, very disappointed” that its latest offer of a 12.5% increase had been rejected, and that it would take time to address nine years of neglect under the previous National government. Although the May budget delivered a surplus, Peters said the extra funds were needed to handle unforeseen spending, such as managing the spread of mycoplasma bovis, a cow disease. “We are saying give us some time … it’s not that we’re not willing to, we haven’t got the money,” said Peters. “We’ve gone as far as we can go as a government. We got hold of a negotiated arrangement which we inherited – the nurses have had a raw nine years.”

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Straight jacket.

EU Approves ‘Enhanced Surveillance’ for Post-Bailout Greece (GR)

The European Commission on Wednesday said Greece will remain under an “enhanced surveillance framework” to ensure that it meets ambitious budget targets through 2022. The country will still be subject to quarterly inspections from creditors after the bailout program ends in late August. “Greece is now able to stand on its own two feet but that doesn’t mean it has to stand alone … The reform era has not ended,” EU Financial Affairs Commissioner Pierre Moscovici said. “Enhanced surveillance is not a fourth program: it involves no new commitments or conditions. It is a framework to support the completion and delivery of ongoing reforms,” he added.

Despite returning to growth after a massive recession, Greece leaves the program still facing major difficulties. Banks are struggling to deal with a high rate of bad loans. At over 20%, Greece has the highest unemployment rate in the euro currency union. Government bonds remain below investment grade even though their yields have fallen to manageable rates. And to help reduce its debt, Greece has committed to punishingly high primary budget surpluses — that is, the budget excluding the cost of debt servicing — of above 3.5% through 2022. “Enhanced surveillance is there to help Greece build confidence with markets, investors and companies,” Commission Vice-President Valdis Dombrovskis said. “They all want stability and predictability.”

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They’ll find a new dump.

Trash Piles Up In US As China Closes Door To Recycling (AFP)

For months, a major recycling facility for the greater Baltimore-Washington area has been facing a big problem: it has to pay to get rid of huge amounts of paper and plastic it would normally sell to China. Beijing is no longer buying, claiming the recycled materials are “contaminated.” For sure, the 900 tons of trash dumped at all hours of the day and night, five days a week, on the conveyor belts at the plant in Elkridge, Maryland – an hour’s drive from the US capital – are not clean. Amid the nerve-shattering din and clouds of brown dust, dozens of workers in gloves and masks – most of them women – nimbly pluck a diverse array of objects from the piles that could count as “contaminants.”

That could be anything from clothes to cables to tree branches to the bane of all recyclers: plastic bags, which are not supposed to go in recycling bins because they snarl up the machinery. “We’ve had to slow our machinery, and hire more people” to clean up the waste, says Michael Taylor, the head of recycling operations for Waste Management, the company that runs the plant. At the end of the sorting line is the end product — huge bales of compacted waste containing paper, cardboard or plastics. These have been bought up for decades by businesses, most of them based in China, which clean them up, crush them and transform them into raw materials for industrial plants.

Last year, China bought up more than half of the scrap materials exported by the United States. Globally, since 1992, 72% of plastic waste has ended up in China and Hong Kong, according to a study in the journal Science Advances. But since January, China has closed its borders to most paper and plastic waste in line with a new environmental policy pushed by Beijing, which no longer wants to be the world’s trash can, or even its recycle bin. For other waste products such as cardboard and metal, China has set a contamination level of 0.5% — a threshold too low for most current US technology to handle. US waste handlers say they expect China will close its doors to all recycled materials by 2020 — an impossibly short deadline.

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May 152018
 
 May 15, 2018  Posted by at 8:51 am Finance Tagged with: , , , , , , , , , ,  


Henri Matisse Odalisque couchée aux magnolias 1923

 

Making Money In The Stock Market Just Got A Lot More Difficult (MW)
America’s Worst Long-Term Challenges: #1- Debt. (Black)
Fifteen Thoughts About Israel (Caitlin Johnstone)
Australia Probes Claim Google Harvests Data, Makes Consumers Pay (R.)
Warning Sounded Over China’s ‘Debtbook Diplomacy’ (G.)
China Really Is To Blame For Millions Of Lost US Manufacturing Jobs (MW)
No Progress Made On Any Key Area Of Brexit For Months – EU (Ind.)
Russian Company Charged In Mueller Probe Seeks Grand Jury Materials (R.)
Bridge From Mainland Russia To Crimea Hours Away From Opening (RT)
Industrial Trans Fats Must Be Removed From Food Supply –
Bank of England Should Print Money To Prevent Climate Change (Ind.)
Wildlife Poachers In Kenya ‘To Face Death Penalty’ (Ind.)

 

 

Bonds yield more than stocks.

Making Money In The Stock Market Just Got A Lot More Difficult (MW)

For almost a decade, it’s been extremely difficult to lose money in the U.S. stock market. Over the next decade, it could be hard to do anything but, according to analysts at Morgan Stanley. The outlook for market returns has precipitously worsened in recent months, with analysts and investors growing increasingly confident that the lengthy bull market that began in the wake of the financial crisis could be, if not coming to a close, petering out. More market participants view the economy as being in the late stage of its cycle, and a recession is widely expected in the next few years. All of that could result in an equity-market environment that’s a mirror image of recent years, where gains were pretty much uninterrupted, and volatility was subdued.

“2018 is seeing multiple tailwinds of the last nine years abate,” Morgan Stanley analysts wrote in a report to clients that was entitled “The End of Easy,” in reference to the investing environment. “Decelerating growth, rising inflation and tightening policy leave us with below-consensus 12-month return forecasts for most risk assets. After nine years of markets outperforming the real economy, we think the opposite now applies as policy tightens.” As part of its call, Morgan Stanley reduced its view on global equities to equal weight, saying they were “in a range-trading regime with limited 12-month upside.” It raised its exposure to cash, following Goldman Sachs, which last week upgraded its view on the asset class on a short-term basis.

U.S. GDP grew at an annualized 2.3% in the first quarter, below the 3% average of the previous three quarters, as consumer spending hit its weakest level in five years. While slowing growth isn’t the same as a contraction, the data added to concerns that a period of synchronized global growth was coming to a close. According to a BofA Merrill Lynch Global survey of fund managers in April, just 5% of respondents expect faster global growth over the coming 12 months, compared with the roughly 40% that did at the start of the year.

[..] Howard Wang, the co-founder of Convoy Investments, called the Fed’s ballooning balance sheet “the fundamental driver of asset prices over the last decade.” He provided the chart below, which compares the growth in the U.S. money supply against the long-term return of all assets, including global equities, bond categories, real estate, and gold. “I believe the trend of shrinking money supply in the system will continue for some time to come,” Wang wrote. “This adjustment is a painful but necessary process for healthier markets and economies.”

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$52,000 per second.

America’s Worst Long-Term Challenges: #1- Debt. (Black)

On October 22, 1981, the national debt in the United States crossed the $1 trillion threshold for the first time in history. It took nearly two centuries to reach that unfortunate milestone. And over that time the country had been through a revolution, civil war, two world wars, the Great Depression, the nuclear arms race… plus dozens of other wars, financial panics, and economic crises. Today, the national debt stands at more than $21 trillion– a milestone hit roughly two months ago. This means that the government added $20 trillion to the national debt in the 37 years between October 22, 1981 and March 15, 2018.

That’s an average of nearly $1.5 BILLION added to the national debt every single day… $62 million per hour… $1 million per minute… and more than $17,000 per SECOND. But the problem for the US government is that this trend has grown worse over the years. It took only 214 days for the government to go from $20 trillion in debt to $21 trillion in debt– less than eight months to add a trillion dollars to the national debt. That’s an average of almost $52,000 per second. Think about that: on average, the US national debt increases by more in a split second than the typical American worker earns in an entire year. And there is no end in sight.

At 105% of GDP, America’s national debt is already larger than the size of the entire US economy. (By comparison the national debt was just 31% of GDP in 1981.) Plus, the government’s own projections show a steep increase to the debt in the coming years and decades. The Treasury Department has already estimated that it will borrow $1 trillion this fiscal year, $1 trillion next year, and another trillion dollars the year after that. They’re also forecasting the national debt to exceed $30 trillion by 2025.

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I’ll let Caitlin do the talking. The damage done to America yesterday will be felt for a long time.

Fifteen Thoughts About Israel (Caitlin Johnstone)

1. I hate writing about Israel. The accusations of anti-semitism which necessarily go along with literally any criticism of that nation are gross enough, but even worse are the assholes who take my criticisms of the Israeli government as an invitation to actually be anti-semitic. They really do hate Jews, they really do think that every problem in the world is because of Jews and they post Jewish caricature memes and calls for genocide in the comments section on social media and it’s incredibly gross and I hate it. It feels exactly as intrusive, jarring and violating as receiving an unsolicited dick pic. But the Israeli government keeps committing war provocations and massacring Palestinians, so it’s something I’ve got to talk about.

2. Anti-semitism (or whatever word you prefer to use for the pernicious mind virus which makes people think it’s okay to promote hatred against Jewish people) is a very real thing that does exist, and I denounce it to the furthest possible extent. Anti-semitism is also a label that is used to bully the world into accepting war crimes, apartheid, oppression, and mass murder. Both of those things are true.

3. There were dozens of Palestinians killed and well above a thousand injured in the Gaza protests over the US moving its embassy to Jerusalem yesterday. I haven’t found any report of so much as a single Israeli injury. The only way to spin this as the fault of the Palestinians is to dehumanize them, to attribute behaviors and motives to them that we all know are contrary to human nature. To paint them as subhuman orc-like creatures who are so crazy and evil that they will keep throwing themselves at a hail of bullets risking life and limb just to have some extremely remote chance of harming a Jewish person for no reason. This is clearly absurd. A little clear thinking and empathy goes a long way.

6. Any position on Israel that is determined by words made up by dead men thousands of years ago is intrinsically invalid. Saying the Jewish people are more entitled to Israel than those who were living there seven decades ago because of some superstitious voodoo written in obsolete religious texts is not an argument. Religious freedom is important, and it’s important to be able to believe whatever you like, but your beliefs do not legitimize your actions upon other people. If you murder someone in the name of Allah, you have murdered someone. If you kill 58 people because you feel some ancient scripture entitles you to a particular section of dirt, you have killed 58 people. Your internal beliefs do not give you a free pass for your egregious actions upon others.

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Betcha it’s true. Making people pay to be spied upon.

Australia Probes Claim Google Harvests Data, Makes Consumers Pay For It (R.)

Google is under investigation in Australia following claims that it collects data from millions of Android smartphones users, who unwittingly pay their telecom service providers for gigabytes consumed during the harvesting, regulators said on Tuesday. Responding to the latest privacy concerns surrounding Google, a spokesman for the U.S. based search engine operator said the company has users’ permission to collect data. The Australian investigations stem from allegations made by Oracle Corp in a report provided as part of an Australian review into the impact that Google, owned by Alphabet Inc, and Facebook have on the advertising market. Both the Australian Competition and Consumer Commission (ACCC) and the country’s Privacy Commissioner said they were reviewing the report’s findings.

“The ACCC met with Oracle and is considering information it has provided about Google services,” said Geesche Jacobsen, a spokeswoman for the competition regulator. “We are exploring how much consumers know about the use of location data and are working closely with the Privacy Commissioner.” Oracle, according to The Australian newspaper, said Alphabet receives detailed information about people’s internet searches and user locations if they have a phone that carries Android – the mobile operating system developed by Google. Transferring that information to Google means using up gigabytes of data that consumers have paid for under data packages purchased from local telecom service providers, according to the Oracle report.

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As I’ve said for a long time, this is the Belt and Road scheme.

Warning Sounded Over China’s ‘Debtbook Diplomacy’ (G.)

China’s “debtbook diplomacy” uses strategic debts to gain political leverage with economically vulnerable countries across the Asia-Pacific region, the US state department has been warned in an independent report. The academic report, from graduate students of the Harvard Kennedy school of policy analysis, was independently prepared for the state department to view and assessed the impact of China’s strategy on the influence of the US in the region. The paper identifies 16 “targets” of China’s tactic of extending hundreds of billions of dollars in loans to countries that can’t afford to pay them, and then strategically leveraging the debt.

It said while Chinese infrastructure investment in developing countries wasn’t “inherently” against US or global interests, it became problematic when China’s use of its leverage ran counter to US interests, or if the US had strategic interests in a country which had its domestic stability undermined by unsustainable debt. The academics identified the most concerning countries, naming Pakistan and Sri Lanka as states where the process was “advanced”, with deepening debt and where the government had already ceded a key port or military base, as well places including Papua New Guinea and Thailand, where China had not yet used its amassed debt leverage.

Papua New Guinea, which “has historically been in Australia’s orbit”, was also accepting unaffordable Chinese loans. While this wasn’t a significant concern yet, the report said, the country offered a “strategic location” for China, as well as large resource deposits. While there was a lack of “individual diplomatic clout” in Cambodia, Laos and the Philippines, Chinese debt could give China a “proxy veto” in Asean, the academics said.

[..] China’s methods were “remarkably consistent”, the report said, beginning with infrastructure investments under its $1tn belt and road initiative, and offering longer term loans with extended grace periods, which was appealing to countries with weaker economies and governance. Construction projects, which the report said had a reputation for running over budget and yielding underwhelming returns, make debt repayments for the host nations more difficult. “The final phase is debt collection,” it said. “When countries prove unable to pay back their debts, China has already and is likely to continue to offer debt-forgiveness in exchange for both political influence and strategic equities.”

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That’s been obvious for many years.

China Really Is To Blame For Millions Of Lost US Manufacturing Jobs (MW)

Millions of Americans who lost manufacturing jobs during the 2000s have long ”known” China was to blame, not robots. And many helped elect Donald Trump as president because of his insistence that China was at fault. Evidently many academics who’ve studied the issue are finally drawing the same conclusion. For years economists have viewed the increased role of automation in the computer age as the chief culprit for some 6 million lost jobs from 1999 to 2010 — one-third of all U.S. manufacturing employment. Firms adopted new technologies to boost production, the thinking goes, and put workers out of the job in the process. Plants could make more stuff with fewer people.

In the past several years fresh thinking by economists such as David Autor of MIT has challenged that view. The latest research to poke holes in the theory of automation-is-to-blame is from Susan Houseman of the Upjohn Institute. Academic research tends to be dry and complicated, but Houseman’s findings boil down to this: The government for decades has vastly overestimated the growth of productivity in the American manufacturing sector. It’s been growing no faster, really, than the rest of the economy. What that means is, the adoption of technology is not the chief reason why millions of working-class Americans lost their jobs in a vast region stretching from the mouth of the Mississippi river to the shores of the Great Lakes. Nor was it inevitable.

Autor and now Houseman contend the introduction of China into the global trading system is root cause of the job losses. Put another way, President Bill Clinton and political leaders who succeeded him accepted the risk that the U.S. would suffer short-term economic harm from opening the U.S. to Chinese exports in hopes of long-run gains of a more stable China. No longer needing to worry about U.S. tariffs, the Chinese took full advantage. Low Chinese wages and a cheap Chinese currency — at a time when the dollar was strong — gave China several huge advantages. Companies shuttered operations in the U.S., moved to China and eventually set up research hubs overseas in another blow to the America’s economic leadership. The cost to the U.S. is still being tallied up.

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Gee, what a surprise.

No Progress Made On Any Key Area Of Brexit For Months – EU (Ind.)

EU27 ministers met on Monday with the bloc’s chief negotiator Michel Barnier in Brussels to discuss the state of talks so far. “Mr Barnier informed us that since 23 March no significant progress has been made on the three pillars that we work on: withdrawal, future framework, and Ireland,” Ekaterina Zakharieva, the Bulgarian foreign minister chairing the council, told journalists at an official press conference following the meeting. The renewed deadlock in Brussels comes as Theresa May’s cabinet repeatedly fails to agree with itself on what customs arrangement it wants with the EU after Brexit, despite publishing two options in August of last year. Both those options were dismissed as “magical thinking” by the EU at the time.

Speaking at a separate event in Brussels on Monday evening, Mr Barnier himself said that full talks on the future relationship had not even started in earnest despite getting the green light at a summit in March. “There is still a lot of uncertainty. Negotiations on the future with the UK have not started yet. We have had first exploratory discussions,” he said. Ms Zakharieva said the EU27 countries wanted more “intensive engagement by the UK government in the coming weeks”, warning that the October deadline was “only five months from now”. Ms May will next meet EU leaders in Brussels at the end of June for a meeting of the European Council.

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If you can’t see the material used to accuse you, what rights do you have?

Russian Company Charged In Mueller Probe Seeks Grand Jury Materials (R.)

A Russian company accused by Special Counsel Robert Mueller of funding a propaganda operation to interfere in the 2016 U.S. presidential election is asking a federal judge for access to secret information reviewed by a grand jury before it indicted the firm. In a court filing on Monday, lawyers for Concord Management and Consulting LLC said Mueller had wrongfully accused the company of a “make-believe crime,” in a political effort by the special counsel to “justify his own existence” by indicting “a Russian-any Russian.” They asked the judge for approval to review the instructions provided to the grand jury, saying they believed the case was deficient because Mueller lacked requisite evidence to show the company knowingly and “willfully” violated American laws.

Concord is one of three entities and 13 Russian individuals charged earlier this year by Mueller’s office, in an alleged criminal and espionage conspiracy to meddle in the U.S. race, boost then-presidential candidate Donald Trump and disparage his Democratic opponent Hillary Clinton. The indictment said Concord was controlled by Russian businessman Evgeny Prigozhin, who U.S. officials have said has extensive ties to Russia’s military and political establishment. Prigozhin, also personally charged by Mueller, has been dubbed “Putin’s cook” by Russian media because his catering business has organized banquets for Russian President Vladimir Putin and other senior political figures. He has been hit with sanctions by the U.S. government. Concord is facing charges of conspiring to defraud the United States, and is accused of controlling funding, recommending personnel and overseeing the activities of the propaganda campaign.

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“..more than half a year ahead of schedule..” Try that at home.

Bridge From Mainland Russia To Crimea Hours Away From Opening (RT)

The bridge across the Kerch Strait, which will connect the Crimean Peninsula and Krasnodar Region is set to open on Tuesday. Construction of the bridge, the longest in Russia with a span of 19 kilometers, has been carried out since February 2016, and it is opening for cars more than half a year ahead of schedule. The bridge capacity is 40,000 cars and 47 pairs of trains per day, 14 million passengers and 13 million tons of cargo per year. The railway section is scheduled to open in early 2019, the bridge will be opened for trucks starting from October of this year.

The link became vital after Crimea voted to rejoin Russia in 2014, as the peninsula’s only land border is with Ukraine. Before the opening, regular passenger and cargo deliveries were organized by direct flights and ferries from ports in southern Russia. Each pillar of the bridge needs about 400 tons of metal structures, which means that all pillars need as much iron as 32 Eiffel towers. The bridge’s piles are installed at least 90 meters under water.

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It’s very easy to just ban the stuff. That your governments haven’t simply done that says a lot.

Industrial Trans Fats Must Be Removed From Food Supply – WHO (G.)

Trans fats used in snack foods, baked foods and fried foods are responsible for half a million deaths worldwide each year and must be eliminated from the global food supply, the World Health Organization says today. Most of western Europe has already acted to reduce industrially made trans fats from factory-made foods. Denmark, like New York, which followed its lead, has an outright ban. Big food companies elsewhere have been under intense pressure to use substitutes. In the UK, the latest national diet and nutrition survey shows average intake of trans fats is well below the recommended upper limit of 2% of food energy, at 0.5-0.7%. Although companies manufacturing processed food in the UK do not use trans fats any more, the fats are in some cheap foods imported from other countries.

The WHO is calling on all governments to take action, including passing laws or regulations to rid their food supply of industrial trans fats. Director general Dr Tedros Adhanom Ghebreyesus said eliminating trans fats would “represent a major victory in the global fight against cardiovascular disease”. The WHO is targeting industrially made trans fats, but trans fats are also contained in milk, butter and cheese derived from ruminants, mainly cows and sheep. Dr Francesco Branca, director of the Department of Nutrition for Health and Development at the WHO, said the amounts we eat in dairy products are unlikely to breach the health guidelines. “We are saying that trans fats contained in those products have the same effect as industrial trans fats – we are not able to tell the difference,” he said. “But the amount contained in dairy products is much less.”

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How about money NOT to build roads?

Bank of England Should Print Money To Prevent Climate Change (Ind.)

The Bank of England should print money for the government to invest in the low-carbon economy to combat climate change, according to a new report. The BoE must also offload fossil fuel assets and use its existing powers more effectively to promote green projects, the campaign and research group Positive Money says. The report argues that the bank’s mandate to secure financial stability “looks incoherent over time unless it considers the long-term viability of the economy”. That viability will be undermined unless the threat of climate change is tackled soon, the researchers say. “The nature of climate change is such that either physical damage from weather or radical changes in technology and policy will occur in some combination, so action is needed now,” the report says.

It challenges the bank’s record on climate change and says its programme of, in effect, printing billions of pounds to prop up the economy has disproportionately helped carbon-intensive companies that are choking the planet. Under quantitative easing (QE), the bank has bought billions of pounds of debt from companies and the government. This is supposed to increase demand for debt, which in turn lowers interest rates. Cheaper borrowing means more borrowing which is supposed to be used to fund economic activity. But the researchers argue that QE has been actively harmful to efforts to combat climate change because the bank’s own criteria have been skewed towards buying debt from high-carbon sectors like manufacturing and utilities.

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The only solution left.

Wildlife Poachers In Kenya ‘To Face Death Penalty’ (Ind.)

Wildlife poachers in Kenya will face the death penalty, the country’s tourism and wildlife minister has reportedly announced. Najib Balala warned the tough new measure would be fast-tracked into law. Existing deterrents against killing wild animals in the east African nation are insufficient, Mr Balala said, according to China’s Xinhua news agency. So in an effort to conserve Kenya’s wildlife populations, poachers will reportedly face capital punishment once the new law is passed. Kenya is home to a wide variety of treasured species in national parks and reserves, including lions, black rhinos, ostriches, hippos, buffalos, giraffe and zebra.

Last year in the country 69 elephants – out of a population of 34,000 – and nine rhinos – from a population of under 1,000 – were killed. “We have in place the Wildlife Conservation Act that was enacted in 2013 and which fetches offenders a life sentence or a fine of US$200,000,” Mr Balala reportedly said. “However, this has not been deterrence enough to curb poaching, hence the proposed stiffer sentence.”

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Nov 242017
 
 November 24, 2017  Posted by at 9:50 am Finance Tagged with: , , , , , , , , ,  


Dorothea Lange Migrant agricultural workers in California 1935

 

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (BBG)
The UK’s Future Economic Storm Just Got Worse (CNBC)
UK Consumer Confidence Hits Lowest Level Since Aftermath Of Brexit Vote (BBG)
After Sudden Rout, China Stock Traders Question Beijing Put
China Bank Profits Face Squeeze From Tighter Rules – Fitch (BBG)
China Reports Breaking Up Gang That Moved $3 Billion Abroad (AP)
Bitcoin Mining Now Consumes More Electricity Than 159 Countries (PCUK)
Mexico Revokes Monsanto Permit To Market GMO Soy In Seven States (R.)
Turkey, Iran, Russia and India are Playing the New Silk Roads (Escobar)
Greek PM Tsipras ‘Proud’ Of Living Conditions Of Refugees (K.)
Greece Vows Greater Effort To Protect Refugees Over Winter (AP)
Greek Pensioners March Against Government That ‘Took Everything’ (R.)

 

 

In case you were wondering just how big the bubble has become. Look at New Zealand too.

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (BBG)

The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come. After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) – or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them. Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties. The upshot: households are now twice as indebted as China’s.

So far, the Reserve Bank of Australia has relied on banking regulators to apply the brakes with lending curbs. It reckons the financial system is well-placed to withstand any shocks, but isn’t so confident on consumers. That puts it out of step with developed-world peers that are incrementally tightening policy, with Governor Philip Lowe this week making clear local interest rates aren’t going anywhere soon. To be sure, there are key dynamics that differentiate Australia’s housing boom with those that soured in recent years around the world. Aussie banks can claim against other income and assets or chase individuals into bankruptcy if borrowers default. Tax deductions for interest paid on investment loans also support demand, as does a rich pipeline of demand from Asian buyers, especially Chinese. But with prices in major cities like Sydney finally leveling off and a wave of new apartments about to hit markets in Brisbane and Melbourne, it’s worth taking a look at housing’s out-sized influence on Australia’s economy.

The weight of Australian homes on the economy is heavier than policy makers would like. On one hand, the dizzy valuations reflect a desirable location and strong population growth. But they also reflect the massive liabilities that are now tied to these assets. “The risk is that it leaves the Australian economy extremely exposed, and a minor shock could become far more significant,” said Daniel Blake, an economist at Morgan Stanley in Sydney.

The increasing treatment of housing as a financial commodity has seen borrowers rush into a byzantine maze of mortgage-related products. That’s made banks very profitable, but very exposed. While the RBA is satisfied that lenders have adequate buffers to cope with any downturn, banks may find it harder to value their collateral in a falling market as investors look to consolidate their portfolios of multiple homes, said Blake.

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Projecting until 2070 may not be the most useful exercise. The next 10 years is wobbly enough.

The UK’s Future Economic Storm Just Got Worse (CNBC)

Britons should better get used to austerity. Even though the U.K. government has mostly fixed its short-run fiscal problems caused by the global financial crisis, the long-run challenge of keeping fiscal policy on a sustainable path has grown even bigger, according to the latest economic projections published alongside Wednesday’s Autumn Budget. Over the medium term, U.K. fiscal policy looks to be heading towards calm waters. Combining the progress made under then-Finance Minister George Osborne from 2010 until early 2016 with the tax and spending plans announced on Wednesday by the incumbent Philip Hammond, will manage to get the annual fiscal deficit down from a peak of 8% of GDP in 2009 to less than 2.5% this year, and eventually to close to 1% by early next decade.

This should be enough for debt as a percentage of GDP to begin to fall gradually from around 87% of GDP from next year onwards into the 2020s. This is good news. But looking further out, U.K. fiscal policy appears to be heading towards a storm. Back in January, the Office for Budget Responsibility (OBR), the U.K.’s independent fiscal watchdog, projected that U.K. public debt will rise again from the 2030s onwards to nearly 250% of GDP by the 2070s. Rising health, state pension and long-term social care costs linked to demographic factors are likely to cause the fiscal deficit to surge again. U.K. public sector debt is projected to reach highs not seen since World War II. It gets worse. Keep in mind that the projections made in January assumed that productivity growth, the major determinant of economic growth, would average 2% per year into the long run.

Yesterday, the OBR downgraded this judgement to 1.3%. While productivity growth has declined across the advanced world in the past decade, the Brexit-stricken U.K. is suffering an extra hit by weakening the economic ties with its biggest market, the EU. In this new context, the earlier forecast that debt would rise to 250% of GDP within 50 years looks like a significant underestimate, to put it mildly. By reducing projected growth rates for wages and profits, the new lower outlook for trend productivity growth steepens the U.K.’s future fiscal hill. Unlike revenues from taxation, which mostly rise and fall in line with the rate of economic growth, future costs coming from the ageing population are independent of economic factors.

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Everyone can see the clowns in the news everyday.

UK Consumer Confidence Hits Lowest Level Since Aftermath Of Brexit Vote (BBG)

U.K. consumer confidence tumbled in November, reaching the lowest level since the aftermath of the Brexit vote. YouGov and the Centre for Economics and Business Research said optimism suffered its biggest monthly decline since the month after the referendum, with all eight measures that make up the index falling. The score for household financial situations in the past 30 days dropped to its lowest since January 2014, and a gauge of home owners’ expectations for values over the next 12 months slid to the least in a year following the Bank of England’s rate increase on Nov. 2. The report on Friday comes after official data this week highlighted the importance of consumers to the U.K. economy, as a jump in household spending offset slowing business investment and a drag from trade to drive a 0.4% expansion in the third quarter.

It also follows Chancellor of the Exchequer Philip Hammond’s announcement of a downgrade to the economic outlook as a result of a sluggish productivity and Brexit headwinds. Warnings of a consumer slowdown are coming ahead of the crucial Christmas shopping period as the squeeze on incomes from inflation continues. Figures last week showed retail sales fell in October from a year earlier, the first decline in more than four years. “Households are understandably worried.” said Christian Jaccarini, an economist at the CEBR. “The first interest-rate hike in over a decade triggered fears that higher borrowing costs will compound the inflation-induced squeeze on household incomes.”

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How do you go from running a casino to having actual stock markets?

After Sudden Rout, China Stock Traders Question Beijing Put

What happened to the Beijing put? That’s what investors in China are asking themselves after a gauge of large-cap stocks plunged 3% on Thursday, rattling a market that’s grown accustomed to state support when losses get extreme. While there were signs over the past week that the government was looking to cool gains in high-flying shares like Kweichow Moutai – along with concerns over rising corporate bond yields – the severity of Thursday’s slump caught some traders off guard. The biggest surprise was that losses accelerated into the close. The nation’s CSI 300 Index sank 52 points in the final 45 minutes of trading, the steepest afternoon decline since the depths of China’s stock market crash in January 2016. Such late-day selloffs have been rare this year, with the index rising an average 2.9 points.

While it’s unclear why state funds allowed shares to tumble this time, analysts said the episode may help wring some of the complacency out of China’s stocks. Before Thursday’s slump, the CSI 300 had climbed 28% this year to the highest level since July 2015. Margin debt, while still well below its bubble peak in 2015, has increased for six straight months. “Some investors might have been just taking profit in the morning, and that turned into a selling stampede in the afternoon,” said Wang Chen, Shanghai-based partner with XuFunds Investment Management Co. “Investments in blue chips were overcrowded, and a lot of them were bought with margin financing.”

[..] For Sun Jianbo, president of China Vision Capital Management, valuations among large-cap shares are too expensive for state-backed funds to intervene. The CSI 300 traded at its highest level relative to the broader Shanghai Composite Index in at least 12 years at the start of this week as investors flocked to large caps such as Moutai and Ping An Insurance. “There’s no need to prop up the market yet,” Sun said. “A lot of big caps are still expensive and it would do more harm than good to state-backed funds if they buy now.”

The divergence between large-cap shares and the rest of the market may be one reason why the government took aim at Moutai. Before Xinhua warned last week that gains in the liquor maker were excessive, the stock had more than doubled this year. Given that much of the gains in Chinese shares this year can be explained by improving earnings prospects, it’s likely that government’s bigger target is leverage, according to Ken Peng at Citi Private Bank in Hong Kong.

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Aimed at the shadows, but…

China Bank Profits Face Squeeze From Tighter Rules – Fitch (BBG)

Profit margins at Chinese banks will be squeezed next year and credit growth is likely to slow as increasing regulation eats up capital, Fitch Ratings said. The lending businesses of the country’s smaller banks face the most pressure and they will rely more on larger state-owned rivals for liquidity, the ratings company said in a statement Friday. At the same time, the shadow-banking sector, which one brokerage values at about $19 trillion, will attract even more regulatory scrutiny in 2018, Fitch said. Chinese regulators are sweeping through the country’s $40 trillion financial sector in a bid to contain risk after total debt ballooned to about 260 percent of the size of the economy. In the past week alone, they’ve proposed rules governing returns from asset-management products, laid out limits on bank shareholdings and unveiled a purge of cash micro-lenders.

“Credit growth is likely to decelerate next year, given the tighter regulatory stance,” Fitch said. “Funding conditions are likely to remain tight, pointing to continued margin pressure at smaller banks which rely more on non-deposit funding.” The predictions from Fitch and S&P Global Ratings on Thursday suggest the cost of the system-wide measures will be sluggish profit growth at domestic banks, which include Industrial & Commercial Bank of China, the world’s largest by assets. New rules pushing shadow-banking items back on to lenders’ balance sheets will lead to an increase in risk that could weigh on bank capital, Fitch said. Net income growth in the banking sector will remain in the “low single digits” in 2018, it said. The ratings company kept its outlook on Chinese banks at stable, saying sovereign support for the sector remains “very strong.”

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“..as many as 10,000 people might have been involved..”

China Reports Breaking Up Gang That Moved $3 Billion Abroad (AP)

Chinese police say they have broken up a gang that smuggled 20 billion yuan ($3 billion) out of the country, evading financial controls imposed by Beijing to stem an outflow of capital from the economy. Seven suspects were detained in the case centered in the southern city Shaoguan near Hong Kong but as many as 10,000 people might have been involved, the official Xinhua News Agency reported. Chinese authorities have steadily tightened foreign-exchange controls to stem a multibillion-dollar outflow of capital that they say hampers financial management in the world’s second-largest economy. The group in Shaoguan is accused of moving money illegally using 148 bank accounts opened in 20 provinces with stolen identity cards, according to Xinhua.

It said they made unspecified “huge profits” by trading on the difference in exchange rates between Hong Kong dollars and the mainland’s yuan. Beijing allowed an informal financial industry to flourish over the past two decades to support entrepreneurs but is tightening controls due to mounting concern about financial stability. Regulators are especially worried about unauthorized cross-border movement of money at a time when they are trying to stem an outflow of capital. Companies and investors rushed to export money after a change in the mechanism used to set the government-controlled exchange rate in 2015 prompted expectations the yuan would weaken in value. That forced the Chinese central bank to spend heavily to shore up the yuan.

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“In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%..”

Bitcoin Mining Now Consumes More Electricity Than 159 Countries (PCUK)

Bitcoin’s ongoing meteoric price rise has received the bulk of recent press attention with a lot of discussion around whether or not it’s a bubble waiting to burst. However, most the coverage has missed out one of the more interesting and unintended consequences of this price increase. That is the surge in global electricity consumption used to “mine” more Bitcoins. According to Digiconomist’s Bitcoin Energy Consumption Index, as of Monday November 20th, 2017 Bitcoin’s current estimated annual electricity consumption stands at 29.05TWh. That’s the equivalent of 0.13% of total global electricity consumption. While that may not sound like a lot, it means Bitcoin mining is now using more electricity than 159 individual countries. More than Ireland or Nigeria. If Bitcoin miners were a country they’d rank 61st in the world in terms of electricity consumption.

Here are a few other interesting facts about Bitcoin mining and electricity consumption:

• In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%
• If it keeps increasing at this rate, Bitcoin mining will consume all the world’s electricity by February 2020.
• Estimated annualised global mining revenues: $7.2 billion USD (£5.4 billion)
• Estimated global mining costs: $1.5 billion USD (£1.1 billion)
• Number of Americans who could be powered by bitcoin mining: 2.4 million (more than the population of Houston)
• Number of Britons who could be powered by bitcoin mining: 6.1 million (more than the population of Birmingham, Leeds, Sheffield, Manchester, Bradford, Liverpool, Bristol, Croydon, Coventry, Leicester & Nottingham combined) Or Scotland, Wales or Northern Ireland.
• Bitcoin Mining consumes more electricity than 12 US states (Alaska, Hawaii, Idaho, Maine, Montana, New Hampshire, New Mexico, North Dakota, Rhode Island, South Dakota, Vermont and Wyoming)

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Gracias Mexico.

Mexico Revokes Monsanto Permit To Market GMO Soy In Seven States (R.)

Monsanto said on Thursday that Mexico’s agriculture sanitation authority SENASICA had revoked its permit to commercialize genetically modified soy in seven states, criticizing the decision as unjustified. Monsanto said in a statement that the permit had been withdrawn on unwarranted legal and technical grounds. The company said it would take the necessary steps to safeguard its rights and those of farmers using the technology, but did not elaborate. Mexican newspaper Reforma cited a document saying the permit had been withdrawn due to the detection of transgenic Monsanto soya in areas where it was not authorized. Monsanto rejected that argument, saying in its statement that authorities had not done an analysis of how the soy on which their decision was based was sown. The revocation applies to the states of Tamaulipas, San Luis Potosi, Veracruz, Chiapas, Campeche, Yucatan and Quintana Roo and follows a 2016 legal suspension of the permit.

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China will build much of it all, but it won’t pay for it. It’s exporting a Ponzi.

Turkey, Iran, Russia and India are Playing the New Silk Roads (Escobar)

Vladimir Putin, Recep Tayyip Erdogan and Hassan Rouhani will hold a summit this Wednesday in Sochi to discuss Syria. Russia, Turkey and Iran are the three power players at the Astana negotiations – where multiple cease-fires, as hard to implement as they are, at least evolve, slowly but surely, towards the ultimate target – a political settlement. A stable Syria is crucial to all parties involved in Eurasia integration. As Asia Times reported, China has made it clear that a pacified Syria will eventually become a hub of the New Silk Roads, known as the Belt and Road Initiative (BRI) – building on the previous business bonanza of legions of small traders commuting between Yiwu and the Levant. Away from intractable war and peace issues, it’s even more enlightening to observe how Turkey, Iran and Russia are playing their overlapping versions of Eurasia economic integration and/or BRI-related business.

Much has to do with the energy/transportation connectivity between railway networks – and, further on the down the road, high-speed rail – and what I have described, since the early 2000s, as Pipelineistan. The Baku-Tblisi-Ceyhan (BTC) pipeline, a deal brokered in person in Baku by the late Dr Zbigniew “Grand Chessboard” Brzezinski, was a major energy/geopolitical coup by the Clinton administration, laying out an umbilical steel cord between Azerbaijan, Georgia and Turkey. Now comes the Baku-Tblisi-Kars (BTK) railway – inaugurated with great fanfare by Erdogan alongside Azerbaijani President Ilham Aliyev and Georgian Prime Minister Giorgi Kvirikashvili, but also crucially Kazakh Prime Minister Bakhytzhan Sagintayev and Uzbek Prime Minister Abdulla Aripov. After all, this is about the integration of the Caucasus with Central Asia.

Erdogan actually went further: BTK is “an important chain in the New Silk Road, which aims to connect Asia, Africa, and Europe.” The new transportation corridor is configured as an important Eurasian hub linking not only the Caucasus with Central Asia but also, in the Big Picture, the EU with Western China. BTK is just the beginning, considering the long-term strategy of Chinese-built high-speed rail from Xinjiang across Central Asia all the way to Iran, Turkey, and of course, the dream destination: the EU. Erdogan can clearly see how Turkey is strategically positioned to profit from it.

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Alexis, Alexis, we know you don’t mean it that way, so why risk getting caught with your foot in your mouth?

Greek PM Tsipras ‘Proud’ Of Living Conditions Of Refugees (K.)

Prime Minister has said he is “proud” of living conditions for refugees on the Greek mainland, although he admitted that “the situation remains difficult” for those stranded on the islands of the eastern Aegean. Speaking to France’s Le Figaro newspaper on the occasion of his visit to Paris, Tsipras also defended a deal between the European Union and Ankara to stem migrant flows in the Aegean. “The deal between the EU and Turkey is hard but necessary; it helped put an end to the daily deaths in the Aegean. We have received more than 60,000 refugees on mainland Greece who live in good conditions, with access to health and education. It is something I am proud of,” Tsipras said.

“The situation on the islands remains difficult. There is a large number of migrants and refugees and asylum procedures are time-consuming,” he said. Greece has seen a surge of migrant arrivals in recent months. With winter fast approaching and migrant reception centers on the Aegean islands reaching breaking point due to overcrowding, 20 human rights groups this week sent a letter to the Greek government calling for immediate action.

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People are dying already. It’s only autumn.

Greece Vows Greater Effort To Protect Refugees Over Winter (AP)

Greece has promised to step up efforts to protect migrants and refugees over the winter on the Greek islands, but defended a 2016 deal between Turkey and the European Union to stop the westward flow of migrants into Europe. On a visit to France, Prime Minister Alexis Tsipras told the country’s Figaro newspaper on Thursday that the agreement was difficult but necessary. His remarks followed strongly criticism from aid agencies and human rights groups over conditions at migrant shelters on Lesvos and other Greek islands. Greece has seen a surge of migrant arrivals in recent months. On Thursday, Greek border police recovered the body of a man believed to be a migrant in a river that divides Greece and Turkey – the second such incident in two days.

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“They’re killing us and they’re mocking us at the same time..”

Greek Pensioners March Against Government That ‘Took Everything’ (R.)

Several hundred elderly Greeks marched through Athens on Thursday, protesting against a government they say “took everything” with a new round of cuts to pensions and crumbling health care benefits. Greece’s three bailouts since 2010 have repeatedly taken aim at the pension system. Cuts have pushed nearly half its elderly below the poverty line with incomes of less 600 euros ($710.70) a month. With nearly a quarter of the workforce unemployed, a quarter of children living in poverty and benefits slashed, parents have grown dependent on grandparents for handouts. But after the cuts to pensions, some Greeks have seen their monthly cheque fall between 40 and 50 percent in seven years. After rent, utility bills and health care, they barely make ends meet.

“I have never seen the country in this state, not even during war,” said 80-year-old Nikos Georgiadis, a former hotel employee whose pension has been reduced by 40 percent. “Pensioners are impoverished, and not only can they not afford to buy medicines, some are looking for food in the trash,” he said, leaning on a tree to catch his breath. Fotini Karavidou, a 75-year-old retired accountant who joined the march in a wheelchair, said she had to “cut back on everything” to afford medicine. “It’s simple – many pensioners cannot afford to eat and to buy medicine,” said Yiannis Karadimas, 67, who heads a local pensioners association. Karadimas said it was “a joke” that the government had legalised marijuana for medical purposes while cutting back on health care spending. “They’re killing us and they’re mocking us at the same time,” he said.

The popularity of Prime Minister Alexis Tsipras has waned since he first won elections in 2015. In an effort to rebuild public support, the government gave Greece’s 1.3 million pensioners a one-off Christmas bonus last year, worth 300 to 500 euros each. But the handouts have failed to whip up any obvious increase in support. Pensioners have taken to the streets time and again in recent months. About 2,000 people joined Thursday’s march. “Unfortunately, I voted for them, and they turned out to be the biggest liars of all,” Georgiadis, the pensioner, said. “It [the government] promised us everything, and it took everything.”

Read more …

Oct 122017
 
 October 12, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , , ,  


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.

Read more …

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.

Read more …

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: , , , , , , , , , ,  


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
 
 July 15, 2017  Posted by at 9:27 am Finance Tagged with: , , , , , , , , , ,  


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: , , , , , , , , ,  


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: , , , , , , , , , , , ,  


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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