Aug 102017
 
 August 10, 2017  Posted by at 9:18 am Finance Tagged with: , , , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Dorothea Lange Rooms for Rent, Mission District. Slums of San Francisco, California 1936

 

An Indicator of Peril (Lebowitz)
Former CBO Director: Fall 2017 Will Be “Very Scary”, Expect A Market Crash (ZH)
US Still Stuck Firmly In The Great Recession (BI)
10 Years After Crisis, Another Crash Is ‘Almost Inevitable’ – Steve Keen (RT)
This $5 Trillion Time Bomb Will Devastate Americans (IM)
New Report Raises Big Questions About Last Year’s DNC Hack (N.)
Unverified ‘Russiagate’ Allegations a Grave Threat to America (Stephen Cohen)
European Commission Spending Thousands On ‘Air Taxis’ For Top Officials (G.)
Refugee Crisis Triggers Heightened Risk Of Slavery In EU Supply Chains (G.)

 

 

“The data point, Real Value Added, is currently in negative territory and may, therefore, be a harbinger of an economic downturn. If it is a false signal, it would be the first in a 70-year history of observations.”

An Indicator of Peril (Lebowitz)

Gross Value Added (GVA) and Real Value Added (RVA). GVA is a measure of economic activity, like GDP, but formulated from the production side of the economy. It measures the dollar value of all goods and services produced less all the costs required to produce those goods or services. For example, if 720Global buys $100 worth of wood, $20 worth of other materials and employs $30 worth of labor to build a chair, we have produced a good for $150. If that good is sold for $200, 720Global has created $50 of economic value. Gross Domestic Product (GDP), the more popular measure of economic activity, calculates the level of commerce based on the dollar value of the final goods and services produced. It may help to think of GDP as economic activity measured from the demand side and GVA as measured from the supply side.

Despite the differences, the levels of economic activity reported are remarkably consistent. Since 1948, nominal GDP has averaged annual growth of 6.55% while GVA has averaged 6.50%. It is important to note that, while they track each other very well over the longer term, they are less correlated quarter to quarter. Economists prefer to measure economic activity without the effect of inflation. If inflation were rampant when making the chair in the example above, some of the incremental value was due to the general trend of rising prices and not value added by 720Global. To strip out the effect of inflation and compute a pure measure of value added, it is commonplace to subtract inflation from GVA. The result is Real Value Added (RVA = GVA less CPI). The graph below plots RVA since 1948. Periods deemed recessionary by the National Bureau of Economic Research (NBER) are denoted in gray.

Currently, three of the last four quarters have produced negative RVA levels. Real GDP is not producing similar results, having averaged 2% growth over the same quarters. As mentioned earlier, RVA and Real GDP may not be well correlated over short time frames. RVA is just one source of data arguing that economic trouble lies ahead, therefore, we would be wise not to read too much into this one indicator. Of concern, however, is that negative RVA readings have an impeccable pattern of signaling recession as a coincident indicator.

Read more …

Debt ceiling solution far from done.

Former CBO Director: Fall 2017 Will Be “Very Scary”, Expect A Market Crash (ZH)

Rudy Penner, the former director of the Congressional Budget Office and the person described by MarketNews international as “one of Washington’s most respected fiscal policy experts”, told MNI Wednesday in an exclusive interview that he expects a “very scary” fall 2017 due to fiscal issues, with market-disrupting battles ahead on both the debt ceiling and fiscal year 2018 spending. Penner directed the CBO under president Reagan, worked at high level posts in the White House budget office, and the Council of Economic Advisers. He is currently a fellow at the Urban Institute and sits on the board of the Committee for a Responsible Federal Budget. “There are so many politically hard issues and so little consensus on budget and tax policy. I assume we’ll somehow get through this, but not without getting frightened on a regular basis,” Penner said.

“Probably the best we can hope for is muddling through the (FY 2018) budget and the debt limit and getting very limited health, tax, and infrastructure legislation. There is not going to be significant stimulus coming out of Washington in the foreseeable future,” he said, echoing what many other pundits have said before. Penner said a “bipartisan negotiation is badly needed” to forge even a limited FY 2018 spending agreement. But he’s not certain this will occur. “Even a very limited spending agreement might be an impossible dream. We may just stumble into a series of short-term CRs,” he said, referring to temporary spending bills to keep the government funded. While the “record polarization” rhetoric is familiar, the clock is starting to tick ever louder: the 2018 fiscal year begins on October 1, 2017 and extends until September 30, 2018. None of the 12 annual spending bills for FY 2018 have yet been approved by Congress.

On to the debt ceiling, the one item on the calendar which Morgan Stanley (and others) have said will be the biggest hurdle for the market in the next two months, Penner said he believes it will be “very challenging” for Congress to pass legislation this fall to increase the statutory debt ceiling. Treasury Secretary Steve Mnuchin has asked Congress to lift the debt ceiling by the end of September. Penner countered that a “plausible path” for dealing with the debt ceiling is to pass legislation in September to suspend the debt ceiling until after the November 2018 mid-term elections. However, such legislation, he said, may have to be negotiated by an unusual coalition assembled by House Speaker Paul Ryan, a Republican, and House Minority Leader Nancy Pelosi, a Democrat. Such an agreement, Penner said, “could put Speaker Ryan’s job in peril” by conservative Republicans who oppose it. He said he believes the debt ceiling is “an incredibly stupid law that makes no logical sense.”

Read more …

What happens when you save banks only.

US Still Stuck Firmly In The Great Recession (BI)

Expectations are everything, especially in economics. That’s why a distinct lack of progress in a few basic measures of economic progress, particularly relative to pre-crisis expectations, has left many Americans questioning how much they have personally benefitted from the economic recovery. A new report from the Roosevelt Institute, a liberal think tank in Washington, highlights a number of ways in which “the recovery since 2009 is, in a sense, a statistical illusion.” The study finds the nation’s total economic output, its gross domestic product, “remains about 15% below the pre-recession trend, a larger gap than at the bottom of the recession.” The first chart below shows that lag, while the second offers insights into just how badly the crisis dented expectations about the future.

Strong employment gains in recent months have brought the jobless rate down to a historically-low 4.3%. However, this decline has not been accompanied by rising incomes or consumer prices, generally associated with a sustainable economic boom. Some Federal Reserve policymakers have found this trend puzzling, while many labor economists point to underlying weaknesses in the job market, including high levels of underemployment and long-term joblessness, as drags on income. Stagnant wages amid rising profits have meant that the wage share in US national income has fallen from 63% to 57% in the last 15 years, according to the report. “It is impossible for the wage share to ever rise if the central bank will not allow a period of ‘excessive’ wage growth,” writes J.W. Mason, who authored the report. “A rise in the wage share necessarily requires a period in which wages rise faster than would be consistent with longterm macroeconomic stability.”

Read more …

Zombie-to-be economies.

10 Years After Crisis, Another Crash Is ‘Almost Inevitable’ – Steve Keen (RT)

Speaking to RT, Keen said another financial crisis could be just around the corner unless a fundamentally different approach to debt is adopted. He says we are too focused on government debt, when what actually caused the crisis was “run-away private debt.” “The economy in the UK is not stable. It’s in the aftermath of the biggest financial crisis since the great depression, and there’s still a lack of awareness in the political classes about what actually caused the crisis in the first place,” Keen said. “The Tories were incredibly successful in convincing the electorate that the crisis was caused by government spending, which is absurd. That is technically saying government spending in the UK caused the financial crisis in the United States. Which is just nonsense. “And that gave us austerity for the last 10 years. That austerity has actually further weakened the economy.”

Keen says the level of private debt in the UK peaked at about 195% of GDP post-crisis. While it is now down to about 170% of GDP, it is roughly three times the level of debt England carried before the Margaret Thatcher era, he says. “That’s the stuff that’s being ignored. Nothing is really being done about that. With the amount of debt just sitting there we are still likely to have another crisis – but more likely, we are going to have stagnation.” What is cause for concern, Keen says, is what he calls the “zombie-to-be” economies, such as Australia, Belgium, China, Canada, and South Korea, which avoided the 2008 crisis by borrowing their way through it. Now they have a bigger debt burden to deal with when the next crisis hits, which could be between 2017 and 2020, he says.

“[The ‘zombie-to-be’ economies] are roughly equivalent in size to the American economy. So when they fall, then there will be a crisis that affects the rest of the world, including the UK.” Keen sees China as a terminal case. It has expanded credit at an annualized rate of around 25% for years on end. With private sector debt exceeding 200% of GDP, China resembles the over-indebted economies of Ireland and Spain prior to 2008. He also has little hope for his native Australia, whose credit and housing bubbles failed to burst in 2008. Last year, Australian private sector credit nudged above 200% of GDP, up more than 20 percentage points since the global financial crisis. Australia shows “that you can avoid a debt crisis today only by putting it off until tomorrow,” Keen says.

Read more …

Pensions.

This $5 Trillion Time Bomb Will Devastate Americans (IM)

Over 3,000 millionaires have fled Chicago in recent months. This is the largest outflow of wealthy people from any US city right now. It’s also one of the largest outflows of wealthy people in the world. But it’s not just millionaires… Every five minutes someone leaves Illinois. In a recent poll, 47% of people in Illinois said they want to leave the state. Over the last decade, more than half a million people have done just that. This is the largest outflow of people from any state in the country. The people who leave are generally better educated, more skilled, and earn more money than those who stay. Entire towns of affluent Illinois refugees have sprouted up in Florida, Arizona, and other states. Illinois is bleeding productive people. This is a major warning sign. Wealthy people are often the first to leave a bad situation. They have the means to simply get up and go.

And when they do, they take their money and their businesses with them. This hurts the local property market and the rest of the local economy. Many of Illinois’ millionaires own businesses that employ large numbers of people. As they leave, there are fewer people and businesses left to shoulder the state’s enormous and growing financial burdens. Many of these people are leaving for one simple reason: rising taxes. Illinois’ leftist tax-and-spend politicians are continuing to increase all sorts of taxes, which were already high in the first place. The state just passed a 32% income tax hike. Rising taxes are pushing more and more productive people to make the chicken run… and at the worst possible moment for the state’s coffers. Illinois is the most financially distressed state in the US. Every month, it spends $600 million more than it takes in.

It’s now $15 billion behind on its bills and counting. Illinois is about to become America’s first failed state. Even its governor has described it as a “banana republic.” Today, Illinois can’t pay contractors to fix the roads. It doesn’t have enough cash to pay lottery winners. (What happened to the money it collected selling lottery tickets?) The state can’t even afford food for its prisoners. Here are the sad facts. Illinois has: Nearly $15 billion in overdue bills (including $800 million in interest). A $7 billion budget deficit. And an eye-watering $250 billion bottomless pit of unfunded pension obligations. This $250 billion tab is one of the worst public pension crises in the US.

[..] While Illinois has the worst pension situation, it’s not the only state or city in crisis. California’s public pension system is also broken beyond repair. It’s $750 billion underfunded. State pension plans in Connecticut, Pennsylvania, New Jersey, and many other states are taking on water, too. Unfunded public pension liabilities in the US have surpassed $5 trillion. And that’s during an epic stock and bond market bubble.

Read more …

A long overview of all the evidence.

New Report Raises Big Questions About Last Year’s DNC Hack (N.)

It is now a year since the Democratic National Committee’s mail system was compromised—a year since events in the spring and early summer of 2016 were identified as remote hacks and, in short order, attributed to Russians acting in behalf of Donald Trump. A great edifice has been erected during this time. President Trump, members of his family, and numerous people around him stand accused of various corruptions and extensive collusion with Russians. Half a dozen simultaneous investigations proceed into these matters. Last week news broke that Special Counsel Robert Mueller had convened a grand jury, which issued its first subpoenas on August 3. Allegations of treason are common; prominent political figures and many media cultivate a case for impeachment.

The president’s ability to conduct foreign policy, notably but not only with regard to Russia, is now crippled. Forced into a corner and having no choice, Trump just signed legislation imposing severe new sanctions on Russia and European companies working with it on pipeline projects vital to Russia’s energy sector. Striking this close to the core of another nation’s economy is customarily considered an act of war, we must not forget. In retaliation, Moscow has announced that the United States must cut its embassy staff by roughly two-thirds. All sides agree that relations between the United States and Russia are now as fragile as they were during some of the Cold War’s worst moments. To suggest that military conflict between two nuclear powers inches ever closer can no longer be dismissed as hyperbole.

All this was set in motion when the DNC’s mail server was first violated in the spring of 2016 and by subsequent assertions that Russians were behind that “hack” and another such operation, also described as a Russian hack, on July 5. These are the foundation stones of the edifice just outlined. The evolution of public discourse in the year since is worthy of scholarly study: Possibilities became allegations, and these became probabilities. Then the probabilities turned into certainties, and these evolved into what are now taken to be established truths. By my reckoning, it required a few days to a few weeks to advance from each of these stages to the next. This was accomplished via the indefensibly corrupt manipulations of language repeated incessantly in our leading media.

Read more …

America still ignores its no. 1 Russia expert.

Unverified ‘Russiagate’ Allegations a Grave Threat to America (Stephen Cohen)

Considering all these unprecedented factors, it needs to be emphasized again: President Trump is right about this “all-time low & very dangerous” moment in US-Russian relations. Having recently returned from Russia, Cohen reports that the political situation there is also worsening, primarily because of the Cold War fervor in Washington, including the politics of Russiagate and and new sanctions. Contrary to opinion in the American political-media establishment, Putin has long been a moderate, restraining factor in the new Cold War, but his political space for moderation is rapidly diminishing. His reaction to the congressional sanctions—reducing the number of personnel in US official outposts in Russia to the far lesser number of Russians in American ones—was the least he could have done.

Far harsher political and economic countermeasures are being widely discussed in Moscow, and urged on Putin. For now, he resists, explaining, “I do not want to make things worse,” but he too has a surrounding political elite and it is playing a growing role against any accommodation or restraint in regard to US policy. Meanwhile, the pro-American faction in Russian governmental circles is being decimated by Washington’s actions; and, as always happens in times of escalating Cold War, the space for Russian opposition and other dissident politics is rapidly shrinking.

Read more …

Well, if you build yourselves €1 billion offices, who cares?

European Commission Spending Thousands On ‘Air Taxis’ For Top Officials (G.)

Jean-Claude Juncker and his top officials are spending tens of thousands of euros on chartering private planes, according to documents detailing the European commission’s travel expenses. After three years of battling with transparency campaigners fighting for full disclosure, the EU’s executive has released two months of travel costs for 2016, revealing regular use of chartered planes to transport Brussels’ 28 commissioners. The most expensive mission for which details have been released was in the name of Federica Mogherini, the EU’s high representative for foreign affairs. It cost €77,118 for her and aides to travel by “air taxi” to summits in Azerbaijan and Armenia between 29 February and 2 March 2016.

A two-day visit by Juncker, the European commission president, with a delegation of eight people to see Italy’s political leaders in Rome in February 2016 cost €27,000, again due to the chartering of a private plane. Mina Andreeva, a commission spokeswoman, said the use of air taxis was only allowed where commercial flights were either not available or their flight plans did not fit in with a commissioner’s agenda. Security concerns would also allow the chartering of a private plane under commission rules. She said of Juncker’s trip that there had been “no available commercial plane to fit the president’s agenda” in Italy, where he met the Italian president and prime minister, among other dignitaries. The spokeswoman added that the EU’s total spending on such administrative costs was publicly available and that the organisation led the way in being transparent in their work.

The commission was not able to provide details of how many planes are chartered by Brussels every year, although she insisted the number was limited. The travel costs accumulated by the commissioners come out of the general budget, agreed by the member states. [..] According to documents relating to the two months in 2016, total travel and accommodation costs for visits by commissioners to European parliament sessions in Strasbourg, the World Economic Forum in Davos and official missions to countries came to €492.249, an average of €8,790 a month per commissioner.

Read more …

That’ll teach them to stay home.

Refugee Crisis Triggers Heightened Risk Of Slavery In EU Supply Chains (G.)

The migrant crisis has increased the risk of slavery and forced labour tainting supply chains in three-quarters of EU countries over the past year, researchers have found. Romania, Italy, Cyprus and Bulgaria – all key entry points into Europe for migrants vulnerable to exploitation – were identified by risk analysts as particularly vulnerable to slavery and forced labour. The annual modern slavery index, produced by Verisk Maplecroft, assessed the conditions that make labour exploitation more likely. Areas covered by the index include national legal frameworks and the severity, and frequency, of violations. Countries outside Europe, such as North Korea and South Sudan, were judged to be at the greatest risk of modern slavery, but the researchers said the EU showed the largest increase in risk of any region over the past year.

“In the past, the slavery story has been in supply chains in countries far away, like Thailand and Bangladesh,” said Dr Alexandra Channer, a human rights analyst at Verisk Maplecroft. “But it is now far closer to home and it something that consumers, governments and businesses in the EU have to look out for. With the arrival of migrants, who are often trapped in modern slavery before they enter the workplace, the vulnerable population is expanding.” The International Labour Organisation estimates that 21 million people worldwide are subject to some form of slavery. The biggest global increase in the risk of slavery was in Romania, which rose 56 places in the indexand is the only EU country classified as “high risk”. Turkey came a close second, moving up 52 places, from medium risk to high risk.

The influx of hundreds of thousands of Syrians fleeing war, combined with Turkey’s restrictive work permit system, has led to thousands of refugees becoming part of an informal workforce, said the study. The government, which is focused on political crackdown, does not prioritise labour violations, further adding to the risk. Over the past year, several large brands from Turkish textile factories have been associated with child labour and slavery. The picture in Romania is more complex, researchers said. The country’s high risk category reflects more severe and frequent instances of modern slavery, but also reflects a greater number of criminal investigations in Romania, usually in collaboration with EU enforcement authorities. Both Romania and Italy, which rose 17 places, have the worst reported violations in the EU, including severe forms of forced labour such as servitude and trafficking, the study said.

Read more …

Oct 112016
 
 October 11, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle October 11 2016
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


NPC Grand Palace shoe shining parlor, Washington DC 1921

“How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)
7 in 10 Americans Have Less Than $1,000 In Savings (MF)
After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)
S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)
The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)
Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)
‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)
Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)
Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)
Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)
Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)
Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)
Britain’s Nuclear Cover-Up (NYT)

 

 

Titans of finance gather and sulk.

“How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)

Mary Callahan Erdoes, one of JPMorgan Chase’s most senior executives, summed up her industry’s mood like this: “There is no excitement,” she told throngs of bankers gathered in Washington. “There is a lot of handwringing.” Again and again, speakers at the Institute of International Finance’s three-day meeting in Washington, which wrapped up Saturday, bemoaned the inability of central banks to rev up economic growth, as well as the drag of tougher regulations and the looming impact of Brexit. Concerns over Deutsche Bank’s mounting legal costs deepened the gloom. Slow growth is leaving companies little reason to expand, fueling the public’s frustration and giving rise to extreme political views and nationalism, said Erdoes, 49, who runs JPMorgan’s asset-management operations.

Low interest rates – instead of better fiscal stimulus – are taking a toll on the entire system, she said. “We had a very smart economist at JPMorgan ask me the following question: How do you have capitalism without any cost of capital? And therein lies the problem.” [..] Goldman Sachs President Gary Cohn called the world’s central banks an “ineffective cartel,” as actions in Europe and Japan lead to negative rates and hamstring other policy makers. The outlook for low growth is long-term, he said. “I don’t see this changing,” Cohn said Friday. “We keep saying we’re getting closer to the end, but I don’t think we’re getting closer to the end.”

Read more …

I’m not sure how one writes an article like this and completely fails to mention that for millions of Americans, it’s not a matter of bad saving habits, but of spending everything on the basics.

7 in 10 Americans Have Less Than $1,000 In Savings (MF)

The U.S. is often referred to as the land of economic opportunity. Apparently, it’s also the land of consumption and “spend everything you’ve got.” We don’t have to look far for confirmation that Americans are generally poor savers. Every month the St. Louis Federal Reserve releases data on personal household savings rates. In July 2016, the personal savings rate was just 5.7%. Comparatively, personal savings rates in the U.S. 50 years ago were double where they are today, and nearly all developed countries have a higher personal savings rate than the United States. In other words, Americans are saving less of their income than they should be — the recommendation is to save between 10% and 15% of your annual income — and they’re being forced to do more with less in terms of investing.

However, new data emerged this week from personal-finance news website GoBankingRates that shows just how dire Americans’ savings habits really are. Last year, GoBankingRates surveyed more than 5,000 Americans only to uncover that 62% of them had less than $1,000 in savings. Last month GoBankingRates again posed the question to Americans of how much they had in their savings account, only this time it asked 7,052 people. The result? Nearly seven in 10 Americans (69%) had less than $1,000 in their savings account. Breaking the survey data down a bit further, we find that 34% of Americans don’t have a dime in their savings account, while another 35% have less than $1,000. Of the remaining survey-takers, 11% have between $1,000 and $4,999, 4% have between $5,000 and $9,999, and 15% have more than $10,000.

Furthermore, even though lower-income adults struggle with saving money more than middle- and upper-income folks, no income group did particularly well. Some 29% of adults earning more than $150,000 a year, and 44% making between $100,000 and $149,999, had less than $1,000 in savings. Comparatively, 73% of the lowest income adults (those earnings $24,999 or less annually) had less than $1,000 in their savings account. There was even minimal difference between multiple generations of Americans. From seniors aged 65 and up to young millennials aged 18 to 24, between 62% and 72% of Americans had less than $1,000 in a savings account.

Read more …

Great little piece by Wolf Richter.

After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)

Over the past few days, the Diamond Producers Association launched its first new ad campaign in five years after watching retail sales of diamond jewelry slow down, as Millennials built on the habit pioneered by prior generations of delaying or not even thinking about marriage, and thus not being sufficiently enthusiastic about buying diamond engagement rings. The campaign, according to Adweek, is designed to motivate Millennials “to commemorate their ‘real,’ honest relationships with diamonds, even if marriage isn’t part of the equation.” Mother New York, the agency behind the campaign, spent months interviewing millennials, according to Quartz, and learned that they associated diamonds with a “fairytale love story that wasn’t relevant to them.”

So the premium jewelry industry, seeing future profits at risk, needs to do something about that. A year ago, it was Wall Street – specifically Goldman Sachs – that did a lot of hand-wringing about millennials. “They don’t trust the stock market,” Goldman Sachs determined in a survey. Only 18% thought that the stock market was “the best way to save for the future.” It’s a big deal for Wall Street because millennials are now the largest US generation. There are 75 million of them. They’re supposed to be the future source of big bonuses. Wall Street needs to figure out how to get to their money. The older ones have seen the market soar, collapse, re-soar, re-collapse, re-soar…. They’ve seen the Fed’s gyrations to re-inflate stocks. They grew up with scandals and manipulations, high-frequency trading, dark pools, and spoofing.

They’ve seen hard-working people get wiped out and wealthy people get bailed out. Maybe they’d rather not mess with that infernal machine. And today, the Los Angeles Times added more fuel. “They’re known for bouncing around jobs, delaying marriage, and holing up in their parents’ basements,” it mused. Everyone wants to know why millennials don’t follow the script. Brick-and-mortar retailers have been complaining about them for years, with increasing intensity, and a slew of specialty chains have gone bankrupt, a true fiasco for the industry, even as online retailers are laughing all the way to the bank. “For starters, millennials are not big spenders, at least not in the traditional sense,” the Times said. Yet most of them spend every dime they earn, those that have decent jobs. But much of that spending goes toward their student-loan burden and housing.

Read more …

Trying to fit human behavior into triangles.

S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)

The S&P 500 is moving fast toward an impending breakout that could be bad news for investors. “And it’s gonna be big, by all accounts,” said Carter Braxton Worth, a technical analyst at research firm Cornerstone Macro. The S&P 500 has been trading within a “symmetrical triangle” on a number of time scales, as the index traced out a pattern of rising lows and falling highs. Since the upper and lower boundary lines are narrowing to a point, it’s just a matter of time before the S&P 500 breaks above or below one of them. “It is a circumstance where buyers and sellers are matched off so evenly that purchases being made by those who like a particular security are in the same order of magnitude as the selling being done by those who dislike the security,” Worth wrote in a note to clients.

His research suggests that the resolution of these standoffs is usually “aggressive,” with the index moving past the declining or rising trendlines “in a meaningful way.” Many technicians believe triangles represent continuation patterns, or periods of pause in a bigger trend, which means they should eventually be resolved in the direction of the preceding trend. In the S&P 500’s case, that would mean a big rally is coming. But Worth said that based on his interpretation of the charts, the S&P 500’s triangle looks more like a reversal pattern. “We believe the current formation is a setup for a move lower,” Worth said.

Read more …

Hoping that just this once it’s different.

The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)

Beset by lending curbs and bubble-esque prices, first-time home buyers in Australia are turning to a rapidly growing source of finance: The Bank of Mom and Dad. More parents are taking advantage of record-low interest rates to refinance their properties and help their grown-up kids onto the housing ladder amid sky-rocketing house values. Digital Finance Analytics estimates the number of Aussies getting help from their parents has soared to more than half of first-home buyers from just 3% six years ago. Australia’s housing rally has favored baby-boomers and locked out youth, compounding an inter-generational shift of wealth.

As the number of bank loans to first-time buyers dwindles, the average slice of cash handed to them by parents has almost quadrupled in the past six years, DFA says. The downside: a market that the Reserve Bank of Australia is already wary of may get further inflated. First-time buyers are “being infected by the notion that property is about wealth building, rather than somewhere to live,” said Martin North, Principal at DFA. That “may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels.” [..] The boom is turning some homes into cash dispensers. More than two thirds of owners that refinanced houses worth more than A$750,000 did so to extract capital for reasons including helping their kids. Near the start of 2010, the average helping hand from parents was about A$23,000; today, it’s more than A$80,000.

Read more …

“..they don’t have a strong willingness to hold the yuan due to depreciation expectations..” Does that rhyme with the SDR basket thing?

Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)

China’s currency outflows may be bigger than they look, with Goldman Sachs warning that a rising amount of capital is exiting the country in yuan rather than in dollars. While the nation’s foreign-exchange reserves have stabilized and lenders’ net foreign-exchange purchases for clients have fallen close to a one-year low, official data show that $27.7 billion in yuan payments left China in August. That’s compared with a monthly average of $4.4 billion in the five years through 2014. Such large cross-border moves can’t be explained by market-driven factors and need to be taken into account when measuring currency outflows, according to MK Tang, Hong Kong-based senior China economist at Goldman Sachs.

Any sign of increased capital outflows could disturb a recent calm in China’s foreign-exchange market, adding to pressure from a potential Federal Reserve interest-rate increase and denting the yuan’s image as the world’s newest global reserve currency. The yuan fell to a six-year low on Monday, adding to outflow pressures. “There is some window guidance from the central bank that limits companies’ dollar conversion onshore, so they need to move the money overseas in yuan,” said Harrison Hu, chief Greater China economist at RBS in Singapore. “But they don’t have a strong willingness to hold the yuan due to depreciation expectations, so they sell it to offshore banks. This pressures the offshore yuan’s exchange rate.”

[..] Goldman Sachs started including yuan funds in its analysis of outflows in July, after noting that cross-border movement of the currency masked actual pressures. The bank estimates that 56% and 87% of outflows took place through the offshore yuan market in July and August, respectively.

Read more …

Do read the whole thing for a good history lesson.

‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)

In 2000 when Putin was elected president, he publically promoted security and economic cooperation with Europe and the United States. After 9/11, he offered real assistance to Washington. The United States accepted the Russian help, but continued its anti-Russian policies. Putin extended his hand to the west, but on the basis of five kopeks for five kopeks. This was a Soviet policy of the interwar years. It did not work then and it does not work now. In 2007 Putin spoke frankly at the Munich conference on Security Policy about overbearing US behaviour. The “colour revolutions” in Georgia and the Ukraine, for example, and the Anglo-American war of aggression against Iraq raised Russian concerns. US government officials did not appreciate Putin’s truth-telling which went against their standard narrative about «exceptionalist» America and altruistic foreign policies to promote «democracy».

Then in 2008 came the Georgian attack on South Ossetia and the successful Russian riposte which crushed the Georgian army. It’s been all down-hill since then. Libya, Syria, Ukraine, Yemen are all victims of US aggression or that of its vassals. The United States engineered and bankrolled a fascist coup d’état in Kiev and has attempted to do the same in Syria reverting to their “Afghan policy” of bankrolling, supplying and supporting a Wahhabi proxy war of aggression against Syria. Backing fascists on the one hand and Islamist terrorists on the other, the United States has plumbed the depths of malevolence. President Putin and Russian foreign minister Sergei Lavrov have made important concessions, to persuade the US government to avert catastrophe in the Middle East and Europe.

To no avail, five kopeks for five kopeks is not an offer the United States understands. Assymetrical advantages is what Washington expects. One cannot reproach the Russian government for trying to negotiate with the United States, but this policy has not worked in the Ukraine or Syria. Russian support of the legitimate government in Damascus has exposed the US-led war of aggression and exposed its strategy of supporting Al-Qaeda, Daesh, and their various Wahhabi iterations against the Syrian government. US Russophobia is redoubled by Putin’s exposure of American support for Islamist fundamentalists and by Russia’s successful, up to now, thwarting of US aggression. Who does Putin think he is? From my observations, I would reply that President Putin is a plain-spoken Russian statesman, with the support of the Russian people behind him.

For five kopeks against five kopeks, he will work with the United States and its vassals, no matter how malevolent they have been, if they adopt less destructive policies. Unfortunately, recent events suggest that the United States has no intention of doing so. After one hundred years of almost uninterrupted western hostility, no one should be under any illusions. So then, the question is “Why do they hate us so?” Because President Putin wants to build a strong, prosperous, independent Russian state in a multi-polar world. Because the Russian people cannot be bullied and will defend their country tenaciously. “Go tell all in foreign lands that Russia lives!» Prince Aleksandr Nevskii declared in the 13th century: «Those who come to us in peace will be welcome as a guest. But those who come to us sword in hand will die by the sword! On that Russia stands and forever will we stand!”

Read more …

Yeah, Daniel Hannan has lots of stuff wrong with him. But Britain must have this conversation regardless of that. I picked this piece up on Twitter, with this accompanying comment: “No aspect of Brexit is Remain voters’ fault in any way, or to any extent at all.” I don’t know if that was meant sarcastically, but I would certainly hope so. Without that conversation things can only get worse. Remainers must try harder to understand why Brexit happened. If nothing else, I would think they’re at least ‘guilty’ of not seeing it coming. And perhaps also of seeing Brexit as the problem, not a mere symptom.

Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)

Shortly after the EU referendum, several thousand young people marched through London demanding a rerun. I happened to be sitting next to three of them on a train as I travelled into the capital that morning. They evidently recognised me right away as an Evil Tory Leaver, but we were past Clapham Junction before one of them plucked up the courage to talk to me. “Are you Daniel Hannan? I just wanted to say that what you’ve done is terrible. We’re not a racist country. You’ve taken away our future.” “Is that so? Out of interest, can you tell me who the President of the European Commission is?” “No. What’s that got to do with it?” “Can you name a single European Commissioner, come to that? Do you know what our budget contribution will be this year? Or what the difference is between a Directive and a Regulation?”

She was affronted by the questions. So were her two friends with their “I [heart] EU” placards. They weren’t interested in details. For them, it was about values. Are you a decent, internationalist, compassionate person? Or are you a selfish bigot? Let’s leave aside the fact that no one would ever vote on any ballot paper for a “selfish bigot” option. Their determination to approach the issue in terms of character, rather than cost-benefit, explains why they were so upset – and why, even now, some Remain voters struggle to accept the outcome. In my experience, the 48% who voted Remain fall into two categories. There are those who were making a judgement as to where Britain’s best options lay. They could see that the is EU flawed.

They were well aware of the corruption, the lack of democracy, the slow growth. But they took the view that, on balance, the disruption of leaving would outweigh the gains. These people, by and large, now want to make a success of things, and are keen to maximise our opportunities. Then there were those like my companions on South West Trains, for whom the issue was not financial but somehow moral. For them, the EU wasn’t the grubby and self-interested body that exists in reality; rather, it was a symbol of something better and purer, an embodiment of the dream of peace among nations. They never heard, because they never wanted to hear, the democratic or economic arguments against membership. As far as they were concerned, the only possible reason for voting Leave was chauvinism.

Read more …

“Euro Area Looks to Help on Debt” sounds like the epitomy of cynicism. The Eurogroup withheld €1.7 billion, to Greece’s surprise, because it wanted to assess A) whether a June payment was fully used to pay off third parties, and B) whether the government had squeezed its people enough (reforms). The delay is convenient for Brussels because it also delays debt restructuring talks once again, for the umpteenth time. And without those talks, the IMF won’t commit. Rinse and repeat.

Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)

The euro area authorized a €1.1 billion payment to Greece and signaled a further €1.7 billion would follow this month, saying the region’s most indebted nation has made progress in overhauling its economy. The green light, given by euro-area finance ministers on Monday in Luxembourg, removes a hurdle on Greece’s path to debt relief on which Prime Minister Alexis Tsipras has staked part of his political future. The country had to fulfill 15 conditions on matters such as selling state assets and improving bank governance to get the first payout.

It “was unanimously decided that Greece had completed the 15 milestones, so we can proceed to the €1.1 billion disbursement,” Greek Finance Minister Euclid Tsakalotos told reporters after the meeting, saying the talks produced a “very good” outcome for his country. The delay in getting an endorsement for the remaining sum, which is tied to the clearing of arrears, is merely “technical,” he said. Greece, in its third bailout since 2010, is struggling to right an economy that is poised to undergo its eighth annual contraction in the past nine years. A second review of the country’s rescue program will pave the way for a possible restructuring of Greece’s debt, which the IMF says is a necessary condition for its future involvement.

Read more …

This feels like a military coup, a chapter straight out of the Shock Doctrine. Stocks go up because people’s lives go down.

Glenn Greenwald on Twitter: “Brazil’s lower House- in the face of negative growth- just voted to amend the Constitution to ban spending increases for 20 years..” “This extreme austerity in Brazil – enabled by impeachment- is being imposed in world’s 7th largest economy, 5th most populous country (200m). ”

Nomi Prins on Twitter: “Brazil’s coup was about advancing western speculative market access & squashing domestic population needs – for decades…bastards.”

Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)

The Ibovespa rose to a two-year high and the real gained as commodities advanced and as expectations mounted that lawmakers will approve a bill to cap spending, a key measure in President Michel Temer’s plan to trim a budget deficit and rebuild confidence in Brazil. The benchmark equity index rose 0.9% and the currency climbed 0.5% Monday in Sao Paulo. [..] Brazilian stocks have gained 75% in dollar terms this year and the real has strengthened 24%, the best performances in the world, on bets that a new government would be able to pull the country out of its worst recession in a century.

Temer, who formally replaced impeached former President Dilma Rousseff in August, said the administration should have enough votes to drive through a budget bill Monday that’s seen as a vital first step toward his economic reforms. The proposal to amend the Constitution to set limits on government spending for as long as 20 years must be approved by at least three-fifths of both chambers of Congress. “The market is very optimistic over this legislation,” said Paulo Figueiredo, an economist at FN Capital in Petropolis, Brazil. “New bets on local assets depend a lot on the signals that will come from this vote.”

Read more …

Bubble?!

Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)

Global investment in clean energy fell to the lowest in more than three years as demand for new renewable energy sources slumped in China, Japan and Europe. Third-quarter spending was $42.4 billion, down 43% from the same period last year and the lowest since the $41.8 billion reported in the first quarter of 2013, Bloomberg New Energy Finance said in a report Monday. Financing for large solar and wind energy plants sank as governments cut incentives for clean energy and costs declined, said Michael Liebreich at the London-based research company. Total investment for this year is on track to be “well below” last year’s record of $348.5 billion, according to New Energy Finance.

The third-quarter numbers “are worryingly low even compared to the subdued trend we saw” in the first two quarters, Liebreich said in a statement. “Key markets such as China and Japan are pausing for a deep breath.” Part of the reason for the steep decline in the quarter was a slowdown following strong spending in the first half of the year on offshore wind. Investors poured $20.1 billion into European offshore wind farms in the first and second quarters, “a runaway record,” according to Abraham Louw, an analyst for energy economics with New Energy Finance. That was followed by a “summer lull,” with $2.4 billion in spending in the third quarter.

Read more …

So much for that.

Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)

Igor Sechin, Russia’s most influential oil executive and the head of Kremlin energy champion Rosneft, said his company will not cut or freeze oil production as part of a possible agreement with OPEC. His comments underline how difficult it is for Russia to get its oil companies to freeze or cut output as part of a potential deal with OPEC designed to support oil prices. President Vladimir Putin told an energy congress on Monday that Russia was ready to join the proposed OPEC cap, but did not provide any details. “Why should we do it?” Sechin, known for his anti-OPEC position, told Reuters in Istanbul on Monday evening, when asked if Rosneft, which accounts for 40% of Russia’s total crude oil output, might cap its own output.

Sechin said he doubted that some OPEC countries, such as Iran, Saudi Arabia and Venezuela would cut their output either, saying that an increase in oil prices above $50 per barrel would make shale oil projects in the United States profitable. There have been several attempts in the past for Russia and OPEC to join forces to stabilize oil markets. Those efforts have never come to pass however. Oil prices surged on Monday after Putin’s comments amid hopes that a two-year price slide could be halted.

Read more …

Uglee!!!

Britain’s Nuclear Cover-Up (NYT)

Last month, the British government signed off on what might be the most controversial and least promising plan for a nuclear power station in a generation. Why did it do this? Because the project isn’t just about energy: It’s also a stealth initiative to bolster Britain’s nuclear deterrent. For years, the British government has been promoting a plan to build two so-called European Pressurized Reactors (EPR) at Hinkley Point C, in southwest England. It estimates that the facility will produce about 7% of the nation’s total electricity from 2025, the year it is expected to be completed. The EPR’s designer, Areva, claims that the reactor is reliable, efficient and so safe that it could withstand a collision with an airliner.

But the project is staggeringly expensive: It will cost more than $22 billion to build and bring online. And it isn’t clear that the EPR technology is viable. No working version of the reactor exists. The two EPR projects that are furthest along — one in Finland, the other in France — are many years behind schedule, have hemorrhaged billions of dollars and are beset by major safety issues. The first casting of certain components for the Hinkley Point C reactors left serious metallurgical flaws in the pressure vessel that holds the reactor core. In 2014, the Cambridge University nuclear engineer Tony Roulstone declared the EPR design “unconstructable.”

The lead builder of the EPR, the French utility company Electricité de France, faced a mutiny this year: Its unions fought the Hinkley Point project, fearing it might bring down the company. E.D.F.’s chief financial officer has resigned, arguing that it would put too much strain on the company’s balance sheet. But the British government continues to act as though it wants the Hinkley project to proceed at almost any price. In return for covering about one-third of the costs, the Chinese state-run company China General Nuclear Power Corporation will take about one-third ownership in the project. (A subsidiary of E.D.F. owns the rest.) The British government has also provisionally agreed to let China build a yet-untested Chinese-designed reactor in Bradwell-on-Sea, northeast of London, later.

[..] The British government has [..] guaranteed that investors in the Hinkley project will get $115 per megawatt-hour over 35 years. This is approximately twice the price of electricity today [..]. If the market price of electricity falls below that rate, a government company is contractually bound to cover the difference — with the extra cost passed on to consumers. Price forecasts have dropped since the deal was struck: This summer the government, revising estimates, said differential payments owed under the contract could reach nearly $37 billion. If the Hinkley plan seems outrageous, that’s because it only makes sense if one considers its connection to Britain’s military projects — especially Trident, a roving fleet of armed nuclear submarines, which is outdated and needs upgrading.

Read more …

Jun 112016
 
 June 11, 2016  Posted by at 3:24 pm Finance Tagged with: , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone

I was going to take a day off today, partly because a kind Automatic Earth reader in Athens insisted on taking me out to lunch, partly because I need a break, and partly because the Financial Times complained about their inclusion in my Debt Rattles, which makes me think about the whole thing. Nothing bad about that. Think is good.

But then of course my head doesn’t stop wandering, and so I wandered into music, and Muhammad Ali’s funeral and memory, and I was pondering that he must have loved the songs I post below. As much as I am turned off by a lot of things stateside these days, and he was too, the country, when history is written, will be known for as long as there are people to sing and play and act, for the incredible melting pot of musical styles and plays and movies it has produced.

America, if anything sums it up, is a country that has perfected the art of painting a portrait of itself in music, literature and film. Often a deceptively false portrait, as in the whole “John Wayne vs the Indians” theme, but that’s not the real story, and we all know it. America’s always been about making you believe it’s something it’s not. And in the process it’s produced, despite itself, magic.

Gospel and religion were always a large part of the music, along with the inherent contradiction in having both sides of the segregation lines and railroad tracks go to churches and pray -in different ways- to the same God. Ali found his own. But he knew all along that there is but one God for those who choose to believe in one. He just didn’t want everyone to know that, at least not 50 years ago.

In the music itself, the British and Irish and German and Russin and Jewish et al influences are plain for everyone to hear. But American music was of course shaped more than anything else by African slaves. The biggest miracle the continent has produced is the coming together, if only in music alone, of the oppressors and the oppressed.

That’s quite an achievement, when you get to think about it. At the same time, that’s the power of music; it doesn’t know borders or race. But that’s not nearly all either.

What’s missing in my view and knowledge is how the music that the earliest slaves, those who weren’t shipped to the US but much further south to Brazil and neighboring lands, we’re talking 17-18th century, influenced American music. That’s something I’d like to know a lot more about. Meanwhile, the Coen brothers tuned right down into all of this. And so did Bob Dylan. And Ali, who now wears the robe and crown.

 

 

 

 

Nov 292014
 
 November 29, 2014  Posted by at 12:13 pm Finance Tagged with: , , , , , , , ,  6 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


DPC The Mammoth Oak at Pass Christian, Mississippi 1900

Market Rout As Oil Slide Rocks Energy Groups (FT)
Could Oil Collapse Cause Next Credit Crisis? (CNBC)
OPEC Gusher to Hit Weakest Players, From Wildcatters to Iran (Bloomberg)
Oil Drop Is Big Boon For Global Stock Markets, If It Lasts (AEP)
Oil Countries Wasted Chance To Build Strong Economies (Guardian)
OPEC Has Ushered In QE4 (MarketWatch)
Inside OPEC Room, Naimi Declares Price War On US Shale Oil (Reuters)
Will The US Give The Dutch Their Gold Back? (CNBC)
Swiss, French Call To Bring Home Gold As Dutch Move 122 Tons Out Of US (RT)
Fed’s Latest Invention Holds Promise For Controlled Rate Rise (Reuters)
In Show Of Confidence, Americans Take On More Debt (Reuters)
Wells Fargo Accused of Predatory Lending in Chicago Area (Bloomberg)
Does a Generation Burdened by Debt Care About Government Spending? (Bloomberg)
Eurozone Inflation Slows as Draghi Tees Up QE Debate (Bloomberg)
Why Italy’s Stay-Home Shoppers Terrify The Eurozone (Reuters)
Economic Devastation In Italy Prompts New Wave Of Migration To Australia (ABC)
Animal Extinctions From Climate Rival End of Dinosaurs (Bloomberg)
Fracking As Deadly As Thalidomide, Tobacco And Asbestos (Guardian)
Traffickers Profit as Asylum Seekers Head for Europe (Spiegel)
Up To 13,000 People Working As Slaves In UK (Guardian)

” .. with US crude at or below $70, “no [shale] basin is safe” from cuts in drilling activity.”

Market Rout As Oil Slide Rocks Energy Groups (FT)

Shares in the world’s biggest energy groups have tumbled in a market rout as plunging oil prices put at risk billions of dollars of investment and jeopardised future supplies of crude. The sharp slide in the price of Brent oil after Opec’s decision not to cut output triggered warnings that oil companies would cut as much as $100bn of capital spending in response, imperilling the US shale bonanza and threatening much Arctic oil exploration. Meanwhile oil’s fall continued to play havoc with the currencies of oil exporting countries, especially Russia. At one point on Friday, the rouble slid to a record low.

Leonid Fedun, vice-president of Lukoil, Russia’s second largest crude producer, told the Financial Times that Opec was trying to turn the US shale oil “boom” into a “bust” for smaller producers. He compared the surge in North American shale to the dotcom and subprime mortgage booms, and said Opec’s objective now was “to get small producers with large debts and low efficiency to pack up and leave the market”. Opec said on Thursday that it was leaving its output ceiling of 30m barrels a day unchanged, prompting a swift 8% drop in the oil price, which was already down by nearly 40% since mid-June. The move showed that Saudi Arabia, Opec’s largest producer and effective leader, had decided to relinquish its traditional role of balancing the oil market by increasing or reducing output, letting prices do the job instead, analysts said. “We cannot overstate what a dramatic and fundamental change this is for the oil market,” said Mike Wittner, senior oil analyst at Société Générale.

Friday’s brutal sell-off in the US and across Europe hit shares in the oil majors, the big oil services companies that supply them, as well as the smaller explorers most exposed to the plunge in crude. ExxonMobil fell 4.3%, Chevron 5.4% and oilfield services group Halliburton 11.1%. They recovered slightly by the close. But the slide could bring relief for motorists. The price fall has sent a chill through the US shale sector, which had driven US oil production to its highest level in more than three decades. Analysts at Tudor Pickering Holt, the energy investment bank, warned that, with US crude at or below $70, “no basin is safe” from cuts in drilling activity. WTI, the US benchmark, is currently trading below $67 a barrel. The Bakken shale of North Dakota and the Mississippian Lime region of Oklahoma would be among the regions bearing the initial brunt of the slowdown, they said.

Read more …

“It’s not just the Saudis who could get much poorer from the oil price free fall. Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks.”

Could Oil Collapse Cause Next Credit Crisis? (CNBC)

It’s not just the Saudis who could get much poorer from the oil price free fall. Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis. Why could that happen? Well, energy companies make up anywhere from 15 to 20% of all U.S. junk debt, according to various sources. In fact, they’ve been the most prolific issuers of high-yield debt over the years, as their share of that market was just 5% in 2005. The oil bull market we once knew filled their coffers and made executives feel confident they could borrow more and more money.

Much of that high-yield debt is now on the books of banks, asset managers and pension funds. What’s more, banks are even more dependent on a happy junk market as they make a market in the bonds. Any collapse in prices could cause bidders to run and liquidity to dry up. They also issue high-yield debt exchange-traded funds, which have been wildly popular with investors over the last decade. If that popularity turns into heavy selling, the banks may not be able to sell the bonds fast enough to meet the pricing demands of the ETF, traders said. “I’ve no doubt the (high-yield) sector will get bad, but the worry is that because of the general lack of liquidity in high yield overall that it could be an environment that makes contagion very much a possibility,” said James Farro of Coghlan Capital.

There are cracks, but certainly no contagion yet. From its high above $100 this June, WTI crude is down more than 36% and counting. The Credit Suisse High Yield Bond Fund, one of the many proxies for junk debt, is off 6% over that period. Yet stocks in the bank sector are up more than 8% since June. And the Dow Jones industrial average is more than 6% higher. “This is the one thing I’ve seen over and over again,” said Larry McDonald, head of U.S strategy at Newedge USA’s macro group. “When high yield underperforms equity, a major credit event occurs. It’s the canary in the coal mine.” [..] During the last high-yield collapse, which centered around debt tied to the housing sector, Citigroup lost 63% of its value in the following 60 days, Kensho [a quantitative analytics tool] shows. Bank of America was cut in half.

Read more …

Bloomberg doesn’t expect too much brain activity in its readers: ” ..only about 4% of shale production needs $80 or more to be profitable”.

OPEC Gusher to Hit Weakest Players, From Wildcatters to Iran (Bloomberg)

The refusal of Saudi Arabia and its OPEC allies to curb crude oil output in the face of plummeting prices has set the energy world on a painful course that will leave the weakest behind, from governments to U.S. wildcatters. A grand experiment has begun, one in which the cartel of producing nations – sometimes called the central bank of oil – is leaving the market to decide who is strongest and how to cut as much as 2 million barrels a day of surplus supply. Oil patch executives including billionaire Harold Hamm have vowed to drill on, asserting they can profit well below $70 a barrel, with output unlikely to fall for at least a year. Marginal producers in less profitable U.S. shale areas, as well as countries from Iran to Russia and operations from Canada to Norway will see the knife sooner, according to analyses by Wells Fargo, IHS and ITG Investment Research. “We’re in a very nerve-wracking environment right now and will be for probably the next couple of years,” Jamie Webster, senior director at IHS said today in a phone interview.

“This is a different game. This isn’t just about additional barrels, this is about barrels that are going to keep coming and keep coming.” Investors punished oil producers, as Hamm’s Continental fell 20%, the most in six years, amid a swift fall in crude to below $70 for the first time since 2010. Exxon Mobil fell 4.2% to close at $90.54. Talisman was down 1.8% at 3:00 p.m. in Toronto after dropping 14% yesterday. A production cut by12-member OPEC would have been the quickest way to tighten the world’s oil supplies and boost prices. In the U.S., supply is expected either to remain flat or rise by almost 1 million barrels a day next year, according to International Energy Agency and ITG. That’s because only about 4% of shale production needs $80 or more to be profitable. Most drilling in the Bakken formation, one of the main drivers of shale oil output, returns cash at or below $42 a barrel, the IEA estimates.

Read more …

Key sentence: “provided the chief cause is a surge in crude supply rather than a collapse in economic demand”. Ambrose needs to do some thinking.

Oil Drop Is Big Boon For Global Stock Markets, If It Lasts (AEP)

Tumbling oil prices are a bonanza for global stock markets, provided the chief cause is a surge in crude supply rather than a collapse in economic demand. HSCB says the index of world equities rose 25pc on average over the twelve months following a 30pc drop in oil prices, comparable to the latest slide. Equities rose 19pc in real terms. Data stretching back to 1876 is less emphatic but broadly tells the same tale. The S&P 500 index of Wall Street stocks rose by 11pc on average. The equity rally of 1901 was a corker. Yet there were big exceptions. Stock markets continued to fall by 23pc in 1930 after the oil price crash. Much the same happened after the dotcom bust in 2001. On both occasions the forces of global recession overwhelmed the stimulus or “tax cut” effect for consumers and non-oil companies of lower energy costs. Roughly one third of the current oil slump is a shortfall in expected demand, caused by China’s industrial slowdown and Europe’s austerity trap.

The other two thirds are the result of a sudden supply glut, which Saudi Arabia and the Gulf states have so far chosen not to offset by cutting output. This episode looks relatively benign. Nick Kounis from ABN Amro says it will add $550bn of stimulus to world markets. “That is fantastic news for the global economy,” he said. But it comes at a time when stocks are already high if measured by indicators of underlying value. The Schiller 10-year price earnings ratio is at nose-bleed levels above 27. Tobin’s Q, a gauge based on replacement costs, is stretched to near historic highs. Andrew Lapthorne from Societe Generale says the MSCI world index of stocks has risen 38pc over the last three years but reported profits have risen just 3pc. “Valuations, as measured by median price to cash flow ratios, are near historical highs. As US QE has come to an end, depriving the world of $1 trillion printed dollars a year, there are plenty of reasons to be nervous,” he said.

Past patterns may not prove a useful guide this time. Zero rates and QE have distorted all the normal signals. So has the emergence of China as the swing force in global commodity demand. Nor is it certain that this fall in oil prices will endure. Morgan Stanley said the over-supply in the market is “vastly overstated”. Much of the immediate glut is due to a supply surge of 800,000 barrels a day in Libya after export terminals were reopened over the early summer following a truce by tribal militias. This truce is already unravelling. Output has dropped by 400,000 barrels a day since September. “Libya is getting worse by the day,” said Alastair Newton, head of political risk at Nomura. “Iraq is producing at the top of its band, and Russia’s output always goes down in the winter for weather reasons. The 2m barrel surplus could disappear in no time.”

Read more …

Oil has created welfare states with fast surging populations, but no industrial base, no jobs.

Oil Countries Wasted Chance To Build Strong Economies (Guardian)

Many of the large oil-producing nations such as Saudi Arabia, Kuwait and Venezuela have squandered their chance to build strong and sustainable economies on the proceeds of high oil prices, a leading energy analyst has warned. Fadel Gheit, an oil expert at the Oppenheimer brokerage in New York, said prices at $90 a barrel had allowed nations to temporarily prosper without regard to the cyclical nature of commodity prices. “Many of these countries have failed to diversify their economies. They are welfare states, dependent on high-cost oil without any other real manufacturing, industry or even tourism and now the oil bubble has burst,” he said. Gheit, a former Mobil Oil executive, said the oil producers should have followed the examples of countries such as Japan and South Korea which had built vibrant economies without any natural resources.

The damning view of some of the largest energy producers came as the price of benchmark Brent crude continued to fall and the Oppenheimer analyst believes it will not stop at $70. There is growing concern about the political implications for oil-producing countries of a prolonged slump in prices, especially Iran, Algeria and Venezuela, which have high-cost production and heavy public spending commitments. Russia, which derives half its budget revenue from oil and gas, is already struggling with a collapse in the value of the rouble and an economy fast moving into recession. The Kremlin, which is also struggling with western sanctions over Ukraine, is thought to need an oil price of $105 to balance its budget, according to some estimates.

Iran, also hit by sanctions in the past over its nuclear programme, is heavily dependent on its energy exports and is said to need $140 a barrel to balance its budget. Meanwhile, oil accounts for 95% of Venezuela’s exports. Harvard economists claim its per capita gross domestic product is 2% lower than it was in the 1970s when oil prices were 10 times lower. Gheit says oil producers have been blind to consuming nations reducing their energy intensity and even more importantly that US shale is turning the supply map upside down. “They have failed to see that fracking is like a virus and it’s going to proliferate and it will eventually spread even to Russia and Saudi Arabia.”

Read more …

And deflation.

OPEC Has Ushered In QE4 (MarketWatch)

Welcome to the new era of QE4. As if on cue, OPEC stepped in just as monetary policy (at least the Fed’s) has dried up. Central bankers have nothing on the oil cartel that did just what everyone expected, but has still managed to crush oil prices. Protest away about the 1% getting richer and how prior QE hasn’t trickled down to those who really need it, but an oil cartel is coming to the rescue of America and others in the world right now. It’s hard to imagine a “more wide-reaching and effective stimulus measure than to lower the cost of gas at the pump for everyone globally,” says Alpari U.K.’s Joshua Mahoney. “For this reason, we are effectively entering the era of QE4, with motorists able to allocate more of their money towards luxury items, while firms are now able to lower costs of production thus impacting the bottom line and raising profits.”

The impact of that could be “bigger than anything that has come before,” says Mahoney, who expects that theory to be tested and proved, via sales on Black Friday and the holiday season overall. In short, a consumer-spending explosion as we race to the malls on a full tank of cheap gas. Tossing in his own two cents in the wake of that OPEC decision, legendary investor Jim Rogers says it’s a “fundamental positive for anybody who uses oil, who uses energy.” Just not great if you’re from Canada, Russia or Australia, he says. Or if you’re the ECB, fretting about price deflation. Or until it starts crushing shale producers.

Read more …

I don’t know what to think of this. I still don’t believe the Saudis would do anything the Americans don’t want them to. But it works as an argument to convince the rest of OPEC, even if he doesn’t mean it.

Inside OPEC Room, Naimi Declares Price War On US Shale Oil (Reuters)

Saudi Arabia’s oil minister told fellow OPEC members they must combat the U.S. shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers. Ali al-Naimi won the argument at Thursday’s meeting, against the wishes of ministers from OPEC’s poorer members such as Venezuela, Iran and Algeria which had wanted to cut production to reverse a rapid fall in oil prices. They were not prepared to offer big cuts themselves, and, choosing not to clash with the Saudis and their rich Gulf allies, ultimately yielded to Naimi’s pressure. “Naimi spoke about market share rivalry with the United States. And those who wanted a cut understood that there was no option to achieve it because the Saudis want a market share battle,” said a source who was briefed by a non-Gulf OPEC minister after Thursday’s meeting.

A boom in shale oil production and weaker growth in China and Europe have sent prices down by over a third since June. “You think we were convinced? What else could we do?” said an OPEC delegate from a country that had argued for a cut. Secretary General Abdullah al-Badri effectively confirmed OPEC was entering a battle for market share. Asked on Thursday if the organization had a answer to rising U.S. production, he said: “We answered. We keep the same production. There is an answer here”. OPEC agreed to maintain – a “rollover” in OPEC jargon – its ceiling of 30 million barrels per day, at least 1 million above its own estimate of demand for its oil in the first half of next year. Analysts said the decision not to cut output in the face of drastically falling prices was a strategic shift for OPEC. “It is a brave new world. OPEC is clearly drawing a line in the sand at 30 million bpd. Time will tell who will be left standing,” said Yasser Elguindi of Medley Global Advisors.

Read more …

The Swiss vote on gold tomorrow apparently touches Holland as well: some $2 billion worth of gold, bought by the Swiss when the Nazis stole it from the Dutch central bank, has never been returned. The vote aims at banning the Swiss central bank from letting gold leave the country.

Will The US Give The Dutch Their Gold Back? (CNBC)

As the Dutch central bank looks to repatriate some of its gold reserves back from the New York Federal Reserve, Dennis Gartman, the editor and publisher of The Gartman Letter, has questioned what reputational damage this could cause for the U.S. The Dutch central bank last week confirmed that it was shipping gold from the U.S. to the Netherlands to “spread its gold stock in a more balanced way”, adding that it would have a “positive effect on public confidence”. It comes after the Germans made a similar move in 2013, indicating that it would transfer 300 tons from New York by 2020. The Bundesbank has surprised many in the industry, however, by only moving 5 tons last year in what it called a “run-up phase of gold repatriation”.

Gartman stressed that it was a complicated issue which “is made all the more complicated by the fact that the Germans have talked about repatriation but have repatriated only a very small sum”. He added that there was a “reputational” problem for the New York Federal Reserve, which could have been quickly and easily handled by a press conference by the bank. Instead, the closely-watched commodities analyst – who conceded that he was not a gold bug – said the silence from the bank concerned him. The Dutch central bank is set to cut the amount of its stock held in New York from 51% to 31%, but keep its reserves in London and Canada unchanged. The bank has been vague on whether the move had already been completed and a spokesperson for the bank couldn’t comment on the proceedings due to the security issues associated with such an operation.

“Were I the Dutch, or the Germans or any country housing gold in the U.S. I’d be asking questions about my gold and I’d be remiss were I not doing so,” Gartman told CNBC via email. “In the end, I suspect that the gold is indeed there; that the Germans will ask for and get their gold repatriated; that the rumors are ill founded and ill advised.” Gartman’s concerns were put to an official at the Bundesbank in February by Germany’s Handelsblatt newspaper. Executive Board Member Carl-Ludwig Thiele refuted rumors that the gold in New York was no longer there, or that the Germans had been given limited access to it. Thiele called it “absurd” and said he had personally seen the reserves.

Read more …

Are the Somali pirates paying attention?

Swiss, French Call To Bring Home Gold As Dutch Move 122 Tons Out Of US (RT)

The financial crisis in Europe is prompting some nations to repatriate their gold reserves to national vaults. The Netherlands has moved $5 billion worth of gold from New York, and some are calling for similar action from France, Switzerland, and Germany. An unmatched pace of money printing by major central banks has boosted concerns in European countries over the safety of their gold reserves abroad. The Dutch central bank – De Nederlandsche Bank – was one of the latest to make the move. The bank announced last Friday that it moved a fifth of its total 612.5-metric-ton gold reserve from New York to Amsterdam earlier in November. It was done in an effort to redistribute the gold stock in “a more balanced way,” and to boost public confidence, the bank explained.

“With this adjustment the Dutch Central Bank joins other banks that are keeping a larger share of their gold supply in their own country,” the bank said in a statement. “In addition to a more balanced division of the gold reserves…this may also contribute to a positive confidence effect with the public.” Dutch gold reserves are now divided as follows: 31% in Amsterdam, 31% in New York, 20% in Ottawa, Canada and 18% in London. Meanwhile, Switzerland has organized the ‘Save Our Swiss Gold’ referendum, which is taking place on November 30. If passed, it would force the Swiss National Bank to convert a fifth of its assets into gold and repatriate all of its reserves from vaults in the UK and Canada.

“The Swiss initiative is merely part of an increasing global scramble towards gold and away from the endless printing of money. Huge movements of gold are going on right now,” Koos Jansen, an Amsterdam-based gold analyst for the Singaporean precious metal dealer BullionStar, told the Guardian. France has also recently joined in on the trend, with the leader of the far-right National Front party Marine Le Pen calling on the central bank to repatriate the country’s gold reserves. In an open letter to the governor of the Banque de France, Christian Noyer, Le Pen also demanded an audit of 2,435 tons of physical gold inventory. Germany tried and failed to adopt a similar path in early 2013 by announcing a plan to repatriate some of its gold reserves back from the US and France.

Read more …

“If left in place over the long term, segregated central bank cash accounts could radically remake the ways in which liquidity services are provided to the public ..” Does the public have a vote in this?

Fed’s Latest Invention Holds Promise For Controlled Rate Rise (Reuters)

The Federal Reserve’s latest market proposal could help it smoothly raise interest rates and bring far more banks into direct contact with the U.S. central bank in a way that another tool, unveiled last year, could not. Analysts have applauded a draft Fed idea to offer lenders segregated cash accounts to be used as collateral for transactions with private investors. Such accounts could be an “additional supplementary tool” as the central bank returns to a more normal policy stance, according to minutes of the Fed’s Oct. 28-29 policy meeting, which were released last week. The move would increase competition for funds in the short-term overnight market as smaller domestic banks would have far more access to the Fed’s offered rate on excess reserves, analysts said.

It could also help stabilize the financial system when demand surges for liquid funds. “If left in place over the long term, segregated central bank cash accounts could radically remake the ways in which liquidity services are provided to the public,” wrote Wrightson ICAP Chief Economist Lou Crandall. While Crandall estimated the program could eventually expand to “several trillion dollars” in balances, UBS economists said it would be $400-$550 billion in earlier stages. The brief, surprise mention of segregated accounts in the minutes suggests that the Fed’s overnight reverse repurchase facility, a fixed-rate full-allotment tool known as “ON RRP” that has been tested since last year, could again be relegated in the Fed’s toolbox.

Fed officials once telegraphed ON RRP, also meant to mop up excess reserves, as the primary tool for keeping a floor under rates when the time comes to tighten policy. But earlier this year the Fed said the rate it pays on excess reserves (IOER) would be the “primary” tool. It is unclear how important segregated accounts would be, if implemented. Central bankers want as much control over market rates as possible when they raise the key federal funds rate from near zero, where it has been since late 2008. The worry is that the trillions of dollars in newly created bank reserves could complicate that tightening. But adding segregated accounts could boost the supply of quality money-market instruments, lifting borrowing costs. Simon Potter, head of the New York Fed’s market operations, mentioned at the meeting possible next steps to investigate any issues with carrying out the program, the minutes said.

Read more …

Is this a joke? ” .. a survey by the Federal Reserve Bank of New York, which pronounced the end of the crisis-era “deleveraging process.”

In Show Of Confidence, Americans Take On More Debt (Reuters)

Total U.S. household debt rose slightly in the third quarter to a total of $11.7 trillion, according to a survey by the Federal Reserve Bank of New York, which pronounced the end of the crisis-era “deleveraging process.” The increase of $78 billion from the previous quarter was driven by auto and student loans and credit card balances, and continues a general trend since the middle of last year. While household indebtedness is still 7.6% below its peak six years ago, when a financial crisis set off the worst recession in decades, economists said the survey pointed to increased confidence among Americans. The report on household debt and credit showed that mortgages, the largest slice of debt, edged up by 0.4%. Mortgage originations rose a bit to $337 billion, well below historical norms, while auto loan originations hit the highest level since 2005 at $105 billion. Credit card limits rose by 0.9% from the previous quarter.

“In light of these data, it appears that the deleveraging period has come to an end and households are borrowing more,” New York Fed economist Wilbert van der Klaauw said in a statement. Some 11% of student loans were 90-plus days delinquent or in default, the highest in the last three quarters, according to the New York Fed survey that draws from a nationally representative consumer credit sample. The share of mortgage balances that were delinquent eased slightly. The report is “another step in the evolution toward more normal credit market functioning,” said Credit Suisse economist Dana Saporta. The “willingness of households to take on more debt at this juncture – particularly credit card debt – (is) a positive sign of confidence in future income prospects.”

Read more …

“The bank’s tactics start at home-loan origination and continue through refinancing and foreclosure, the county said, a process its lawyers summarized in the complaint as “equity stripping.“

Wells Fargo Accused of Predatory Lending in Chicago Area (Bloomberg)

Wells Fargo targets black and Latino borrowers for more costly home loans than their white counterparts in the Chicago area, helping to prolong a local and national foreclosure crisis, the biggest county in Illinois said. Cook County, which has a population of more than 5 million and includes the third-biggest U.S. city, accused the bank of engaging in predatory lending in a complaint filed yesterday in Chicago federal court, following similar efforts by municipal governments in Los Angeles and Miami. The bank’s tactics start at home-loan origination and continue through refinancing and foreclosure, the country said, a process its lawyers summarized in the complaint as “equity stripping.” The process may have involved as many as 26,000 loans, the county said. “Equity stripping is an abusive form of ‘asset based lending’ that maximizes lender profits based on the value of the underlying asset and onerous loan terms, while in disregard for a borrower’s ability to repay,” according to the complaint.

Aimed also at minority women, the bank’s fee structure and its practice of bundling mortgages to sell as securities allowed the lender to make money off loans even in the event of a foreclosure, the county said. The county is seeking a court order halting the practice and money damages that may exceed $300 million. Tom Goyda, a spokesman for the San Francisco-based bank, in an e-mailed statement called the county’s case “baseless” and said Wells Fargo would vigorously defend itself. ‘It’s disappointing they chose to pursue a lawsuit against Wells Fargo rather than collaborate together to help borrowers and home owners in the county,’’ Goyda said. “We stand behind our record as a fair and responsible lender.”

Read more …

“The conventional wisdom is that young voters aren’t interested in fiscal issues, and it’s just not true,” Schoenike said. “It’s that no one is talking to them.”

Does a Generation Burdened by Debt Care About Government Spending? (Bloomberg)

The political arguments for reducing the national debt often focus on the disastrous results awaiting our children and grandchildren. But do the kids even care? A Washington-based nonprofit known as The Can Kicks Back set out to answer that question by testing an interactive, online ad campaign in two U.S. House races this year. That data, provided to Bloomberg Politics, show younger voters may indeed be willing to engage on federal spending. “Growing up in the recession has had a real effect on how they view this stuff,” said Ryan Schoenike, executive director of the group. “We have to be fiscally conservative with our own finances, so we expect that from our government, too.” That rings true to Corie Whalen Stephens, the 27-year-old spokeswoman for another youth-focused political group, Generation Opportunity. “For a lot of people my age, it’s been hard to find jobs, get out of debt from college, save up,” she said. “We have to be fiscally conservative with our own finances, so we expect that from our government, too.”

To assess millennials’ interest in spending issues, The Can Kicks Back deployed a set of online ads in California’s 5th Congressional District, just north of San Francisco, where Democratic Representative Mike Thompson easily won reelection; and in New York’s 1st District in eastern Long Island, where Republican Lee Zeldin unseated Democratic Representative Tim Bishop. The group identified the two districts as having relatively high rates of millennials (which they’re defining as 18- to 34-year-olds). The marketing campaign exceeded expectations with response rates that topped average Google benchmarks for political ads, according to an analysis from CampaignGrid, the online advertiser. The data showed that millennials were more likely to click on animated ads about the nation’s debt issues as opposed to more dramatic or comedic spots. Women were more likely to watch the ads than men, while the click rate among Hispanic viewers skewed higher compared to blacks, Asians and whites.

Democrats, Republicans and independents all clicked through the ads at comparable rates, an indication to Schoenike that there may be bipartisan interest in the issue. “The conventional wisdom is that young voters aren’t interested in fiscal issues, and it’s just not true,” Schoenike said. “It’s that no one is talking to them.” The group’s research could give some hints on how campaigns can engage young voters, who didn’t turn out in the numbers they did in 2012. A report from Pew Research in March showed millennials are generally unattached to organized politics and religion, laden with debt, and more likely than older generations to say they support an activist government. A poll released in October by the Institute of Politics at Harvard’s John F. Kennedy School of Government indicated that the youth vote is now up for grabs and could be a critical swing vote.

Read more …

It’s starting to feel strange to see ‘Europe’ and ‘inflation’ used in the same sentence.

Eurozone Inflation Slows as Draghi Tees Up QE Debate (Bloomberg)

Euro-area inflation slowed in November to match a five-year low, prodding the European Central Bank toward expanding its unprecedented stimulus program. Consumer prices rose 0.3% from a year earlier, the European Union’s statistics office in Luxembourg said today. That was in line with the median forecast of 41 economists in a Bloomberg News survey. Unemployment held at 11.5% in October, Eurostat said in a separate report. Continued low inflation is keeping pressure on the ECB to add to its existing package of measures aimed at reviving the economy. While the slowdown is partly related to a drop in oil prices, President Mario Draghi, who may unveil more pessimistic forecasts after a meeting of policy makers on Dec. 4, says he wants to raise inflation “as fast as possible.” “

The scale of the disinflation problem facing the ECB becomes increasingly concerning as time progresses,” said Colin Bermingham, an economist at BNP Paribas SA in London. “Downward revisions to their inflation and growth forecasts will be key to justifying an expansion of their asset purchase programs.” The Eurostat report showed that energy prices fell 2.5% in November from a year earlier. Crude oil has plunged more than 30% in the past three months. Food, alcohol and tobacco prices increased 0.5%. Core inflation, which strips out volatile items such as energy, food, tobacco and alcohol, stayed at 0.7% in November, according to Eurostat.

“The only crumb of comfort for the ECB – and it is not much – is that November’s renewed drop in inflation was entirely due to an increased year-on-year drop in energy prices,” said Howard Archer, chief European economist at IHS Global Insight in London. The data are “worrying news” for the central bank, he said. Data yesterday showed Spanish consumer prices dropped 0.5% this month from a year ago, matching the fastest rate of deflation since 2009. In Germany, Europe’s largest economy, inflation slowed to the weakest since February 2010. Euro-area inflation has been at less than half the ECB’s goal of just below 2% for more than a year.

Read more …

“Italy is stuck in a rut of diminishing expectations.” And soon the whole world will follow.

Why Italy’s Stay-Home Shoppers Terrify The Eurozone (Reuters)

“Three for the price of two” used to be the most common special offer in Giorgio Santambrogio’s supermarket chains. It has barely been used this year. The reason explains why efforts to resuscitate Italy’s moribund economy are failing. “People aren’t stocking up because they know prices will be lower in a month’s time,” says Santambrogio, chief executive of Vege, a Milan-based association covering 1,500 supermarkets and specialist stores. “Shoppers are demanding steeper and steeper discounts.” Italy is stuck in a rut of diminishing expectations. Numbed by years of wage freezes, and skeptical the government can improve their economic fortunes, Italians are hoarding what money they have and cutting back on basic purchases, from detergent to windows. Weak demand has led companies to lower prices in the hope of luring people back into shops. This summer, consumer prices in Italy fell on a year-on-year basis for the first time in a half-century, and they have barely picked up since.

Falling prices eat into company profits and lead to pay cuts and job losses, further depressing demand. The result: Italy is being sucked into a deflationary spiral similar to the one that has afflicted Japan’s economy for much of the past two decades. That is the nightmare scenario that policymakers, led by European Central Bank chief Mario Draghi, are desperate to avoid. The euro zone’s third-biggest economy is not alone. Deflation – or continuously falling consumer prices – is considered a risk for the whole currency bloc, and particularly countries on its southern rim. Prices have fallen for 20 months in Greece and five in Spain, for example. Both countries are suffering through deep cuts in salaries and state welfare. Yet Italy, a large economy with a huge public debt, is the country causing most worry. Part of the reason deflation is seen differently across southern Europe is cultural.

Greeks and Spaniards are historically big spenders. The Spanish economy surged for a decade thanks to a property and consumption bubble that crashed in 2008. Greece grew strongly in the same period, before being brought to its knees in 2009 by its government’s clandestine finances. This year, falling prices are helping these economies sell more of their products at home and abroad, fuelling a nascent recovery. Italians, however, are historically big savers.

Read more …

“It’s a phenomenon that we think is probably going to smooth out as soon as the economic recovery starts in Italy.” Ha ha ha!

Economic Devastation In Italy Prompts New Wave Of Migration To Australia (ABC)

Australia is witnessing a new wave of migration from Italy in numbers not seen in half a century, as thousands flee the economic devastation in Europe. The explosion of numbers saw more than 20,000 Italians arrive in Australia in 2012-13 on temporary visas, exceeding the number of Italians that arrived in 1950-51 during the previous migration boom following World War Two. The research group Australia Solo Andata (Australia One Way) is made up of Italians in Australia and has been tracking the trend using figures from the Department of Immigration and Border Protection. Spokesman Michele Grigoletti said he has been surprised by just how many of his countrymen are making the move to Australia. “Italians are coming to Australia in numbers we could not expect,” Mr Grigoletti said.

“We already have the first six months of data from 2013-14 and we know that the trend of Italians [arriving] is on the increase again.” Between 2011 and 2013, there was a 116% increase in the number of Italian citizens in Australia with a temporary visa. Data showed working holiday visas were the most popular visa issued to Italian citizens between the ages of 18 and 30. Almost 16,000 of the visas were granted in 2012-13, up 66% on the previous financial year. Italy’s Consul General in Sydney, Sergio Martes, said the figures were not surprising. “We have seen similar figures in northern Europe, with Italians going to Germany and England. They are probably the two main countries receiving our young people at the moment,” he said. “It’s a phenomenon that we think is probably going to smooth out as soon as the economic recovery starts in Italy.” The data revealed residents of the United Kingdom, Germany and France were issued the biggest number of working holiday visas for Australia in 2012-13.

Read more …

This is who we are. Nothing is more characteristic of the human race. Not even the fact that we deny it.

Animal Extinctions From Climate Rival End of Dinosaurs (Bloomberg)

Animals are dying off in the wild at a pace as great as the extinction that wiped out the dinosaurs about 65 million years ago because of human activity and climate change. Current extinction rates are at least 12 times faster than normal because people kill them for food, money or destroy their habitat, said Anthony Barnosky, a biology professor at the University of California-Berkeley. “If that rate continues unchanged, the Earth’s sixth mass extinction is a certainty,” Barnosky said in a phone interview. “Within about 200 to 300 years, three out of every four species we’re familiar with would be gone.” The findings, due to air in a documentary on the Smithsonian Channel on Nov. 30, add to pressure on envoys from some 190 countries gathering next week at a United Nations conference in Peru to discuss limits on the greenhouse gases blamed for global warming.

“We might do as much damage in 400 years as an asteroid did to the dinosaurs,” Sean Carroll, a biologist who leads the Department of Science Education at Howard Hughes Medical Institute in Bethesda, Maryland, said in an interview. He was also interviewed for the documentary. Temperatures already have increased by 0.85 of a degree since 1880 and the current trajectory puts humanity on course for a warming of at least 3.7 degrees Celsius, the UN estimates. That’s quicker than the shift in the climate when the last ice age ended about 10,000 years ago. “We would have an extinction crisis without climate change simply through how we use land and water and population growth,” Carroll said. “But now you add to that this global force of climate change and that changes relationships between species and ecosystems in unpredictable ways.”

Warmer temperatures are having a perverse impact on some animals. Grizzly bears and red foxes move north and come in contact with polar bears and arctic foxes, said Elizabeth Hadly, a biology professor at Stanford University who specializes in animal diversity, another subject of the documentary. The arctic fox is now in decline because red foxes are more aggressive, Hadly said by phone. Grizzly bears and polar bears sometimes mate, and that produces offspring with neither camouflage for the snow nor the ability to hunt in the woods. The number of animals in the wild has about halved in the past 40 years mainly because humans have moved into habitats, competing for space and water supplies, according to a report by the environmental group WWF and the Zoological Society of London released in September.

Read more …

And it loses money too.

Fracking As Deadly As Thalidomide, Tobacco And Asbestos (Guardian)

Fracking carries potential risks on a par with those from thalidomide, tobacco and asbestos, warns a report produced by the government’s chief scientific adviser. The flagship annual report by the UK’s chief scientist, Mark Walport, argues that history holds many examples of innovations that were adopted hastily and later had serious negative environmental and health impacts. The controversial technique, which involves pumping chemicals, sand and water at high pressure underground to fracture shale rock and release the gas within, has been strongly backed by the government with David Cameron saying the UK is “going all out for shale”. But environmentalists fear that fracking could contaminate water supplies, bring heavy lorry traffic to rural areas, displace investment in renewable energy and accelerate global warming.

The chief scientific adviser’s report appears to echo those fears. “History presents plenty of examples of innovation trajectories that later proved to be problematic — for instance involving asbestos, benzene, thalidomide, dioxins, lead in petrol, tobacco, many pesticides, mercury, chlorine and endocrine-disrupting compounds…” it says. “In all these and many other cases, delayed recognition of adverse effects incurred not only serious environmental or health impacts, but massive expense and reductions in competitiveness for firms and economies persisting in the wrong path.” Thalidomide was one of the worst drug scandals in modern history, killing 80,000 babies and maiming 20,000 babies after it was taken by expectant mothers. Fracking provides a potentially similar example today, the report warns: “… innovations reinforcing fossil fuel energy strategies – such as hydraulic fracturing – arguably offer a contemporary prospective example.”

Read more …

This is a silent human drama of epic proportions.

Traffickers Profit as Asylum Seekers Head for Europe (Spiegel)

Behind the La Grotta bar, Italy comes to an end. But a narrow road continues onward across the border into France, hugging a cliff above the sea. It is a bottleneck for illegal immigrants and traffickers. Hidden behind agave bushes, three young men from Mali are crouching on the steep slope, staring at the border. Just a few meters away, a group of Syrian refugees are camped out in front of La Grotta, like pilgrims searching for a hostel: men carrying backpacks, women wearing headscarves and a little boy. Ahmad, as he asked to be called, is the gray-bearded spokesman of the illegal immigrants. Formerly a software developer in Damascus, he left his wife and children behind. Ahmad pulls a crumpled piece of paper out of his jacket pocket, the official certification of his arrival in Italy – as refugee number 13,962.

But this number is a reflection of statistics kept in merely one place – the police headquarters in Crotone, located in southern Italy’s Calabria region. All in all, more than 150,000 migrants and refugees have landed on Italy’s shores nationwide since January and almost half of them – more than 60,000 men, women and children – were never registered in the European Union’s Eurodac database. They have long since disappeared, heading north toward the rest of Europe. There was an unwritten rule after the tragic shipwreck off the island of Lampedusa on Oct. 3, 2013, in which 366 people drowned: Rome sends naval ships and coast guard vessels into the Mediterranean as part of the “Mare Nostrum” rescue operation, but it lets most of the migrants continue northward without further ado, so that they will not apply for political asylum in Italy as the country of their arrival, as required under the Dublin II agreement.

But in late September, Italy changed course. In a confidential communiqué, which SPIEGEL has seen, Interior Minister Angelino Alfano ordered that henceforth migrants “always” be identified and fingerprinted. Alfano noted that various EU countries have, “with increasing insistence,” complained that the immigrants are left to continue their “journey to northern European countries” without being challenged by Italian authorities. Preferred destinations include Sweden, Germany and Switzerland, countries with social welfare and the possibility of political asylum. Italy, on the other hand, as confirmed once more by a Nov. 4 ruling by the European Court of Human Rights, cannot even guarantee suitable accommodations for asylum applicants. More than ever, the Dublin system is degenerating into a farce, with only about 6% of all asylum seekers in Germany actually being returned to the country where they first set foot in the EU.

Read more …

” .. the protections which the government has put in place are not worth the paper they’re written on ..”

Up To 13,000 People Working As Slaves In UK (Guardian)

Between 10,000 and 13,000 people in Britain are victims of slavery, up to four times the number previously thought, analysis for the government has found. The figure for 2013 is the first time the government has made an official estimate of the scale of modern slavery in the UK, and includes women forced into prostitution, domestic staff, and workers in fields, factories and fishing. The National Crime Agency’s Human Trafficking Centre had previously put the number of slavery victims in 2013 at 2,744. Launching the government’s strategy to eradicate modern slavery, the home secretary, Theresa May, said the scale of abuse was shocking. “The first step to eradicating the scourge of modern slavery is acknowledging and confronting its existence,” she said.

The estimated scale of the problem in modern Britain is shocking and these new figures starkly reinforce the case for urgent action.” The data was collated from sources including the police, the UK Border Force, charities and the Gangmasters Licensing Authority. The Home Office described the estimate as a “dark figure” that may not have come to the NCA’s attention. The modern slavery bill going through parliament will provide courts in England and Wales with powers to protect victims of human trafficking. Scotland and Northern Ireland are planning similar measures. May said: “Working with a wide range of partners, we must step up the fight against modern slavery in this country, and internationally, to put an end to the misery suffered by innocent people around the world.”

The Home Office said the UK Border Force would introduce specialist trafficking teams at major ports and airports to identify potential victims, and the legal framework would be strengthened for confiscating the proceeds of crime. But Aidan McQuade, the director of the Anti-Slavery International charity, questioned whether the government’s strategy went far enough. He told BBC Radio 4’s Today programme: “If you leave an employment relationship – even if you’re suffering from any sort of exploitation up to and including forced labour, even if you’re suffering from all sorts of physical and sexual violence – you’ll be deported. “So that [puts] enormous power in the hands of unscrupulous employers. And frankly, the protections which the government has put in place are not worth the paper they’re written on in order to prevent this sort of exploitation once they’ve given employers that sort of power.”

Read more …

Oct 282014
 
 October 28, 2014  Posted by at 9:56 pm Finance Tagged with: , , , , , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Arthur Rothstein Texas Panhandle Dust Bowl Mar 1936

I already proposed a few days ago that the recent ECB stress test exercise was such a shambles, it may well have been designed to fail on purpose. In order for Mario Draghi and his Goldman made men to be freed from that pesky German resistance against full blown QE, i.e. large scale purchases of government bonds from the 18 countries that make up the eurozone.

And perhaps the other 10 that are part of the EU without using the common currency. The sky’s the limit. Just how bad that would be is hinted by Tracy Alloway for the FT as she describes how QE tempts investors into asset classes with far more risk than they should have on their hands, simply because they feel the Fed – or some other central bank – has their back.

Sounds like the perfect way to separate a whole lot of people from their money. Which is why Draghi is so tempted to try it on. QE destroys societies, economies and financial systems, it doesn’t heal them. So maybe it’s a touch of genius that the great powers of global finance have first pushed Keynes into the academic world and then academics like Bernanke and Yellen into positions such as head of the Fed, making everyone blind to the fact that what they think is beneficial, including many who think they’re real smart, actually hurts them most.

When you looked at it in that light, you would be forgiven for thinking Draghi had better hurry, because higher rates and a higher dollar will give away much of that game. And not just in America.

But Stupor Mario has one great excuse left: his hands are tied. Not for long anymore, perhaps, since the ECB is set to become the sole EU banking supervisor, but that is not the same as having a full banking union, the prize the real big banking boys have their eyes on. Control over all EU banks from one central point, with the power to shut them down, squeeze them dry, and make them beg for mercy. Athens, Greece based economics professor Yanis Varoufakis has some words on how Mario’s hands are tied:

The ECB’s Stress Tests And Our Banking Dis-Union: A Case Of Gross Institutional Failure

What gives the Fed-FDIC power over banks is the common knowledge that, when it assesses that a bank is insolvent, it has no serious qualms saying so. The reason, of course, is that it not only has powers of supervision (i.e. access to their books) but, crucially, powers of resolution and, if it so judges, the power to force mergers or to recapitalise the failing bank.

Suppose that, instead, the Fed-FDIC had, as the ECB does, only the power to scrutinise the banks’ books. Imagine now that, with only this power, the Fed-FDIC were to discover that some bank in Nevada or Missouri is in trouble. If the Fed-FDIC’s charter precluded it from doing anything else other than to announce the bank’s insolvency, its supervisory power would mean little.

For if it were common knowledge that the fiscally stressed State of Nevada or Missouri would have to borrow from money-markets to pay for the depositors’ guaranteed deposits, as well as for any new capital the banks needed to be salvaged, the rest of the state’s banks would face a run, the states would see their borrowing costs skyrocket and, soon, a combined banking and fiscal crisis could be rummaging throughout the ‘dollar zone’.

To put this crudely, the good people at the Fed would have no alternative than to keep their mouths shut, to conceal the bad news, to cover up for the bank’s problems and try to find some hush-hush way of bolstering its capitalisation.

This is precisely the sad state our so-called Banking Union has pushed the ECB’s supervisors into. As long as the ECB is not the sole authority on bank resolution, and as long as funds for dealing with insolvent banks are to come (in the final analysis) from the fiscally stressed states, the death embrace between weak states and fragile banks will continue.

If the ECB guys have too narrow a mandate for their own taste, or they don’t like their salaries or perks, they should speak out about that. Not behind closed doors, but in public. And not only in general terms, but in specifics, if it leads to situations like this where an entire year and millions of euros are spent on an audit that they know beforehand will be way less than truthful, let alone useful. These people receive generous salaries provided by European taxpayers, and the least they should do is be honest. I know, who am I kidding, right?

So what’s the solution for Europe, handing over the whole shebang to Draghi and his ilk? No, it isn’t, but they’re getting real close to achieving just that. And once the banking union is a fact, it will be that much harder – and expensive – for Greece and Italy and Cyprus and Spain and Portugal to wrestle themselves out of the straightjacket the EU has become.

It’s no coincidence that it was Greek and Italian banks who got hit hardest by the tests, flawed and fake as these were. The EU has become a power game more than anything, a ploy to induce so much fear into the financially weakest they’ll lose the belief that they can stand their own legs. And then they can be subordinated slaves forever.

As I said Sunday in Europe Redefines ‘Stress’, the stress tests were little more than a joke. They were designed that way.

In that article, I referred to Bloomberg’s Mark Whitehouse writing about a different, more or less parallel stress test, performed by the Center for Risk Management in Lausanne, inTesting Europe’s Stress Tests. My comment then:

The ECB’s Comprehensive Assessment says $203 billion was raised since 2013, leaving ‘only’ €25 billion yet to be gathered. The Swiss report says €487 billion is needed just for 37 of the 130 banks the ECB stress-tested. Of the banks the Swiss identify as having the greatest capital shortfalls, most passed the EU tests. Judging from the graph, the 7 banks in need of most capital have an aggregate shortfall of some €300 billion alone.

Among them the 3 main, and TBTF, French banks, who all passed with flying colors and got complimented for it by French central bank governor Christian Noyer today, but according to the Center for Risk Management are about €200 billion short between them. Which means France as a nation has a stressed capital shortfall of over 10% of its GDP, more than twice as much as the next patient.

Turns out, the Swiss were not the only ones doing an alternative stress test. Sachsa Steffen at the European School of Management (ESMT) in Berlin, and Viral Acharya at the Stern School of Business in New York did one as well. And the similarities between the two alternative ones, as well as the differences between both their results and the ‘official test’ are so big it’s ludicrous. Tom Braithwaite in an excellent piece for FT:

Alternative Stress Tests Find French Banks Are Weakest In Europe

On Sunday, Christian Noyer, governor of the Banque de France, was crowing about the “excellent” performance of French banks on the European stress tests Many of their Italian and Greek counterparts might have flunked but France could be proud of its banking sector. “The French banks are in the best positions in the eurozone,” said Mr Noyer. Not so fast.

Two days earlier, a different test found that the French financial sector was the weakest in Europe. The team with the temerity to deliver this bucket of cold water to Paris works at the wonderfully named Volatility Institute at New York University’s Stern school and presented its findings from a safe distance – a financial conference at the University of Michigan. The chief architect, Viral Acharya, has worked on systemic risk ever since the last crisis, attempting to design a bank safety test that can be run all the time – not at the whim of regulators.

Using his methodology, which he calls SRISK, Mr Acharya found that in a crisis French financial institutions would have a capital shortfall of almost $400bn, worse than the US and UK despite their much bigger financial sectors. Looking just at the French banks tested in the ECB stress tests, which found zero capital shortfall, SRISK came up with €189bn. Mr Acharya did not have access to the 6,000 officials who scoured balance sheets across Europe to gauge the health of the continent’s banks. But his results, which have implications for other countries, including China, should not be ignored. How big is the crisis hole?

Take Société Générale. France’s second-biggest bank by market value did fine on the ECB’s stress test. But on Mr Acharya’s measure, the bank has a large capital shortfall in a crisis. There are a couple of big reasons for the difference. First, SRISK takes into account the banks’ total balance sheet without regard for risk: unlike the ECB, it does not attempt to distinguish between €1m of German Bunds and a €1m loan to a dipsomaniac farmer with a rusty tractor. Second, it does not care what banks’ book value of equity is; it uses what the stock market says it is.

Under the ECB’s methodology, SocGen has €36.6bn of equity today and, in a crisis, would have €30.7bn of equity against €377bn of risk-weighted assets. That equates to a passable 8.1% capital ratio even in a deep recession. According to Mr Acharya’s methodology, the bank has only €30bn of market equity today against €1,322bn of assets for a much weaker capital ratio of 2.3%. In a crisis, when market values would plunge further, SocGen would be left with a shortfall of more than €60bn.

Using the stock market to compute a bank’s equity makes SRISK vulnerable to irrational optimism or irrational pessimism of investors. But Mr Acharya finds three good reasons to use it. “Markets told us that subprime MBS [mortgage-backed securities] had become poor in quality and liquidity; book values and regulatory risk weights did not ..”

Market values are also harder to manipulate by management through understatement of losses or provisions. Finally, banking crises are caused by drying up of credit by financiers. Financiers are not interested in book values or regulatory capital per se, but whether the firm can raise capital if needed to repay them. This is best captured by market value.”

It is not just France’s regulators and banks that might be well-advised to stop patting themselves on the back and consider other measures of systemic risk. Europe’s aggregate SRISK has fallen since 2011, with the deleveraging of balance sheets following the eurozone crisis. Systemic risk in the US has also fallen by half since 2008. But risk in China has picked up significantly and now surpasses the US. If anything, Mr Acharya notes, the problem is likely to be understated because of the amounts of off-balance sheet debt in China.

In the US, JPMorgan Chase’s leverage might be much better than its French counterparts, but its SRISK is bigger: a $98.4bn shortfall in a crisis. MetLife, which is considering suing the US government over its designation as a systemically important company, is found to pose a bigger systemic risk than Goldman Sachs.

If you believe that financial companies always appropriately value their assets and never try to massage the value of their equity and if you believe that officials are always diligent in examining banks’ accounting then SRISK is a waste of time. But if you believe this you haven’t been paying attention for the last decade.

I’m tempted to say someone should save the Greeks and Italians from the power game that’s being played with them, but in reality they should save themselves. That French banks come out of the ECB test with flying colors, while in two separate other tests they look absolutely abysmal, should tell us all enough about what the game is here.

There are two major countries in the eurozone, and they have all the political power there is to go around. As they are sinking, the poorer nations will be forced to make up the difference. Just like the Romans squeezed their peripheral territories so much they caused the end of their empire, and were conquered and flattened by the peoples living there.

I know I’ve said it many times already, but I’m not going to give up: the EU should be broken up, and its delusional leadership structure torn to bits, as soon as possible, or Europe is once going to be a theater of war.

The very thing the EU was supposed to prevent, it will be the source of. In exactly the same way that QE tears apart economies and societies. Presented as the sole solution to the debt crisis, but in reality the driving force behind increased inequality, ever lower wages and ever fewer benefits, and perhaps most of all the nigh complete suffocation of the younger generations, so the older – and therefore richer – can enjoy their so-called well-deserved retirement.

This whole thing is so broken and perverted it’s getting hard to understand why anybody would want to continue clinging on to it. But then, what does anybody know? 95%+ of people have been reduced to pawns in someone else’s game, and they have no idea whatsoever.

And maybe that’s genius. If you see people’s ignorance as a sufficient reason to prey upon them, that is, as many of our ‘leaders’ do. It’s what gives them power, exploiting other people’s weaknesses. And that is then seen as everyone ‘obeying’ some sort of natural law.

That’s what QE and stress tests tell me. That Greeks and Italians are no longer just being preyed upon by their own people, but by others too, with different cultures and languages and entirely different goals and ideals. And that cannot end well. You might as well put them all to work in a chaingang right this moment.