Jun 172017
 
 June 17, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Fred Lyon Broadway and Kearny Street, North Beach, San Francisco 1952

 

All Hell Is Going To Break Loose In The Bond Market (SBA)
The Fog of Markets (720G)
10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)
Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)
Special Prosecutor Mueller Is a Political Hack (Washington)
Fear of Contagion Feeds the Italian Banking Crisis (DQ)
China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)
Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)
Five Talks on Power, Populism, Politics & Europe (Varoufakis)
Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)
Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

 

 

“..the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value.”

All Hell Is Going To Break Loose In The Bond Market (SBA)

This past Wednesday we heard from the Federal Reserve with regard to monetary policy, and as I predicted they did raise the federal funds rate 25 basis points however, instead of yields rising, they are dropping. More than a year and a half ago I had said publicly that the Federal Reserve’s attempt at trying to normalize bond yields would backfire-and this is exactly what is happening. It is clear to me that the Federal Reserve has absolutely lost control of what is occurring in the bond market. Remember, this is uncharted territory, we have never been here before in the history of the financial world-so the Federal Reserve actually has no idea of how the market will react in the current environment with regard to their attempt at normalizing interest rates. The yield curve as seen in the picture above continues to flatten out, and this trend will continue until the curve inverts.

The last time the yield curve inverted, the 2008 economic meltdown occurred, and the time before that we suffered the.com bubble meltdown. The fact is we are existing in a multiple bubble economy at this time, worse, and unlike anything which has ever been seen before. The reason why these bubbles exist is simple: the Federal Reserve has not allowed the market to do its one and only job, and that is to determine fair value. The Federal Reserve’s interest rate suppression cycle has not only allowed, but has been the driving force behind mass malinvestments across the entire spectrum of asset classes and as such, bubbles have been created. The Federal Reserve has created distortions across the spectrum of asset classes which is frankly beyond belief, worse than has ever been witnessed in the history of finance. What this means is when the yield curve inverts this time, we will experience a meltdown magnitudes greater then the 2008 crash.

Read more …

“..till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.”

The Fog of Markets (720G)

“The year 1915 was fated to be disastrous to the cause of the Allies and to the whole world. By the mistakes of this year the opportunity was lost of confining the conflagration within limits which though enormous were not uncontrolled. Thereafter the fire roared on till it burnt itself out. Thereafter events passed very largely outside the scope of conscious choice. Governments and individuals conformed to the rhythm of the tragedy, and swayed and staggered forward in helpless violence, slaughtering and squandering on ever-increasing scales, till injuries were wrought to the structure of human society which a century will not efface, and which may conceivably prove fatal to the present civilization.” – Winston S. Churchill – The World Crisis: 1915

After reading that quote several times, it remains shocking that the politicians and individuals of that era unconsciously “conformed to the rhythm of the tragedy.” The paragraph above from Winston Churchill, describes the mass mindset of World War I when it was still in its infancy. War-time narratives, nationalism, destruction and the tremendous loss of life led most people to quickly accept and acclimate to an event that was beyond atrocious. Amazingly, less than a year before the period Churchill discusses, the same people likely would have thought that acceptance of such a calamity would be beyond comprehension. Wars and markets are obviously on two different planes, and we want to make it clear the purpose of this article is not to compare the evils of war to financial markets. That said, we must recognize that quick acceptance of abnormal circumstances, as Churchill describes, is a trait that we all possess.

The seemingly unabated march upwards in stock prices occurring over the last eight years has had a mind-numbing effect on investors. The relentless grind higher is backed by weak fundamentals providing little to no justification for elevated prices. Indeed, if there was no justification for such valuations during the economically superior timeframe of the late 1990’s, how does coherent logic rationalize current circumstances? For example, feeble economic growth, stagnating corporate earnings, unstable levels of debt, income and wage inequality and a host of other economic ills typically do not command a steep premium and so little regard for risk. This time, however, is different, and investors have turned a blind eye to such inconvenient facts and instead bank on a rosy future. Thus far, they have been rewarded. But as is so often the case with superficial gratification, the rewards are very likely to prove fleeting and what’s left behind will be deep regret.

Despite our education and experience which teach the many aspects of the discipline of prudent investing, investors are still prone to become victims of the philosophy and psychology of the world around them. These lapses, where popular opinion-based investment decisions crowd out the sound logic and rationale for prudence and discipline, eventually carry a destructively high price. Investors, actually the entire population, have become mesmerized by the system as altered and put forth by the central bankers. We have somehow become accustomed to believe that debt-enabling low interest rates make even more debt acceptable. Ever higher valuations of assets are justifiable on the false premise of a manufactured and artificial economic construct.

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Long from Australia, with lots of sources. Bit confusing even.

10 Years After Global Financial Crisis, World Still Suffers Debt Overhang (SMH)

Let’s start with the question of debt. Lord Adair Turner, who chaired the UK Financial Services Authority between 2008 and 2013 and helped redesign global banking, says the world since has not addressed this root cause of the crisis and that means it’s at risk of another one. Lord Turner, now chairman of New York-based Institute for New Economic Thinking, says the world is suffering from “irrational exuberance” and “debt overhang”. The latter term refers to countries trapped in a vicious cycle of debt, and when nations ultimately default on that debt – he predicts that the next crisis will come courtesy of China and that’s just a number of years away – it ends in their economic destruction.

The Institute of International Finance (IIF) says global levels of debt held by households, governments, and non-financial corporates jumped by over $US70 trillion in the past decade to a record high of $US215 trillion, equating to 325 per cent of global GDP. “There’s been no deleveraging,” Lord Turner says. “Once you’ve got too much debt in the economy … it’s incredibly difficult to get rid of it. “If you say, ‘I’m going to write it off’, your banks go bankrupt … if you try get rid of it by people paying down that debt … the attempt to pay it back is what drives the economy into recession.” To avoid that, interest rates then fall, and that simply encourages more borrowing, he says.

[..] Steve Keen, Professor of Economics at Kingston University in London, a long-time doomsayer on Australia’s mortgage binge, says simply: “It’s dangerous”. He says the Reserve Bank and Australian politicians ignore the dangers of private household debt today just as former US Federal Reserve chairman Ben Bernanke did before the GFC. Keen says the risk of recession is even higher now that APRA has slightly tightened lending standards. “It’s inevitable,” he says, sticking to his bold prediction that it will happen before year’s end.

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Grow your own food.

Amazon, the Death of Brick & Mortar, Buys into Brick & Mortar (WS)

Amazon, which is getting blamed profusely for the meltdown of brick-and-mortar stores and malls across the US, and which has been dabbling with its own initiatives into brick-and-mortar operations – including bookstores, after nearly wiping bookstores off the face of the US – said it would buy brick-and-mortar Whole Foods Market for $13.7 billion. Amazon will get Whole Foods’s $15.7 billion in annual sales and more importantly, its brand, semi-loyal customers, and about 450 brick-and-mortar stores across 42 states. Whole Food shares jumped 27%. But in early trading, the shares of the largest brick-and-mortar grocery sellers in the US are getting crushed: Wal-Mart Stores -6.5%; Kroger, largest supermarket chain in the US, -14%; Costco -7%; Target -10%.

Amazon already sells groceries online via AmazonFresh, and a few months ago announced it would create a grocery store pickup service, another foray into brick-and-mortar. Selling groceries online has been tough in the US, though everyone has been trying, from innumerable startups to Safeway and Google Express (in cooperation with Costco et al.). Consumers are used to buying at the store by running through the aisles with their carts and choosing what they see or what’s on their list, or both, and they want to touch and check their produce before buying it, and they don’t want the dented apples or squished grapes or wilted lettuce. And they need it now on the way home from work so they can fix dinner.

With this acquisition, Amazon’s efforts to muscle its way into the grocery business and even more into the every-day lives of Americans have thus taken a quantum leap forward. But what industry is Amazon muscling into? Over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. Hence, on an inflation-adjusted basis, “real” sales have been flat for six years.

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Did anyone doubt this? Safe to predict the investigation will be dragged out forever.

Special Prosecutor Mueller Is a Political Hack (Washington)

Torture FBI special agent Colleen Rowley points out: Mueller was even okay with the CIA conducting torture programs after his own agents warned against participation. Agents were simply instructed not to document such torture, and any “war crimes files” were made to disappear. Not only did “collect it all” surveillance and torture programs continue, but Mueller’s (and then Comey’s) FBI later worked to prosecute NSA and CIA whistleblowers who revealed these illegalities.

Iraq War Rowley notes: When you had the lead-up to the Iraq War … Mueller and, of course, the CIA and all the other directors, saluted smartly and went along with what Bush wanted, which was to gin up the intelligence to make a pretext for the Iraq War. For instance, in the case of the FBI, they actually had a receipt, and other documentary proof, that one of the hijackers, Mohamed Atta, had not been in Prague, as Dick Cheney was alleging. And yet those directors more or less kept quiet. That included … CIA, FBI, Mueller, and it included also the deputy attorney general at the time, James Comey.

Post 9/11 Round-Up FBI special agent Rowley also notes: Beyond ignoring politicized intelligence, Mueller bent to other political pressures. In the aftermath of the 9/11 attacks, Mueller directed the “post 9/11 round-up” of about 1,000 immigrants who mostly happened to be in the wrong place (the New York City area) at the wrong time. FBI Headquarters encouraged more and more detentions for what seemed to be essentially P.R. purposes. Field offices were required to report daily the number of detentions in order to supply grist for FBI press releases about FBI “progress” in fighting terrorism. Consequently, some of the detainees were brutalized and jailed for up to a year despite the fact that none turned out to be terrorists.

9/11 Cover Up Rowley points out: The FBI and all the other officials claimed that there were no clues, that they had no warning [about 9/11] etc., and that was not the case. There had been all kinds of memos and intelligence coming in. I actually had a chance to meet Director Mueller personally the night before I testified to the Senate Judiciary Committee … [he was] trying to get us on his side, on the FBI side, so that we wouldn’t say anything terribly embarrassing. …

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EU’s post-Cyprus resolutions are being dumped whenever that’s easier.

Fear of Contagion Feeds the Italian Banking Crisis (DQ)

Spain’s Banco Popular had the dubious honor of being the first financial institution to be resolved under the EU’s Bank Recovery and Resolution Directive, passed in January 2016. As a result, shareholders and subordinate bondholders were “bailed in” before the bank was sold to Santander for the princely sum of one euro. At first the operation was proclaimed a roaring success. As European banking crises go, this was an orderly one, reported The Economist. Taxpayers were not left on the hook, as long as you ignore the €5 billion of deferred tax credits Santander obtained from the operation. Depositors and senior bondholders were spared any of the fallout. But it may not last for long, for the chances of a similar approach being adopted to Italy’s banking crisis appear to be razor slim.

The ECB has already awarded Italy’s Monte dei Paschi di Siena (MPS) a last-minute reprieve, on the grounds that while it did not pass certain parts of the ECB’s last stress test, the bank is perfectly solvent, albeit with serious liquidity problems. By contrast, Popular was also liquidity challenged but, unlike MPS, it passed all parts of the ECB’s 2016 stress test, which shows you how ineffectual these tests are — and how subjective the resolution process of a European bank can be. In a speech to the Italian Banking Association on Thursday, the Vice President of the ECB, Vítor Constâncio, suggested that under certain circumstances, it might be wiser to save a bank than to resolve it. What’s more, taxpayers should be called upon not only to save banks like MPS but also to make whole all holders of the bank’s subordinate debt, under the pretext that they were misled into purchasing them (as indeed some retail customers, but certainly not all, were).

A taxpayer-funded bailout of bondholders is also on the cards for the two mid-sized Veneto-based banks, Banca Popolare di Vicenza and Veneto Banca, which have already received billions of euros in taxpayer assistance. Italy’s Minister of Economy Pier Carlo Padoan continues to insist the two banks will not be wound down. This is the same man who insisted last year that a) there would be no need of any future bail outs; and b) Italy did not even have a banking problem on its hands. Padoan has no choice but to deny all rumors of a bail-in; otherwise there would be a massive rush for the exits. In the weeks and even days leading up to Popular’s collapse, Spain’s Economy Minister Luis de Guindos repeatedly reassured investors that the bank was perfectly safe and solvent.

All the while government agencies, including Spain’s social security fund, and regional government authorities were emptying the deposits they held with the bank as fast as they could. The total is unknown but it certain ran into billions of euros. To avoid a similar fate, Banca Popolare di Vicenza and Veneto Banca were instructed by the European Commission last week to find an additional €1.25 billion in private capital. That money still hasn’t arrived, and now Italy’s government is trying to persuade the European Commission and the ECB to water down the requirement to €600-800 million, while also urging Italian banks to chip in to the bank rescue fund. If they don’t and the two Veneto-based banks end up being wound down, they will have to cough up as much as €11 billion to refund the banks’ depositors.

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Deleveraging my donkey.

China’s Smaller Banks Endure Record Borrowing Costs amid Squeeze (BBG)

China’s smaller banks, caught between a seasonal cash squeeze and an official deleveraging drive, are stomaching record high borrowing costs to raise funds. Issuance of negotiable certificates of deposit jumped to 758 billion yuan ($111.5 billion) this week, the most since the securities were introduced in 2013 as a lifeline for smaller banks. The yield on one-month AAA rated NCDs has surged nearly one percentage point this month to an all-time high of 5.05%, while that on AA+ contracts reached 5.30%, according to data compiled by Bloomberg. The increase in NCD costs comes at a tough time for Chinese lenders, which face an unprecedented 4.5 trillion yuan of maturities this quarter. The pressure has been aggravated by the deleveraging drive, with the one-month Shanghai Interbank Offered Rate climbing for 22 days in a row to a two-year high.

The certificates are used mainly by smaller lenders – banks outside of China’s top 10 by market value accounted for 76% of total sales this year. “The smaller banks have no choice but to take the blow,” said Shan Kun, Shanghai-based head of China markets strategy at BNP Paribas. “They need to sell NCDs to get financing as they cut leverage gradually and as they have to cope with tighter liquidity this month. The rates will likely continue to climb, or at least stay elevated in the near term.” When cash supply tightens, small- and medium-sized lenders are usually among the hardest-hit because they lack the retail deposit arsenal of larger banks, said Yulia Wan, a Shanghai-based banking analyst at Moody’s Investors Service. They also may not have enough bonds to use as collateral to borrow money in the repo market. The banks need the money to finance longer-term and less liquid assets, such as debt and investment in loans and receivables, she added.

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Grand plans going back to Osborne and Cameron.

Most Of Central London Hospital To Be Sold Off, Plans Reveal (G.)

Almost all of a central London hospital is to be sold and its services diverted to already stretched facilities around the capital under plans for NHS modernisation seen by the Guardian. Charing Cross hospital, a flagship NHS facility in the heart of London, is to be cut to just 13% of its current size under proposals contained in sustainability and transformation plans published last year in 44 areas across England. Many of the officially published plans lacked precise detail about how local services would change, but internal supporting documents seen by the Guardian reveal the scale of the closures at the London site. The proposals claim much of the care currently offered at Charing Cross can be transferred to “community settings” such as local GP services, but health campaigners and clinicians say the transformation could endanger patients.

The documents include a map detailing how 13% of the current hospital site will remain, with the rest of its prime real estate in central London sold off. The plan is to introduce the changes after 2021. NHS chiefs have stated as recently as March that “there have never been any plans to close Charing Cross hospital”, and in March 2015 the then prime minister, David Cameron, said it was “scaremongering” to suggest that the Charing Cross A&E departmentwas earmarked for closure. The health secretary, Jeremy Hunt, echoed the claims. However, in the internal NHS documents the apparent downgrading of Charing Cross is outlined in great detail. The plan is to axe 10 major services at Charing Cross – 24/7 A&E, emergency surgery, intensive care and a range of complex emergency and non-emergency medical and surgical treatments. The remaining services would be a series of outpatient and GP clinics, X-ray and CT scans, a pharmacy and an urgent care centre for “minor injuries and illnesses”. Around 300 acute beds will be lost.

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Yanis.

Five Talks on Power, Populism, Politics & Europe (Varoufakis)

1 Yanis Varoufakis on power, populism and the future of the EU
2 Can Europe Make It? – Yanis Varoufakis speaks to openDemocracy
3 Yanis Varoufakis blows the lid on Europe’s hidden agenda
4 Yanis Varoufakis and his plan to take on Europe – again
5 Greece, Austerity, Brexit and Europe’s other darlings at GFMF2016

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In the EU, there’s immunity for officials committing crimes.

Spain Says Eurogroup May Block Greek Loan If Officials Not Granted Immunity (R.)

The Eurogroup of finance ministers may block an 8.5-billion-euro (7.44 billion pounds) loan to Greece if it does not grant immunity to privatisation agency officials from Spain, Italy and Slovakia, Spanish Economy Minister Luis de Guindos said on Friday. In 2015, a Greek prosecutor charged three officials at the country’s privatisation agency with embezzlement for withholding interest payments and breach of duty in relation to a sale and lease-back deal of 28 state-owned buildings. The case is still pending. “If there’s not a definitive solution for the situation of these three experts, the Eurogroup will block the payment,” de Guindos said in Luxemburg.

Greece would do “whatever necessary” to immediately settle the legal case, a Greek government official said. European Economic and Monetary Affairs Commissioner Pierre Moscovici said he was confident the problem would be resolved and that he would continue to discuss the issue with Spain during his visit to Madrid next week. “The problem has to be solved. We should not over dramatise it. The disbursement will happen and at the same time will find a solution to this problem,” Moscovici said on his arrival at a meeting of EU finance ministers in Luxemburg on Friday.

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Next up: a chip that makes your kids smarter. Try and resist that.

Swedish Commuters Can Use Hand Implant Chip Instead Of Train Tickets (Ind.)

Gone are the days when an e-ticket was seen as cutting edge – one Swedish rail company is offering passengers the option of using a biometric chip implanted into their hand in lieu of a paper train ticket. SJ is the first travel company in the world to let people use this innovative method that seems straight out of a sci-fi film. The tiny chip has the same technology as Oyster cards and contactless bank cards – NFC (Near Field Communication) – to enable conductors to scan passengers’ hands. Before you pack your bags for Sweden, the scheme is only applicable to those who already have the biometric implant – SJ is not offering to chip people. Around 2,000 Swedes have had the surgical implant to date, most of them employed in the tech industry.

State-owned operator SJ has said it expects about 200 people to take up the microchip method, but users must be signed up as a loyalty programme member to access the service. Customers buy tickets in the normal way by logging onto the website or mobile app, and their membership number, which is the reference code for the ticket, is linked to their chip. There are still kinks to be ironed out with the scheme, which began in earnest last week. Some passengers’ LinkedIn profiles were appearing instead of their train tickets when conductors scanned their biometric chip, while a number of train crew haven’t got the new SJ app which facilitates the scanning of biometric chips yet. “It’s just a matter of days before everyone has it,” says a spokesperson for SJ.

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Jul 082016
 
 July 8, 2016  Posted by at 8:05 am Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Lewis Wickes Hine Whole family works, Browns Mills, New Jersey 1910

Brexit Opens Up Bank Fault Line From Milan To Lisbon (R.)
Europe Banks Close to Breaching 2011 Crisis Lows on Italy Woes (BBG)
EU Declares Spain, Portugal In Violation Of Deficit Rules (EuA)
UK Property Fund Turmoil Continues As Three More Firms Cut Value (G.)
World Faces Deflation Shock As China Devalues At Accelerating Pace (AEP)
Forget Brexit, Watch China And The Renminbi (VW)
Central Banks Put Squeeze on Sovereign-Debt Market (WSJ)
Bond Market Is In An ‘Epic Bubble Of Colossal Proportions,’ Says Boockvar (CNBC)
Race And Real Estate: How Hot Chinese Money Is Making Vancouver Unlivable (G.)
Why Australia Could Be About To Lose Its AAA Rating (VW)
Chilcot’s Judgment Is Utterly Damning – But It’s Still Not Justice (Monbiot)
More Obscuration From The British Establishment (Paul Craig Roberts)
The United States and NATO Are Preparing for a Major War With Russia (Klare)
Pressure Mounts For Varoufakis’ Secret Plan X To Be Investigated (Kath.)
The Strange Gaps in Hillary Clinton’s Email Traffic (Pol.)
Marine’s Defense For Handling Classified Info Will Cite Hillary Case (WaPo)
Europe Is Full … Of Empty Houses (LifeSeekers)

 

 

Beautiful Brexit bursts bubbles.

Brexit Opens Up Bank Fault Line From Milan To Lisbon (R.)

The ripples from Britain’s decision to leave the EU have spread across Europe to its southwestern edge, where Portugal is quietly struggling to contain a banking crisis. Since Britain’s shock vote on June 23 for a “Brexit”, attention in the banking sector has mainly focused on Italy, where non-performing loans are causing concern, bank shares have tumbled and confidence has sunk. Political tensions in Europe have also deepened, with Rome and Lisbon trying to bend EU rules on helping laggard banks but meeting resistance from economic powerhouse Germany and the executive European Commission. “It’s putting the whole banking system under stress,” said Gunnar Hokmark, a lawmaker in the European Parliament, echoing the nervousness expressed by investors who spoke to Reuters.

“It will be serious for countries in a fragile situation,” said Hokmark, who helped write rules imposing losses on bondholders and large depositors of failing banks which Portugal and Italy want loosened to allow state help. Portugal’s problems have attracted fewer headlines than Italy’s but its predicament is potentially no less painful. Data show Portuguese savings are being spent, unlike in Italy, and private debt is much higher. A euro zone official who asked not be identified said Portugal’s situation was as critical as Italy’s but it was unlikely to be treated with leniency because it was smaller and posed no “systemic” threat to Europe’s financial stability. Portugal sees it differently. “Wherever you look, there is a threat or a risk,” said Filipe Garcia, a financial expert and consultant in Portugal.

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How much did Draghi spend to reach this point?

Europe Banks Close to Breaching 2011 Crisis Lows on Italy Woes (BBG)

European banks have fallen to levels not seen since the worst days of the region’s debt crisis as turmoil surrounding Italy’s lenders intensified. Worries about market contagion dragged the Stoxx Europe 600 Banks Index just 1.4% away from its 2011 low. Most of Europe’s banks lost at least 40% of their value in the last year – Banco Popular Espanol, Banca Monte dei Paschi di Siena, Deutsche Bank and Credit Suisse reached fresh record lows this week.

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If EU sanctions Madrid and Lisbon, it can’t leave others be.

EU Declares Spain, Portugal In Violation Of Deficit Rules (EuA)

The European Commission on Thursday (7 July) officially declared Spain and Portugal in violation of the EU rules on government overspending, the first step towards unprecedented penalties against members of the 28-country bloc. “The Commission confirms that Spain and Portugal will not correct their excessive deficits by the recommended deadline,” the EU’s executive arm said in a statement. If endorsed by the EU’s finance ministers, the Commission is then legally obliged to propose fines against the two neighbouring countries, which were both hit hard by the financial crisis. “Lately, the two countries have veered off track in the correction of their excessive deficits and have not met their budgetary targets,” said Valdis Dombrovskis, the EU Commission’s VP in charge of the euro.

“We stand ready to work together with the Spanish and Portuguese authorities to define the best path ahead,” he said. Many EU powers led by Germany have long hoped for the Commission to finally crack down on public overspenders, but with populist fires burning after the Brexit vote, ministers meeting in Brussels on Tuesday could decide to delay their immediate endorsement. “There is uncertainty creeping in light of the UK vote result,” an EU diplomat told AFP. France and Italy will be the most willing to delay the penalty process, fearing that their own years of EU rule breaking would put them next in line for a sanction by Brussels. Ahead of the Commission announcement, Portuguese Prime Minister Antonio Costa warned that Brussels would foster a rise in Euroscepticism in Portugal if EU sanctions are applied.

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Brexit bursts bubbles. Is that a bad thing?

UK Property Fund Turmoil Continues As Three More Firms Cut Value (G.)

Shopping centres, office blocks and warehouses worth up to £5bn could be put up for sale as the turmoil in the UK commercial property sector prompted by the Brexit vote forces fund managers to revalue their portfolios or temporarily prevent investors withdrawing their savings. With the pound under pressure on the foreign exchange markets, fund managers Legal & General, Foreign & Colonial and Dutch-owned Kames cut the value of their property funds on Thursday. L&G cut the value of its £2.3bn fund by 10% – following a 5% cut last week – while F&C and Kanes both cut by 5%. Aberdeen Fund Management announced on Wednesday it was halting trading in its property fund for 24 hours and devaluing it by 17% – thought to be the biggest adjustment ever made by a property fund.

Aberdeen has since extended the trading ban until Monday. Others have suspended dealings for longer, starting with Standard Life’s decision on Monday to halt trading in its £2.9bn commercial property fund, leading to a cascade effect with Aviva, Prudential’s M&G, Henderson, Columbia Threadneedle and Canada Life following suit – taking the total value of property funds suspended to £18bn. Mike Prew, equity analyst at Jefferies, said buildings could be sold to find the cash to repay investors in the funds: “We estimate that £3bn to £5bn of assets could be put up for sale but it’s a trading vacuum and what sells is likely to get a hefty Brexit discount. “Buildings are now being readied for sale but keys to cash can typically take three to six months.”

One of the factors weighing on sentiment is uncertainty about the role of London as a financial centre outside the EU. George Osborne, the chancellor, met the heads of major international banks including Goldman Sachs and Morgan Stanley on Thursday to discuss ways to keep the City as a major trading centre. “We are determined to work together,” they said in a joint statement.

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Ambrose lags me by a week: Deflation Is Blowing In On An Eastern Trade Wind

World Faces Deflation Shock As China Devalues At Accelerating Pace (AEP)

China has abandoned a solemn pledge to keep its exchange rate stable and is carrying out a systematic devaluation of the yuan, sending a powerful deflationary impulse through a global economy already caught in a 1930s trap. The country’s currency basket has been sliding at an annual pace of 12pc since the start of the year. This has picked up sharply since the Brexit vote, suggesting that the People’s Bank (PBOC) may be taking advantage of the distraction to push through a sharper devaluation. “This makes a mockery of the PBOC’s suggestion that its policy is to keep the currency’s value stable,” said Mark Williams, chief China economist at Capital Economics. “Markets will not take PBOC policy statements at face value in the future.”

Mr Williams said it is unclear whether Beijing intended to deceive investors all along when it gave categorical assurances earlier this year, or whether it is feeding on events. Either way the markets have stopped believing what they are told, storing serious trouble for the authorities should there be another surge in capital flight later this year, as widely expected. “When it comes, the PBOC will find itself sorely lacking in credibility. It may have to intervene on a large scale to maintain control,” he said. Factory gate prices within China are falling at a rate of 2.9pc, further amplifying the deflationary impact. Analysts fear that Beijing is engaged is an undeclared policy of beggar-thy-neighbour mercantilism, trying to avert an industrial crisis at home by exporting its overcapacity in steel, shipbuilding, chemicals, plastics, paper, glass, and even solar panels, to the rest for the world.

“When you have a relatively closed capital account like China, it means that any currency move like this is a policy decision,” said Hans Redeker, currency chief at Morgan Stanley. “They seem to be overriding their own model and letting the remnimbi (yuan) fall to improve competitiveness. They are in the same sort of deflationary syndrome as Japan in the 1990 but on a much bigger scale. The global economy is in no position to absorb this.”

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Again, Deflation Is Blowing In On An Eastern Trade Wind.

Forget Brexit, Watch China And The Renminbi (VW)

As the world’s attention has been fixed on Brexit and meltdown of the European financial system, China has been quietly devaluing its currency without causing too much turbulence in the financial markets as it did the last time policymakers attempted such a strategy. On Wednesday the yuan fell to a fresh five-and-a-half-year low against the dollar extending its slide to a fifth straight session, after China’s central bank sharply weakened its official guidance rate as the dollar surged. The yuan traded as low as 6.6955 against the dollar at one point, closing in on the psychologically important 6.7 level. China’s policymakers have made it clear that they are willing to let the yuan fall as low as 6.8 per dollar in 2016 to support struggling exporters, a depreciation of 4.5% for the full year matching last year’s decline.

This time around China’s central bank is trying to send a message to the markets that it has the depreciation under control. Reuters reports that traders believe state-owned banks across the country are offering dollars to soothe markets while the People’s Bank of China has been intervening in the foreign exchange market to slow down the yuan’s decline. Forex reserves fell by $27.9 billion in May to $3.19 trillion, their lowest since December 2011 although currency movements are almost entirely to blame for the decline. The renminbi depreciated by 1.8% during May. FX reserves increased by $10.3 billion during March and $7.1 billion during April.

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Not enough paper left.

Central Banks Put Squeeze on Sovereign-Debt Market (WSJ)

Christopher Sullivan, a money manager in New York, is worried that when he needs U.S. Treasury bonds one day, he might not be able to get them. On the surface, the concern might seem unwarranted: The U.S. Treasury has $13.4 trillion in debt securities outstanding, making the U.S. bond market the largest in the world and Treasurys among the most easily traded asset classes. But Mr. Sullivan, who oversees $2.3 billion as chief investment officer at the United Nations Federal Credit Union, said he is afraid that he may soon be squeezed out of that market as central banks continue to vacuum up high-quality debt around the world and nervous overseas investors turn to Treasurys for relief.

A buying spree by central banks is reducing the availability of government debt for other buyers and intensifying the bidding wars that break out when investors get jittery, driving prices higher and yields lower. The yield on the benchmark 10-year Treasury note hit a record low Wednesday. “The scarcity factor is there but it really becomes palpable during periods of stress when yields immediately collapse,’’ he said. ”You may be shut out of the bond market just when you need it the most.’’

On Wednesday, the yield on the 20-year Japanese government bond fell below zero for the first time, joining a pool of negative-yielding bonds around the world that has expanded rapidly over the past year. In Switzerland, government bonds through the longest maturity, a bond due in nearly half a century, are now yielding below zero. In Germany, government debt with maturities out as far as January 2031 is trading with negative yields.

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Kuroda and Bernanke are meeting next week.

Bond Market Is In An ‘Epic Bubble Of Colossal Proportions,’ Says Boockvar (CNBC)

One of the most crowded trades on Wall Street is about to implode, says one market watcher. “We’re in an epic bubble of colossal proportions,” Peter Boockvar, at The Lindsey Group, said Tuesday on CNBC’s ” Futures Now “. Global yields have been tumbling to record lows, with many dipping into negative territory. The U.S. 10-year hit its lowest level ever this week as traders continue to seek safety in the bond market. Yields move inversely to prices. However, Boockvar believes that this activity is a ticking time bomb for the global economy. He reasoned that U.S. Treasury yields are being dragged down by negative-yielding debt out of Germany, Japan and Switzerland and misplaced monetary policy, and is therefore skeptical as to how much longer the rally can continue.

“It could be central banks that end this,” said Boockvar in regard to upward momentum for bonds. In his recent coverage, he reacted to the newly released FOMC minutes and further questioned the Fed’s ability to act effectively. “They’ll call it being ‘patient.’ Their forecasts are now irrelevant, their communication is now meaningless and their tools to handle whatever might come our way are toothless,” noted Boockvar when describing the Fed’s ability to address a flattening yield curve. In Europe, concern for Italy’s economy continues to rise as that nation struggles to maintain negative interest rates while simultaneously raising capital for its banking system, which is straddled with mounting debt.

“Maybe Italian banks are telling us that central bankers and their negative interest rate policies are actually destroying the Japanese and European banking system?” asked Boockvar in the CNBC interview. He reasoned that Bank of Japan Governor Haruhiko Kuroda and ECB President Mario Draghi could take a look at what’s happening in Italy and decide that their respective monetary policies are the wrong course of action. Ultimately, Boockvar warned of the fallout that could occur if multiple nations opt to end what he referred to as a “negative deposit rate regime.” “Even if they put it back to zero, imagine the carnage, at least in the short-term bond markets,” concluded Boockvar.

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Once again: how to kill a city.

Race And Real Estate: How Hot Chinese Money Is Making Vancouver Unlivable (G.)

Here’s one,” says Melissa Fong. She’s browsing online real estate listings in a cafe near Vancouver’s City Hall. Behind her, the mountains of the North Shore – the view that launched a thousand bidding wars – rise through mist. “Three-bedroom townhouse, 1,400 sq ft, C$1.5m (£800,000). You could start a family in a place like this. Way, way out of my price range, though.” Fong moves on, scrolling through half a dozen homes, each smaller than the last, until she arrives at a tiny, 500 sq ft condominium on the east side of the city. “Unassuming” would be a generous way to describe how it looks from the photos, which, tellingly, are all exterior shots. “You could live there if you only had one kid, right?” she says with a grim smile.

An urban planning researcher, Fong divides her time between Vancouver, where her elderly parents live, and Toronto, where she’s finishing a doctorate. She grew up in Vancouver, has deep roots in the city, and plans to settle here with her husband, a home renovator. But she has looked on with a mixture of frustration and horror as the cost of housing in Canada’s famously liveable city rise beyond the means of young professionals like her. “When you think it can’t get any worse, it does. So you keep adjusting your expectations, you know?”

Over the past year, the price of a single family house in Vancouver increased by an incredible 30%, to an average of $1.4m. It’s just the latest, most dramatic jump in an already dramatic long-term trend that has turned the beautiful but unassuming Canadian city into one of the world’s least affordable, with a housing price-to-income ratio of 10.8. That’s third after Hong Kong and Sydney, and well ahead of London, which ranks eighth at 8.5. Driving the rise is an unprecedented flood of foreign capital, mainly from China.

“What you have is a huge pool of very wealthy people who want to hedge against uncertainty back home,” says Thomas Davidoff, a real estate economist at the University of British Columbia (UBC). “Combine anxious money – a lot of it – with a beautiful gateway city that has limited space to build, low property taxes, lax regulation on capital flows, and wealth-friendly immigration programmes, and you get a market like this one,” – a market where an ordinary house with a waterfront view can sell for $15m while people earning local wages struggle to buy or rent a home.

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Lemme guess. Because it’s f**king broke?

Why Australia Could Be About To Lose Its AAA Rating (VW)

Australia’s AAA credit rating was under pressure even before the election and is now looking decidedly shaky. Ratings agency Standard & Poors has moved Australia’s rating outlook from “stable” to “negative”, due to debt and a poor chance of budget repair. This follows warnings from the other major credit rating agencies – Moody’s and Fitch Ratings. The problem is budget repair will only become harder over the coming years, whatever the final numbers in the parliament. On the parties’ approach to budget repair, the Coalition and Labor are virtually indistinguishable as far as the credit agencies are concerned. The May budget projected a deficit (in underlying cash terms) of A$37 billion in 2016-17, gradually falling to $6 billion over the four-year forward estimates.

Labor’s plan is to reduce the deficit from $39 billion to $11 billion over that time. Both Coalition and Labor forecast a return to surplus over the subsequent years and indeed quite large surpluses ten years from now. Budget repair on this scale was utterly implausible before the election and is fiction now. The government’s so-called “zombie” budget measures were baked into its projections over the forward estimate period. These were mainly the cuts to university funding, family payments and the Pharmaceutical Benefits Scheme. None of these had any prospect of being legislated with the past Senate, never mind with a larger, more powerful set of crossbench senators.

The Parliamentary Budget Office estimates these “zombie” measures to be worth $8 billion in total over the forward estimates. This accounts for roughly half of the difference between the total projected deficits of Coalition and Labor over the same period. In short, there is little or no prospect of achieving the budget repair that is a pre-requisite for maintaining Australia’s AAA credit rating. Both sides of politics need to spell out to all Australians what this means. The effect of a credit downgrade is like an income cut to households, businesses and government.

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Blair won’t be jailed, neither will Dubya or Cheney. But we could at least try to make sure this can’t happen again. By telling them of consequences before they pull these things.

Chilcot’s Judgment Is Utterly Damning – But It’s Still Not Justice (Monbiot)

Little is more corrosive of democracy than impunity. When politicians do terrible things and suffer no consequences, people lose trust in both politics and justice. They see them, correctly, as instruments deployed by the strong against the weak. Since the first world war, no British prime minister has done anything as terrible as Tony Blair’s invasion of Iraq. This unprovoked war caused the deaths of hundreds of thousands of people and the mutilation of hundreds of thousands more. It flung the whole region into chaos, which has been skillfully exploited by terror groups. Today, three million people in Iraq are internally displaced, and an estimated 10 million need humanitarian assistance.

Yet Blair, the co-author of these crimes, whose lethal combination of appalling judgment and tremendous powers of persuasion made the Iraq war possible, saunters the world, picking up prizes and massive fees, regally granting interviews, cloaked in a forcefield of denial and legal impunity. If this is what politics looks like, is it any wonder that so many people have given up on it? The crucial issue – the legality of the war – was, of course, beyond Sir John Chilcot’s remit. A government whose members were complicit in the matter under investigation (Gordon Brown financed and supported the Iraq war) defined his terms of reference.

This is a fundamental flaw in the way inquiries are established in this country: it’s as if a defendant in a criminal case were able to appoint his own judge, choose the charge on which he is to be tried and have the hearing conducted in his own home. But if Brown imagined Chilcot would give the authors of the war an easy ride, he could not have been more wrong. The Chilcot report, much fiercer than almost anyone anticipated, rips down almost every claim the Labour government made about the invasion and its aftermath. Two weeks before he launched his war of choice, Tony Blair told the Guardian: “Let the day-to-day judgments come and go: be prepared to be judged by history.” Well, that judgment has just been handed down, and it is utterly damning.

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PCR gets mad: Elect Hillary and die.

More Obscuration From The British Establishment (Paul Craig Roberts)

Sir John Chilcot, a member of the British establishment and also a member of the Butler Inquiry, the responsibility of which was to determine if the so-called “intelligence” used as the excuse for the US/UK invasion of Saddam Hussein’s Iraq was “fixed” to justify the invasion, has, after seven years of delay, finally issued its report. Remember, there was a leaked memo from the head of British intelligence that the intelligence justifying the Iraqi Invasion was “fixed” or orchestrated to produce the justification for the invasion, a war crime under the Nuremberg standard established by the United States. Chilcot’s job was to make this fact go away or assume less importance and to protect the Butler Inquiry’s orchestrated verdict that, despite the word of the head of British intelligence, the intelligence was not fixed.

In other words, Sir John’s assigned task under the guise of an “impartial inquiry” was to absolve former UK PM and war criminal Tony Blair not of all responsibility but of all responsibility deserving of prosecution. Sir John’s report is akin to FBI director Comey’s report on Hillary: They did it but they didn’t do it enough to be prosecuted. In the context of democratic politics, if such existed in England, Tony Blair would be in the crosshairs of the ruling UK party, the Tories or Conservatives. Yet, as both parties represent the same private interest groups, the Conservative Prime Minister, David Cameron, who has announced his resignation effective next October, rushed to the opposition party’s defense and gave in Parliament what former British Ambassador Craig Murray calls a “dishonest, apologia for the invasion that bore no relationship to the Chilcot report.”

The UK media, for the most part, also came out in defense of Tony Blair, the war criminal and liar, providing, according to Amb. Murray, “unlimited airtime to Blair and his defender Alastair Campbell” and “almost no airtime to those who campaigned against the war.” Here is the judgement of a British Ambassador, Craig Murray: “Blair is still a creature of absolute self-serving slime.” You could make the same judgment on almost every member of the Bill Clinton, George W. Bush, and Obama regimes. And Hillary’s regime would be even worse. My prediction is that life on earth would not survive Hillary’s first term. Elect Hillary and die.

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Not Klare’s strongest effort, but the risk is there.

The United States and NATO Are Preparing for a Major War With Russia (Klare)

For the first time in a quarter-century, the prospect of war—real war, war between the major powers—will be on the agenda of Western leaders when they meet at the NATO Summit in Warsaw, Poland, on July 8 and 9. Dominating the agenda in Warsaw (aside, of course, from the “Brexit” vote in the UK) will be discussion of plans to reinforce NATO’s “eastern flank”—the arc of former Soviet partners stretching from the Baltic states to the Black Sea that are now allied with the West but fear military assault by Moscow. Until recently, the prospect of such an attack was given little credence in strategic circles, but now many in NATO believe a major war is possible and that robust defensive measures are required.

In what is likely to be its most significant move, the Warsaw summit is expected to give formal approval to a plan to deploy four multinational battalions along the eastern flank—one each in Poland, Lithuania, Latvia, and Estonia. Although not deemed sufficient to stop a determined Russian assault, the four battalions would act as a “tripwire,” thrusting soldiers from numerous NATO countries into the line of fire and so ensuring a full-scale, alliance-wide response. This, it is claimed, will deter Russia from undertaking such a move in the first place or ensure its defeat should it be foolhardy enough to start a war.

The United States, of course, is deeply involved in these initiatives. Not only will it supply many of the troops for the four multinational battalions, but it is also taking many steps of its own to bolster NATO’s eastern flank. Spending on the Pentagon’s “European Reassurance Initiative” will quadruple, climbing from $789 million in 2016 to $3.4 billion in 2017. Much of this additional funding will go to the deployment, on a rotating basis, of an additional armored-brigade combat team in northern Europe.

As a further indication of US and NATO determination to prepare for a possible war with Russia, the alliance recently conducted the largest war games in Eastern Europe since the end of the Cold War. Known as Anakonda 2016, the exercise involved some 31,000 troops (about half of them Americans) and thousands of combat vehicles from 24 nations in simulated battle maneuvers across the breadth of Poland. A parallel naval exercise, BALTOPS 16, simulated “high-end maritime warfighting” in the Baltic Sea, including in waters near Kaliningrad, a heavily defended Russian enclave wedged between Poland and Lithuania.

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Greek politics has degenerated into Class B theater, and that’s if you want to be overly generous.

Pressure Mounts For Varoufakis’ Secret Plan X To Be Investigated (Kath.)

Opposition parties kept up the pressure on the government Wednesday to give a clearer account of its actions over the revelations in US economist James K. Galbraith’s latest book regarding preparations in Greece last year for a possible exit from the euro. The opposition pressed home its views on the matter despite the fact that coalition officials distanced themselves from the academic, who clarified exactly what role he played in 2015 while Yanis Varoufakis was finance minister. Writing on the website belonging to the DiEM25 movement founded by Varoufakis, Galbraith said that he had been asked by the then finance minister in March 2015 to “help with a delicate task.” “This was the preparation of a preliminary plan – requested by the prime minister – for the contingency that Greece might be forced out of the euro,” he wrote.

Galbraith said that he worked on a memorandum, called Plan X, for six weeks with a small group of experts that were sworn to secrecy. The economist insisted that the final note, which touched on issues such as issuing a new currency, setting up a new central bank and ensuring law and order, was not intended as a blueprint for exiting the euro but “an outline of measures that might have to be taken and of problems that could occur.” “It was not our mission to make recommendations, and we made none; we were preparing for a scenario that everyone had hoped to avoid,” wrote Galbraith. Despite the academic’s explanation, Alternate Finance Minister Giorgos Houliarakis launched a strong attack on Galbraith during a session in Parliament Wednesday. “Who is this gentleman?” said the ministry official. “What he is saying is unbelievably frivolous.”

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“Clinton signed documents declaring she had turned over all of her work-related emails. We now know that is not true. But even more importantly, the absence of emails raises troubling questions about the nature of the correspondence that might have been deleted.”

The Strange Gaps in Hillary Clinton’s Email Traffic (Pol.)

The past few weeks have brought a myriad of revelations about the private server Hillary Clinton used while she was secretary of state. First, there was the State Department inspector general’s devastating critique of the former secretary’s email practices. Then came sworn testimony of two key Clinton aides about how the server was set up and how the system worked (or didn’t). Just this weekend, Clinton met with the FBI to discuss her email arrangements. And on Tuesday, FBI Director James Comey announced that the agency would not recommend criminal charges over the handling of these emails, while at the same time offering a brutal assessment of how poorly Team Clinton handled classified information.

But, when it comes to Clinton’s correspondence, the most basic and troubling questions still remain unanswered: Why are there gaps in Clinton’s email history? Did she or her team delete emails that she should have made public? The State Department has released what is said to represent all of the work-related, or “official,” emails Clinton sent during her tenure as secretary—a number totaling about 30,000. According to Clinton and her campaign, when they were choosing what correspondence to turn over to State for public release, they deleted 31,830 other emails deemed “personal and private.” But a numeric analysis of the emails that have been made public, focusing on conspicuous lapses in email activity, raises troubling concerns that Clinton or her team might have deleted a number of work-related emails.

We already know that the trove of Clinton’s work-related emails is incomplete. In his comments on Tuesday, Comey declared, “The FBI … discovered several thousand work-related e-mails that were not in the group of 30,000 that were returned by Secretary Clinton to State in 2014.” We also already know that some of those work-related emails could be permanently deleted. Indeed, according to Comey, “It is also likely that there are other work-related e-mails that [Clinton and her team] did not produce to State and that we did not find elsewhere, and that are now gone because they deleted all emails they did not return to State, and the lawyers cleaned their devices in such a way as to preclude complete forensic recovery.”

Why does this matter? Because Clinton signed documents declaring she had turned over all of her work-related emails. We now know that is not true. But even more importantly, the absence of emails raises troubling questions about the nature of the correspondence that might have been deleted.

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Saw that coming from miles away.

Marine’s Defense For Handling Classified Info Will Cite Hillary Case (WaPo)

A Marine Corps officer who has been locked in a legal battle with his service after self-reporting that he improperly disseminated classified information will use Hillary Clinton’s email case to fight his involuntary separation from the service, his lawyer said. Maj. Jason Brezler’s case has been tied up in federal court since he sued the service in December 2014. He became a cause celebre among some members of Congress, Marine generals and military veterans after he sent a classified message using an unclassified Yahoo email account to warn fellow Marines in southern Afghanistan about a potentially corrupt Afghan police chief. A servant of that police official killed three Marines and severely wounded a fourth 17 days later, on Aug. 10, 2012, opening fire with a Kalashnikov rifle in an insider attack.

An attorney for Brezler, Michael J. Bowe, said that he intends to cite the treatment of Clinton “as one of the many, and most egregious examples” of how severely Brezler was punished. FBI Director James B. Comey announced Tuesday that he would not recommend the U.S. government pursue federal charges against Clinton, but he rebuked her “extremely careless” use of a private, unclassified email server while serving as secretary of state. The FBI found that 110 of her emails contained classified information. Bowe said it is impossible to reconcile President Obama’s statement that Clinton’s intentional act of setting up a secret, unsecured email server did not detract “from her excellent ability to carry out her duties” while Brezler received a “completely opposite finding… involving infinitely less sensitive and limited information.”

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“..there are at least 15.8 million verified empty homes in Europe..”

Europe Is Full … Of Empty Houses (LifeSeekers)

“Our country is full” is a statement you might often hear as a justification for not accepting any more migrants and refugees. According to this opinion, European countries do not have capacity to accept more newcomers, who put pressure on infrastructure – and especially housing. But when we look more closely, can it really be said that Europe is full? According to data from the censuses conducted across Europe in 2011, there are at least 15.8 million verified empty homes in Europe; in other words, there are enough empty homes in Europe to house all the asylum seekers that arrived in Europe last year, and all of Europe’s 4 million homeless people, several times over.

However, many Europeans are struggling with a housing market that makes it even more difficult for them to buy or rent a home. There are many reasons for this, including housing speculation, where investors buy houses to use simply as assets to be sold on when their value increases, as well as the economic situation and unstable employment. But what seems clear is that this market is not working for European people, and migrants and refugees are not the cause of the problem. This unfair housing market is especially serious for young people in Europe. Ever-rising rents mean that living situations for most young Europeans are unstable: it’s no surprise that over 48% of young people (aged 18-34) in the EU still live with their parents, unable to truly realise their independence. And meanwhile, there are millions of homes sitting empty.

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