Dec 182015
 December 18, 2015  Posted by at 10:15 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »

James F. Gibson Tent of A. Foulke, Horse Artillery, Brandy Station, Virginia 1864

Sell The Bonds, Sell The Stocks, Sell The House – Dread The Fed! (Stockman)
Oil Below $35, Set For Third Weekly Loss As Supply Glut Seen Relentless (BBG)
Natural Gas Falls to All-Time Inflation-Adjusted Low (WSJ)
This Year’s Worst Commodity Is One You Probably Can’t Pronounce (BBG)
Slowing Boats From China Provide Clue to Health of World Trade (BBG)
Fed Will Have To Reverse Gears Fast If Anything Goes Wrong (AEP)
The ‘Rate Hike’ Means More Looting By The 1% (Paul Craig Roberts)
Japan To Craft $27 Billion Extra Stimulus Budget To Spur Growth (Reuters)
Beijing Probes Architects of Stock-Market Rescue (WSJ)
China Beige Book Shows ‘Disturbing’ Economic Deterioration (BBG)
IMF’s Lagarde to Face Trial for ‘Negligence’ in Tapie Case (BBG)
IMF Admits Mistakes Over Greece’s Bailout Program (GR)
Beijing Grinds To Halt As Second Ever ‘Red Smog Alert’ Issued (Reuters)
EU Puts Blame On Greece, Turkey At Refugee Summit (Kath.)
EU To Fast-Track Border Control Plans (RTE)
Greece Risks Becoming A ‘Black Box’ For Stranded Migrants (FT)

Got to love it when Stockman gets mad.

Sell The Bonds, Sell The Stocks, Sell The House – Dread The Fed! (Stockman)

There is going to be carnage in the casino, and the proof lies in the transcript of Janet Yellen’s press conference. She did not say one word about the real world; it was all about the hypothecated world embedded in the Fed’s tinker toy model of the US economy. Yes, tinker toys are what kids used to play with back in the 1950s and 1960s, and that’s when Janet acquired her school-girl model of the nation’s economy. But since that model is so frightfully primitive, mechanical, incomplete, stylized and obsolete, it tells almost nothing of relevance about where the markets and economy now stand; or what forces are driving them; or where they are headed in the period just ahead. In fact, Yellen’s tinker toy model is so deficient as to confirm that she and her posse are essentially flying blind.

That alone should give investors pause – especially because Yellen confessed explicitly that “monetary policy is an exercise in forecasting”. Accordingly, her answers were riddled with ritualistic reminders about all the dashboards, incoming data and economic system telemetry that the Fed is vigilantly monitoring. But all that minding of everybody else’s business is not a virtue – its proof that Yellen is the ultimate Keynesian catechumen. This stupendously naïve old school marm still believes the received Keynesian scriptures as penned by the 1960s-era apostles James (Tobin), John (Galbraith), Paul (Samuelson) and Walter (Heller). But c’mon.Those ancient texts have no relevance to the debt-saturated, state-dominated, hideously over-capacitated global economy of 2015.

They just convey a stupid little paint-by-the-numbers simulacrum of what a purportedly closed domestic economy looked like even back then. That is, before Richard Nixon had finally destroyed Bretton Woods and turned over the Fed’s printing presses to power aggrandizing PhDs; and before Mr. Deng had thrown out Mao’s little red book in favor of a central bank based credit Ponzi. As you listened to Yellen babble on about the purported cyclical “slack” remaining in the US economy, the current unusually low “natural rate” of federal funds, all the numerous and sundry “transient” factors affecting the outlook, and the Fed’s fetishly literal quest for 2.00% inflation (yes, these fools apparently think the can hit their inflation target to the second decimal place), only one conclusion was possible. To wit, sell the bonds, sell the stocks, sell the house, dread the Fed!

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“Crude stockpiles surged to 490.7 million barrels, the highest for this time of year since 1930..”

Oil Below $35, Set For Third Weekly Loss As Supply Glut Seen Relentless (BBG)

Oil traded below $35 a barrel and headed for a third weekly decline amid a worsening U.S. supply glut and the first interest rate increase by the Federal Reserve in almost a decade. Futures held losses in New York after closing Thursday at the lowest in almost seven years, and were down 2.2% this week. Crude stockpiles surged to 490.7 million barrels, the highest for this time of year since 1930, according to the Energy Information Administration. Goldman Sachs warned of “high risks” that prices may sink further as supplies swell. The Fed decision bolstered the dollar, diminishing the investment appeal of commodities.

Oil is trading near levels last seen during the global financial crisis on signs the surplus will be exacerbated. OPEC abandoned output limits at a Dec. 4 meeting while the White House announced its support Wednesday for a deal reached by congressional leaders that would end the nation’s 40-year restrictions on crude exports. “The major driver this week has been U.S. dollar strength against a backdrop of ongoing refusal to respond rationally to the current market surplus on the supply side,” Michael McCarthy, a chief markets strategist at CMC Markets in Sydney, said by phone. “We’re just not seeing the normal production cuts we’d expect given the plummet in prices.”

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Blame it on the weather.

Natural Gas Falls to All-Time Inflation-Adjusted Low (WSJ)

Natural-gas fell to the lowest ever inflation-adjusted price in its history of Nymex trading on Wednesday as extremely warm weather continues to limit demand. Prices for the front-month January contract settled down 3.2 cents, or 1.8%, at $1.79 a million British thermal units on the New York Mercantile Exchange. That is the lowest settlement since March 24, 1999. Gas prices have been falling precipitously in recent weeks because of the combination of record-high stockpiles and a December that could be the worst for heating demand in history. Prices have fallen 25% in just one month and have dropped 39% from their high in August. Wednesday settlement put gas below the inflation-adjusted low of $1.801 that had been in place since January 1992.

Gas did make a move up to small gains in after-hours trading, but many traders and brokers had little explanation for that rebound. The trader Marc Kerrest said he noticed prices and spreads moving higher for months far away, a sign front-month prices could follow. He closed out some of his bearish bets before settlement, he said. “But in no way would I consider going [bullish on] gas just because of what it’s done,” in recent weeks, said Mr. Kerrest, who manages his own gas-focused fund, Cornice Trading. Warm weather in the U.S. caused by the El Niño weather phenomenon has sharply limited demand for the heating fuel this year. The natural-gas market is oversupplied, and some traders and analysts say the industry could run out of storage space for gas by mid-2016.

Production was so high and demand was so soft that storage levels likely shrank by just 41 billion cubic feet last week, according to the average forecast of 17 analysts, brokers and traders surveyed by The Wall Street Journal. That is only a third of their five-year average drawdown for the week. If the forecast is correct, stockpiles on Dec. 11 would have been 16% above levels from a year ago and 8.9% above the five-year average for the same week.

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We’re just getting started.

This Year’s Worst Commodity Is One You Probably Can’t Pronounce (BBG)

An obscure metal used to make steel has become this year’s worst-performing commodity, after China’s stumbling economy and a collapse in the energy industry drove outsized losses. Molybdenum – that’s for the uninitiated – is used in many steel building materials and to help harden the drills used to extract oil and natural gas from deep underground. Prices plunged 49%, the most among 79 raw materials tracked by Bloomberg, as the white metal was undermined by the flagging demand and oversupply that plagued global commodity markets throughout 2015. Use of the metal tumbled 5.1% this year, the biggest contraction since 2009, driven by a slowdown in China, the world’s biggest metals and energy consumer, according to Macquarie.

Prices have dropped for eight straight months, the longest slump since 2011, weighing on returns for mining companies including Freeport-McMoRan Inc., the world’s top producer. “It’s like a poster child for the commodity bear market,” said Paul Christopher atWells Fargo Investment Institute. “We don’t have a positive outlook on metals, including molybdenum, because they’ve been overproduced. They will continue to do the worst, not just because China’s demand is slipping still, but also because there’s not been enough supply adjustment.” Prices for molybdenum oxide tumbled to a 12-year low of $4.616 a pound in November, according to monthly data from Metal Bulletin. The drop exceeded the 34% decline for crude oil and the 27% slide in the Bloomberg Commodity Index, a gauge of returns from 22 items that is headed for its biggest annual decline since the recession in 2008.

Molybdenum for immediate delivery traded on the London Metal Exchange slumped 43% this year to $11,628 a metric ton ($5.27 a pound). About half of molybdenum is produced as a byproduct of extracting other metals, mainly copper. Because it makes up a small portion of revenue for mining companies, suppliers are slower to respond with output cuts when prices tumble, said Mu Li at CPM Group in New York. Production topped demand by 40.9 million pounds in 2015, the biggest surplus since at least 2002, according to Bank of America. The market will remain oversupplied through 2020, the bank estimates.

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No hurries, mate.

Slowing Boats From China Provide Clue to Health of World Trade (BBG)

If you want to know how China’s economy is doing, take a slow boat from one of its ports. Even with fuel at its cheapest price in almost a decade, the ships that carry goods around the world have been reducing speed in line with the slowdown in China, the biggest exporter. Shipping companies have been “slow steaming” since the global financial crisis in 2008, as a way to save costs and keep as many ships active as possible. Vessels are now operating at an average of 9.69 knots, compared with 13.06 knots seven years ago, according to data compiled by Bloomberg. That means Nike sneakers and Barbie dolls made in China can now take two weeks to arrive in Los Angeles and a month to reach Le Havre, France – a week longer than if the ships were moving at full speed.

And there’s scope for ships to go even slower, according to A.P. Moeller-Maersk. “This is the new norm,” said Rahul Kapoor at Drewry Maritime Services. “The overall speed of the industry has gone down and there’s no going back.” In the boom years before the 2008 financial crisis, shipping lines expanded fleets and ran ships as fast as they could to keep up with the surging demand for goods manufactured half a world away. As demand dropped, the lines were left with too many vessels, and customers eager to reduce inventory, who would rather pay a lower rate to receive goods than guarantee quick delivery. “In 2003, if you were on a tanker, container ships would zoom past and in a matter of a few minutes you couldn’t see them on the horizon,” Kapoor said.

“Since 2008, it’s been a different story.” Fuel costs are the biggest expense for shipping lines and the drop in oil has given them some relief from plunging freight rates driven lower by overcapacity and sluggish global growth. Reducing a ship’s speed by 10% can cut fuel consumption by as much as 30%, according to ship assessor Det Norske Veritas.

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Lots of things will go wrong.

Fed Will Have To Reverse Gears Fast If Anything Goes Wrong (AEP)

The global policy graveyard is littered with central bankers who raised interest rates too soon, only to retreat after tipping their economies back into recession or after having misjudged the powerful deflationary forces in the post-Lehman world. The European Central Bank raised rates twice in 2011, before the economy had achieved “escape velocity” and just as the Club Med states embarked on drastic fiscal austerity. The result was the near-collapse of monetary union. Sweden, Denmark, Korea, Canada, Australia, New Zealand, Israel and Chile, among others, were all forced to reverse course, and some have since swung into negative territory to compensate for the damage. The US Federal Reserve has waited longer before pulling the trigger, and circumstances are, in many ways, more propitious.

Four years of budget cuts and fiscal drag are finally over. State and local spending will add stimulus worth 0.5pc of GDP this year. The unemployment rate has dropped to 5pc. Payrolls have risen by 509,000 over the past two months. The rate of job openings is the highest since the peak of the dotcom boom in 2000. The M1 and M2 money supply figures have switched from green to amber but are not flashing the sort of stress warnings so clearly visible in mid-2008. Yet it is a very murky picture. This is the first time the Fed has ever embarked on tightening cycle when the ISM gauge of manufacturing is below the boom-bust line of 50. Nominal GDP growth in the US has been trending down from 5pc in mid-2014 to barely 3pc. Danny Blanchflower, a Dartmouth professor and a former UK rate-setter, said the US labour market is not as tight as it looks.

Inflation is nowhere near its 2pc target and the world economy is still gasping for air. He sees a 50/50 chance that the Fed will have to pirouette and go back to the drawing board. “All it will take is one shock,” said Lars Christensen, from Markets and Money Advisory. “It is really weird that they are raising rates at all. Capacity utilization in industry has been falling for five months.” Mr Christensen said the rate rise in itself is relatively harmless. The real tightening kicked off two years ago when the Fed began to slow its $85bn of bond purchases each month. This squeezed liquidity through the classic quantity of money effect. Fed tapering slowly turned off the spigot for a global financial system running on a “dollar standard”, with an estimated $9 trillion of foreign debt in US currency.

China imported US tightening through its dollar-peg, compounding the slowdown already under way. It was the delayed effect of this crunch that has caused the “broad” dollar index to rocket by 19pc since July 2014, the steepest dollar rise in modern times. It is a key cause of the bloodbath for commodities and emerging markets. Mr Christensen said the saving grace this time is that Fed has given clear assurances – like the Bank of England – that it will roll over its $4.5 trillion balance sheet for a long time to come, rather than winding back quantitative easing and risking monetary contraction.

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The big banks will be alright.

The ‘Rate Hike’ Means More Looting By The 1% (Paul Craig Roberts)

The Federal Reserve raised the interbank borrowing rate today by one quarter of one% or 25 basis points. Readers are asking, “what does that mean?” It means that the Fed has had time to figure out that the effect of the small “rate hike” would essentially be zero. In other words, the small increase in the target rate from a range of 0 to 0.25% to 0.25 to 0.50% is insufficient to set off problems in the interest-rate derivatives market or to send stock and bond prices into decline. Prior to today’s Fed announcement, the interbank borrowing rate was averaging 0.13% over the period since the beginning of Quantitative Easing. In other words, there has not been enough demand from banks for the available liquidity to push the rate up to the 0.25% limit.

Similarly, after today’s announced “rate hike,” the rate might settle at 0.25%, the max of the previous rate and the bottom range of the new rate. However, the fact of the matter is that the available liquidity exceeded demand in the old rate range. The purpose of raising interest rates is to choke off credit demand, but there was no need to choke off credit demand when the demand for credit was only sufficient to keep the average rate in the midpoint of the old range. This “rate hike” is a fraud. It is only for the idiots in the financial media who have been going on about a rate hike forever and the need for the Fed to protect its credibility by raising interest rates.

Look at it this way. The banking system as a whole does not need to borrow as it is sitting on $2.42 trillion in excess reserves. The negative impact of the “rate hike” affects only smaller banks that are lending to businesses and consumers. If these banks find themselves fully loaned up and in need of overnight reserves to meet their reserve requirements, they will need to borrow from a bank with excess reserves. Thus, the rate hike has the effect of making smaller banks pay higher interest expense to the mega-banks favored by the Federal Reserve. A different way of putting it is that the “rate hike” favors banks sitting on excess reserves over banks who are lending to businesses and consumers in their community. In other words, the rate hike just facilitates more looting by the One%.

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Their debt is not high enough yet.

Japan To Craft $27 Billion Extra Stimulus Budget To Spur Growth (Reuters)

Japan’s cabinet is set to approve on Friday an extra budget worth $27 billion to fund stimulus spending for the current fiscal year ending in March to rev up the flagging economy, government sources told Reuters. The 3.3213 trillion yen ($27.14 billion) extra stimulus budget includes spending for steps to support elderly pensioners with cash benefits and farmers seen hit by the Trans-Pacific Partnership (TPP) trade deal, the sources said on condition of anonymity because the plan has not been finalised. In a show of efforts to fix dire public finances, the government will fund the stimulus without resorting to fresh borrowing, while tapping cash reserves left from the previous year’s budget and higher-than-expected tax revenue, they said.

These funding sources will allow the government to reduce its plans to issue new bonds by 444.7 billion yen from the initially planned 36.9 trillion yen, they said. The government revised up the tax revenue estimate for this fiscal year by 1.899 trillion yen to a 24-year high of 56.4 trillion yen, reflecting increase in corporate tax payments on the back of rising profits. Non-tax revenue was cut by 346.6 billion yen from an initial estimate of 4.95 trillion yen, due to expected cuts in the Bank of Japan’s payment into the government’s coffers because of the bank’s plan to replenish its reserves. The extra budget will be sent to parliament for approval early next year, along with an annual budget for the coming fiscal year that starts in April.

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“..investigating whether officials inside the China Securities Regulatory Commission used their knowledge of the rescue effort to enrich their friends or themselves..”

Beijing Probes Architects of Stock-Market Rescue (WSJ)

Having already investigated investors and brokerages in connection with a bungled summer stock-market rescue totaling more than $200 billion, Beijing is now probing the rescuers. Communist Party graft busters are investigating whether officials inside the China Securities Regulatory Commission used their knowledge of the rescue effort to enrich their friends or themselves, say agency officials familiar with the probe. In recent weeks, they have been taking officials, one by one, to a hotel close to the agency’s headquarters to press them to come clean or report on others, the officials say. The investigators also have set up shop on the top floor of the agency’s 22-story headquarters in downtown Beijing, banned agency officials from leaving China and set up a hotline and red mailbox in the lobby for anonymous tips, the officials say.

Already two top CSRC officials have been removed from their posts and placed under investigation on suspicion of leaking the government’s moves to private investors who used it to reap profits, according to officials with knowledge of the probe. The officials familiar with the probe told The Wall Street Journal that one focus is suspected chummy ties between the regulators and those they regulate. “They’re trying to determine what went wrong with the action to save the market this summer,” one of the officials said. “Was there anyone who inappropriately profited from the action?” [..]

The investigation was sparked by a stock-market rescue effort that called into question China’s ability to manage a market-driven economy, a stated national goal. That effort included a massive government-led buying binge, with a state lender plowing 1.2 trillion yuan ($188 billion) into the stock market and brokerages vowing to spend 120 billion yuan more, while other state-backed companies spent an undisclosed amount. Chinese officials have said those unprecedented measures were necessary to preventing the stock rout from spreading to other parts of China’s financial system.

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The not-official numbers.

China Beige Book Shows ‘Disturbing’ Economic Deterioration (BBG)

China’s economic conditions deteriorated across the board in the fourth quarter, according to a private survey from a New York-based research group that contrasted with recent official indicators that signaled some stabilization in the country’s slowdown. National sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months, according to the fourth-quarter China Beige Book, published by CBB International. The indicator is modeled on the survey compiled by the Federal Reserve on the U.S. economy, and was first published in 2012. The world’s second-largest economy lacks the kind of comprehensive data available on developed nations, making it harder for investors to get a clear read – particularly as China transitions from reliance on manufacturing and investment toward services and consumption.

Official data on industrial production, retail sales and fixed-asset investment all exceeded forecasts for November, while consumer inflation perked up and a slide in imports moderated. The Beige Book’s profit reading is “particularly disturbing,” with the share of firms reporting earnings gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the release. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening. The survey shows “pervasive weakness,” Miller wrote in the report. “The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true.”

After efforts including six interest-rate cuts since late 2014 failed to revive growth, policy makers are switching focus to fix problems like overcapacity on the supply side. President Xi Jinping – seeking to keep growth at a minimum 6.5% a year through 2020 – is juggling short-term stimulus with long-term prescriptions to avoid the middle-income trap that has ensnared developing nations after bouts of rapid growth before they became wealthy. China’s leaders convene their annual economic work meeting Friday, according to the People’s Daily. Officials typically set the growth target for the coming year at the conference, which lasts a few days.

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“She shares the prosecutors’ view that there is no basis for any charge against her.”

IMF’s Lagarde to Face Trial for ‘Negligence’ in Tapie Case (BBG)

IMF Managing Director Christine Lagarde will be tried for “negligence” in relation to a settlement the French government reached with businessman Bernard Tapie during her time as finance minister, a French court said Thursday. Lagarde, 59, has repeatedly denied wrongdoing and will appeal the decision to put her on trial, her lawyer said. The decision was made by a special commission of the court against the advice of the prosecutor, a court official said. The trial concerns Lagarde’s 2008 decision to allow an arbitration process to end a dispute between Tapie, a supporter of then-French President Nicolas Sarkozy, and former state-owned bank Credit Lyonnais. The court has been looking into whether she erred in agreeing to the arbitration, which resulted in the tycoon being awarded about €403 million.

Having to face trial in France could have serious implications for Lagarde’s future at the helm of the IMF, though her job may not be in any immediate danger. Her five-year term as managing director expires in July. At the fund’s annual meeting in Lima in October, Lagarde said she’d be open to serving another term. “I assume this would probably go quickly, if only to remove the cloud of suspicion over her,” said Christopher Mesnooh, a Paris-based lawyer at Field Fisher Waterhouse, who isn’t involved in the Lagarde case. “Everyone knows the importance of Christine Lagarde to the world economy. They won’t want to leave this unresolved.”

Lagarde reaffirms that she “acted in the best interest of the French State and in full compliance with the law,” according to an e-mailed statement from her attorney Yves Repiquet. “She shares the prosecutors’ view that there is no basis for any charge against her.” The IMF board said Thursday that it sees Lagarde as still able to do her job. “The Executive Board continues to express its confidence in the managing director’s ability to effectively carry out her duties,” IMF spokesman Gerry Rice said in an e-mailed statement. “The board will continue to be briefed on this matter.”

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Banks are more important than countries.

IMF Admits Mistakes Over Greece’s Bailout Program (GR)

The IMF acknowledged that it made mistakes and omissions in the Greek bailout program approved in May 2010, as it did not include debt restructuring. The IMF Board of Directors approved the evaluation report on the programs during the economic crisis. An independent committee will examine the issue, especially on debt restructuring, which, as highlighted on the report, multiplied difficulties in Greece. According to a Mega television report, the Board expects the report of the Independent Office Fund Evaluation on the role played by its members on the Eurozone crisis. However, the report will be delayed at the request of Poul Thomsen, on the grounds that “the program is still running.”

Regarding the restructuring of the Greek debt, the report states that there was no restructuring because of the fear that the crisis would spread to other Eurozone countries. There was also the fear of exposure of European banks to the Greek debt. Only when the ECB intervened to protect the Eurozone and two years of uncertainty passed, then the Eurozone was secure, the report says. When it was decided to restructure private debt (PSI) the “haircut” was great for the creditors compared to others, but at the same time chances that it would prove insufficient to restore debt sustainability were increased, the report says, according to Mega.

Regarding restructuring of the Greek debt, it is implicitly admitted in the report that it was absolutely necessary in 2010. It is also admitted that for the 2010 and 2012 programs, internal devaluation through reforms in labor and product markets was the main goal. To this end, they decided measures such as reducing nominal wages and benefits in the public sector, reducing minimum wages, the reform of the collective bargaining system, promoting privatization, reducing bureaucracy and promoting competition.

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This can not end well. A revolt is building.

Beijing Grinds To Halt As Second Ever ‘Red Smog Alert’ Issued (Reuters)

China’s capital city issued a “red alert” for pollution on Friday, hard on the heels of its first-ever such warning earlier in December, as Beijing’s leadership vowed to crack down on often hazardous levels of smog. Authorities in the Chinese capital warned the city would be shrouded by heavy pollution from Saturday until next Tuesday, prompting the highest-level warning that leads to emergency responses such as limiting car use and closing schools. After decades of unbridled economic growth, China’s leadership has vowed to tackle heavy air, water and soil pollution, including the thick smog that often blankets major cities. Beijing’s second red alert comes after a landmark climate agreement was reached in Paris in December, setting a course to move away from a fossil fuel-driven economy within decades in a bid to arrest global warming.

The city’s first red alert was issued on 7 December, restricting traffic and halting outdoor construction. The Beijing Meteorological Service said in a statement vehicle use would be severely restricted, and that fireworks and outdoor barbecues would be banned. It also recommended schools cancel classes. City residents have previously criticised authorities for being too slow to issue red alerts for heavy smog, which often exceeds hazardous levels on pollution indices. The environmental protection minister, Chen Jining, vowed in December to punish agencies and officials for any failure to implement a pollution emergency response plan quickly, the state-run Global Times tabloid said. Many cities around China suffer high levels of pollution, with Shanghai schools banning outdoor activities and authorities limiting work at construction sites and factories earlier this week.

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In the eyes of the richer Europeans, they are the victims, not the refugees or Greece.

EU Puts Blame On Greece, Turkey At Refugee Summit (Kath.)

EU leaders meeting in Brussels on Thursday pressed Turkey to curb the flow of migrants entering the bloc via Greece and urged Athens to speed up its efforts to accommodate and repatriate migrants. Prime Minister Alexis Tsipras met his Turkish counterpart Ahmet Davutoglu on the sidelines of the mini-summit in Brussels which brought together 11 EU leaders and Davutoglu. According to sources, Tsipras urged European officials to ensure that a recent agreement between the EU and Turkey to stem migrant flows is being observed. Tsipras repeated Greece’s position that refugees should be transferred directly from Turkey to other EU member-states. But, according to sources, several EU leaders made it clear to Davutoglu that refugee relocations from Turkey would not begun until Ankara makes good on commitments to the EU to curb the flow of migrants to the EU via Greece.

Turkey was not the only country to come under pressure at the summit, which is to continue on Friday. Greece was criticized, chiefly by German Chancellor Angela Merkel, for delays in completing a series of screening centers for migrants on Aegean islands, dubbed hot spots. Merkel also complained about the slow rate of repatriations of migrants from Greece. Tsipras countered that Greek authorities face problems in returning migrants to countries such as Pakistan where authorities are not always cooperative. As for a proposal for the creation of an EU border force with stronger powers, the majority of leaders present, including Tsipras, backed the idea in principle. The leaders of Hungary, Malta and Poland were the most cautious while Tsipras insisted that any upgraded border force should not compromise national sovereignty. Meanwhile back in Athens, Greek authorities continued their efforts to accommodate hundreds of migrants in temporary accommodation centers.

But many appeared reluctant to stay in the designated facilities. Of some 1,300 migrants who have been staying in the Tae Kwo Do Stadium in Palaio Faliro, only 235 were at the old Olympic hockey venue in nearby Elliniko following a relocation on Thursday night. It is unclear where the rest of the migrants went though large numbers have been gathering in squares in central Athens since the Former Yugoslav Republic of Macedonia tightened its border with Greece. Athens Mayor Giorgos Kaminis on Thursday expressed concern at the presence of thousands of migrants who do not merit refugee status, from countries such as Morocco, Algeria and Pakistan, stuck in the capital and other Greek cities. “We do not want these people to be wandering around unable to survive, with no prospects,” he said, adding that he had called on authorities to make use of abandoned military facilities as temporary accommodation.

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This can only end badly. Someone get a good lawyer before this mess gets any bigger.

EU To Fast-Track Border Control Plans (RTE)

EU leaders have pledged to fast-track the establishment of an EU border and coast guard force. At a summit in Brussels, they last night urged each other to implement measures agreed this year to curb migration across the Mediterranean. By the middle of next year, they decided, they would agree the details of the new border force which was proposed by the EU executive earlier this week. Some leaders, including Greek PM Alexis Tsipras, made clear, however, that they wanted to strike out a controversial element of the proposal which would give Brussels power to send in EU border guards without a country’s consent. Summing up the three-hour discussion, European Council President Donald Tusk, said leaders had agreed there was a “delivery deficit” in making good on a series of measures agreed over recent months to stem chaotic movements that have put Europe’s Schengen open-borders area in jeopardy.

“Over the past months, the European Council has developed a strategy aimed at stemming the unprecedented migratory flows Europe is facing,” the final agreement read. “However, implementation is insufficient and has to be speeded up. “For the integrity of Schengen to be safeguarded it is indispensable to regain control over the external borders.” Greece and Italy are under pressure to do more to manage and identify those arriving, a million or more so far this year, while governments in general have yet to make good on promises to help take in asylum seekers and deport unwanted migrants. There are only two fully operational “hotspots” for screening of migrants arriving to Italy and Greece from 11 that are supposed to be set up.

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Exactly what Berlin and brussels hope to achieve.

Greece Risks Becoming A ‘Black Box’ For Stranded Migrants (FT)

Greece risks becoming a vast holding pen for tens of thousands of migrants arriving by boat from Turkey as neighbouring countries close their borders, prime minister Alexis Tsipras has warned. Mr Tsipras also expressed frustration with plans to create a new EU border force that could be deployed to the bloc’s external borders even against the objections of the relevant national government. “Greece stands accused of not being able to protect its border but they [other EU countries] don’t tell us what they expect us to do,” Mr Tsipras told the FT. “We have to rescue people in danger of losing their lives [at sea crossing from Turkey]. If they want us to carry out pushbacks, they must say so,” he added.

He was speaking as the European Commission unveiled its proposal for the new border force, which is widely viewed as a means to address a porous Greek frontier that has become an entry point for hundreds of thousands of migrants seeking to reach Germany and other, more prosperous parts of the EU. Greece only reluctantly accepted 400 officials from the EU’s current border agency, Frontex, to help police its frontier with Macedonia, and the issue of sovereignty cuts deep in a nation that has lost control of much of its economic policymaking as a consequence of its international bailouts. Crossings to Greece’s eastern islands have slowed somewhat of late – possibly because of bad weather – but still averaged about 3,400 per day this month.

According to a EU report on Turkey’s efforts to stem the flow, sent to national capitals on Wednesday, Brussels remains unconvinced the reduction was owing to any new efforts by Ankara following a pledge last month to crack down in exchange for €3bn in EU aid. The report comes ahead of a meeting between Turkey’s prime minister and a group of EU prime ministers on the sidelines of a two-day Brussels summit. That meeting, hosted by Austria and including Mr Tsipras and Angela Merkel, the German chancellor, concerns a voluntary programme in which refugees currently in Turkey would be resettled among willing member states. While Berlin had hoped the scheme would total as many as 500,000 refugees, it is likely to include only about 50,000, according to estimates from officials involved in the talks. They also made clear the scheme will not go ahead unless Turkey manages to cut the number of people entering Europe.

Athens has become increasingly concerned that it will be stuck in the middle – with Ankara failing to stop the influx and countries to the north blocking those migrants they believe are motivated by economic despair and therefore would not qualify as war refugees. For the past four weeks, only migrants fleeing wars and violence in Syria, Iraq and Afghanistan have been allowed to cross Greece’s northern border into Macedonia and continue the journey to central Europe. “Greece is in danger of becoming a black box [for refugees] if these flows don’t decrease,” Mr Tsipras said. “Slovenia, Croatia, the former Yugoslav Republic of Macedonia, all took the decision to filter people by nationality, for example, not accepting those from north African countries and Iran. This is not correct,” he added.

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Dec 052015
 December 5, 2015  Posted by at 10:17 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle December 5 2015

DPC “Broad Street and curb market, New York” 1906

US, EU Bond Markets Lose $270 Billion In One Day (BBG)
US Corporate Debt Downgrades Reach $1 Trillion (FT)
UK Call For ‘Multicurrency’ EU Triggers ECB Alarm (FT)
Why the Euro Is A Dead Currency (Martin Armstrong)
‘There Cannot Be A Limit’ To Stimulus, Says ECB president Mario Draghi (AFP)
SEC to Crack Down on Derivatives (WSJ)
Banks Said to Face SEC Probe Into Possible Credit Swap Collusion (BBG)
Enough Of Aid – Let’s Talk Reparations (Hickel)
20 Billionaires Now Have More Wealth Than Half US Population (Collins)
OPEC Fails To Agree Production Ceiling As Iran Pledges Output Boost (Reuters)
Germany Rebukes Own Intelligence Agency for Criticizing Saudi Policy (NY Times)
Germany Sees EU Border Guards Stepping In For Crises (Reuters)
EU Considers Measures To Intervene If States’ Borders Are Not Guarded (

” In the old days, this would have been a one-week trade. In the new world, and in the less liquid market we live in today, it takes one day for the repricing.”

US, EU Bond Markets Lose $270 Billion In One Day (BBG)

December has been a bruising month for bond traders and we’re only four days in. The value of the U.S. fixed-income market slid by $162.5 billion on Thursday while the euro area’s shrank by the equivalent of $107.5 billion as a smaller-than-expected stimulus boost by the European Central Bank and hawkish comments from Janet Yellen pushed up yields around the world. A global index of bonds compiled by Bank of America Merrill Lynch slumped the most since June 2013. The ECB led by President Mario Draghi increased its bond-buying program by at least €360 billion and cut the deposit rate by 10 basis points at a policy meeting Thursday but the package fell short of the amount many economists had predicted.

Fed Chair Yellen told Congress U.S. household spending had been “particularly solid in 2015,” and car sales were strong, backing the case for the central bank to raise interest rates this month for the first time in almost a decade.”A lot of people lost money,” said Charles Comiskey at Bank of Nova Scotia, one of the 22 primary dealers obligated to bid at U.S. debt sales. “People were caught in those trades. In the old days, this would have been a one-week trade. In the new world, and in the less liquid market we live in today, it takes one day for the repricing.” The bond rout on Thursday added weight to warnings from Franklin Templeton’s Michael Hasenstab that there is a “a lot of pain” to come as rising U.S. interest rates disrupts complacency in the debt market.

“A lot of investors have gotten very complacent and comfortable with the idea that there’s global deflation and you can go long rates forever,” Hasenstab, whose Templeton Global Bond Fund sits atop Morningstar Inc.’s 10-year performance ranking, said this week. “When that reverses, there will be a lot of pain in many of the bond markets.”

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“The credit cycle is long in the tooth..”

US Corporate Debt Downgrades Reach $1 Trillion (FT)

More than $1tn in US corporate debt has been downgraded this year as defaults climb to post-crisis highs, underlining investor fears that the credit cycle has entered its final innings. The figures, which will be lifted by downgrades on Wednesday evening that stripped four of the largest US banks of coveted A level ratings, have unnerved credit investors already skittish from a pop in volatility and sharp swings in bond prices. Analysts with Standard & Poor’s, Moody’s and Fitch expect default rates to increase over the next 12 months, an inopportune time for Federal Reserve policymakers, who are expected to begin to tighten monetary policy in the coming weeks. S&P has cut its ratings on US bonds worth $1.04tn in the first 11 months of the year, a 72% jump from the entirety of 2014.

In contrast, upgrades have fallen to less than half a billion dollars, more than a third below last year’s total. The rating agency has more than 300 US companies on review for downgrade, twice the number of groups its analysts have identified for potential upgrade. “The credit cycle is long in the tooth by any standardised measure,” Bonnie Baha at DoubleLine Capital said. “The Fed’s quantitative easing programme helped to defer a default cycle and with the Fed poised to increase rates, that may be about to change.” Much of the decline in fundamentals has been linked to the significant slide in commodity prices, with failures in the energy and metals and mining industries making up a material part of the defaults recorded thus far, Diane Vazza, an analyst with S&P, said. “Those companies have been hit hard and will continue to be hit hard,” Ms Vazza noted. “Oil and gas is a third of distressed credits, that’s going to continue to be weak.”

Some 102 companies have defaulted since the year’s start, including 63 in the US. Only three companies in the country have retained a coveted triple A rating: ExxonMobil, Johnson & Johnson and Microsoft, with the oil major on review for possible downgrade. Portfolio managers and credit desks have already begun to push back at offerings seen as too risky as they continue a flight to quality. Bankers have had to offer steep discounts on several junk bond deals to fill order books, and some were caught off guard when Vodafone, the investment grade UK telecoms group, had to pull a debt sale after investors demanded greater protections. Bond prices, in turn, have slid. The yield on the Merrill Lynch high-yield US bond index, which moves inversely to its price, has shifted back up above 8%. For the lowest rung triple-C and lower rated groups, yields have hit their highest levels in six years.

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Draghi apparently doesn’t think very highly of the euro: “Eurozone countries won’t want to give a competitive advantage to those outside and will use it as an excuse. That is what worries him.”

UK Call For ‘Multicurrency’ EU Triggers ECB Alarm (FT)

David Cameron’s push to rebrand the EU as a “multicurrency union” has triggered high-level concerns at the European Central Bank, which fears it could give countries such as Poland an excuse to stay out of the euro. The UK prime minister wants to rewrite the EU treaty to clarify that some countries will never join the single currency, in an attempt to ensure they do not face discrimination by countries inside the eurozone. Mario Draghi, president of the ECB, is worried the move could weaken the commitment of some countries to join the euro. Beata Szydlo, the new Polish premier, has previously described the euro as a “bad idea” that would make Poland “a second Greece”.

Mr Draghi shares concerns in Brussels that the EU single market could be permanently divided across two regulatory spheres, with eurozone countries facing unfair competition if there were a lighter-touch regime on the outside. The idea of rebranding the EU as a “multicurrency union” was raised during a recent meeting in London between George Osborne, the UK chancellor, and Mr Draghi. Mr Osborne said last month that Britain wanted the treaty to recognise “that the EU has more than one currency”. Under the existing treaty, the euro is the official currency of the EU and every member state is obliged to join — apart from Britain and Denmark, which have opt-outs. The common currency is used by 19 out of 28 member states.

Sluggish growth and a debt crisis have made the euro a less-attractive proposition in recent years, and Mr Draghi’s concern is that a formal recognition that the EU is a “multicurrency union” could make matters worse. “He’s worried that people would resist harmonisation by arguing that the UK and others were gaining an unfair advantage,” said a British official. The ECB said the bank had no formal position on the issue. British ministers are confident that the ECB’s concerns can be addressed, possibly with a treaty clause making clear that every EU member apart from Britain and Denmark is still expected to join the euro.

One official involved in the British EU renegotiations said that any safeguards for Britain must not “permanently divide the ins and outs” or force countries to pick camps. “Whatever we do cannot impair the euro in any way. The single currency must be able to function,” the official said. Since the launch of the single currency in 1999, the ECB has consistently argued that a single market and currency must have common governance and institutions. One European adviser familiar with Mr Draghi’s views said: “Eurozone countries won’t want to give a competitive advantage to those outside and will use it as an excuse. That is what worries him.”

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“The Troika will shake every Greek upside down until they rob every personal asset they have.”

Why the Euro Is A Dead Currency (Martin Armstrong)

I have been warning that government can do whatever it likes and declare anything to be be a criminal act. In the USA, not paying taxes is NOT a crime, failing to file your income tax is the crime. The EU has imposed the first outright total asset reporting requirement for cash, jewelry, and anything else you have of value stored away. As of January 1st, 2016, ALL GREEKS must report their personal cash holdings, whatever jewelry they possess, and the contents of their storage facilities under penalty of criminal prosecution. The dictatorship of the Troika has demanded that Greeks will be the first to have to report all personal assets.

Why the Greek government has NOT exited the Eurozone is just insanity. The Greek government has betrayed its own people to Brussels. The Troika will shake every Greek upside down until they rob every personal asset they have. Greeks are just the first test case. All Greeks must declare cash over € 15,000, jewelry worth more than 30,000 euros and the contents of their storage lockers/facilities. This is a decree of the Department of Justice and the Ministry of Finance meaning if you do not comply, it will become criminal. The Troika is out of its mind. They are destroying Europe and this is the very type of action by governments that has resulted in revolutions.

The Greek government has betrayed its own people and they are placing at risk the viability of Europe to even survive as a economic union. The Troika is UNELECTED and does NOT have to answer to the people. It has converted a democratic Europe into the Soviet Union of Europe. The Greek people are being stripped of their assets for the corruption of politicians. This is the test run. Everyone else will be treated the same. Just how much longer can the EU remain together?

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Thus putting QE on par with stupidity. Sounds about right.

‘There Cannot Be A Limit’ To Stimulus, Says ECB president Mario Draghi (AFP)

Mario Draghi has said the European Central Bank would intensify efforts to support the eurozone economy and boost inflation toward its 2pc goal if necessary. Speaking a day after the ECB’s moves to expand stimulus fell short of market expectations, the central bank president said that he was confident of returning to that level of inflation “without undue delay”. “But there is no doubt that if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would,” he said in a speech to the Economic Club of New York. “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate,” he said.

On Thursday the ECB sent equity markets tumbling, and reversed the euro’s downward course, after it announced an interest rate cut that was less than investors had expected and held back from expanding the size of its bond-buying stimulus. The bank cut its key deposit rate by a modest 0.10 percentage points to -0.3pc, and only extended the length of its bond purchase program by six months to March 2017. Critics said that was not strong enough action to counter deflationary pressures on the euro area economy. Some analysts believed a desire for stronger moves, like an expansion of bond purchases, was stymied by powerful, more conservative members of the ECB governing council, including Bundesbank chief Jens Weidmann.

But Mr Draghi insisted that there was “very broad agreement” within the council for the extent of the bank’s actions. And, he added, it would do more if necessary: “There is no particular limit to how we can deploy any of our tools.” He acknowledged some market doubts that central banks are proving unable to reverse the downward trend in inflation, saying that, even if there is a lag to the impact of policies in place, they are working. “I would dispute entirely the notion that we are powerless to reach our objective,” he said. “The evidence at our disposal shows, on the contrary, that the instruments we are currently deploying are having the effect intended.” Without them, he added, “inflation would likely have been negative this year”.

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Derivatives will continue to be advertized as ‘insurance’, but what they really do is keep the casino going by keeping losses -and risks- off the books.

SEC to Crack Down on Derivatives (WSJ)

U.S. securities regulators, under pressure to demonstrate they have a handle on potential risks in the asset-management industry, are about to crack down on the use of derivatives in certain funds sold to the public, worried that some products are too precarious for retail investors. The restrictions, which the Securities and Exchange Commission is set to propose next Friday, are expected to have an outsize effect on a small but growing sector that uses the complex instruments to try to deliver double or even triple returns of the indexes they track. Some regulators say these products—known as “leveraged exchange-traded funds”—can be highly volatile, and expose investors to sudden, outsize losses.

The proposed restrictions could adversely affect in particular firms like ProShare Advisors, a midsize fund company that has carved out a niche role as a leading leveraged-ETF provider. The Bethesda, Md., firm is mounting a behind-the-scenes campaign to persuade the SEC to scale back the proposal, arguing that regulators’ concerns are overblown, according to people familiar with the firms’ thinking. Exchange-traded funds hold a basket of assets like mutual funds and trade on an exchange like a stock. At issue is the growing use by some ETFs of derivatives, contracts that permit investors to speculate on underlying assets—such as commodity prices—and to amplify the potential gains through leverage, or borrowed money. But those derivatives also raise the riskiness of those investments, and can also magnify the losses.

SEC officials have said the increasing use of derivatives by mutual funds to boost leverage warrants heightened scrutiny, saying that the agency’s existing investor protection rules haven’t kept pace with industry practices. Some of the existing guidance goes back more than 30 years, long before the advent of modern derivatives.

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CDS have developed into de facto instruments to hide one’s losses behind. It’s the only way the world of finance can keep churning along in the face of deflation.

Banks Said to Face SEC Probe Into Possible Credit Swap Collusion (BBG)

U.S. regulators are examining whether banks colluded in setting prices in the derivatives market where investors speculate on credit risk, according to a person with knowledge of the matter. The U.S. Securities and Exchange Commission is probing whether firms acted in unison to distort prices in the $6 trillion market for credit-default swaps indexes, said the person, who asked not to be identified because the investigation is private. The regulator is trying to determine if dealers have misrepresented index prices, the person said. The credit-default swaps benchmarks allow investors to make bets on the likelihood of default by companies, countries or securities backed by mortgages. The probe comes after successful cases brought against Wall Street’s illegal practices tied to interest rates and foreign currencies.

Those cases showed traders misrepresented prices and coordinated their positions to push valuations in their favor, often through chat rooms – practices that violate antitrust laws. The government has used those prosecutions as a road map to pursue similar conduct in different markets. Credit-default swaps, which gained notoriety during the financial crisis for amplifying losses and spreading risks from the U.S. housing bust across the globe, have since come under more scrutiny by regulators. Trading in swaps index contracts has increased in recent years as investors look for easy ways to speculate on, say, the health of U.S. companies, or the risk that defaults will increase as seven years of easy-money policies come to an end.

Toward the end of each trading day, benchmark prices for indexes are tabulated by third-party providers based on dealer quotes, creating a level at which traders can mark their positions. This process is similar to how other markets that don’t trade on exchanges set benchmark prices. That includes the London interbank offered rate, an interest-rate benchmark. In the Libor scandal, regulators accused banks of making submissions on borrowing rates that benefited their trading positions. A group of Wall Street’s biggest banks have traditionally dominated trading in the credit swaps, acting as market makers to hedge funds, insurance companies and other institutional investors. Those dealers send quotes to clients over e-mails or on electronic screens showing at which price they will buy or sell default insurance. Those values rise and fall as the perception of credit risk changes.

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A very interesting theme. “It was like the holocaust seven times over.”

Enough Of Aid – Let’s Talk Reparations (Hickel)

Colonialism is one of those things you’re not supposed to discuss in polite company – at least not north of the Mediterranean. Most people feel uncomfortable about it, and would rather pretend it didn’t happen. In fact, that appears to be the official position. In the mainstream narrative of international development peddled by institutions from the World Bank to the UK’s Department of International Development, the history of colonialism is routinely erased. According to the official story, developing countries are poor because of their own internal problems, while western countries are rich because they worked hard, and upheld the right values and policies. And because the west happens to be further ahead, its countries generously reach out across the chasm to give “aid” to the rest – just a little something to help them along.

If colonialism is ever acknowledged, it’s to say that it was not a crime, but rather a benefit to the colonised – a leg up the development ladder. But the historical record tells a very different story, and that opens up difficult questions about another topic that Europeans prefer to avoid: reparations. No matter how much they try, however, this topic resurfaces over and over again. Recently, after a debate at the Oxford Union, Indian MP Shashi Tharoor’s powerful case for reparations went viral, attracting more than 3 million views on YouTube. Clearly the issue is hitting a nerve. The reparations debate is threatening because it completely upends the usual narrative of development. It suggests that poverty in the global south is not a natural phenomenon, but has been actively created. And it casts western countries in the role not of benefactors, but of plunderers.

When it comes to the colonial legacy, some of the facts are almost too shocking to comprehend. When Europeans arrived in what is now Latin America in 1492, the region may have been inhabited by between 50 million and 100 million indigenous people. By the mid 1600s, their population was slashed to about 3.5 million. The vast majority succumbed to foreign disease and many were slaughtered, died of slavery or starved to death after being kicked off their land. It was like the holocaust seven times over. What were the Europeans after? Silver was a big part of it. Between 1503 and 1660, 16m kilograms of silver were shipped to Europe, amounting to three times the total European reserves of the metal. By the early 1800s, a total of 100m kg of silver had been drained from the veins of Latin America and pumped into the European economy, providing much of the capital for the industrial revolution.

To get a sense for the scale of this wealth, consider this thought experiment: if 100m kg of silver was invested in 1800 at 5% interest – the historical average – it would amount to £110trn ($165trn) today. An unimaginable sum. Europeans slaked their need for labour in the colonies – in the mines and on the plantations – not only by enslaving indigenous Americans but also by shipping slaves across the Atlantic from Africa. Up to 15 million of them. In the North American colonies alone, Europeans extracted an estimated 222,505,049 hours of forced labour from African slaves between 1619 and 1865. Valued at the US minimum wage, with a modest rate of interest, that’s worth $97trn – more than the entire global GDP.

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Any economy that has such traits must fail, by definition. And it will.

20 Billionaires Now Have More Wealth Than Half US Population (Collins)

When should we be alarmed about so much wealth in so few hands? The Great Recession and its anemic recovery only deepened the economic inequality that’s drawn so much attention in its wake. Nearly all wealth and income gains since then have flowed to the top one-tenth of America’s richest 1%. The very wealthiest 400 Americans command dizzying fortunes. Their combined net worth, as catalogued in the 2015 Forbes 400 list, is $2.34 trillion. You can’t make this list unless you’re worth a cool $1.7 billion. These 400 rich people – including Bill Gates, Donald Trump, Oprah Winfrey, and heirs to the Wal-Mart fortune – have roughly as much wealth as the bottom 61% of the population, or over 190 million people added together, according to a new report I co-authored.

That equals the wealth of the nation’s entire African-American population, plus a third of the Latino population combined. A few of those 400 individuals are generous philanthropists. But extreme inequality of this sort undermines social mobility, democracy, and economic stability. Even if you celebrate successful entrepreneurship, isn’t there a point things go too far? To me, 400 people having more money than 190 million of their compatriots is just that point. Concentrating wealth to this extent gives rich donors far too much political power, including the wherewithal to shape the rules that govern our economy. Half of all political contributions in the 2016 presidential campaign have come from just 158 families, according to research by The New York Times.

The wealth concentration doesn’t stop there. The richest 20 individuals alone own more wealth than the entire bottom half of the U.S. population. This group – which includes Gates, Warren Buffet, the Koch brothers, Mark Zuckerberg, and Google co-founders Larry Page and Sergey Brin, among others – is small enough to fit on a private jet. But together they’ve hoarded as much wealth as 152 million of their fellow Americans.

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Debt deflation is real. And it’s felt first in the world’s prime commodity. “The world is already producing up to 2 million bpd more than it consumes.”

OPEC Fails To Agree Production Ceiling As Iran Pledges Output Boost (Reuters)

OPEC members failed to agree an oil production ceiling on Friday at a meeting that ended in acrimony, after Iran said it would not consider any production curbs until it restores output scaled back for years under Western sanctions. Friday’s developments set up the fractious cartel for more price wars in an already heavily oversupplied market. Oil prices have more than halved over the past 18 months to a fraction of what most OPEC members need to balance their budgets. Brent oil futures fell by 1 percent on Friday to trade around $43, only a few dollars off a six year low. Banks such as Goldman Sachs predict they could fall further to as low as $20 per barrel as the world produces more oil than it consumes and runs out of capacity to store the excess.

A final OPEC statement was issued with no mention of a new production ceiling. The last time OPEC failed to reach a deal was in 2011 when Saudi Arabia was pushing the group to increase output to avoid a price spike amid a Libyan uprising. “We have no decision, no number,” Iranian oil minister Bijan Zangeneh told reporters after the meeting. OPEC’s secretary general Abdullah al-Badri said OPEC could not agree on any figures because it could not predict how much oil Iran would add to the market next year, as sanctions are withdrawn under a deal reached six months ago with world powers over its nuclear program. Most ministers left the meeting without making comments. Badri tried to lessen the embarrassment by saying OPEC was as strong as ever, only to hear an outburst of laughter from reporters and analysts in the conference room.

[..] Iran has made its position clear ahead of the meeting with Zangeneh saying Tehran would raise supply by at least 1 million barrels per day – or one percent of global supply – after sanctions are lifted. The world is already producing up to 2 million bpd more than it consumes.

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They will soon be forced to change their stand on Saud. Information on support for terrorist groups will become available.

Germany Rebukes Own Intelligence Agency for Criticizing Saudi Policy (NY Times)

The German government issued an unusual public rebuke to its own foreign intelligence service on Thursday over a blunt memo saying that Saudi Arabia was playing an increasingly destabilizing role in the Middle East. The intelligence agency’s memo risked playing havoc with Berlin’s efforts to show solidarity with France in its military campaign against the Islamic State and to push forward the tentative talks on how to end the Syrian civil war. The Bundestag, the lower house of the German Parliament, is due to vote on Friday on whether to send reconnaissance planes, midair fueling capacity and a frigate to the Middle East to support the French. The memo was sent to selected German journalists on Wednesday.

In it, the foreign intelligence agency, known as the BND, offered an unusually frank assessment of recent Saudi policy. “The cautious diplomatic stance of the older leading members of the royal family is being replaced by an impulsive policy of intervention,” said the memo, which was titled “Saudi Arabia — Sunni regional power torn between foreign policy paradigm change and domestic policy consolidation” and was one and a half pages long. The memo said that King Salman and his son Prince Mohammed bin Salman were trying to build reputations as leaders of the Arab world. Since taking the throne early this year, King Salman has invested great power in Prince Mohammed, making him defense minister and deputy crown prince and giving him oversight of oil and economic policy.

The sudden prominence of such a young and untested prince –he is believed to be about 30, and had little public profile before his father became king — has worried some Saudis and foreign diplomats. Prince Mohammed is seen as a driving force behind the Saudi military campaign against the Iranian-backed Houthi rebels in Yemen, which human rights groups say has caused thousands of civilian deaths. The intelligence agency’s memo was flatly repudiated by the German Foreign Ministry in Berlin, which said the German Embassy in Riyadh, Saudi Arabia, had issued a statement making clear that “the BND statement reported by media is not the position of the federal government.”

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This is too crazy.

Germany Sees EU Border Guards Stepping In For Crises (Reuters)

Germany’s interior minister expects the EU executive to propose new rules for protecting the bloc’s frontiers that would mean European border guards stepping in when a national government failed to defend them. Thomas de Maiziere spoke as he arrived on Friday for an EU meeting in Brussels where ministers will discuss how to safeguard their Schengen system of open borders inside the EU and Greece’s difficulties in controlling unprecedented flows of people arriving via Turkey and streaming north into Europe. Calling for the reinforcement of the EU’s Frontex border agency, whose help Greece called for on Thursday after coming under intense pressure from other EU states, de Maiziere said he expected an enhanced role for Frontex in proposals the European Commission is due to make on borders on Dec. 15.

“The Commission should put forward a proposal … which has the goal of when a national state is not effectively fulfilling its duty of defending the external border, then that can be taken over by Frontex,” he told reporters. EU states’ sovereign responsibility for their section of the external border of the Schengen zone is protected in the Union’s treaties. But the failure of Greece’s overburdened authorities to control migrant flows that have then triggered other states to reimpose controls on internal Schengen frontiers has driven calls for a more collective approach on the external frontier. Following diplomatic threats that it risked being shunned from the Schengen zone if it failed to accept EU help in registering and controlling migrants, Greece finally activated EU support mechanisms late on Thursday.

De Maiziere noted a Franco-German push for Frontex, whose role is largely to coordinate national border agencies, to be complemented by a more ambitious European border and coast guard system. He did not say whether new proposals would strengthen the EU’s ability to intervene with a reluctant member state. A Commission spokeswoman said the EU executive would make its proposal on Dec. 15 for a European Border and Coast Guard. German officials noted that the existing Schengen Borders Code provides for recommendations to member states that they request help from the EU “in the case of serious deficiencies relating to external border control.” Other ministers and the Commission welcomed Greece’s decision to accept more help from Frontex.

Austrian Interior Minister Johanna Mikl-Leitner said: “Greece is finally taking responsibility for guarding the external European border. I have for months been demanding that Greece must recognise this responsibility and be ready to accept European help. This is an important step in the right direction.”

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EU Considers Measures To Intervene If States’ Borders Are Not Guarded (

The European Union is considering a measure that would give a new EU border force powers to intervene and guard a member state’s external frontier to protect the Schengen open-borders zone, EU officials and diplomats said yesterday in Brussels. Such a move would be controversial. It might be blocked by states wary of surrendering sovereign control of their territory. But the discussion reflects fears that Greece’s failure to manage a flood of migrants from Turkey has brought Schengen’s open borders to the brink of collapse. Germany’s Thomas de Maiziere, in Brussels for a meeting of EU interior ministers, said he expected proposal from the EU executive due on December 15 to include giving responsibility for controlling a frontier with a non-Schengen country to Frontex, the EU’s border agency, if a member state failed to do so.

“The Commission should put forward a proposal … which has the goal of, when a national state is not effectively fulfilling its duty of defending the external border, then that can be taken over by Frontex,” de Maiziere told reporters. He noted a Franco-German push for Frontex, whose role is largely to coordinate national border agencies, to be complemented by a permanent European Border and Coast Guard – a measure the European Commission has confirmed it will propose. Greece has come under heavy pressure from states concerned about Schengen this week to accept EU offers of help on its borders. Diplomats have warned that Athens might find itself effectively excluded from the Schengen zone if it failed to work with other Europeans to control migration.

Earlier this week, Greece finally agreed to accept help from Frontex, averting a showdown at the ministerial meeting in Brussels. EU diplomats said the proposals to bolster defence of the external Schengen frontiers would look at whether the EU must rely on an invitation from the state concerned. “One option could be not to seek the member state’s approval for deploying Frontex but activating it by a majority vote among all 28 members,” an EU official said. Under the Schengen Borders Code, the Commission can now recommend a state accept help from other EU members to control its frontiers. But it cannot force it to accept help – something that may, in any case, not be practicable. The code also gives states the right to impose controls on internal Schengen borders if external borders are neglected.

As Greece has no land border with the rest of the Schengen zone, that could mean obliging ferries and flights coming from Greece to undergo passport checks. Asked whether an EU force should require an invitation or could be imposed by the bloc, Swedish Interior Minister Anders Ygeman said: “Border control is the competence for the member states, and it’s hard to say that there is a need to impose that on member states forcefully.”On the other hand,” he said, referring to this week’s pressure on Greece, “we must safeguard the borders of Schengen, and what we have seen is that if a country is not able to protect its own border, it can leave Schengen or accept Frontex. It’s not mandatory, but in practice it’s quite mandatory.”

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May 252015
 May 25, 2015  Posted by at 10:11 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle May 25 2015

Harris&Ewing District National Bank, Washington, DC 1931

Memorial Day: Our Soldiers Died For The Profits Of The Bankers (Smedley Butler)
Europe’s Biggest Debt Collector: Central Banks’ Stimulus Has Failed (Bloomberg)
“It’s A Coup D’Etat”, “Central Banks Are Out Of Control” – David Stockman (ZH)
Unemployment Is a Big Threat to Eurozone Economy, Central Bankers Warn (WSJ)
HSBC Fears World Recession With No Lifeboats Left (AEP)
Did China Just Launch World’s Biggest Spending Plan? (Gordon Chang)
G7 Finance Ministers To Address Faltering Global Growth (Reuters)
Schaeuble Expects Conflict at Dresden G-7 Over Austerity Policy (Bloomberg)
Greece Hasn’t Got The Money To Make June IMF Repayment (Reuters)
Greece’s Misery Shows We Need Chapter 11 Bankruptcy For Countries (Guardian)
Greeks Back Government’s Red Lines, But Want To Keep Euro (AFP)
The Truth About Riga (Yanis Varoufakis)
The Bloodied Idealogues vs. The Bloodthirsty Technocrats (StealthFlation)
Spain’s Ruling Party Battered In Local And Regional Elections (EUObserver)
Catalan Independence Bid Rocked by Podemos Victory in Barcelona (Bloomberg)
Auckland Nears $1 Million Average House Price (Guardian)
Monsanto’s GMO Cotton Problems Drive Indian Farmers To Suicide (RT)
‘Incredibly Diverse’, Endangered Plankton Provide Half The World’s Oxygen (SR)

Smedley Butler knew it way back in 1933.

Memorial Day: Our Soldiers Died For The Profits Of The Bankers (Smedley Butler)

Memorial Day commemorates soldiers killed in war. We are told that the war dead died for us and our freedom. US Marine General Smedley Butler challenged this view. He said that our soldiers died for the profits of the bankers, Wall Street, Standard Oil, and the United Fruit Company. Here is an excerpt from a speech that he gave in 1933:

“War is just a racket. A racket is best described, I believe, as something that is not what it seems to the majority of people. Only a small inside group knows what it is about. It is conducted for the benefit of the very few at the expense of the masses. I believe in adequate defense at the coastline and nothing else. If a nation comes over here to fight, then we’ll fight. The trouble with America is that when the dollar only earns 6% over here, then it gets restless and goes overseas to get 100%. Then the flag follows the dollar and the soldiers follow the flag. I wouldn’t go to war again as I have done to protect some lousy investment of the bankers. There are only two things we should fight for. One is the defense of our homes and the other is the Bill of Rights. War for any other reason is simply a racket.

There isn’t a trick in the racketeering bag that the military gang is blind to. It has its “finger men” to point out enemies, its “muscle men” to destroy enemies, its “brain men” to plan war preparations, and a “Big Boss” Super-Nationalistic-Capitalism. It may seem odd for me, a military man to adopt such a comparison. Truthfulness compels me to. I spent thirty-three years and four months in active military service as a member of this country’s most agile military force, the Marine Corps. I served in all commissioned ranks from Second Lieutenant to Major-General. And during that period, I spent most of my time being a high class muscle- man for Big Business, for Wall Street and for the Bankers. In short, I was a racketeer, a gangster for capitalism.”

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“A rate that is too low, or a rate that many of us have never experienced, is so extraordinary that it doesn’t create any stability or faith in the future at all..”

Europe’s Biggest Debt Collector: Central Banks’ Stimulus Has Failed (Bloomberg)

The head of Europe’s biggest debt collector says the historic wave of stimulus spilling out of central banks has failed to fuel investment growth. Lars Wollung, the chief executive officer of Intrum Justitia AB, warned that record-low interest rates “don’t seem to lead to investments that create jobs,” in an interview in Stockholm. “A rate that is too low, or a rate that many of us have never experienced, is so extraordinary that it doesn’t create any stability or faith in the future at all,” he said. “Rather the opposite: one feels insecure and waits with expansion plans and to hire more people.” The comments mark a blow to central banks who have resorted to everything from negative rates to bond purchases to aid growth.

A study by Intrum Justitia shows 73% of the almost 9,000 European firms surveyed between February and April said low interest rates brought about “no change in investments.” Some even reported a decline. In Sweden, where the central bank’s main rate is minus 0.25%, 82% of companies said it made no difference to their investments. What companies need if they’re “to believe in the future” is certainty that their bills will be paid, Wollung said. That means clearer payments legislation and more incentives for borrowers to repay their debts on time, he said. Intrum Justitia has devoted resources to lobbying officials in Brussels in an effort to bring across its point, Wollung said.

In Germany and Scandinavia, where companies and borrowers can refer to clear and robust legal systems, unemployment is low and economic growth strong, he said. A German firm waits 17 days on average to get paid by a client company. In Italy, it takes 80 days, Intrum figures show. The survey indicates that about 8 million European companies would hire more people if they got their payments faster. “Late payments are a significant problem for companies,” Wollung said. Having a stable cash flow is “probably more important than if interest rates are at 1% or 0.5%,” he said.

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No holds barred.

“It’s A Coup D’Etat”, “Central Banks Are Out Of Control” – David Stockman (ZH)

We’re all about to be taken to the woodshed, warns David Stockman in this excellent interview. The huge wealth disparity is “not because of some flaw in capitalism, or Reagan tax cuts, or even the greed of Wall Street; the problem is central banks that are out of control.” Simply put, they have “syphoned financial resources into pure gambling” and the people that own the stocks and bonds get the huge financial windfall. “The 10% at the top own 85% of the financial assets,” and thus, thanks to the unleashing of almost limitless money-printing, which has created a massive worldwide financial inflation, “the central banks have created and exaggerated the wealth gap.” Stockman concludes, rather ominously,

“it’s a coup d’etat, the central banks have taken over – unconstitutional domination of the entire economy.” “Everywhere, misleading distorted signals are being given to both public and private sector players about financial values… the prices have been falsified by The Fed. We can’t print our way to prosperity… The Fed is now petrified that Wall Street will have a hissy-fit when they tighten.”

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Well, they caused it.

Unemployment Is a Big Threat to Eurozone Economy, Central Bankers Warn (WSJ)

High and divergent unemployment rates in Europe pose a serious threat to the region’s long-term economic health, central bankers and economists warned during a weekend conference held by the European Central Bank. But they stopped short of offering specific advice on the best steps to take. The ECB’s seminar, the second of what it plans as an annual conference in the resort town of Sintra on Portugal’s western coast, brought together central bankers and economists from Europe, the U.S. and Asia to examine the root causes of high unemployment and persistently weak inflation in Europe. The attendees dwelled extensively on an economic concept known as “hysteresis,” a reduction in economic output brought on by weak growth that gives rise to long-term unemployment.

The remedies to such problems, however, lie partly with fiscal-policy officials and not central bankers, who don’t set labor and other economic policies. The conference largely lacked representatives from finance ministries and businesses. But ECB President Mario Draghi signaled that the stakes were too high for central bankers to keep silent, particularly in the 19-member eurozone, where diverse countries ranging from powerful Germany to recession-ravaged Greece set their own economic and fiscal policies but share a single currency and monetary policy. “In a monetary union you can’t afford having large and increasing structural divergences between countries,” Mr. Draghi said on Saturday. “They tend to become explosive; therefore they are going to threaten the existence of the monetary union.”

The eurozone is the world’s second-biggest economy after the U.S. But in recent years it has emerged as one of the global economy’s main trouble spots, having struggled through a pair of recessions since 2009 that pushed the bloc’s unemployment rate into double digits. The region has started to recover, but the damage has resulted in huge gaps in unemployment across the eurozone. “Unemployment in Europe, notably youth unemployment, is not only unbearably high. It is also unbearably different across nations belonging to an economic and monetary union,” Tito Boeri, professor at Bocconi University, and Juan Jimeno of the Bank of Spain wrote in a conference paper.

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“JP Morgan estimates that the US economy contracted at a rate of 1.1pc in the first quarter..” “China accounted for 85pc of all global growth in 2012, 54pc in 2013, and 30pc in 2014. This is likely to fall to 24pc this year.”

HSBC Fears World Recession With No Lifeboats Left (AEP)

The world economy is disturbingly close to stall speed. The United Nations has cut its global growth forecast for this year to 2.8pc, the latest of the multinational bodies to retreat. We are not yet in the danger zone but this pace is only slightly above the 2.5pc rate that used to be regarded as a recession for the international system as a whole. It leaves a thin safety buffer against any economic shock – most potently if China abandons its crawling dollar peg and resorts to ‘beggar-thy-neighbour’ policies, transmitting a further deflationary shock across the global economy. The longer this soggy patch drags on, the greater the risk that the six-year old global recovery will sputter out. While expansions do not die of old age, they do become more vulnerable to all kinds of pathologies.

A sweep of historic data by Warwick University found compelling evidence that economies are more likely to stall as they age, what is known as “positive duration dependence”. The business cycle becomes stretched. Inventories build up and companies defer spending, tipping over at a certain point into a self-feeding downturn. Stephen King from HSCB warns that the global authorities have alarmingly few tools to combat the next crunch, given that interest rates are already zero across most of the developed world, debts levels are at or near record highs, and there is little scope for fiscal stimulus. “The world economy is sailing across the ocean without any lifeboats to use in case of emergency,” he said.

In a grim report – “The World Economy’s Titanic Problem” – he says the US Federal Reserve has had to cut rates by over 500 basis points to right the ship in each of the recessions since the early 1970s. “That kind of traditional stimulus is now completely ruled out. Meanwhile, budget deficits are still uncomfortably large,” he said. The authorities are normally able to replenish their ammunition as recovery gathers steam. This time they are faced with a chronic low-growth malaise – partly due to a global ‘savings glut’, and increasingly to a slow ageing crisis across most of the Northern hemisphere. The Fed keeps having to defer its first rate rise as expectations fall short.

Each of the past four US recoveries has been weaker than the last one. The average growth rate has fallen from 4.5pc in the early 1980s to nearer 2pc this time. The US fiscal deficit has dropped to 2.8pc but is expected to climb again as pension and health care costs bite, even if the economy does well. The US cannot easily launch a fresh New Deal. Public debt was just 38pc on GDP when Franklin Roosevelt took power in 1933, and there were few contingent liabilities hanging over future US finances. “Fiscal stimulus – a novel idea at the time – may have been controversial, but the chances of it working to boost economic activity were quite high given the healthy starting position. Today, it is much more difficult to make the same argument,” he said.

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” The reason for the fall in new loans is clear. There is a fundamental lack of demand in China.”

Did China Just Launch World’s Biggest Spending Plan? (Gordon Chang)

Beijing has just initiated a round of accelerated government spending, and it will, in all probability, end up as the biggest such effort today. Wednesday, the Chinese central government announced both the allocation of 1.13 trillion yuan ($185.8 billion) for upgrading internet infrastructure and the creation of a 124.3 billion yuan fund for affordable housing. These expenditures follow Monday’s authorization of six new rail lines costing 250 billion yuan. This month, as Xinhua News Agency reports, Beijing has unveiled a “pro-growth measure” at the rate of one every two days. April was a banner month for Beijing’s spenders as well. The Ministry of Finance reported a 33.2% increase in fiscal spending compared with same month in 2014.

For the last several years, Beijing has been using fiscal stimulus in varying amounts to keep the economy humming. No one, however, thought Premier Li Keqiang, generally considered a reformer, would resort to the old-line, anti-reform tactic of massive government spending. There were two principal reasons for this belief. First, many thought Beijing had finally opted for fundamental restructuring to grow the economy. Analysts hailed the issuance of the Communist Party’s November 2013 Third Plenum decision, which promised substantial reforms, as proof of the political victory of those favoring progressive change.

Fiscal spending, on the other hand, has been considered the antithesis of reform because investment-led growth—the result of that spending—would only take China further away from the ultimate goal of reform, a consumption-based economy. Second, analysts believed just about everyone in Beijing had come to the inescapable conclusion that former Premier Wen Jiabao’s crash stimulus program, authorized in late 2008, was a huge mistake, largely because it had resulted in grossly inefficient usage of capital, large asset bubbles, and far too much debt. Yet the universally accepted view that there would be no large stimulus was premised on the assumption that the economy would respond to small-scale stimulus.

The economy, unfortunately, has not. Perhaps the most indicative statistic to come out of Beijing in recent days is that, despite all the monetary loosening since the end of last year, there were only 707.9 billion yuan of new loans in April, down from 1.18 trillion yuan in March. The reason for the fall in new loans is clear. There is a fundamental lack of demand in China.

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“..a preliminary Reuters poll last week predicted adjusted Q1 U.S. GDP numbers due on Friday would be massively revised down and show a 0.7% contraction..”

G7 Finance Ministers To Address Faltering Global Growth (Reuters)

Finance ministers from the world’s largest developed economies meet in Germany this week against a backdrop of faltering global growth, scant inflationary pressures and a bond market in turmoil. High on their agenda – even if unofficially – will be Greece and how it can stay in the troubled euro zone. Figures due on Friday from the United States that will almost certainly show the world’s biggest economy contracted last quarter are also likely to feature. “With the negotiations between Greece and the rest of the euro area at an impasse, an impatient German Chancellor Merkel has warned that an agreement must be reached before the end of the month,” said Thomas Costerg, senior economist at Standard Chartered.

Greece cannot make a payment to the IMF due on June 5 unless foreign lenders disburse more aid, a senior ruling party lawmaker said on Wednesday, the latest warning from Athens it is on the verge of default. Analysts largely agree the country’s cash squeeze is increasingly acute and fresh aid will be needed sooner or later to avoid bankruptcy. Merkel and French President Francois Hollande held talks on Thursday with Greek Prime Minister Alexis Tsipras on the sidelines of a European Union summit in Riga, hoping to speed the resolution of Athens’ debt crisis. With business growth slowing in the euro zone and factory activity contracting again in China, market watchers have been looking to the United States to drive a pick-up in growth.

But a preliminary Reuters poll last week predicted that adjusted first quarter U.S. GDP numbers due on Friday would be massively revised down and show a 0.7% contraction in the first three months of this year. “The poor Q1 2015 performance follows growth of just 2.2% in Q4 2014, so there has been very little growth over the last couple of quarters,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “As a result, market participants have started to wonder again whether the U.S. economy might be in an extended period of secular stagnation.”

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And there should be.

Schaeuble Expects Conflict at Dresden G-7 Over Austerity Policy (Bloomberg)

German Finance Minister Wolfgang Schaeuble expects a political tussle with his partners over austerity policy when G-7 finance ministers meet on May 27-May 29 in Dresden. Germany’s advocacy of budget cuts to heal euro-zone woes will come under attack at the meeting, Schaeuble said in a pamphlet distributed Saturday. The German government will face “demand-side” opponents of its policy in Dresden, he said without mentioning France or Italy or the U.S. “’Demand-side’ advocates will make clear in Dresden that cutting public spending leads to weaker demand for goods and services,” the minister said in a pamphlet distributed in the Dresden newspaper Saechsische Zeitung.

Germany’s position is that “solid public finance” boosts investment and growth, he said. Risks to Europe’s economic outlook stemming from the unresolved Greek crisis as well concern over the U.S. trade gap may fuse an alliance of France, Italy and the U.S. in Dresden. All three states fret that Germany’s rigorous advocacy of budget austerity may be holding back economic growth in Europe. U.S. Treasury Secretary Jacob J. Lew urged Germany to boost public investment to spur imports from Europe and spark a cycle of economic growth that would also benefit the U.S.

The U.S. trade gap widened in March to the biggest in more than six years while Germany in 2014 again reported a record surplus. The U.S. has also called for a quicker fix of Greece’s problems in a sign that it views Germany’s unmoving insistence that Greece fulfill bailout terms as a risk. Lew said Friday that failure to reach a deal quickly would create hardship for Greece, uncertainties for Europe and the global economy. Schaeuble remains adamant that Germany’s stance on sound budgeting is the right one, if unpopular. “Further convincing needs to be done” at Dresden, he said in his pamphlet.

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Next weekend is a holiday weekend in Greece. Fears of capital controls.

Greece Hasn’t Got The Money To Make June IMF Repayment (Reuters)

Greece cannot make debt repayments to the IMF next month unless it achieves a deal with creditors, its interior minister said on Sunday, the most explicit remarks yet from Athens about the likelihood of default if talks fail. Shut out of bond markets and with bailout aid locked, cash-strapped Athens has been scraping state coffers to meet debt obligations and to pay wages and pensions. With its future as a member of the 19-nation euro zone potentially at stake, a second government minister accused its international lenders of subjecting it to slow and calculated torture. After four months of talks with its euro zone partners and the IMF, the leftist-led government is still scrambling for a deal that could release up to 7.2 billion euros ($7.9 billion) in remaining aid to avert bankruptcy.

“The four installments for the IMF in June are €1.6 billion. This money will not be given and is not there to be given,” Interior Minister Nikos Voutsis told Greek Mega TV’s weekend show. Voutsis was asked about his concern over a ‘credit event’, a term covering scenarios like bankruptcy or default, if Athens misses a payment. “We are not seeking this, we don’t want it, it is not our strategy,” he said. “We are discussing, based on our contained optimism, that there will be a strong agreement (with lenders) so that the country will be able to breathe. This is the bet,” Voutsis said. Previously, the Athens government has said it is in danger of running out of money soon without a deal, but has insisted it still plans to make all upcoming payments.

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The unbalance of global power.

Greece’s Misery Shows We Need Chapter 11 Bankruptcy For Countries (Guardian)

Alexis Tsipras, Greece’s combative prime minister, is facing yet another week of fraught negotiations as he and his team struggle to agree a shopping list of economic reforms stringent enough to appease the country’s creditors, but different enough from the grinding austerity of the past five years to satisfy the Greek electorate. And all the while, bank deposits will leach out of the country, investment plans will remain on hold and consumers hammered by years of austerity will continue living hand to mouth. Change the actors – and the stakes – and it’s a tired plotline familiar to many governments across the world. According to Eurodad, the coalition of civil society groups that campaigns on debt, there have been 600 sovereign debt restructurings since the 1950s – with many governments, including Argentina for example, experiencing one wrenching write-off after another.

Many of these countries plunged deeper into recession as a result of the uncertainty and delay inherent in this bewildering process and the punishing austerity policies inflicted on them, with a resulting collapse in investor and consumer confidence. Argentina defaulted in 2001. Fourteen years later, it is still being pursued through the courts by so-called vulture funds, which buy distressed countries’ debts on the cheap and use every legal device they can to reclaim the money. Yet while the world’s policymakers have expended countless hours since the crisis of 2008 rewriting regulations on bonuses, mortgage lending, derivatives and too-big-to-fail banks, little attention has been paid to what should happen when a government is on the brink of financial meltdown.

Sacha Llorenti, the Bolivian ambassador to the UN, is currently touring the world’s capitals trying to change that. “We’re not just talking about a financial issue; it’s an issue related to growth, to development, to social and economic rights,” he says. The UN is not the obvious forum for discussing debt restructuring: unlike the IMF, it is not a lender of last resort with emergency cash to disburse, and doesn’t have a seat around the table when countries have to go to their creditors to ask for help. Yet also unlike the IMF, the UN general assembly is not dominated by the world’s major powers: each member country has one vote.

When Argentina tabled a motion calling for the UN to examine the issue of sovereign debt restructuring last autumn, 124 countries voted for it; 11, including the UK and the US, with their powerful financial lobbies, voted against; and there were 41 abstentions. Llorenti, who is chairing the UN “ad hoc committee” set up as a result of that vote, says the 11 countries that objected hold 45% of the voting power at the IMF. He believes they would prefer the matter to be tackled there, where they can shape the arguments: “It’s a matter of control, really.”

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Support for Syriza is still very high. But people are afraid to.

Greeks Back Government’s Red Lines, But Want To Keep Euro (AFP)

Cash-strapped Greeks remain supportive of the leftist government’s tough negotiating style, according to a new poll published Sunday, but hope for a deal with creditors that will keep the euro in their wallets. The poll conducted in May by Public Issue for the pro-government newspaper Avgi, shows 54% backing the SYRIZA-led government’s handling of the negotiations despite the tension with Greece’s international lenders. A total 59% believe Athens must not give in to demands by its creditors, with 89% against pension cuts and 81% against mass lay-offs. The SYRIZA-led government is locked in talks with the EU, ECB and the IMF to release a blocked final €7.2-billion tranche of its bailout.

In exchange for the aid, creditors are demanding Greece accept tough reforms and spending cuts that anti-austerity Syriza pledged to reject when it was elected in January. According to reports, creditors are demanding further budget cuts worth €5 billion including pension cuts and mass lay-offs. Prime Minister Alexis Tsipras made clear on Saturday however that his government “won’t budge to irrational demands” that involve crossing Syriza’s campaign “red lines”. Greece faces a series of debt repayments beginning next month seen as all but impossible to meet without the blocked bailout funds. Failure to honour those payments could result in default, raising the spectre of a possible exit from the euro. That is a scenario Greeks hope to avert, with 71% of those polled wanting to keep the euro while 68% said a return to the drachma could worsen the economic situation.

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Yanies takes aim at the media.

The Truth About Riga (Yanis Varoufakis)

It was the 24th of April. The Eurogroup meeting taking place that day in Latvia was of great importance to Greece. It was the last Eurogroup meeting prior to the deadline (30th April) that we had collectively decided upon (back in the 20th February Eurogroup meeting) for an agreement on the set of reforms that Greece would implement so as to unlock, in a timely fashion, the deadlock with our creditors. During that Eurogroup meeting, which ended in disagreement, the media began to report ‘leaks’ from the room presenting to the world a preposterously false view of what was being said within. Respected journalists and venerable news media reported lies and innuendos concerning both what my colleagues allegedly said to me and also my alleged responses and my presentation of the Greek position.

The days and weeks that followed were dominated by these false stories which almost everyone (despite my steady, low-key, denials) assumed to be accurate reports. The public, under that wall of disinformation, became convinced that, during the 24th April Riga Eurogroup meeting, my fellow ministers called me insulting names (“time waster”, “gambler”, “amateur” etc. were some of the reported insults), that I lost my temper, and that, as a result, my Prime Minister later “sidelined” me from the negotiations. (It was even reported that I would not be attending the following Eurogroup meeting, or that I would be ‘supervised’ by some other ministerial colleague.) Of course none of the above was even remotely true.

My fellow ministers never, ever addressed me in anything other than collegial, polite, respectful terms.
• I did not lose my temper during that meeting, or at any other point.
• I continue to negotiate with my fellow ministers of finance, leading the Greek side at the Eurogroup.
• Then came a New York Times Magazine story which raised the possibility of a recording of that Eurogroup meeting. All of a sudden, the journalists and news media that propagated the lies and the innuendos about the 24th April Eurogroup meeting changed tack. Without a whiff of an apology for the torrent of untruths they had peddled against me for weeks, they now began to depict me as a ‘spoof’ who had “betrayed” the confidentiality of the Eurogroup.

This morning I went on the record on the Andrew Marr television show (BBC1) on this issue. I am taking this opportunity to commit the truth in writing also here – on my trusted blog. So here it goes:

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Bruno is dead on.

The Bloodied Idealogues vs. The Bloodthirsty Technocrats (StealthFlation)

On the grave Greek question, it appears that the moment of truth is finally upon us. After nearly four months of frenetic, fruitless and often feckless high level deliberations and negotiations, both sides remain essentially at an impasse, right where they started. The technocrats in Brussels want to see their austerity driven reform program carried forward and implemented unconditionally. As for the idealogues in Athens, they have pledged to put forth their own enlightened approach to rescue their sinking society. The Technocrats hold the purse strings, but the Ideologues hold the heart strings. For what it’s worth, that is typically a highly combustible combination, tick tock. With their recent cocksure bravado, are the Technocrats entirely misreading the desperate determination of the Idealogues?

Get ready for yet another Euro Summer swoon.. Everyone agrees that Greece, under a corrupt political oligarchy, grossly abused its privileges as a Eurozone member. In fact, with the help of a few sleazy sophisticated Goldman Sachs financiers, they actually cheated on their application forms in order to join the exclusive club to begin with. The illegitimate Ionian books were cooked from the get go, and it only got worse and worse over time. The self serving political elites and their self-seeking sponsors at multinational banks and corporations ran up a massive tab, while their ill-fated nation did not have the wherewithal to pay the astronomical bills. That is essentially what happened here. Oh, and the parties specifically involved all happened to personally get rather wealthy themselves along the way.

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National elections at the end of the year could reinforce the changes.

Spain’s Ruling Party Battered In Local And Regional Elections (EUObserver)

Spain took a turn towards the new left in Sunday’s regional and local elections, putting an end to the dominating two-party system. Despite having won the most votes in the elections across Spain on Sunday (24 May), Prime Minister Mariano Rajoy’s centre-right PP party has lost all of its absolute majorities and will now often depend on coalitions and pacts with other parties. Compromises and coalitions between parties is new in Spain where more than 30 years of alternating power between the socialists and the conservatives is being challenged by an ncreasingly fragmented political system including anti-austerity party Podemos and centrist Ciudadanos.

The biggest changes have been the move towards the new left parties in Barcelona and maybe also in Madrid – depending on a possible pact between a Podemos-supporting coalition called Ahora Madrid and the Social Democrats (PSOE). It would be the first time the Spanish capital would have a leftwing Mayor in the last 25 years. “It is clear that a majority for change has won,” said Manuela Carmena, the 71 year-old emeritus judge of the Spanish Supreme Court who wants to become Madrid’s new mayor. She is one seat short of Madrid’s former conservative Mayor Esperanza Aguirre. However, with the support of Social Democrats – who came third – the two left-wing parties could together hold the absolute majority in Madrid. Barcelona’s new Mayor Ada Colau calls for “more social justice” and leads a coalition of left-wing parties and citizens’ organisations called ‘Barcelona en Comú’, which includes members of Podemos.

“We are proud that this process hasn’t just been an exception in Barcelona, this is an unstoppable democratic revolution in Catalonia, in [Spain] and hopefully in southern Europe,” Colau said last night after it became clear that she had won a small majority in the Catalan capital. Colau, a former anti-eviction activist, was one of the founders of a platform for people affected by mortgages – Plataforma Afectados por la Hipoteca (PAH) – which won the European Parliament’s European Citizens’ Prize in 2013. The PAH was set up in response to the hike in evictions caused by abusive mortgage clauses during the collapse of the Spanish property market eight years ago. Colau herself entered politics last year calling for “more and better democracy” and a clean-up of corruption in politics.

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Curious development?!

Catalan Independence Bid Rocked by Podemos Victory in Barcelona (Bloomberg)

Catalan President Artur Mas’s bid to win independence from the rest of Spain was gasping for air on Sunday as voters in Barcelona ousted his party from city hall. Voters in the regional capital picked Podemos-backed activist Ada Colau as their next mayor, as the pro-independence parties Mas is aiming to lead to an overall majority in Catalonia won 45% of the vote. The regional leader has pledged to call an early regional election this year to prove to officials in Madrid the support for leaving Spain. “Mas is in deep trouble,” said Ken Dubin, a political scientist at the Instituto de Empresa business school in Madrid and Lord Ashcroft International Business School in Cambridge, England.

Colau, 41, gained national prominence during the financial crisis leading a campaign to stop banks evicting families from their homes after they defaulted on their mortgages. She joined forces with anti-austerity party Podemos, an ally of Greece’s governing party Syriza, for her assault on city hall. Her coalition, Barcelona en Comu, won 25% of the vote and 11 representatives in the 41-seat city assembly, the Spanish Interior Ministry said on its website. CiU won 10 seats compared with 14 in 2011. Barcelona accounts for about a third of the Catalan economy and hosts all the major regional institutions. “This result adds uncertainty to the planning process because it wasn’t considered a possibility,” said Jaume Lopez, a pro-independence political scientist at Pompeu Fabra University in Barcelona. “We will see whether that uncertainty becomes a problem.”

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So screwed…

Auckland Nears $1 Million Average House Price (Guardian)

Economists in New Zealand have expressed alarm at a housing market boom which could soon see average prices of property in the country’s largest city pass the $1m mark. In Auckland, the cost of an average domestic property has risen from $550,000 during the last property boom in 2007 to nearly $810,000 now. House prices increased at a rate of 14% last year, while the rest of the country’s index remained stable. Some houses are increasing in value by $1,000 every day while 36 suburbs in the city now have an average house value of $1m or more. And at current rates the whole city’s average will be $1m within a year-and-a-half.

The National government has in part recognised the boom and taken action for the first time to tackle what many believe is a housing crisis. It announced a multimillion dollar development plan to build affordable homes, a move added to a previously announced tax on property speculators. But some economists believe more needs to be done, and while growth is expected to slow, that will merely move the $1m mark back a month or two. Small, one–bedroom apartments are selling for $800,000 and delapidated wrecks in barely desirable suburbs are fetching more than $1m. Senior research analyst Nick Goodall of property analytics company CoreLogic said: “It is inevitable the average price in Auckland will be $1m.”

In the past 15 years housing has seen a phenomenal investment in Auckland, as huge demand and limited supply has increased prices at record levels. Expensive land, and restrictions on building new and denser housing, has seen limited new stock come on the market. And a strong economy, record net migration, especially to Auckland, and banks happy to lend money in a market with significant capital gains, has seen people paying over the top of each other. “The narrative goes because it has been good in the last 10 or 15 years, it must be good forever,” said Shamubeel Eaqub, principal economist at the Institute of Economic Research. But it is impossible for this to continue, he says. “Auckland is in a massive bubble.”

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“.. it’s 8000% more expensive than normal cotton seed. But normal cotton seed is largely unavailable to Indian farmers because of Monsanto’s control of the seed market..”

Monsanto’s GMO Cotton Problems Drive Indian Farmers To Suicide (RT)

Hundreds of thousands of farmers have died in India, after having been allegedly forced to grow GM cotton instead of traditional crops. The seeds are so expensive and demand so much more maintenance that farmers often go bankrupt and kill themselves. “Nationally, in the last 20 years 290,000 farmers have committed suicide – this as per national crimes bureau records,” agricultural scientist Dr. G. V. Ramanjaneyulu of the Center For Sustainable Agriculture told RTD, which traveled to India to learn about the issue. A number of the widows and family members of Indian farmers with whom the journalists have spoken have the same story to share: in order to cultivate the genetically modified cotton, known as Bt cotton, produced by American agricultural biotech giant Monsanto, farmers put themselves into huge debt.

However, when the crops did not pay off, they turned to pesticides to solve the problem – by drinking the poison to kill themselves. “My husband took poison. [On discovering him dead], I found papers in his pocket – he had huge debts. He had mortgaged our land, and he killed himself because of those debts,” one widow told RTD. “[He killed himself] with a bottle of pesticide… All because of the loans. He took them for the farm. He told our kids he was bankrupt,” another widow said. “He worked all day, but it was hard to make the field pay,” her daughter added. Farming GM crops in rural India requires irrigation for success. However, since rich farmers often distribute the seeds directly to the poorer ones, many smaller, less educated farmers are not aware of the special conditions Bt cotton requires to be farmed successfully.

“Bt cotton has been promoted as something that actually solves problems of Indian farmers who are cultivating cotton. But something that has been promoted as a crisis solution, creates even more problems,” agricultural scientist Kirankumar Vissa said. “There are many places where it is not suitable for cultivation. On the seed packages, Bt cotton seed companies say that it is suitable for both irrigated and non-irrigated conditions – this is basically deception of the farmers,” the scientist said, adding that Monsanto also spends huge amounts of money on advertising in India, with paid for publications not always clearly marked as such.

Saying that only Bt cotton is available in India, Alexis Baden-Mayer, political director of Organic Consumers Association, says this crop requires many inputs. “It is incredibly expensive; it’s 8,000% more expensive than normal cotton seed. But normal cotton seed is largely unavailable to Indian farmers because of Monsanto’s control of the seed market,” she told RTD, adding that India is now the fourth largest producer of genetically modified crops.

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Genetic diversity is huge.

‘Incredibly Diverse’, Endangered Plankton Provide Half The World’s Oxygen (SR)

After a three-and-a-half year, sometimes harrowing, sea voyage covering some 87,000 miles of ocean, a team of researchers from the Tara Oceans Consortium is revealing details of “the most complete description yet of planktonic organisms to date,” co-author of a study published in the journal Science, Dr. Chris Bowler from the National Center for Scientific Research in Paris, told BBC News. Plankton is the term for a myriad of microscopic species that are at the ground floor of the oceans’ food chain. One type, zooplankton, gives sustenance to larger organisms, which are then consumed by larger animals, and so on. Without the tiny zooplankton, marine life could not sustain itself. Another type of plankton, called phytoplankton, produce their own food the same way plants do: through photosynthesis.

This process not only sucks up heat-trapping carbon dioxide in the atmosphere, it produces oxygen upon which life on planet Earth depends. The researchers report collecting 35,000 samples from 210 sites around the world’s oceans. Their analyses reveal not only an astounding genetic diversity among the plankton—about 40 million genes, which is about four times more than are found in the human gut—but that these organisms contribute about 50% of all the world’s oxygen, according to report by Tech Times. “Plankton are much more than just food for the whales,” said Dr. Bowler, in a report by Reuters. “Although tiny, these organisms are a vital part of the Earth’s life support system, providing half of the oxygen generated each year on Earth by photosynthesis and lying at the base of marine food chains on which all other ocean life depends.”

But what worries scientists is that climate change and warming oceans are causing some plankton to die off, according several studies, including by researchers at two universities in the UK who published their 2013 study in the journal Nature Climate Change. This is because as oceans warm, the natural cycles of nitrogen, phosphorous, and carbon dioxide are disturbed—a disruption that negatively affects the plankton. Dr. Bowler and his team also found that many marine microorganisms are sensitive to variations in temperature, “and with changing temperatures as a result of climate change we are likely to see changes in this community,” he told the BBC. Because of the massive amount of DNA data now made available to scientists everywhere by the newly released study—only 2% so far has been analyzed, Bowler says—future research is sure to shed more light on the way marine ecosystems function.

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Nov 292014
 November 29, 2014  Posted by at 12:13 pm Finance Tagged with: , , , , , , , ,  6 Responses »

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.

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“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.

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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.

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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.”

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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.”

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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.

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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.

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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.

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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.

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“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.

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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.”

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“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.”

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“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 …

Nov 182014
 November 18, 2014  Posted by at 8:30 am Finance Tagged with: , , , , , , , ,  6 Responses »

Dorothea Lange Miserable poverty, Hooverville, Elm Grove, Oklahoma County, OK Aug 1936

What is it with us? Don’t we WANT to understand? Japan announced on Monday that its economy is in hopeless trouble and back in recession (as if it was ever out). And what do we see? ‘Experts’ and reporters clamoring for more stimulus. But if Japan has shown us anything over the past years, and you’re free to pick any number between 2 and 20 years, it’s that the QE-based kind of stimulus doesn’t work. Not for the real economy, that is.

The land of the setting sun has during that time thrown so much stimulus into its financial system that Krugman-esque calls for even more of the same look even more ludicrous today than they did all along. Abenomics is a depressing failure, just as we knew it would be since it started almost two years ago. It’s not complicated, and it never was.

Japan’s stimulus has achieved the following: banks get to pretend they’re healthy and stocks rise to heights that are fundamentally disconnected from underlying real values. On the flipside of that, citizens are being increasingly squeezed and ‘decide’ not to spend (not much of a decision if you have nothing to spend). Since Japan’s ‘consumer’ spending makes up about 60% of GDP, things can only possibly get worse as time passes. If ‘consumers’ don’t spend, deflation is the inevitable result – and that has nothing to do with the much discussed sales tax, it’s been going on for decades -.

Therefore, the sole thing QE stimulus has achieved is a wealth transfer from poorer to rich. And that’s not only the case in Japan. Mario Draghi yesterday hinted – again – at all the stuff he could start buying next year, including sovereign bonds, even though that would violate EU law. And whether or not Germany will let him in the end, the fact that he keeps the option alive even if only in theory, tells us plenty about the mindset at the ECB.

That is, it’s the same as in Japan. And doing the same can only lead to the same results. A poorer population, a richer toplayer and an economy that continues to shrink, which will and must lead to the same deflationary trend. The idea that an economy can be rescued by pushing public funds into its finance system and stock markets has been forever thrown out by Japan’s experiences.

Draghi said yesterday that ‘monetary policy has done a lot’, and while that may be correct, it says nothing about WHAT it has done. From where I’m sitting, Germany’s recent drift into negative territory and the ongoing record unemployment rates around the Mediterranean certainly tell us a lot about what it has NOT done. QE, no matter how big and how crazy, doesn’t heal real economies, it makes them sicker.

If consumer spending makes up 60% of GDP, as in Japan, or even 70%, as in the US, then you need to boost that spending. And you don’t do that by handing over what financial wiggle room you have left, to banks so they can pile it on to the reserves they hold at central banks.

It is accepted as gospel that it’s a good thing to give banks free money, but it would be the devil’s work to give it to consumers. Instead, the latter must be squeezed from all sides, through austerity, the loss of services, benefits, wages and jobs, in order to prop up the financial system. How and where is it not clear what that will result in? There’s only one possible outcome.

The reason why all governments and central banks keep following the failed QE stimulus path regardless lies in the relative political powers that different parts of a society have. In today’s world, saving the banks, which equals saving the rich, is not only the priority, it’s the only deliberation.

And if you might be under the impression that what is true in Japan and Europe does not hold in the US, why not start with this graph from Doug Short, and take it from there.

If and when an economy is as deep in the doldrums as all major economies today are, you can’t rescue it by taking from the poor to save the rich. It’s fundamentally impossible. You need the bottom 90%’s spending in order to generate enough GDP to stay out of deflation. Money must move through an economy for it to stay sufficiently ‘lubricated’. And the only people who can keep that money moving are the bottom 90%. It’s Catch-22.

Any stimulus must be directed at the bottom, or it must of necessity fail. Nothing commie or socialist about it, but simply the way economies work. And it’s not just some difference of ideal or insight or something, it’s very simply that an economy cannot function without its poorer 90% of citizens spending.

Anything else is simply Grand Theft Auto. Both Japan and Europe are preparing for more of it.

Nov 082014
 November 8, 2014  Posted by at 9:13 pm Finance Tagged with: , , , , , ,  3 Responses »

Alfred Palmer White Motor Company, Cleveland Dec 1941

I stumbled upon these few words in an Ambrose Evans Pritchard article the other day, and they hit me almost like some sort of epiphany, which in turn made me feel a little stupid, because it’s all so obvious. What Ambrose wrote (and this time I’m not making fun of him), was about the eurozone (EMU), of which he said:

The North is competitive. The South is 20% overvalued.

And I realized that’s all you need to know about the eurozone, and about why it will fail. Or has already failed, to put it more accurately. There’s no other information required. Other than a bit of context perhaps to clarify.

Before the euro, and the eurozone, countries like Greece, Spain, Italy, Portugal, would perform 20% or more lower economically than Germany or Holland would. And that was kind of alright, because periodically, their governments and central banks would revalue (devaluate) their currencies down against for instance the Deutschmark by those same 20% or so.

Of course Germany hated this to an extent, since it made it harder for its industries to compete against Greek and Italian companies. Which may by the way well be a mostly hidden reason for them to push the eurozone on the Mediterranean. Devaluation still worked for many years, though, and as we presently find, it was the only thing that could have worked.

Today, because they now have the same currency, and devaluation is thus impossible, and southern Europe also still underperforms the north, there’s only one possible outcome: the south keeps getting poorer all the time. It’s inevitable. Unless Greece starts outproducing the Germans, and we all start driving Hellas quality cars, but that’s not in the cards.

The fatal flaw in the eurozone model is that there’s no way, no escape clause, to rectify the inherited differences between north and south. Moreover, because there isn’t, the differences must and will get bigger. There’s nothing any kind of stimulus by the ECB or EU can do about that.

Unless they directly tax the Germans and Dutch and Finns with the stated purpose of handing what they raise directly to the Greeks. Not going to happen. And there was never any intention of doing such a thing. The Germans wanted to expand their distribution markets, and the Greeks were promised they’d get richer by default if they joined the shared currency.

Neither side thought this through, not with a longer – or even medium – term view. The Greeks et al are the first to pay the price, but the Germans will end up paying as well, no matter how the growing tensions and differences end up being resolved.

All anyone ever considered was a tide to lift all boats. But there is no such tide now. There is no economic growth, other than perhaps in a few niche markets (and they will fall too). And no provisions or plans were ever drafted for this to happen.

Ambrose’s 20% may be underestimating things, or overestimating them. It makes no difference other than perhaps in the timing of events. And not all southern nations will be overvalued – and underachieving – vis a vis Germany – by the same percentage. But that doesn’t matter either down the line.

All countries that entered the EU in the past received large sums of money for things like infrastructure projects. But that money is long gone. Now it’s back to the same performance ratios that have existed for many decades, if not for centuries.

The only thing that might help southern Europe here would be debt restructuring on a massive scale. Still, that would be considered far too costly by the north, provided it even could be achieved in a globalized finance system (look at Argentina).

What makes this interesting is that there is now a question of responsibility. Are only the Greeks accountable for their debts, or is the entire eurozone, given that they share a common currency? These are issues that should have been resolved in times of plenty; in times of less they will prove extremely hard if not impossible to solve.

Northern Europeans see their lifestyles being cramped from many sides in the ongoing crisis, and they would not accept more being taken from them to be handed to Greece. Even if 50%+ of young Greeks have no jobs, and over 40% of Greek children grow up in poverty. That’s not how the union was explained to them. And they would not have agreed if it had been.

The fact that Brussels has attracted a highly dubious breed of politician and bureaucrat certainly hasn’t helped, and still doesn’t. But it’s not the core problem. The core is that there never was a mechanism to reconcile the 20% differences, which means we’re fast on our way to 30% and more. Nothing anybody can do about that other than to leave the union.

The EU was founded on ideals of peace. But unless someone does something, fast, it will be the source of bitter and bloody fighting. Better wisen up now, guys (and I don’t mean the leadership, they’ll go on till the end). In math, there are things that just don’t add up. This is one of them.

Jun 032014
 June 3, 2014  Posted by at 7:43 pm Finance Tagged with: , , , ,  2 Responses »

Arthur Rothstein General store closed on account of the drought, Grassy Butte, ND July 1936

Everyone expects Mario Draghi’s ECB to announce stimulus measures on Thursday. If the forward guidance, if we can call it that, which was ‘leaked’ by Draghi and his minions is accurate, we’ll see the bank’s main refinancing rate lowered, and the deposit rate perhaps even turned negative, with a less obvious set of measures that may include asset purchases also in the offing. The main goal must be to drive down the euro, which is still way too expensive from the point of view of exports and which therefore holds back ‘recovery’ in the eyes of policy makers, pundits and economists. But it would have to be driving down the euro without driving down stock markets at the same time.

There are a lot of things in just that one simple paragraph that are accepted as gospel, no questions asked, without having been tested or even really thought about. Now, I think that making the deposit rate negative is fine. Why would anyone want banks to be paid to store money with a central bank? Just tell them they can’t park a single eurocent with the ECB without paying a reasonable price to do so. And while you’re at it, the long-term refinancing operation (LTRO) could do with a revision. The stated aim for LTRO is to provide liquidity for banks that hold illiquid assets, but isn’t that perhaps just counter productive? If assets are still illiquid 5-6 years into the crisis, maybe it’s better to simply get rid of them, write them down, not aid and abet banks in holding onto them. It just makes it harder for anyone to know what a bank is truly worth if you help them hide their liabilities, and who needs that? Well, yes, bankers, but if you can’t get your ship and your gambling debts in order in 6 years, who needs you, really?

So trim down LTRO. And then do nothing else at all. Send a message to the world that you’re not intending to play the same game the US, Japan and China have been engaging in. If only because, well, look at where these countries find themselves. What’s to be jealous about there? And if Draghi announces “nothing else at all”, wouldn’t that drive down the euro all by itself? And yes, although we’ve seen markets ‘counter intuitively’ rise a few times recently on bad news, stock markets and other asset markets will probably get hit, perhaps even hard. But isn’t that what this world needs, isn’t it quite simply a good thing if as much of the free and cheap and zombie and ultimately empty stimulus money as possible is driven out of the system?

Zombie money is the biggest scourge of our times and our economies, not its savior, but just about everyone seems to have that completely upside down. The stated idea behind QE and other stimuli is to bring recovery through achieving an escape velocity that could help manage the debt load through – very – rapid growth, but there are no signs, other than some handpicked ones, that it is working. As long as it isn’t, the not-so-stated fact is that things are deteriorating, and quite rapidly too, since huge layers of additional debt are poured onto the already existing debt. Obviously, financial institutions and their shareholders are doing just fine at the cost of those who will have to pay back the debts.

But how does that fit in with Mario Draghi’s job description? What we have is rising stock markets and home prices – in many regions – combined with rising poverty, unemployment and not-in-the-labor-force rates. In what book is that a good direction to go in? How is creating an ever bigger divide in our societies going to help us in a recovery, or in life in general for that matter? If Draghi starts buying up sovereign bonds or asset backed paper, that may help banks and investors for a while, but at what price for the poorest in Greece, Spain or even Germany? And despite that price, there are no guarantees whatsoever that the benefits such actions may have will last. How much road to nowhere do we need to travel before we actually get there?

Tyler Durden ran a piece from The Diplomat written by Yang Hengjun today, Why Do China’s Reforms All Fail? . The reasons Yang gives, which are solidly interlocked, are the exact same as why present day central bank stimulus doesn’t work.

  • … all the reforms in Chinese history aimed to perpetuate the current system
  • … almost all of China’s reforms were done purely for the benefit of the ruler

Central banks seek to perpetuate a system that is already in place, even if it has failed dramatically and is even beyond repair, because central banks are not independent at all, no matter how much they are supposed to be. They instead control the money and credit supply of entire nations or associations of nations for the benefit of the rulers of the existing paradigm, be they political, financial and/or social. Central banks exist to make sure that if existing powers are broke or in danger, they get to feed off the wealth of the people. Therefore, while we may have democratic systems, though that is by no means assured from a political viewpoint anymore, these systems are really moot, since central bankers decide who rules and who pays for that rule, and they always pick yesterday’s favorites to hang on for another day. So if you’re looking for recovery and progress and sanity, you’re out of luck as long as Yellen and Draghi have the powers they do.

But don’t let me get ahead of myself. Draghi may still choose the way of the wiser, and do nothing on Thursday but to cut off a bunch of broke banks’ long overdue lifelines. And cause the very crisis that is the only way to get our economies and societies back on the way to real health, not the zombified kind we’ve been “living” for 6 years now. Hey, I can still dream and hope for another two days …

That’s what I said: they spent it all! No pent-up demand anywhere in sight.

Heloc Payment Jump to Take Bite Out of Consumer Spending (WSJ)

Another bill is coming due from America’s decade-old borrowing binge as payments jump on a number of home-equity credit lines taken out during the boom. Economists worry the new burden could reignite loan-payment troubles and dent consumer spending at an iffy moment in the economic recovery. At issue are home-equity lines of credit, known as Helocs, which allow homeowners to tap their equity to fund home improvement, college tuitions and other expenses. Those loans typically let borrowers make interest-only payments for the first 10 years before requiring principal payments as well. That reckoning will come this year for an estimated 817,000 borrowers owing more than $23 billion in Helocs, more than double last year’s level, according to estimates by Equifax, the credit-reporting firm, and the Office of the Comptroller of the Currency. An average of about $50 billion in loans will reset in each of the next three years.

“These resets are a very serious issue,” said Amy Crews Cutts, chief economist at Equifax. “It’s a nontrivial number of people who get smacked with a higher payment.” The added bite is another reminder of how the home-equity borrowing boom that juiced spending during the past decade still impedes the sluggish U.S. economic recovery. The problems could squeeze states such as California, Arizona, Nevada and Florida that saw the biggest surges in home prices—and borrowing—a decade ago. Equifax data show Heloc delinquency rates have doubled on loans that have already reached the end of their interest-only period. With home prices now rising, banks have begun to increase Heloc lending.

But new originations are a fraction of levels during the peak of the housing boom. And many borrowers with 10-year-old Helocs can’t readily refinance—which could extend their interest-only periods—because many home prices are below where they were when they signed the loans. A homeowner who owes $100,000 on a Heloc carrying a 3.5% interest rate would see payments rise to $715 from $292 when the interest-only loan converts to a 15-year amortizing mortgage. If interest rates were to rise by three%age points, payments would go up an additional $150. “The giant sucking sound is all of that money being taken out of consumer spending,” said Richard Redmond, a mortgage banker in Larkspur, Calif.

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The generational divide steadily grows.

Cash Deals for Homes Reach Record With Boomers Retiring (Bloomberg)

Mike Trafton bought a house in a suburb of Boise, Idaho, where he plans to retire. He made the deal without signing a stack of mortgage papers. Trafton, 55, and his wife Cindy, 54, paid $400,000 in cash for the 3,200-square-foot house in Eagle after selling their 4,400-square-foot home in a Portland, Oregon, suburb for $680,000. Like a growing number of baby boomers, born between 1946 and 1964, the Traftons had no desire to get a mortgage. “I feel better about owning my home outright,” said Trafton, who’s moving to a region with an average of 200 sunny days a year and skiing in the winter. “At this stage in our lives, we can afford it, and it’s better than having a monthly mortgage payment hanging over us.” U.S. home-price gains have restored $3.8 trillion of value to owners since the beginning of the real estate recovery in 2012, according to Federal Reserve data.

A record number of Americans are using that equity to pay cash for properties, avoiding a mortgage process that has become even more onerous in the wake of the 2007 housing collapse. In the first quarter, 29% of non-investment homebuyers used cash, the highest on record for the period, according to data compiled by Bloomberg. The majority of people making all-cash deals are baby boomers mostly because America’s largest-ever generation is beginning to retire, said Lawrence Yun, chief economist of the National Association of Realtors. In 2012, there were a record 61.8 million Americans over the age of 60, according to the Census. That compares with 46.6 million in 2000. “Cash purchases are on the rise because older homeowners who have decades of home-equity accumulation don’t want the hassle of a mortgage,” Yun said. “With the economy improving and the stock market at record highs, boomers are the ones who are driving the market.”

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A lot of trouble’s brewing below the surface.

Over 40% of 2 Million Modified Loans Facing Resets are Underwater (Mish)

Kostya Gradushy, Black Knight’s manager of Loan Data and Customer Analytics: “While the national negative equity rate as of April stands at 9.4% of active mortgages, the share of underwater modified loans facing interest rate resets is much higher — over 40%. In addition, another 18% of modified borrowers have 9% equity or less in their homes. Given that the data has shown quite clearly that equity — or the lack thereof — is one of the primary drivers of mortgage defaults, these resets may indeed pose an increased risk in the years ahead. “From a broader perspective, it’s also important to note that more than one of every 10 borrowers is in a ‘near negative equity’ position, meaning the borrower has less than 10% equity in his or her home.”

Underwater loans facing reset is one major problem. A second problem is the declining volume of new originations and home sales. A chart of new single-family homes sold will highlight the second problem.

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Not spending.

US Velocity Of Money Falls To All-Time Record Low (M. Snyder)

Let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

This is a highly deflationary chart. It clearly indicates that economic activity in the U.S. has been steadily slowing down. And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming. In addition, the employment situation in this country is much less promising than we have been led to believe. According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…

“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”

Never before has such a high percentage of men in their prime years been so idle. But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty. Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”. And now we are rapidly approaching another downturn. [..] And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”. We shall see. Many are not quite so optimistic. For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20% when quantitative easing finally ends. Others believe it will be much worse than that.

Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars. This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse. So when the inevitable crash does arrive, it will be much, much worse than it could have been. Sadly, most Americans do not understand these things.

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I’ve covered this many times.

QE At Work: Pouring Cheap Debt Into The Shale Ponzi (Alhambra)

In Bernanke’s explanation, investors swap high quality MBS or Treasuries for high quality corporate bonds but reality has seen something a bit different. From 1996 to 2006, a bit over $1 trillion in junk bonds were issued. It took only 3 years to match that total in the QE era. What is more disturbing is that a large portion of that junk debt (and a lot more that isn’t reported via the bank lending channel) is being issued to fund oil and gas exploration companies for the fracking of oil and natural gas. Shale debt has at least doubled over the last four years. Why is that disturbing? Isn’t shale supposed to lead us to the nirvana of energy independence? Well, maybe not. I’ve been a critic of the industry since the boom first started and not because I’m concerned about the environmental impact (although that probably deserves more of my attention). My criticism has focused on the economics of shale.

There are two pieces of the economic puzzle when it comes to shale. First is that most shale oil deposits are not profitable to extract except at current high prices. This drilling/extraction method is not cheap. Breakeven prices vary by region but it is safe to say that no shale oil deposits are profitable below $50/barrel and most areas require much higher prices. An average might be in the range of $65 and there are plenty of areas where the price needs to be above $80 before anyone makes a nickel. I would just note that oil traded, albeit briefly, at $34 in the last recession. Second is the production profile of shale wells; production drops off rather precipitously after the first year (in contrast with traditional wells which deplete over much longer time frames). Combine high extraction costs with rapid depletion and the economics of shale become not only dubious but frankly insane.

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But there is none at the moment.

Why Central Banks Need More Volatility (Zero Hedge)

Will volatility become a policy tool? The PBOC decided that enough was enough with the ever-strengthening Yuan and are trying to gently break the back of the world’s largest carry trade by increasing uncertainty about the currency. As Citi’s Stephen Englander notes, this somewhat odd dilemma (of increasing uncertainty to maintain stability) is exactly what the rest of the world’s planners need to do – Central banks will need more FX and asset market volatility in order to provide low rates for an extended period… here’s why. Via Citi’s Stephen Englander:

Will central banks need volatility to restrain asset prices?

• Cyclical and trend growth pessimism is leading central banks to guide expectations of rates downward
• The more credible the guidance, the more risk will be bought
• To prevent asset market overheating while keeping rates low, central bankers may have to introduce more volatility into asset markets…
• …emphasizing risk and vigilance and central bank readiness to raise rates if needed

Central banks will need more FX and asset market volatility in order to provide low rates for an extended period. The argument goes like this:

1) Low realized and implied volatility have come as a surprise to investors
2) Investors are underinvested out of skepticism that the low rates, low volatility environment will persist
3) If the central bank mantra of “low rates, low vol forever” persists in asset markets, investors will buy high beta assets and add leverage
4) Asset prices will respond much more to rates incentives than (so-called) rates sensitive sectors of the economy
5) Central banks want to keep the low rates without creating an asset bubble and will purposely induce volatility to calm speculation

The big surprise this year is the reduction in FX and asset market volatility (Figures 1, 2) Realized USDBRL volatility over the last month is where EURUSD vol was in Q1 2013. Since it was unexpected, investors were underinvested and even wrongly positioned as volatility declined.

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People are not spending.

Eurozone Inflation Dives To 0.5% As ECB Poised To Act (Reuters)

Euro zone price inflation fell unexpectedly in May, increasing the risks of deflation in the currency area and sealing the case for the European Central Bank to act this week. Annual consumer inflation in the 18 countries sharing the euro fell to 0.5% in May from 0.7% in April, the EU’s statistics office Eurostat said on Tuesday. A clutch of senior sources told Reuters earlier this month that the ECB was preparing a package of policy options for its meeting on Thursday, including cuts in all its interest rates and targeted measures aimed at boosting lending to small– and mid-sized firms (SMEs). The weak rate of May price rises would seem to cement expectations that the ECB will now deliver a series of measures to make it even cheaper to borrow and help the economy.

May’s reading is back at levels last seen in March – the lowest level since November 2009 and reflecting low inflation in Germany. Inflation in the 9.5 trillion euro economy is stuck in the ECB’s ‘danger zone’ of below 1%, a sign of the fragile recovery. The ECB says it stands ready to use all tools available to fend off deflation risks and aid the economy. Core inflation, excluding energy, food, alcohol and tobacco, fell to 0.7% in May from 1.0% in April. Energy prices were flat on the year, showing no decline for the first time in five months. Global financial markets have been buoyed by the odds of cheaper money in the bloc and could react sharply if the ECB does not deliver on Thursday.

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The lowest yields in 200 years. How does that rhyme with the state our economies are in?

Napoleonic Yields No Comfort to Draghi Fighting Deflation (Bloomberg)

Europe’s lowest government bond yields since the Napoleonic Wars are signaling investors want more action from Mario Draghi. Instead of a vote of confidence, the most pronounced rally in 200 years suggests the European Central Bank president needs to stave off the risks of stagnation and deflation. Austria, Belgium, France (GFRN10) and Germany can borrow at lower rates than the U.S. as inflation less than half the ECB’s target stokes concern the euro zone will take many years to recover from its longest-ever recession. While bond, currency and derivative markets show an abatement in the contagion that began in Greece in 2009 before engulfing Spain and Italy, a closer look reveals high debt and deficits that have yet to be addressed, unemployment near record levels and a banking system still to be fixed.

ECB policy makers will share their outlook in two days, when they probably will lower the 18-nation currency bloc’s official rate toward zero and take the deposit rate negative for the first time. “The outright level of yields is suggesting an incredibly weak outlook for growth,” Russell Silberston, a London-based money manager at Investec Asset Management, which oversees $110 billion, said in a May 30 phone interview. “It’s a powerful signal telling you policy is too tight and that there’s complacency toward the risks. Not a great deal has been solved. We’ve still got bank stress tests to come, too low growth and too low inflation.”

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In times of pleanty, differences can be papered over. When they turn lean, not so much.

The Most Worrying Chart For Europe’s Stability (Zero Hedge)

While we have historically noted the explosion of youth unemployment as a key factor for instability in Europe, there appears to be an ever more concerning indicator of the potential fragility of the European Union. As Bloomberg’s Maxime Sbahi notes, the difference in economic performance (and mood) between France and Germany, often referred to as the European “engine,” is at a record high. This disparity is likely to weaken France and isolate Germany further, heightening political tensions and indecision in the euro area. And the “mood” of the people – perhaps even more contentiously – is near 30 year highs…

Via Bloomberg Brief: “The political consequences of these economic gaps are growing clearer, though the differences in underlying policy choices have been visible for some time. Last week’s European Parliament elections provided a first glimpse of the political shakeout, with the victory of the National Front in France. The country will send a record 24 euroskeptic members to the European Parliament in a total delegation of 74, compared with seven out of 96 from Germany. Disagreements between the two EU founding members are likely to intensify as past common interests are now strained by increasing economic divergence. Recently, France has repeatedly argued for a relaxation of fiscal targets and called on the European Central Bank to be more proactive to weaken the euro. Germany has retorted by insisting on the ECB’s independence and respect for fiscal discipline, directly warning France against non-compliance with budget commitments.

If the French economy continues its slide from the euro area’s core to the profile of a periphery member, new standoffs are likely to materialize, weakening the Franco-German relationship that has provided leadership in the past. This might slow down the functioning of the euro area, where decisions are mostly made between heads of government in summits. Over the long term, one of the most disturbing consequences is a potential lack of a common strategic view for the euro area’s future at a time when direction is needed more than ever. If its historic partner is downgraded to a junior status, Germany may grow even more powerful on the European stage. The country may find itself in a more isolated and uncomfortable position.”

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Profit from central banks giving away your children’s futures. What a great concept.

Buy With Central Banks Is U.S.-Japan Lesson for ECB QE Scenario (Bloomberg)

[..] … how should investors react if the ECB finally starts buying assets? Societe Generale analysts looked to the U.S. and Japan for clues. They found three patterns in both the Japanese purchase of asset-backed securities from August 2003 to September 2006 and the three rounds of quantitative easing deployed by the Federal Reserve from November 2008 to now. First, QE triggered a reallocation from bonds to equities, In Japan, that proved enough to push up the MSCI Index Japan by 76% over the three period during which the bank spent 3.8 trillion yen ($37 billion). In the U.S., the Standard & Poor’s Index 500 rose 36% in the first wave of buying until March 2010, 24% in the second round from August 2010 to the following June and 29% in QE3 since September 2012, Societe Generale strategists Alain Bokobza and Gaelle Blanchard said in a report last month.

Second, 10-year bond yields were pushed higher, to the tune of 71 basis points in Japan and a cumulative 212 basis points in the U.S. over their respective quantitative-easing periods. While that may sound counterintuitive if the central banks are buying bonds, the resulting spur to economic growth and inflation boosted long-term yields, according to Bokobza. Third, QE supported the banking sector. Japanese bank stocks improved strongly once the BOJ started quantitative easing, reducing the sector’s credit risk after bad loans had hurt their balance sheets. In the U.S., the buying helped stabilize the share performance of banks.

Such a blueprint has Societe Generale making some early recommendations if Draghi’s ECB follows the BOJ and the Fed. Investors should bet on euro-region equities to outperform rivals elsewhere. In the U.S., industrials and consumer discretionary stocks did better than the market in every QE episode, while consumer staples, utilities and telecommunications systematically underperformed. The stocks and bonds of crisis countries such as Greece and Spain and maybe even less-infected France should do well as asset purchases supports their equity markets by aiding economic activity. It’s also worth preparing for the banking outlook to turn more positive, with Societe Generale favoring Credit Agricole SA, BNP Paribas and Unicredit SpA. All that’s needed now is for Draghi to start writing checks.

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Why Do China’s Reforms All Fail? (The Diplomat)

To simplify, there are three common factors.

First, as opposed to other reforms recorded in world history, almost all of China’s reforms were done purely for the benefit of the ruler (the emperor). The reforms adjusted the ruler’s policies on how to control the people, how to manage the four classes (scholars, peasants, artisans and merchants), how to exploit the peasants’ land, and how to fill the treasury with taxes. None of the reforms touched on philosophies of holding power, or the methods of governance, much less centered around public interests.

China’s reformers saw the interests of the common people as objects of reform, rather than reforming the regime in order to benefit the people. As a result, these reforms never touched the ruling dynasty, but only caused power struggles between the interest groups involved. Compared to revolutions (which are either loved or feared), the people were generally indifferent to “reform.” And reforms without public support fail utterly once they encounter counterattacks from interest groups and opposition parties. For the common people, the failure of the reforms was nothing to mourn.

Second, many vigorous reforms in Chinese history had one thing in common: The reformers were not the highest ruler (the emperor). Many had been (provisionally) selected by the emperor to act as pioneers for the reforms — and as scapegoats when reforms failed. Reformers like Shang Yang, Wang Anshi and the late Qing Westernization school all suffered this fate. The people who held supreme power were usually governing from behind the scenes. They maintained a certain distance from the reform, which left plenty of room to maneuver. If the reforms succeed, those in charge will take the credit; if the reforms fail, they will sacrifice the reformers. Under these circumstances, the reforms would be half-hearted from the beginning — so much for “top-down” reforms. By contrast, the series of reforms conducted directly by Emperor Wu in the Han dynasty and by Tang dynasty emperors were more effective.

Third, all the reforms in Chinese history aimed to perpetuate the current system, rather than changing the existing regime. Some reforms failed, and the reformers were dismembered (like Shang Yang) or died in disgrace (Wang Anshi). But even then, leaders kept the parts of the reform policies that could help maintain the existing system, turning the reforms into cogs in the authoritarian machine.

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Oh yes it is.

China’s Debt Reckoning Is Coming (Bloomberg)

It took China to prove Friedrich Nietzsche wrong. What didn’t kill the Communist Party hasn’t made it stronger. It’s only making the inevitable crash bigger, more spectacular and needlessly dangerous. China’s debt reckoning is coming. Maybe not this quarter or this year, but Chinese President Xi Jinping’s unbridled effort to keep growth from falling below the official 7.5% target is cementing China’s fate. China is investing just as much as it did in 2008 and 2009, when authorities were desperately trying to avert a slowdown. Just as debt troubles in Japan, Europe and the U.S. ended badly, so will China’s. Why, then, with so many clear examples of financial excess leading to ruin, is Xi continuing down this road? Blame it on the ghosts of Tiananmen Square.

In the aftermath of the crackdown on student protesters on June 4, 1989, China’s leaders made a bargain with their people: We will make you richer, as long as you no longer dissent. After the crash of Lehman Brothers, the regime had to go to extraordinary lengths to keep up its end of the bargain, pumping up what was already the world’s highest investment rate. In doing so, China itself became a Lehman economy – powered by shadowy funding sources, off-balance-sheet investing and unconvincing claims that all remained well. For a while this rampant investment growth seemed to make China stronger; now that strategy is its main vulnerability. Yet Xi and Premier Li Keqiang apparently can’t bring themselves to roll back those policies and rebalance the economy away from exports and toward more consumption.

They know that if they do so, growth will slow a lot, challenging the post-Tiananmen compact — and in the Internet age, no less. As anger grows over any slowdown, Chinese censors won’t be able to delete text messages and microblog entries fast enough. It’s often said that when the U.S. sneezes, the entire world catches a cold. But the eventual popping of China’s $23 trillion credit bubble could send many nations to the emergency room. Any crash would make deflation China’s biggest export. China’s brawn is widely misunderstood. Take Donald Trump’s recent musings to Fox News about China’s rising economic dominance and the tragedy of the U.S. borrowing from Beijing to service a debt “no one ever dreamt possible.” You would think a man with Trump’s track record of bankruptcies would understand that losses from debt don’t disappear. When a company, or nation, rolls over unpaid debts without resolving them, profits – or GDP – are overstated, as China’s is today.

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“Wall Street’s biggest firms can’t get a break in the bond business.” So?

Bond Bankers Have 144 Reasons to Fret Over Underwriting Frenzy (Bloomberg)

Wall Street’s biggest firms can’t get a break in the bond business. With trading profits dwindling, more dealers than ever are fighting for assignments managing U.S. corporate-bond sales, one of the few bright spots in fixed income. Companies from the most-creditworthy to the most-indebted have been selling trillions of dollars of debt, locking in record-low borrowing costs ahead of the anticipated rise in interest rates. The increased competition is bad for JPMorgan Chase, Bank of America, Citigroup Goldman Sachs and Barclays because the top five banks won the smallest share of the assignments this year for any comparable timeframe, according to data compiled by Bloomberg. A record 144 underwriters for the period have split an estimated $4.2 billion of fees on U.S. sales, the data show.

“One business is challenged, so people have become aggressive in other businesses,” said Alison Williams, a senior financials analyst with Bloomberg Industries. While the biggest firms are still dominant, they’re losing their hold on a reliable profit center in an increasingly bleak fixed-income world. The five most-active corporate-debt underwriters this year landed 47% of the business, the smallest share on record. That’s down from 59% of the assignments for all of 2009. Smaller firms see an opportunity to break into the business as Wall Street’s behemoths unload inventories of riskier securities in the face of higher capital requirements and limits imposed by the U.S. Dodd-Frank Act’s Volcker Rule on the amount of their own money they can use to trade.

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Hey, PIMCO makes a killing on zombie money.

Pimco: Blithering About Minsky Moments And Free Money Forever (Stockman)

The single most dangerous meme now extant among the Cool-Aid drinkers is that we already had something called the Minsky Moment in 2008—so six years on its still too early for another. Fittingly, CNBC trotted out one of Pimco’s retired bond peddlers, Paul McCulley, to explain this, and why it is therefore safe to load up on bonds. That is, bonds which Bill Gross has already bought and which McCulley now invites the mullets to bid higher. After all, in a world of monetary central planning appearing on bubblevision to egg on the mullets is what bond fund economists do for a living: ‘We don’t have to be worried about the Big One. We had the Big One, and you don’t have another Big One after you have had the Minsky moment,’ he said.” Now lets see. Either the last Big One came crashing into Wall Street on the tail of a comet from deep space—in which case we need to consult the astronomical charts about the timing of the next one— or it was enabled, fueled and cheered on by the denizens of the Eccles Building.

If the latter, then it is obvious that they have done nothing differently in the last six years and, in fact, have actually doubled down and then some on Greenspan’s housing bubble maneuver. Indeed, the Fed has pegged interest rates in the money markets at essentially zero for the past 66 months—a condition that has never before happened during the history of modern financial markets. That makes Greenspan’s 24 month experiment with 1% money during 2003-2005 pale by comparison. Yet free or nearly free funding to the carry trades always and everywhere has the same effect: it incites massive leveraged speculation in the financial markets as gamblers seek to capture easy profit spreads between zero cost liabilities and “risk assets” which generate a positive yield or appreciation.

Now deep into year six of a monetary policy that is the mother’s milk of financial bubbles, there are warning signs everywhere. Margin debt reached historic peaks a few months ago; momentum driving hysteria of dotcom era intensity afflicted the bio-tech, cloud and social media stocks until they rolled-over recently; the Russell 2000 is trading at 85X reported income; junk bond issuance is at record levels and cov lite loans and booming CLO issuance–the hallmarks of the 2007-2008 blow-off top—have made an even more virulent reappearance; the LBO kings are busy strip-mining cash from portfolio companies already groaning under the weight of unrepayable debt via the device of “leveraged recaps” –another proven sign of a speculative top; and now the LBO houses are furiously buying and selling among themselves what have become permanent debt-mule companies by scalping cash from buyers who then reload more of the same debt on the sellers.

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Turn it upside down and see what it looks like.

On The False Idea That Money Is A Resource (Lisa Wade)

Watts makes a truly profound argument about what money really is. I’ll summarize it here and you can watch the full three-and-a-half minute video below if you like. Watts notes that we like to talk about “laws of nature,” or “observed regularities” in the world. In order to observe these regularities, he points out, we have to invent something regular against which to compare nature. Clocks and rulers are these kinds of things. All this is fine but, all too often, the clocks and the rulers come to seem more real than the nature that is being measured. For example, he says, we might think that the sun is rising because it’s 6AM when, of course, the sun will rise independently of our measures. It’s as if our clocks rule the universe instead of vice versa.

He uses these observations to make a comment about wealth and poverty. Money, he reminds us, isn’t real. It’s an invented measure. A dollar is no different than a minute or an inch. It is used to measure prosperity, but it doesn’t create prosperity any more than 6AM makes the sun rise or a ruler gives things inches. When there is a crisis — an economic depression or a natural disaster, for example — we may want to fix it, but end up asking ourselves “Where’s the money going to come from?” This is exactly the same mistake that we make, Watts argues, when we think that the sun rises because it’s 6AM. He says:

They think money makes prosperity. It’s the other way around, it’s physical prosperity which has money as a way of measuring it. But people think money has to come from somewhere… and it doesn’t. Money is something we have to invent, like inches. So, you remember the Great Depression when there was a slump? And what did we have a slump of? Money. There was no less wealth, no less energy, no less raw materials than there were before. But it’s like you came to work on building a house one day and they said, “Sorry, you can’t build this house today, no inches.” “What do you mean no inches?” “Just inches! We don’t mean that… we’ve got inches of lumber, yes, we’ve got inches of metal, we’ve even got tape measures, but there’s a slump in inches as such.” And people are that crazy!

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Coasting Toward Zero (Jim Kunstler)

In just about any realm of activity this nation does not know how to act. We don’t know what to do about our mounting crises of economy. We don’t know what to do about our relations with other nations in a strained global economy. We don’t know what to do about our own culture and its traditions, the useful and the outworn. We surely don’t know what to do about relations between men and women. And we’re baffled to the point of paralysis about our relations with the planetary ecosystem. To allay these vexations, we just coast along on the momentum generated by the engines in place — the turbo-industrial flow of products to customers without the means to buy things; the gigantic infrastructures of transport subject to remorseless decay; the dishonest operations of central banks undermining all the world’s pricing and cost structures; the political ideologies based on fallacies such as growth without limits; the cultural transgressions of thought-policing and institutional ass-covering.

This is a society in deep danger that doesn’t want to know it. The nostrum of an expanding GDP is just statistical legerdemain performed to satisfy stupid news editors, gull loose money into reckless positions, and bamboozle the voters. If we knew how to act we would bend every effort to prepare for the end of mass motoring, but instead we indulge in fairy tales about the “shale oil miracle” because it offers the comforting false promise that we can drive to WalMart forever (in self-driving cars!). Has it occurred to anyone that we no longer have the capital to repair the vast network of roads, streets, highways, and bridges that all these cars are supposed to run on? Or that the capital will not be there for the installment loans Americans are accustomed to buy their cars with? The global economy is withering quickly because it was just a manifestation of late-stage cheap oil. Now we’re in early-stage of expensive oil and a lot of things that seemed to work wonderfully well before, don’t work so well now.

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Good, simple, clear video.

The Federal Reserve Explained In 7 Minutes (Zero Hedge)

As members of the world’s central banks (most importantly Draghi and the ECB this week) are held up as Idols on mainstream business TV, despite their disastrous historical performances and inaccuracies, we thought it time to dust off the dark ‘reality’ behind the Federal Reserve – the uber-central bank … perhaps summed up nowhere better than in the words of former Fed Chair Alan Greenspan himself … “There is no other agency of government which can over-rule actions that we take.”

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The growth monster now lives everywhere.

India Growth Below 5% Adds Pressure on Modi to Spur Investment (Bloomberg)

India’s economy grew less than 5% for a second quarter, adding pressure on Prime Minister Narendra Modi to spur investment after winning the strongest electoral mandate in 30 years. Gross domestic product rose 4.6% in the three months ended March from a year earlier, unchanged from the previous quarter, the Central Statistical Office said in a statement in New Delhi yesterday. The median of 42 estimates in a Bloomberg News survey had been for a 4.7% gain. GDP expanded 4.7% in the fiscal year that ended March 31, compared with the previous period’s decade-low 4.5%.

Reviving growth is the new government’s immediate challenge while the central bank works to lower inflation, Reserve Bank of India Governor Raghuram Rajan said in Tokyo yesterday. The first single-party parliamentary majority in India since 1984 puts Modi in a position to take politically sensitive decisions such as cutting subsidies and hastening project approvals. “There is euphoria over the new government and some consumption uptick can happen,” said Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai. “You can’t expect a sudden turnaround. There could be some limitations in clearing projects faster as some were stuck over court jurisdictions.” India’s GDP has been below 5% in seven of the last eight quarters. Over the last decade, growth has averaged about 8%.

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Top US CEOs Make 330 Times More Than Average Employees (RT)

The average employee in the US will have to work 331 years to earn the annual salary of an average Fortune 500 CEO, according to the AFL-CIO’s 2013 Executive Paywatch. The ratio of CEO pay to worker pay has increased by more than 500 percent in the last thirty years. In 1983, the average CEO made 46 times the average worker’s pay packet. The ratio quadrupled through the decade to 195 times in 1993. Highly paid CEOs of companies employing low wage earners are fueling economic inequality, which continues to grow.

The CEO salary data was sourced from the US Securities and Exchange Commission (SEC) and the US Bureau of Labor Statistics (BLS) data for the latest fiscal years, covering around 3,000 corporations, most listed in the Russell 3000 Index. America is considered to be the land of opportunity, however in recent decades, corporate CEOs have been taking a greater share of the economic pie. The wage of chief executives is constantly growing, while the salary of the average worker has stagnated and unemployment remains high.

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How much energy does it take to keep an ice wall going for decades or even hundreds of years?

TEPCO Starts Work On Fukushima Underground Ice Wall (RT)

Aiming to isolate radioactive water build-up, Fukushima nuclear plant’s operator, TEPCO, has started constructing a huge underground ice wall around the facility. The ambitious project will have to be maintained for well over a century to reach its goal. Tokyo Electric Power Company has launched work on the 1.5 kilometer underground ice wall, which is to be built around four reactors at the crippled Fukushima Daiichi No. 1 nuclear power plant, Kyodo news agency reports. According to Kyodo, 1,550 pipes will now be inserted into the ground to circulate coolant around the reactors, keeping the surrounding soil constantly frozen. The government funded project, which will cost an estimated 32 billion yen (US$314 million), is scheduled for completion by the end March 2015. It will then take a few more months to fully freeze the soil after the coolant starts circulating, according to TEPCO.

The work started days after Japan’s Nuclear Regulation Authority (NRA) granted the go-ahead for the project, despite earlier reservations. TEPCO reportedly managed to convince the watchdog that the ice wall – which might cause some ground to sink – will not have any significant effect on the stability of the reactor buildings. However, some experts remained skeptical of TEPCO’s plan, which is the latest move in the company’s struggle to contain the fallout of the March 2011 nuclear disaster triggered by a strong earthquake. TEPCO’s efforts have been overshadowed by revelations that the company repeatedly concealed the true radiation levels at the plant and “misreported” the radiation risks to US servicemen helping to contain the disaster. New evidence also allegedly shows that some 90% of workers were not present at the plant when the meltdown started.

While the frozen wall may indeed help to at least reduce the escape of contaminated liquid into the groundwater, it will still take decades – if not hundreds of years – for record-high radiation levels to clear away in the area, including in the ocean. Michio Aoyama, a professor at Fukushima University’s Institute of Environmental Radioactivity, told Kyodo that the Fukushima plant contains radiation equivalent to “14,000 times” the amount released in the atomic bomb attack on Hiroshima 68 years ago, and has seriously affected the ocean and the coastal area. The problem is thus left for the coming generations to tackle, stretching the impact of the accident into the future. Japan, meanwhile, is eyeing the resumption of work on some of its 20 nuclear power plants suspended or shut down after the 2011 earthquake, despite public protests. As of June, two units at Oi nuclear power plant are the only operating Japanese nuclear facilities.

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May 132014
 May 13, 2014  Posted by at 7:22 pm Finance Tagged with: , , , ,  6 Responses »

Jack Delano Information desk, Union Station, Chicago January 1943

This morning I saw an article by Barry Ritholtz on Bloomberg that got my few remaining active neurons going (or I think it was them). The title alone, The Parasites of Finance, did that, actually. I sort of knew, since I’ve known Barry’s work at the Big Picture site for quite some time, what he would talk about, and I knew I wouldn’t – fully – agree.

Or rather, it’s like this: I have nothing against Barry, and he does make some valid points in the article, but in my view his focus is too narrow for the title he’s chosen, willingly or not. But then Barry works in finance, and I don’t. For me the parasites of finance form a much larger group than for him. And that is the direct result of government policies, such as the promotion of creative fantasy accounting and the refusal to restructure debt, multiplied by the tens of trillions of dollars of future wealth that have been pumped into the financial system in the form of QE and other stimuli, lest the system collapse on the spot.

We all understand today, from the world of biology, why and how a body, a system, gets more susceptible to parasites when it becomes weaker. Well, financial stimulus of all shapes and forms, as executed over the past decade and more by governments and central banks, does just that: it makes the system weaker. This – temporarily – makes it possible for a large number of people to feed on the system (just like parasites do), and declare that from where they’re sitting, everything seems fine. But everything is not fine. The system, in this analogy, has turned into a body addicted to drugs to such an extent that without them it would risk … collapsing on the spot. The undead body of a zombie, essentially.

In short, this makes just about every investor today a parasite, if not of finance, then certainly of the financial system. Or even of society as a whole. In most cases this is not intentional, but for the end result that makes little or no difference. Everyone who owns assets of any kind at all today profits up to a point, at least on paper, from the gigantic asset bubble blown by “authorities” and their accommodative policies. That part is easy to see, so much so that it’s the only part most see. The shadow side largely remains hidden, until it will be too late. Because the shadow side lies in the future, and we live in the present. But before I stomp over him entirely, which is not at all what I want, let’s turn to Barry:

The Parasites of Finance

[..] … I am always amazed at how some business models manage to hang on despite overwhelming proof of their lack of purpose or value added. Some parts of the investment world exist simply because people don’t know better. The information is out there, but it is obscured by a relentless parade of advertising, promotion and marketing. The truth gets lost behind a smokescreen of noise and deception. Indeed, there are increasing numbers of people who are employed for just that purpose. Ignorance: It’s a job creator.

This first paragraph had me smile, because what Ritholtz says here about the (his) world of finance, for me describes our entire society. Or to put it in starker terms: to me, the entire world of finance today only exists, or continues to exist, because of a relentless parade of advertising, promotion and marketing, PR. Which makes that people don’t know better. For me it takes on the meaning that there is a relentless parade of journalists and government officials and central bankers and investors and hedge funders, etc., all hell bent on blowing such quantities of smoke up the public’s asses that the latter don’t think, or figure out, that the whole thing has become a parade of parasitical zombies, who suck the lifeblood out of society instead of creating value, something they will insist they do until their bodies crumble to ashes and evaporate.

That may sound harsh for everyone invested in something, and particularly unwelcome for finance professionals, but we can all imagine, though perhaps not all equally, what the world of finance, and society at large, would have looked like without such lovely though grossly expensive concepts as creative accounting, QE 1-1001, artificially and absurdly low interest rates, home purchase assistance plans that skirt on subprime, and with debt restructuring, defaults, bankruptcies and the like that until recently were considered normal, nay necessary. What it all would have looked like would be, to put it succinctly, more ‘normal’. More like a free market.

Not that things wouldn’t have been chaotic for a while, maybe quite a while. But does that warrant turning an entire society into a parade of zombies? Because that’s what we’re looking at now. It might be good to acknowledge who has benefited most from the entire set of extreme measures. And no matter how you look at that, you will always come back to the same group of people: those who benefit most would have risked losing most if ‘normal’ would have been the norm. That means politicians, bankers, finance professionals.

Everyone who profited most from the bubble had most to lose from it bursting. So a huge layer of virtual credit, for which your blood and sweat and tears is the collateral, was laid out on top of the imploding world of finance. That way they could all hang on and pretend everything was just hunky dory. But that won’t last, simply because it can’t. You can use creative accounting for your unemployment numbers too, but the fact remains that some 90 million working age Americans don’t work. And 60% of southern European young people don’t either.

And you need all those people to work, not just to keep them from rising up, but to make sure your society and economy produce things of actual value. That’s where the real crisis is, not in bank profits going down. But it’s not what all the measures have been aimed at, they have all been about propping up “finance” to the point where society at large could be made to believe it’s actually still standing while it’s as dead as King Tut.

It’s a policy that carries its own demise on its back. Then again, it also carries its own advertising, promotion and marketing parade. Because it makes everyone – except perhaps for the unemployed – think they are richer than they actually are. Temporarily. Not just investors, but really everybody. Because proper financial policy, the kind where the bankrupt actually go bankrupt, would cause a giant reset of the entire economy. Pensions funds are all invested up to their necks in assets that would have lost a lot of value if Bernanke and his ilk would not have taken their grandchildren’s money to spend it today on propping up their undead friends. Home prices would have fallen so much that over half the nation would have been underwater much faster than an Antarctic melt could have put them.

So why not just go for the Lord Keynes stimulus parade? Because it’s all fake. It’s virtual. It’s zombie. And it’s a way for the financial industry to transfer its debts to the rest of us. That way when the zombies start exploding and spewing around the gory green slimy juices that run in their veins, they’ll land on us, not them. Keynesian stimulus policies are utterly destructive to a society if they are not accompanied by debt restructuring, they become nothing but a free for all for the few. Because if that happens, stimulus only serves to keep the undead alive. And no matter how much it may hurt in the short term, the undead are not a good foundation to build a healthy society on. They’re too squishy.

Today, we are all zombies, to one degree or another. And we’re all parasites, feeding on the temporary feel-good effects of the stimulus that in turn sucks the (life)blood and tears out of our children. The question then becomes: would you prefer to have less spending money today, or to leave your kids in utter misery? And no, you can’t have both. That’s just PR.

It stops somewhere sometime.

Yellen’s Housing Wand Is Running Low On Magic (Doug French)

How important is housing to the American economy? If a 2011 SMU paper entitled “Housing’s Contribution to Gross Domestic Product (GDP)” is right, nothing moves the economic needle like housing. It accounts for 17% to 18% of GDP. And don’t forget that home buyers fill their homes with all manner of stuff—and that homeowners have more skin in insurance on what’s likely to be their family’s most important asset. All claims to the contrary, the disappointing first-quarter housing numbers expose the Federal Reserve as impotent at influencing GDP’s most important component. No wonder every modern Fed chairman has lowered rates to try to crank up housing activity, rationalizing that low rates make mortgage payments more affordable.

Back when he was chair, Ben Bernanke wrote in the Washington Post, “Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance.” In her first public speech, new Fed Chair Janet Yellen said one of the benefits to keeping interest rates low is to “make homes more affordable and revive the housing market.” As quick as they are to lower rates and increase prices, Fed chairs are notoriously slow at spotting their own bubble creation. In 2002, Alan Greenspan viewed the comparison of rising home prices to a stock market bubble as “imperfect.” The Maestro concluded, “Even if a bubble were to develop in a local market, it would not necessarily have implications for the nation as a whole.”

Three years later—in 2005—Ben Bernanke was asked about housing prices being out of control. “Well, I guess I don’t buy your premise,” he said. “It’s a pretty unlikely possibility. We’ve never had a decline in home prices on a nationwide basis.” With never a bubble in sight, the Fed constantly supports housing while analysts and economists count on the housing stimulus trick to work. “There’s more expansion ahead for the housing market in 2014, with starts and new-home sales continuing to rise at double-digit rates, thanks to tight inventory,” writes Gillian B. White for Kiplinger. The “Timely, Trusted Personal Finance Advice and Business Forecast(er)” says GDP will bounce back. Fannie Mae Chief Economist Doug Duncan says, “Our full-year 2014 economic forecast accounts for three key growth drivers: an acceleration in spending activity from private-sector forces, waning fiscal drag from the federal government, and continued improvement in the housing market.” We’ll see about that last one.

With the central bank flooding the markets with liquidity, holding short rates low, and buying long-term debt, mortgage rates have been consistently below 5% since the start of 2009. For all of 2012, the 30-year fixed mortgage rate stayed below 4%. In the post-gold-standard era (after 1971), rates have never been this low for this long. The Fed’s unprecedented mortgage subsidy has helped the market make a dead-cat bounce since the crash of 2008. After peaking in July 2006 at 206.52, the Case-Shiller 20-City composite index bottomed in February 2012 at 134.06. It had recovered to 165.50 as of January. However, while low rates have propped up prices, sales of existing homes have fallen in seven of the last eight months. In March re-sales were down 7.5% from a year earlier. That’s the fifth month in a row in which sales fell below the year-earlier level.

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German Investor Sentiment Falls Sharply In May (Reuters)

German analyst and investor sentiment declined for a fifth consecutive month in May to its lowest level in nearly 1-1/2 years as concerns intensified that economic growth in Europe’s largest economy would slow in the second quarter. Mannheim-based think tank ZEW’s monthly survey of economic sentiment, released on Tuesday, dropped to 33.1 from 43.2 in April, missing the Reuters consensus forecast for a reading of 41.0 and undershooting even the lowest estimate for 37.1. That sent the euro down to a one-month low against the dollar.

“The fifth consecutive decline in ZEW investor sentiment in May suggests that the German recovery might not gain much pace from here,” said Jessica Hinds, economist at Capital Economics. “Data later this week are likely to reveal that the German economy made a strong start to the year, perhaps expanding by a quarterly 0.7 percent or so. But today’s survey broadly supports our view that this pace of growth is unlikely to be sustained.” Recent hard data has shown German exports posting their biggest fall in nearly a year, while industry output, orders and retail sales have all fallen.

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Excellent read.

The Writing Is On The Wall. And We Should All Read It (Zero Hedge)

The “Shiller P/E” is much in the news of late, and, as ConvergEx’s Nick Colas suggests, with good reason. It shows that U.S. equity valuations are pushing towards crash-worthy levels. This measure of long term earnings power to current price is currently at 25.3x, or close to 2 standard deviations away from its long run median of 15.9x. As Colas concludes, the writing is on the wall and we must all read it. Future returns are likely going to be lower. Competition for investor capital will get even tougher. That’s what the Shiller P/E says, and it is worth listening. Via ConvergEx’s Nick Colas:

With all the investor attention on this measure, you don’t hear much about how it should inform corporate capital allocation and investor relations. Since stock prices are essentially a conversation between the owners and managers of capital, the Shiller P/E should have a place in the boardroom as well. For example, should companies engaged in buybacks be more careful at these levels, and how do they explain that caution? And what about managing investor expectations for future returns on the business, and therefore its underlying equity? After all, the higher the Shiller P/E, the more likely that future returns will run below historical averages. In short, this is not just a useful tool for investors – it should also inform corporate capital planning and communication.

On the table in my den I have a plaque with Mercedes-Benz and Chrysler hood ornaments glued to the top. It is a deal toy – those commemorations that investment banks give out to the people who work on a specific transaction. You see them littering the officers of corporate treasurers and chief financial officers, bankers, and private equity professionals. The more toys, in theory, the more experience the person has. And the more elaborate the toy, the more creative the 28 year old investment banking associate who really did all the work getting that deal across the finish line.

You could tell that the merger of Daimler and Chrysler was going to fail by just looking at those hood ornaments on the deal toy. Daimler-Benz mounts its famous three pointed star (for land, sea and air transport) on a spring, so that in the case of an inadvertent knock it pops back up unharmed. The corporate name and laurel wreath on the base is done in a lovely blue lacquer worthy of a piece of jewelry. In contrast, the Chrysler hood ornament feels flimsier, has no spring mount and no lettering. One sharp blow and you just know the thing would snap two. And there’s really nothing wrong with either engineering ethos – they are just different approaches for different markets. But culturally, they are like oil and water.

Of course, it didn’t help matter that the merger occurred in 1998, right at the peak of the North American auto profit cycle. Chrysler got over $40 billion for the company in Daimler stock. Nine years and one forced CEO (the architect of the deal) departure later, Daimler sold Chrysler to private equity firm Cerberus for $6 billion. And two years after that the company filed bankruptcy. You could, in essence, time the tops of every market for the last two decades on when Chrysler changed hands. The U.S. stock market has its own “Chrysler Indicator” in the form of the Shiller Price/Earnings ratio. First developed by Nobel Prize winner Robert Shiller for his book “Irrational Exuberance” in 2000, it measures the current price of the S&P 500 as a multiple of 10 year average corporate earnings. It is essentially what old-school analysts would call an earnings power ratio, since it incorporates good and bad years into one across-the-cycle measurement.

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Do read the entire piece. Bill Black knows the topic better than anyone.

Geithner’s Single Most Revealing Sentence (Bill Black)

Timothy Geithner has a great deal of competition for the title of worst Treasury Secretary of the United States, but he has swept the field as worst President of Federal Reserve Bank of New York (NY Fed). Geithner is a target rich environment for critics and he has a gift for saying things that are obviously depraved, but which he thinks are worthy of a public servant. He did vastly more harm to the Nation as the President of the New York Fed than he did as Treasury Secretary. He was supposed to regulate most of the largest (and most criminal) bank holding companies – and failed so completely that he testified to Congress that he had never been a regulator and that the problem in banking leading up to the crisis was excessive regulation.

His statement that he was never a regulator was truthful – but you’re not supposed to admit it, and you’re certainly not supposed to be proud of it. Geithner, Greenspan, and Bernanke are the three Fed leaders who could have prevented the entire crisis by being even modestly effective regulators. Instead of regulating the banks, Geithner relied on the banks self-regulating through “stress tests.” The stress tests were (and remain) farcical. AIG, Fannie, Freddie, Lehman, the Irish banks, and the big three Icelandic banks all passed stress tests shortly before they collapsed. It is a measure of Geithner’s goofiness that he has entitled his book “Stress Test.”

As Treasury Secretary, Geithner made his infamous “foam the runways” comment. He admitted that while the way he ran the programs putatively designed to help distressed homeowners was causing them to fail frequently to help homeowners it was succeeding in easing the bank crashes. Geithner repeatedly claimed as Treasury Secretary that he never worked for Wall Street (and as he left congratulated himself on not joining Wall Street – a few months before he did). As New York Fed President Geithner worked for Wall Street for five years and was handsomely rewarded for that service. As he has admitted, virtually bragged, he did not work for the American people as a regulator though that is what he was supposed to do.

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Iron ore has been used as money, collateral, credit. That use is largely gone.

Price Destruction From Massive Iron Ore Glut Gains Momentum (Stockman)

At the heart of the global boom of the last two decades, of course, was a fantastic leap in credit expansion that has no historical antecedents. Around 1994 the combined credit market debt—public and private—of the US, EU, Japan and China amounted to about $35 trillion or 200% of GDP. By the turn of the century debt outstanding among these four major economies had doubled to $70 trillion, and then the central bank printing presses turned white hot. Combined debt outstanding at present is in the order of $175 trillion, meaning that it towers 4X above levels of only 20 years ago, and weighs in a nearly 400% of GDP among the big four economies. And what happened to this $140 trillion of tsunami of new debt since 1994?

In the DM world it ended up on the balance sheets of households and governments which have now reached “peak debt” ratios, meaning that the credit fueled consumption party is over. Accordingly, what had been double digit growth for EM exports of manufactured goods to consumers in the DM markets has hit the flat line since the 2008 peak. And in the EM world it ended up funding the most spectacular increase in mining, manufacturing, shipping, real estate and public infrastructure assets ever imagined by any economic scribbler prior to the turn of the century. Moreover, the artificial consumption boom in the DM world fueled the fixed asset boom in the EM based on the kind of mathematically impossible bullish extrapolations which always accompany a credit-fueled crack-up boom.

Yet when the housing and credit booms crashed in the DM world in 2009, the deep retrenchment of capital spending that was warranted in the EM supplier markets didn’t happen—except during a few brief months of panic and inventory liquidation in the winter of 2008-2009. Instead, the EM governments stepped into the breach, and launched a Keynesian pyramid building spree that surpassed by orders of magnitude any “stimulus” program ever conceived or imagined in the Harvard economics department. Accordingly, global demand for the building blocks of fixed assets and infrastructure—that is, copper, iron ore, bauxite, nickel, hydrocarbons etc.——took another giant leap upward after the financial crisis. Indeed, CapEx by the big three surviving mining companies—BHP, Rio Tinto And Vale—soared by 10X during the decade ending in 2012.

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For now, it’s growth that goes down. But how long till the underlying data itself does?

China Slowdown Deepens (Bloomberg)

China’s economic slowdown deepened with unexpected decelerations in industrial output, investment and retail sales, testing policy makers’ reluctance to step up monetary stimulus. Factory production rose 8.7% in April from a year earlier, the National Bureau of Statistics said today in Beijing, compared with the 8.9% median estimate of analysts surveyed by Bloomberg News. Fixed-asset investment increased 17.3% in the first four months of the year, and retail sales advanced 11.9% in April. The figures signal risks are increasing that China will miss the year’s expansion goal of about 7.5%, as the government’s efforts to counter the slowdown, including tax breaks and spending on railways and housing, have yet to gain traction.

Leaders are trying to rein in a credit boom and curb pollution, and President Xi Jinping said last week that the nation needs to adapt to a “new normal” of slower growth. “The economy is still slowing,” Wang Tao, chief China economist at UBS AG in Hong Kong, said in an e-mail. The government’s “mini-stimulus has not yet turned around the growth momentum,” and the government may ease credit by loosening restrictions on lending to homebuyers and local-government financing vehicles, Wang said. The Shanghai Composite Index fell 0.3% as of 2:05 p.m. local time. The yuan weakened 0.05% to 6.2407 per dollar. Factory-production growth compared with an 8.8% increase in March. The advance in retail sales compared with the 12.2% median projection of analysts, and the same gain in March.

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But is that also true for the shadow banks?

China’s New Credit Declines (Bloomberg)

China’s broadest measure of new credit fell last month as authorities extended their campaign to tame financial dangers even as construction and manufacturing data point to risks that the economy’s slowdown will worsen. Aggregate financing was 1.55 trillion yuan ($249 billion) in April, the People’s Bank of China said yesterday in Beijing, compared with 2.07 trillion yuan in March. New local-currency bank loans were 774.7 billion yuan, down from 1.05 trillion yuan the previous month. The figures add to signs that officials are reluctant to heed calls for monetary stimulus, with President Xi Jinping saying in remarks published May 10 that the nation needs to stay “cool-minded” amid what analysts forecast will be the weakest annual growth since 1990.

PBOC Deputy Governor Liu Shiyu said the same day that shadow banking threatens to undermine the financial system, as policy makers try to rein in credit. “In the face of calls for stimulus, China’s government appears comfortable with a continued slowdown in credit growth,” Mark Williams, chief Asia economist at Capital Economics Ltd. in London, said in a note. “The government’s composure so far is an encouraging sign that policy makers are still giving priority to bringing credit risks under control,” said Williams, a former U.K. Treasury adviser on China.

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China worries go mainstream.

Chinese Leaders Face Mounting Pressure As Slowdown Concerns Grow (Forbes)

Will China’s economy have a hard or a soft landing? That was a question I was often asked when I was in New York, but struggled to answer. On one hand, I knew full well that theories, like the Solow Model, tell us an economy can’t keep growing forever. On the other hand, I also understand that a crash – a.k.a. hard landing – may not arrive in a form that many expect because the Chinese government is so proactive in cushioning the economy from negative shocks. Xinhua News Agency reported today China’s urban fixed asset investment reached $1.74 trillion in the first fourth months. The growth rate was 0.3%age points slower than the first quarter although it was up 17.3% on the yearly basis. On the same token, the country’s growth of factory output and retail sales have both missed estimates.

China’s PMI (Purchasing Managers’ Index) announcements have been grabbing lots of attention too these past few years. The latest figure released by the end of April showed that the country’s manufacturing sector recorded a contraction for the fourth straight month. As a more reliable indicator of the economy’s health than GDP, the PMI indicates a slowdown in activity in the world’s workshop, while other indicators, such as private investment in fixed assets and power consumption, are also reflecting a softening trend. The numbers have become the story. Private investment in fixed assets in China grew 20.9% to 4.43 trillion yuan in the first quarter. But that was a slowdown from growth of 24.1% in the same period a year earlier.

Moreoever, Xinhua quoted official figures stating that power use by Primary Industry, i.e. business related to natural resources and the manufacturing of certain products, Moreoever, Xinhua quoted official figures stating that power use by Primary Industry, i.e. business related to natural resources and the manufacturing of certain products, fell 7 % to 17.4 billion kwh in the first three months. Beijing’s technocrats say the phlegmatic scenario was brought on by a listless rebound in the U.S. and Europe , along with slack demand in emerging markets. In response to the slowdown, the government unveiled some measures, dubbed “mini stimulus,” which mainly focuses on raising funds for railways and social housing by early April.

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Japanese nuts, anyone?

Japan to Sell Inflation-Linked Bonds to Individuals (WSJ)

Japan will allow individuals to own inflation-linked bonds from next year in response to growing demand for protection against rising prices as the Bank of Japan continues its ultra-easy monetary policy, the government said Tuesday. The move is also meant to complement the government’s policy of encouraging individual ownership of Japanese government bonds amid concerns that domestic institutional investors alone may not be able to carry Japan’s massive debt, the largest among industrialized countries. The Finance Ministry said bonds reaching maturity in 2016 or later will be eligible for individual ownership.

Inflation-linked bond issuance was resumed last year after a five-year hiatus, as appetite revived for inflation protection following the BOJ’s introduction of an inflation target. The outstanding balance of such bonds is expected to reach Y3.6 trillion in the year ending March 2015, including Y1.6 trillion to be issued during the year. Individuals currently own only 2.2% of outstanding JGBs totaling Y744 trillion. The government expects that greater individual ownership will help stabilize the JGB market.

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“Japan’s gross public debt is 240% of GDP compared to 100% in the US”. Any questions?

Abenomics: Live Fire Test Of Keynesian Central Banking Is A Disaster (Stockman)

You would think that Japan would be a blinding object lesson in the folly of Keynesian economics. After all, Japan has gone all-out on both fiscal stimulus and massive central bank balance sheet expansion and interest rate repression. Indeed, the US incursions into that fantasy world are somewhat modest by comparison: Japan’s gross public debt is 240% of GDP compared to 100% in the US; and its central bank balance sheet of nearly $3 trillion amounts to more than 40% of GDP. That vastly exceeds the 25% of GDP balance sheet generated by the mad money printers in the Eccles Building to date.

But the lessons go far beyond balance sheet ratios. Japan’s rapidly aging demographic profile—-its population is now actually declining— is only an advanced case of the US path over the next several decades. Likewise, its inability to close its yawning fiscal gap—last year it borrowed nearly 50 cents on every dollar of government spending—is a function of the same malady of governance that afflicts the Washington beltway. Namely, the domination of a nominal democratic process by crony capitalist gangs which resist all efforts to curtail privileges, subsidies and entitlements.

In truth, Japan is rapidly becoming a vast old age home buckling under the weight of a monumental accumulation of public, household, business and financial debt. Current estimates for total debt outstanding amount to nearly 500% of GDP—-a figure which would be equivalent of $85 trillion on a US economic scale. Needless to say, these staggering debt burdens have prevented Japan from returning to normal economic growth—ever since its giant financial bubble collapsed 25 years ago after the Nikkei average had hit 50,000 (vs. 15,000 today). The aftermath has been described as chronic “deflation”, but the true meaning of that term has been badly twisted and distorted.

What actually happened during the final stages of Japan’s 1980s bubble is that ultra-cheap interest rates caused financial and real estate values to become drastically inflated. Similarly, cheap capital resulted in a massive over-investments in long-lived industrial assets like auto plants, steel mills and electronics plants. So the deflationary aftermath of its bubble was an unavoidable and inexorable economic process. That is, real estate got marked down by upwards of 80%; stocks fell by even more; excess industrial capacity was steadily eliminated; and massive bad debts have been liquidated by Japan’s unique slow-motion process.

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The renewed housing bubble and ongoing crisis change society in profound ways.

America On The Move Becomes Stay-Home Nation For Young (Bloomberg)

Ryan Yang could have taken a job in a New Jersey DNA sequencing laboratory after graduating from college last year. Instead, the 23-year-old lives with his family in Queens, New York, still unemployed and searching. With the expense of commuting or relocating, “I thought about it and it just didn’t seem right,” said Yang, a biology major who rejected the job 50 miles away in Piscataway to look for opportunities closer to home. “If I was previously living in New Jersey, I think I would have taken that job in a heartbeat.”

Yang belongs to the age group, adults under 35, that’s traditionally the most mobile part of an American work force constantly on the move since the 19th century. Now, that’s changing as members of the millennial generation, the estimated 85 million born from 1981 through 2000, prove less restless than their forebears. The standstill may be holding back recovery in the labor and housing markets. “They remain stuck in place,” said William Frey, a senior fellow at the Brookings Institution in Washington who specializes in migration issues. “The recent slowdown is really an interaction of demographics and a continued housing- and labor-market freeze. Millennials are mired down, very cautious about buying a home or moving to new areas.”

While Frey’s analysis of U.S. Census Bureau data shows Americans under 35 move almost twice as often as other age groups, the pace is slowing. In the year ended March 2013, just 20.2% of those aged 25 to 34 relocated, the lowest rate for that age group in data going back to 1947, down from 31% in 1965, Frey said.

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We need francs!, Eh, Euros!

France Refuses To Block Mistral Warship Deal With Russia (RT)

The French government has said that it will go ahead with €1.2 billion ($1.6 billion) contract to supply Russia with two Mistral helicopter carriers because cancelling the deal would harm Paris more than Moscow. In the wake of the crisis in Ukraine, the United States had been pressing France as well as Britain and Germany to take a tougher line against Russia and cancel the Mistral contract. But France refuses to link the helicopter carrier deal to the US/EU debate over tougher sanctions against Russia.

A French government official travelling with President Francoise Hollande in Azerbaijan Sunday, who asked not be named, told reporters that the contract was too big to cancel and that if France didn’t fulfill the order it would be hit with penalties. “The Mistrals are not part of the third level of sanctions. They will be delivered. The contract has been paid and there would be financial penalties for not delivering it. “It would be France that is penalized. It’s too easy to say France has to give up on the sale of the ships. We have done our part,” the official said.

President Hollande also said earlier on Saturday that the contract will go ahead. “This contract was signed in 2011, it will be carried out. For the moment it is not in question,” President Hollande said on Saturday during a visit to German Chancellor Angela Merkel’s electoral district. The Russian defense ministry warned Paris in March that it would have to repay the cost of the contract plus additional penalties if it cancelled the deal. EU foreign ministers met in Brussels Monday and expanded their sanctions over Russia’s stance on the Ukrainian crisis, adding two Crimean companies and 13 people to the bloc’s blacklist, EU diplomats said.

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Still the sole voice of reason in the US. Hope you noted that the Telegraph of all places started asking serious questions yesterday, see May 12 Debt Rattle.

What Does The US Government Want in Ukraine? (Ron Paul)

In several eastern Ukrainian towns over the past week, the military opened fire on its own citizens. Dozens may have been killed in the violence. Although the US government generally condemns a country’s use of military force against its own population, especially if they are unarmed protesters, this time the US administration blamed the victims. After as many as 20 unarmed protesters were killed on the May 9th holiday in Ukraine, the State Department spokesman said “we condemn the outbreak of violence caused by pro-Russia separatists.”

Why are people protesting in eastern Ukraine? Because they do not believe the government that came to power after the US-backed uprising in February is legitimate. They do not recognize the authority of an unelected president and prime minister. The US sees this as a Russian-sponsored destabilization effort, but is it so hard to understand that the people in Ukraine may be annoyed with the US and EU for their involvement in regime change in their country? Would we be so willing to accept an unelected government in Washington put in place with the backing of the Chinese and Iranians?

The US State Department provided much assistance earlier this year to those involved in the effort to overthrow the Ukrainian government. The US warned the Ukrainian government at the time not to take any action against those in the streets, even as they engaged in violence and occupied government buildings. But now that those former protesters have come to power, the US takes a different view of protest. Now they give full support to the bloody crackdown against protesters in the east. The State Department spokesperson said last week: “We continue to call for groups who have jeopardized public order by taking up arms and seizing public buildings in violation of Ukrainian law to disarm and leave the buildings they have seized.” This is the opposite of what they said in February. Do they think the rest of the world does not see this hypocrisy?

The real question is why the US government is involved in Ukraine in the first place. We are broke. We cannot even afford to fix our own economy. Yet we want to run Ukraine? Does it really matter who Ukrainians elect to represent them? Is it really a national security matter worth risking a nuclear war with Russia whether Ukraine votes for more regional autonomy and a weaker central government? Isn’t that how the United States was originally conceived? Has the arrogance of the US administration, thinking they should run the world, driven us to the brink of another major war in Europe? Let us hope they will stop this dangerous game and come to their senses. I say let’s have no war for Ukraine!

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As would anyone.

Russia Tells Ukraine To Pay Gas Debt Or Supplies May Halt June 3 (BBC)

Russia’s state energy giant Gazprom has said it may halt natural gas shipments to Ukraine on 3 June unless the country pays in advance for supplies.Gazprom boss Alexei Miller said the move was because of outstanding debts. If there is no payment by the deadline then “Ukraine will receive zero cubic metres [of gas] in June,” Russian news agency Interfax reported. And Prime Minster Dmitry Medvedev said on Russian TV saying they could no longer “nanny” Ukraine. Mr Miller said Ukraine must pay in advance for its June deliveries because of debts amounting to $3.51bn. His comments were made during a meeting with Mr Medvedev. The Russian president said that Kiev could dip into its IMF aid package and questioned Ukraine’s refusal to do so until now. “According to our information, Ukraine has received money from the first IMF tranche,” he said.

Ukraine has refused to cover its obligations in protest over Moscow’s decision to nearly double the price it charges Kiev for gas imports. Ukraine’s Finance Minister Oleksandr Shlapak had earlier said on Monday that the county was willing to cover its outstanding payment as soon as Russia lowered its price. He said Ukraine was prepared to issue bonds worth $2.16bn to address its gas arrears. “If Russia extends the old price of $268 per 1,000 cubic metres [until] the end of the year, we will immediately cover the debt,” the UNIAN news agency quoted Mr Shlapak as saying. Gazprom now charges Ukraine $485.50 per 1,000 cubic metres – the highest rate of any of its European clients. Close to 15% of all gas consumed in Europe is delivered from Russia through Ukraine. There is a danger for EU nations that Ukraine will start taking the gas Russia had earmarked for its European clients, something it did when it was cut off from Russian gas during previous disputes in 2006 and 2009.

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Partly true for sure. NATO is a big one too. US.

EU Policy To Blame For Ukraine Crisis – Ex-Chancellor Schroeder (RT)

Germany’s former Chancellor Gerhard Schroeder has blamed European Union policy for the current situation in Ukraine and urged the West to stop focusing on new sanctions against Russia. In Schroeder’s opinion, the EU’s fundamental mistake – that subsequently led to the ongoing crisis in Ukraine – was its association policy, he said in an interview with German newspaper Welt am Sonntag published Sunday. Brussels “ignored” Ukraine’s deep cultural division between traditionally pro-European western regions and Russia-leaning regions in the east, the former chancellor said. Kiev, however, had to pick either an association with the EU or a Customs Union with Russia, Schroeder said. He suggested that it could have been more reasonable if the former Soviet republic was offered an alternative when it could do both.

Asked whether it was the corrupt system and government in Ukraine that led to the unrest, Schroeder agreed that that was also true, but, at the same time, Yanukovich came to office through a free election. Initially, protests in Ukraine began in November, after President Viktor Yanukovich put on hold the signing of the association agreement with the EU, because, as he explained, at that moment it would be against national interests. The decision sparked months of fierce protests on Kiev’s Maidan square which ended with a February coup and the ouster of Yanukovich. Since then, the epicenter of bloody unrest has moved to eastern regions where many oppose to the new Kiev government, the republic of Crimea decided to rejoin Russia. Schroeder admitted that the situation with Crimea joining Russia might be controversial in terms of international law, but that has already happened after the republic decided to be part of Russia via a referendum.

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Not so sure about this. They tried that one before, last time early 40’s.

‘Russia Should Ignore Washington’s New Cold War’ (RT)

Washington desperately needs a new Cold War with Russia to ensure a healthy Military-Security Complex and to maintain global hegemony, former Reagan administration official Paul Craig Roberts told RT in an interview. “The best thing the Russian government could do is just ignore [Washington’s rhetoric] and go on making its relations with China, India, Brazil, and South America, and go on about its business and leave the dollar system, and simply quit trying to be accepted by Washington,” said Roberts, also an economist and columnist on global affairs.

RT: The way that some US officials are speaking, it seems that NATO seriously believes that Russia is set to invade the Baltic states.

PCR: What this is all about is that Washington had hoped to grab Ukraine, especially the Russian naval base in Crimea, in order to cut Russia off from the port and access to the Mediterranean. Now, Washington lost that game. They’re trying to retrieve it by starting a new Cold War, and that’s what all this talk is about. They’re pretending that Russia is going to invade the Baltics or Eastern Europe. This is absurd.

RT: NATO is building up its forces in the Baltic region. Isn’t this a dangerously provocative step in terms of a new Cold War?

PCR: Washington wants a Cold War, they need it. They’ve been defeated in Afghanistan, they were blocked from attacking Syria and Iran, so they’ve got to keep the military-security complex funded, because that’s where an important part of their campaign contributions comes from. When Washington gives the taxpayers’ money to the military sector, it is cycled back in campaign contributions to keep them in office. They have to have conflict. With the wars in the Middle East winding down, apparently, they have to start new conflict, and since they lost their plan to take over Ukraine – which has defected, much of it, back to Russia – they’re going to start a new Cold War.That’s what this means.

Now they haven’t put enough troops or aircraft in these countries to make any difference, but they want to. So what Russia is faced with is a new Cold War, and the best thing the Russian government could do is just ignore it and go on making its relations with China, India, Brazil, and South America, and go on about its business and leave the dollar system, and simply quit trying to be accepted by Washington.

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As is everybody’s. Just a little later.

Ukraine’s Destiny Is To Go Medieval (Jim Kunstler)

I’m not persuaded that Russia and its president, Mr. Putin, are thrilled about the dissolution of Ukraine. Conceivably, they would have been satisfied with a politically stable, independent Ukraine and reliable long-term leases on the Black Sea ports. Russia is barely scraping by financially on an oil, gas, and mineral based economy that allows them to import the bulk of their manufactured goods. They don’t need the aggravation of a basket-case neighbor to support, but it has pretty much come to that. At least, it appears that Russia will support the Russian-speaking region east of the Dnieper.

My guess is that the Kiev-centered western Ukraine can’t support itself as a modern state, that is, with the high living standards of a techno-industrial culture. It just doesn’t have the fossil fuel juice. It’s at the mercies of others for that. In recent years, Ukraine has even maintained an independent space program (which is more than one can say of the USA). It will be looked back on with nostalgic amazement. Like other regions of the world, Ukraine’s destiny is to go medieval, to become a truly post-industrial agriculture-based society with a lower population and lower living standards. It is one the world’s leading grain-growing regions, a huge advantage for the kind of future the whole world faces — if it can avoid becoming a stomping ground in the elephant’s graveyard of collapsing industrial anachronisms.

Ukraine can pretend to be a ward of the West for only a little while longer. The juice and the money just isn’t there, though. Probably sooner than later, the IMF will stop paying its gas bills. Within the same time-frame, the IMF may have to turn its attention to the floundering states of western Europe. That floundering will worsen rapidly if those nations can’t get gas from Russia. You can bet that Europe will think twice before tagging along with America on anymore cockamamie sanctions. Meanwhile, the USA is passing up the chance to care for a more appropriate client state: itself. Why on earth should the USA be lending billions of dollars to Ukraine when we don’t have decent train service between New York City and Chicago?

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The new known unknowns…

Former CIA Director: ‘We Kill People Based On Metadata’ (RT)

At a recent debate concerning the National Security Agency’s bulk surveillance programs, former CIA and NSA director Michael Hayden admitted that metadata is used as the basis for killing people. The comments were made during a debate at Johns Hopkins University, after Georgetown University Law Center professor David Cole detailed the kind of information the government can obtain simply by collecting metadata – who you call, when you call them, how long the call lasts, and how often calls between the two parties are made.

Although NSA supporters often claim such metadata collection is permissible considering the content of the call is not collected, Cole argued that is not the case, since the former general counsel of the NSA, Stewart Baker, has already stated metadata alone is more than enough to reveal vast amounts of an individual’s personal information. Writing in the New York Review of Books, Cole elaborated:

“Of course knowing the content of a call can be crucial to establishing a particular threat. But metadata alone can provide an extremely detailed picture of a person’s most intimate associations and interests, and it’s actually much easier as a technological matter to search huge amounts of metadata than to listen to millions of phone calls. As NSA General Counsel Stewart Baker has said, ‘metadata absolutely tells you everything about somebody’s life. If you have enough metadata, you don’t really need content.’ “When I quoted Baker at a recent debate at Johns Hopkins University, my opponent, General Michael Hayden, former director of the NSA and the CIA, called Baker’s comment ‘absolutely correct,’ and raised him one, asserting, ‘We kill people based on metadata.’”

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How to use NZ laws to cheat the entire planet.

New Zealand Shell Companies And Stooges -and Ukraine- (NC)

In our first post in this series, we reminded readers of the nearly complete demolition, by the New Zealand Company registrar, of the GT Group and Company Net shell company incorporation franchises in New Zealand. In the second post, we highlighted another franchised shell incorporator, Unicredit, incidentally trampled by the NZ Registrar’s giant Monty Python foot as it descended on the shell companies created by GT Group and The Company Net. That was semi-good work by the Registrar, but The Company Net had another deal going, with another incorporator, and the Registrar, despite a frenzy of striking off back in 2011, didn’t clean it all up. This post gives the background to that deal, and should make it pretty obvious why these particular shells matter. Subsequent posts will round out the picture and bring it up to date.

Once again, the stooge directors recorded in the New Zealand register are the indicators. Their names are Juri Vitman (associated with one NZ company), Erik Vanagels (associated with 318 NZ companies), Voldemar Spatz (associated with 360 NZ companies), and Inta Bilder (associated with 897 NZ companies). All the New Zealand companies the stooges purportedly directed were originally incorporated by The Company Net. They all have Latvian addresses; Erik Vanagels (who may be two people of the same name, father and son perhaps; no-one’s quite sure) often has an address in Panama, as well as his Latvian one. Here is their pedigree, from a 2011 article by Graham Stack, then of Business New Europe, fittingly entitled “Massive Ukrainian government money-laundering system surfaces”:

What do Ukrainian tank exports to Kenya, flu vaccine imports from Oregon and oil rig imports from Wales all have in common? They are all deals carried out by the same shell companies that are linked to a small set of Latvian directors. A scandal is unfolding in Ukraine that could be dubbed Vanagels-gate as more details of dodgy and outright illegal deals using a string of shell companies emerges, which can be traced directly back to the upper echelons of the Ukrainian government. … According to an investigation conducted by bne, Vanagels and Gorin – together with Latvian colleagues such as Juri Vitman, Elmar Zallapa and Inta Bilder – preside over a sprawling network of companies with Baltic bank accounts that have extensive dealings with the Ukrainian state, covering everything from arms exports to machinery imports.

The “Ukrainian government” mentioned here is the Yanukovych one, recently turfed out either by neo-Nazis and the CIA, or by concerned freedom-loving citizens, depending on which Manicheism you subscribe to. The back story of the network that shows up in this group of New Zealand shell companies just grows and grows. For a 2012 baseline, try this Swiss summary of the trail left in Ukraine, Russia, Moldavia and Rumania by one of these stooges, Erik Vanagels (I was tempted to make the prose more English, but resisted):

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Why am I not surprised?

Australia Asked Americans For More Help To Spy On Australian Citizens (Guardian)

Australia’s intelligence agency asked for more help from its US counterparts to increase surveillance on Australians suspected of involvement in international extremist activities. Documents from the US National Security Agency, published by Glenn Greenwald on Tuesday in his book No Place to Hide: Edward Snowden, the NSA and the Surveillance State, reveal new details of Australia’s close relationship with the US spy agency. In an extract on 21 February 2011 from the acting deputy director of Australia’s Defence Signals Directorate, which has since been re-named the Australian Signals Directorate (ASD), the director pleads for additional surveillance on Australians.

“We would very much welcome the opportunity to extend that partnership with NSA to cover the increasing number of Australians involved in international extremist activities – in particular Australians involved with AQAP,” the extract said. AQAP stands for Al-Qaida in the Arabian Peninsula, an organisation that is proscribed as a terrorist organisation under Australia’s Commonwealth Criminal Code. The letter says the Australian spy agency has enjoyed a long and very productive partnership with the NSA in obtaining access to “minimised access to United States warranted collection against our highest value terrorist targets in Indonesia”. “This access has been critical to DSD’s efforts to disrupt and contain the operational capabilities of terrorists in our region as highlighted by the recent arrest of fugitive Bali bomber Umar Patek,” the letter said.

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It’ll take centuries. Ready to fall back asleep yet?

Western Antarctic Ice Sheet Collapse Underway, Unstoppable (Guardian)

The collapse of the Western Antarctica ice sheet is already under way and is unstoppable, two separate teams of scientists said on Monday. The glaciers’ retreat is being driven by climate change and is already causing sea-level rise at a much faster rate than scientists had anticipated. The loss of the entire western Antarctica ice sheet could eventually cause up to 4 metres (13ft) of sea-level rise, devastating low-lying and coastal areas around the world. But the researchers said that even though such a rise could not be stopped, it is still several centuries off, and potentially up to 1,000 years away. The two studies, by Nasa and the University of Washington, looked at the ice sheets of western Antarctica over different periods of time.

The Nasa researchers focused on melting over the last 20 years, while the scientists at the University of Washington used computer modelling to look into the future of the western Antarctic ice sheet. But both studies came to broadly similar conclusions – that the thinning and melting of the Antarctic ice sheet has begun and cannot be halted, even with drastic action to cut the greenhouse gas emissions that cause climate change. They also suggest that recent accumulation of ice in Antarctica was temporary. “A large sector of the western Antarctic ice sheet has gone into a state of irreversible retreat. It has passed the point of no return,” Eric Rignot, a glaciologist at Nasa and the University of California, Irvine, told a conference call. “This retreat will have major consequences for sea level rise worldwide.”

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Good title.

This Is What a Holy Shit Moment for Global Warming Looks Like (Mother Jones)

If you truly understand global warming, then you know it’s all about the ice. That’s what matters. Planet Earth has not always had great ice sheets at the poles, of the sort that currently exist atop Greenland and Antarctica. In other periods, much of that water has instead been in liquid form, in the oceans—and the oceans have been much higher. How much? According to the National Academy of Sciences, the globe’s great ice sheets contain enough frozen water to raise sea levels worldwide by more than 60 meters. That’s about 200 feet. And it makes all the sea level rise that we’ve seen so far due to global warming appear piddly and insignificant.

That’s why scientists have long feared a day like this would come. Two new scientific papers, in the journals Science and Geophysical Research Letters, report that major glaciers that are part of the West Antarctic Ice Sheet appear to have become irrevocably destabilized. The whole process may still play out on the scale of centuries, but due to the particular dynamics of this ice sheet, the collapse of these major glaciers now “appears unstoppable,” according to NASA (whose researchers are behind one of the two studies).

The first study, by researchers at NASA and the University of California-Irvine, uses satellite radar to examine an array of large glaciers along the Amundsen Sea in West Antarctica, which collectively contain the equivalent of four feet of sea level rise. The result is the documentation of a “continuous and rapid retreat”—for instance, the Smith and Kohler glaciers have retreated 35 kilometers since 1992—and the researchers say that there is “no [major] obstacle that would prevent the glaciers from further retreat.” In the NASA press release, the researchers are still more vocal, with one of them noting that these glaciers “have passed the point of no return.”

The other group of researchers, based at the University of Washington, reach similar conclusions with their paper in Science. But they do so by using an computer model to study one of these glaciers in particular: The Thwaites Glacier, pictured above, which contains about two feet of sea level rise and is retreating rapidly. “The simulations indicate that early-stage collapse has begun,” notes their paper. What’s more, the Thwaites Glacier is a “linchpin” for the rest of the West Antarctic Ice Sheet; its rapid collapse would “probably spill over to adjacent catchments, undermining much of West Antarctica.” And considering that the entire West Antarctic Ice Sheet contains enough water to raise sea levels by 10 to 13 feet, that’s a really big deal.

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Apr 282014
 April 28, 2014  Posted by at 6:19 pm Finance Tagged with: , , ,  4 Responses »

Russell Lee Love Shack, South Side Chicago April 1941

I’m not going to argue here that a market collapse would be a positive thing no matter what, because the implications of a true collapse would be so deep and widespread that they’re too hard for anyone to oversee. But having said that, truth finding and price discovery are crucial for a functioning economy, and there is not a shred of truth left in the markets nor is it possible to discover anything about any price as a free market would have set it. And that means there’s no trust or confidence left in markets, there’s only a shaky trust in authorities propping them up. Neither of which can last forever.

What are stocks truly worth, what is a fair prices for a home, or a plot of land, an hour’s work, or a year’s crop? Is it what they were valued at in 2006, pre-crash, or in 2010, post-crash, or today in 2014? We can’t really answer that question (which is bad enough), but we can surmise that valuations have been distorted to an extensive degree by all sorts of government measures to stimulate economies and by central banks inserting freshly not-even-minted amounts of what some insist is money and others insist absolutely isn’t, into essentially broke banks, pretending they expect it to trickle down.

And that’s not all. The biggest banks in Japan, the US and Europe (and don’t get me started on China) have been declared “systemic” or too-big-to-fail, a status which absolves them from having to expose their debts to daylight. That means the shares in these banks are of necessity overvalued, and potentially by a lot, because if there were no such losses fermenting away in their vaults, they would be very eager to prove they have no foul smelling debt, since that would greatly boost their – perceived – trustworthiness. We know, therefore, that those bad debts, gambling losses, still exist, in all likelihood a lot of them, and all over the place. We’re talking many trillions of dollars.

And that’s not all either. Since stimulus measures on the one side and the refusal to uncover debts on the other have propped up asset prices to the extent they have, it’s not just the banks’ assets, but everybody else’s assets that are overvalued too. Yes, that includes yours. Not only the shares you may own in a bank or some other company, but also your home, and potentially even your job, it’s all overvalued. In other words, the perceived value of your assets is as distorted by government interference, executed with credit that uses your children’s labor as collateral, as a too-big-to-fail bank’s assets are.

The obvious reaction to realizing that your assets are overvalued, and possibly by a lot, is to think: let them keep going as they are, or I would risk losing my investments, the home my kids grow up in, and maybe my job. However, while running an economy on credit can be useful up to a point, when that credit becomes really zombie money, everyone starts paying a price, and the more there is of it, the higher that price becomes. The difference between credit and zombie money, as thin as the line between them may seem at times, is actually quite easy to discern: the former, if limited to productive purposes, allows for price discovery, while the latter makes it impossible.

Perverted markets give birth to perverted asset valuations. So who wants perversion? Well, the people who own the assets. People like Jamie Dimon, and you. Those who don’t like them – or shouldn’t if they were aware of what’s going on – are the young who can’t get a decent paying job, who can’t find a home to buy or even rent, who have a fortune in student debt hanging around their necks, and who therefore can’t start a family. Plus of course the weak, the needy and the old who rely on fixed income.

Governments and central banks shouldn’t interfere in markets in ways that make it impossible to know what anything is really worth. They should let banks that have too many debts go bankrupt and be restructured; that’s actually a very fine task for a government: to make sure that things are handled fairly, and with no negative impact on their people. But what we see is that this picture has been put upside down: governments seek to make sure that there’s no negative impact on their banks, and use their people’s present and future wealth to achieve that.

But why protect banks? What’s so important about them? Is it that they hold people’s money? That’s easy to get out first in case of a default, before anything else, and to guarantee. Granted, that might also lead to some price distortion, but not anywhere near what we see now. The secret ingredient here is of course that banks create credit/money every time they write a loan, but there’s no real reason why banks should do that, not governments, that set-up has no benefits for society, only for bankers and their shareholders.

I can write and think and philosophize about this for a very long time, and I do find it interesting, but eventually I always wind up at the same point, and that does sort of take the fun out. That is, the road we’re on now is not infinite, and there’s a cliff at the end of it. It always leads back to the value of real things that real people have produced with real work, and the fact that in today’s economy, that sounds almost like a – perhaps cruel – joke. The value of what you and I can produce with our own hands, guided by our own brains, is diminished to a huge extent by the zombie money that can place higher values on things that are achieved by flicking a switch, stroking a keyboard, or just let machines to the whole thing.

It’s one thing to make our work lighter, easier, or enhance our productivity. It’s another to replace it with something else altogether. And then pump central bank zombie money into raising the value of what has just replaced us. Even if we would all have access to all new technologies, you would have to seriously question their value, but once there’s only a select group that has that access, and on top of that it’s got access to public coffers, the only way for society itself is down. And the only way to restore a society’s core values, not as they are perceived today but as they truly are, is to cleanse the economy and the financial system of what distorts and perverts the ability to assess asset values. Which happens to be our own government and central bank’s interference in the financial system.

A collapse of the markets is going to come no matter what. They won’t be able to live forever on a diet of bad debt propped up by central bank zombie money, laid out on a bed of bad faith. And when it happens, sure, it’s going to hurt you, and probably a lot. But then, the sooner it happens, the less it will hurt your children. Isn’t that worth trying to understand why a market collape would be a good thing?

As long as you don’t recognize the influence of velocity of money on inflation, you’re, like Abe, lost in the woods.

Abenomics Doomsday Machine Crushes Japan’s Middle Class (TPit)

The wonders of Prime Minister Shinzo Abe’s economic religion, touted with blinding exuberance around the world, are coming home to roost. And they’re whacking the hapless Japanese middle clareligion of Japanese Prime Minister Shinzo Abe and his ilk whose “bold” and “courageous” actions have been touted with blinding exuberance around the world, are coming home to roost. And they’re whacking the hapless Japanese middle class from all sides. Japan has two inflation measures: the nationwide index and an advance index for the 23 wards of Tokyo. The nationwide index, released today, was compiled based on prices in March, just before the April 1 consumption-tax hike from 5% to 8%.

And it bit into Japanese wallets: the “all-items index” rose 1.6% from a year ago, with services up 0.7% and goods up a stiff 2.6%. But the Tokyo index covers prices in the current month. It’s an indicator of things to come nationwide, as the consumption-tax hike began infiltrating prices in April. It wasn’t pretty. Businesses have been reluctant to add the additional three percentage points to prices of services and have been eating part of it. Service prices, such as haircuts, rose “only” 1.6% in April year over year. But the all-items index, which includes goods and services, rose 2.9%, the all items less imputed rent index 3.7%, and the goods index a red-hot 4.7%.

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“All of this must seem counterintuitive to foreign audiences”, says he. Is it perhaps counterintuitive to Americans that it doesn’t?

The American Dream Is Now Just That For Its Middle Class: A Dream (Observer)

While a majority of Americans tenaciously continue to hold dear to the American Dream – that long-standing American ideal that if you work hard anything is possible – more and more people are reporting that the opportunity for social advancement feels increasingly out of reach for them and their children. Indeed, it is hard to think of a more disquieting trend in American society than the fact that those in their 20s and 30s are less likely to have a high school diploma than those between the ages of 55 and 64. All of this must seem counterintuitive to foreign audiences. The US swaggers along on the world stage with a certainty and sense of moral purpose that no other country can match.

Blessed with practically limitless national resources, a dynamic and diverse population, a relatively stable political system and innovative technological capabilities that other nations can only dream of, how can so many Americans be falling behind – and how can the nation’s leaders allow it to happen? The answer is disconcertingly simple: we chose this path. Granted, no one actively set out to attack the middle class in America. There wasn’t some evil plan hatched behind closed doors to wreak socio-economic havoc. But the decline of the American middle class, the ostentatious wealth of the so-called 1% and the crushing economic anxiety of the growing number of poor Americans have happened in plain sight.

It is the direct result of a political system that has for more than four decades abdicated its responsibilities – and tilted the economic scales toward the most affluent and well-connected in American society. The idea that government has an obligation to create jobs, grow the economy, construct a social safety net or even put the interests of the most vulnerable in society above the most successful has gone the way of transistor radios, fax machines and VCRs. Today, America is paying the price for that indifference to this slow-motion economic collapse.

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Wherever there’s a penny to be made …

Speculators Short Small Caps Most Since 2004 Russell Drop (Bloomberg)

Money managers are turning on stocks that have delivered the best returns during the bull market: small caps. Large speculators such as hedge funds are betting $2.8 billion this month that the Russell 2000 Index will fall. That’s the most since 2012 and the highest versus average levels since 2004, according to data compiled by Bloomberg and Bank of America Corp. The about-face from a year of bullish wagers coincides with lackluster performance. The gauge of the smallest companies stands 7.1% below its 2014 high, trailing the recovery that has put the Standard & Poor’s 500 Index within 1.5% of a record.

Companies from KapStone Paper & Packaging Corp. to Cardtronics Inc. have climbed 20 times more than the S&P 500 since March 2009 amid faster sales and earnings growth. That’s also made them expensive. Valuations in the Russell 2000 rose above levels from the 1990s technology bubble. While small-cap shares are usually the first to benefit when economic growth picks up, the selloff reflects a loss of faith by professional investors in the five-year equity rally. “Small-cap stocks are the most expensive I’ve ever seen them, and I’ve been doing this for 20 years,” Eric Cinnamond, manager of the $724 million Aston/River Road Independent Value Fund, said in an interview from Louisville, Kentucky. “There’s a lot of junk in the Russell 2000. If you’re a hedge fund, you’re seeing people starting to sell things like Netflix and Facebook and the biotechs, and a nice way to sell risk is to sell the Russell 2000.”

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Perverted markets give birth to perverted valuations.

Treasuries Irresistible to America’s Banks Awash in Record Cash (Bloomberg)

America’s banks are regaining their appetite for U.S. government debt. After culling Treasuries and bonds issued by federal agencies last year for the first time since 2007, commercial lenders such as Bank of America have boosted their holdings every month this year, Federal Reserve data compiled by Bloomberg show. Banks now own $1.85 trillion of the debt, within 2% of the record amount held at the end of 2012. With a lackluster job recovery and higher mortgage rates damping loan growth, banks are tapping record deposits to plow more money into government debt as regulations designed to limit risk-taking take effect.

The demand helps explain why Treasuries are rising from the deepest losses since 2009, confounding forecasters who foresaw declines as a strengthening U.S. economy prompted the Fed to cut back its own bond buying. “The economic situation is still not fully bared out and they have to do something with their cash,” Jeffery Elswick, director of fixed-income at Frost Investment Advisors, which oversees about $5 billion in debt securities, said. “Banks have been big buyers of Treasuries. They need safe assets.” Treasuries have returned 2.2% this year, rebounding from a 3.4% loss in 2013. The longest-dated government debt has rallied the most, with 30-year bonds surging 10.8% in the best start to a year since at least 1988, index data compiled by Bank of America Merrill Lynch show.

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Canada’s the land of frozen milk and honey.

The Canadian Housing Bubble Puts Even The US To Shame (Zero Hedge)

Since the bursting of the first US housing bubble in 2007, one of the primary explicit goals of the Fed has been to reflate the very same housing bubble (whose pop, together with the credit bubble, nearly wiped out the western financial system) as housing, far more than stocks, is instrumental to the “wealth effect” of the broader population (as opposed to just the 1%). Sadly for the Fed, instead of recovering previous highs, median housing prices (not to be confused with the ultraluxury high end where prices have never been higher) have stagnated and are now in the downward phase of the fourth consecutive dead cat bounce, curiously matching a like amount of Fed monetary injection episodes.

But while the Fed has clearly had a problem with reflating the broader housing bubble, one which would impact the middle class instead of just those who are already wealthier than ever before thanks to the Russel 200,000, one place which not only never suffered a housing bubble pop in the 2006-2008 years, but never looked back as it continued its diagonal ‘bottom left to top right’ trajectory is Canada. As the chart below shows, the Canadian housing bubble has put all attempts at listening to Krugman and reflating yet another bubble to shame.

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Junk, zombie, and then nothing.

Biggest Credit Bubble in History Runs Out Of Time (TPit)

It has been a feeding frenzy for junk debt. Yield-desperate investors, driven to near insanity by the Fed’s strenuous interest-rate repression, are holding their noses and closing their eyes, and they’re bending down deep into the barrel and scrape up even the crappiest and riskiest paper just to get that little extra yield. Last year, highly leveraged companies issued $1.1 trillion in junk-rated loans. It’s a white-hot market. Leveraged-loan mutual funds – dolled up in conservative-sounding names and nice charts to seduce retail investors – gorge on these loans. They saw 95 weeks in a row of inflows, week after week, without fail, adding over $70 billion to their heft, as Bloomberg reported, and only the sky seemed to be the limit. But suddenly, that endless flow of money reversed. “It’s going to be a disaster on the way out,” Mirko Mikelic, who helps manage $7 billion in assets at ClearArc Capital, told Bloomberg. “On the way in, there’s insatiable demand….”

Private equity firms have been ruthlessly taking advantage of that “insatiable demand.” And they have a special self-serving trick up their sleeve: Their junk-rated overleveraged portfolio companies issue new loans, but instead of using the funds for expansion projects or other productive uses, they hand them out through the back door as special dividends. It’s one of the simplest ways PE firms use to strip cash out of their portfolio companies. It loads even more debt on the already highly leveraged portfolio company without adding productive capacity. And those who end up holding this debt – for example, the mutual fund in your portfolio – have a good chance of losing it all. “It’s kind of like an epidemic,” explained Martin Fridson, a money manager at Lehmann, Livian, Fridson Advisors LLC, in an interview with Bloomberg. “Once an investment banker sees that, he’s going to go to his clients and say, ‘Here’s a window of opportunity, you can take a dividend and get away with it.’”

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Letters of credit run the economy. Run them out of town and you have a very big problem.

The Scarlet Absence Of A Letter Of Credit (Mark St.Cyr)

If there’s one thing we all know about banks and bankers: they love to tell tales in public of how much they value their customers. However, what you’ll never hear them profess in private: is how much they trust them. Although one may think that’s unseemly, believe it or not there is another entity banks hold at an even lower tier. Other banks. One of the known facts people remember about the melt down in 2008 (as opposed to general public) was when the banks no longer trusted each other, and what they earlier claimed was “collateral” wasn’t actually worth what it was stated to be.

Credit default spreads (CDS) were supposedly the insurance to negate valuation concerns. But when the banks felt CDS weren’t worth the paper they were written on, not only did they operate in a fashion reminiscent of cutting their noses off to spite their faces, but rather they began cutting visible ties (and/or appendages) to other banks. The blinding issue with all that took place during that period is the speed in which it all took place. Once it seemed one bank (regardless of size) was not going to be able to make good on a promise of clearing, near overnight the banks regarded any and all collateral at a discount.

This fed on itself to where even once valued pristine collateral such as hard materials let alone paper began to be not only discounted, but prices slashed at such discounts that would make a blue light special at K-Mart™ blush. So when I read the following article on Zero Hedge™: How China’s Commodity-Financing Bubble Becomes Globally Contagious. My blood ran cold. The implications of this development and the consequences it portends just might make it the proverbial “canary in a coal mine.” The underlying issue that makes this far more dangerous or different from times past is three-fold.

First: The idea of the need to send a perishable product overseas to another country that operates in a differing court system without the only document that gives one a chance of a “guarantee of payment” is not something to be taken lightly. As a matter of fact, it should be looked upon as a move of desperation. Second: If that commodity is both a readily needed or used product, the immediate resale by the receiving party (especially if they themselves are in trouble) may sell it off at a steep discount. And yes, I’m implying less than what they are being billed for.

For if the receiving party needs cash, and you don’t have anything backing payment, i.e., Letter of credit (LOC.), than it’s free money to do with as they please until you can get them into court – if you can at all. Why would one pay full price (or even think they should) when pennies on the dollar will now be the opening settlement offer in any negotiations? Third: The commodity itself is well-known, and has been publicly reported as being used as a collateral for cash strapped real estate developers in China. This last point is probably the most troubling of them all, and where the real issues might come about.

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Yeah, sure.

EU Stress Test Features Bond Rout, Eastern Europe Shock (Bloomberg)

The strength of Europe’s banking system is about to be tested against a fictional doomsday scenario that includes a global bond rout and a currency crisis in central and eastern Europe. The three-year outlook features “the most pertinent threats” to the stability of European Union banks and their potential impact on entire balance sheets, according to a draft European Banking Authority statement seen by Bloomberg News. The EBA is due to release the details tomorrow in coordination with the European Central Bank.

As the ECB prepares to take over supervision of about 130 euro-area lenders from BNP Paribas to National Bank of Greece starting in November, policy makers have chosen to reflect real-world developments like the tensions over Ukraine in a bid for more credibility in the toughest stress tests to date. Similar exercises in 2010 and 2011 were criticized for failing to uncover weaknesses at banks that later failed. “The negative impact of the shocks, which include also stress in the commercial real estate sector, as well as a foreign exchange shock in central and eastern Europe, is substantially global,” the draft statement said. “For most advanced economies, including Japan and the U.S., the scenario results in a negative response of GDP ranging between 5%-6% in cumulative terms compared to the baseline.”

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Again: Yeah, sure.

US Prosecutors Take Forex Probe To London (FT)

US criminal prosecutors have flown to London to question individuals as part of their probe into the alleged rigging of foreign exchange rates in a sign that the stakes are getting higher for the traders involved in the sprawling probe. The Department of Justice, in its first significant move since announcing in October that it would investigate alleged manipulation of the $5.3tn forex market, invited several UK-based currency traders “on the periphery” of the investigation to attend voluntary interviews in London rather than the US, according to three people familiar with the department’s tactics. The UK financial regulator also requested attending the interviews. The first wave of interviews took place in London at the beginning of the year but more are planned, the people said.

But in a move that underscores the complexity of co-ordinated international probes with both regulatory and criminal elements, the UK’s Financial Conduct Authority told the traders that for the FCA’s purposes, the proceedings would be under so-called compelled conditions, one of the people said. The FCA has powers to compel people to answer questions with no right to silence, while the US constitution includes a protection against self-incrimination. Evidence gathered by the FCA under compelled conditions then becomes problematic for US authorities to use. Material gleaned from FCA-compelled interviews cannot be used directly by UK criminal authorities either, unless individuals lied to the regulator during questioning.

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Let’s see the true losses.

Fannie-Freddie Fate Hangs on Senate Action This Week (Bloomberg)

A U.S. Senate plan for Fannie Mae and Freddie Mac, the most thorough yet for winding down the two mortgage financiers, faces a first test this week with its authors making last-minute changes to gather more support. The 22 members of the Senate Banking Committee will decide as early as tomorrow if the bill, the culmination of more than a year of delicate negotiations among Democrats and Republicans, gains momentum or fizzles. The legislation would replace the companies over five years with federal insurance for mortgage bonds that would kick in only after private investors were wiped out. Current shareholders of Fannie Mae and Freddie Mac would be in line behind the U.S. in getting any compensation from the wind-down.

To keep the bill from stalling, committee leaders are trying to win over at least a few of the half-dozen Democrats on the panel who haven’t publicly embraced it. They have proposed changes including ones that would prevent big banks from monopolizing the mortgage business and add stronger protections for lending in disadvantaged communities. An impasse would leave the two companies operating indefinitely under federal control without resolving the status of their privately owned shares. “This might be the only real chance this decade we have to achieve reform,” U.S. Housing and Urban Development Secretary Shaun Donovan said during a speech in New York last week. “Let’s not waste it.”

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Liars, Damned Liars, and Spanish Banks (TPit)

As Spain takes yet another giant step towards full recovery, its creditors and investors can rest assured that they’re backing the right horse, and Spanish businesses and families might finally begin getting the credit they need to get back on their feet. Well, at least that’s the official story. On the QT and off the record, it’s a bare-faced lie, a cynical deception masking a much bleaker reality — one consisting of the following four features:

1) A Deepening Credit Drought. Despite the quite literally countless billions of euros that have been ploughed into Spain’s financial sector, businesses are still not getting the credit they need. In fact, during 2013 total bank credit in Spain plunged more than 7%. What’s more, it’s a trend that continues to deepen, leaving in its wake a vast trail of defunct not-quite-too-big-to-fail businesses.

2) Total Dependence on Life-Support. To date, Spanish banks have received a total “official” bailout of more than €100 billion in transfers, guarantees, and credit lines – more than double the 40-or so billion-euro figure that is usually cited by authorities. Roughly two-thirds of that money has come from public accounts while the other third comes from Spain’s Deposit Guarantee Fund – that is, money that is ostensibly meant to protect customer deposits, not the banks that “hold” them.

According to more extreme estimates, the total bailout figure could be well in excess of €200 billion (roughly 20% of GDP). To cut a long story short, the banks have received anywhere between 100 and 220 billion euros in capital injections, asset swaps and government guarantees over the last few years. And thanks to the wonders of financial engineering, they can now declare a supposed €7 billion profit without making a single mention of ever returning the tens of billions of euros they “borrowed” from the public coffers in 2013.

3) Bad Bank, Really Bad Bank. Much of the so-called “cleansing” of Spain’s financial sector has involved lifting radioactive debt off the accounts of all of Spain’s banks – including the “good” ones – and burying it under the floorboards of Spain’s “bad bank”, the publicly owned Fund for Orderly Bank Restructuring (FROB). To begin with, taxpayers were sold the idea that they were going to make money from the “bad bank”. It turned out to be another lie and two years on, the FROB is bleeding money like a stuck piggy bank (€37 billion at last count). Indeed, as Mike “Mish” Shedlock recently reported on his blog, so grave is the situation that the Spanish government is even considering setting up a new “bad bank” for the sake of burying the overflowing toxic debt in its current “bad bank”.

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A 3-part series from the Observer that leaves little to the rosy imagination.

In Andalucía, The Poor And Jobless Have Little Faith In A Better Mañana (Observer)

As a destination it conjures images of beaches, whitewashed villas and endless olive groves. The sun shines as brightly as ever in Andalucía, but behind the brochure image lie poverty, soup kitchens and a growing sense of desperation. According to new data produced by Eurostat, the EU’s central statistics agency, the five worst unemployment black spots are all in Spain, and the blackest of them all is Andalucía, where one in three people are out of work. Back in 2007, Spain was building more homes than Germany, France and the UK combined, the majority of them on or near the coast.

When the property bubble burst in Andalucía – which stretches from the city of Almería in the east all the way to the Portuguese border and has a population of more than eight million – it was like a cluster bomb exploding: few escaped unscathed. Despite the seven million tourists who visit Andalucía every year – soaking up the sun on the Costa del Sol or culture and history in Seville, Granada or Córdoba – the combined effects of the end of the boom and a moribund national economy have hit the region hard. The extent of the jobs crisis is not as obvious here as it is in Madrid or Barcelona.

There are the beggars and assorted hawkers who have appeared in every Spanish town in recent years, but there are fewer people sleeping in doorways and the vestibules of banks. Many of the ancient city centres seem prosperous. The bars of Málaga are buzzing and the trade is mostly locals, not tourists. Yet last year the Catholic charity Caritas spent €2.6m on food for vulnerable families in Málaga alone, up nearly a quarter on the previous year, and the regional government has begun distributing breakfast and afternoon snacks to 50,000 schoolchildren.

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Spain’s Borrowing Costs Are Down, But Unemployment Rate Isn’t (Observer)

Unemployment is at crisis levels, but there are signs that Spain is turning a corner. After four torrid years characterised by soaring numbers without work and a crumbling banking system, demand for Spanish debt is suddenly buoyant. Last week Madrid borrowed €5.6bn on the international markets and the tranche that was lent for 10 years cost little more than 3%. This is less than half the cost of its borrowing at the height of the eurozone crisis – when international investors were shunning Spanish government bonds and yields soared over 7.5% – and only a fraction more than the 2.6% the UK pays on its debts.

Then there are the figures showing loan rates to small- and medium-sized businesses have fallen sharply. Lower loan rates could be connected to the improved situation in Spain’s banks, some of which reported last week that the number of distressed loans on their balance sheets had shrunk, especially mortgages on commercial property. Investors, toying with putting money into the country, are more confident that promised structural reforms are filtering into the real economy. Ratings agencies note Bank of Spain’s forecast for growth in the first quarter of this year – a solid 0.4%. Annual growth should top 1%. They are also confident the country can slowly close its large output gap, which will translate into falling unemployment and rising productivity.

And yet Mariano Rajoy’s administration, for all its vigour and business-friendly policies, is cited as one of the main reasons the European Central Bank (ECB) is expected to begin quantitative easing – in effect printing money – possibly within months. Like France and Italy, Spain is suffering from austerity. Combined with a vigorous campaign of wage cuts, this has reduced demand. While exports have become more competitive, workers have little spare cash to spend in the nation’s shops. Wages are expected to rise a little, but with plentiful labour and inflation at 0.5%, why would employers need to bargain?

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Foreign Buyers Delight In The Glut Of Spain’s Cheap Costa Properties (Observer)

Although hundreds of Spanish families are still being evicted every day for defaulting on their mortgages, foreign buyers have returned in force to the country’s depressed property market. New data from the Bank of Spain last week showed that foreign purchases in 2013 exceeded €6bn (£5bn) for the first time since 2004. According to Knight Frank’s Global Property Search, online searches for properties in Spain increased by 29% over the first three months of 2014 compared with the same period in 2013. More than a fifth of all Spanish residential sales – 55,187 transactions – were to foreign buyers.

“Foreigners are the only dynamic segment of the market today,” says Mark Stucklin of Spanish Property Insight. “These are people buying on the coast and in cities like Barcelona.” And it is not just private buyers, he says: institutional investors are also in the market. “The likes of Goldman Sachs, JP Morgan, Blackstone, George Soros and Bill Gates are all getting into Spanish real estate.” Some institutional investors are buying in bulk from Sareb, the so-called “bad bank” that has acquired thousands of unsold properties from failed Spanish banks and building societies. The bank controls about 200,000 property assets – homes and developments – and it is selling houses at a rate of 60 a day. Sareb is now implementing a new strategy for marketing and selling the €50bn in real estate under its control, which could create yet further opportunities for international investors, says Stucklin.

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“HSH Nordbank reported €9 billion of bad shipping debt, or about 43% of its loans to the industry … ”

German Shipping Swamped in Debt Underscores Bank Risk (Bloomberg)

As it tries to clean up the region’s banks, the ECB is taking a closer look at whether they need more capital to absorb possible losses on loans like Robrahn’s. Shipping loans are among the riskiest assets on banks’ balance sheets and among those most prone to misstatement, an ECB spokeswoman said. German lenders including Hamburg-based HSH Nordbank, Commerzbank and Norddeutsche Landesbank Girozentrale controlled about one-third of the $475 billion global ship-finance market at the end of 2012, according to Swen Metzler, an analyst at Moody’s Investors Service in Frankfurt.

The three lenders set aside more than €3.6 billion in provisions for bad shipping debt in the past three years after dozens of firms in Germany’s 1,543-container-ship market, the world’s biggest, were hurt as overcapacity and an economic slump pushed down cargo prices the most since the 1970s. [..] The ECB, which began auditing 128 banks in February and takes over as Europe-wide regulator in November, is investigating whether executives are fully reporting the riskiest loans and whether ships such as Robrahn’s Anna Sirkka, a 135-meter container vessel built in 2006, are still valuable enough to use as collateral.

“German shipping banks’ two biggest concerns at the moment are whether they get their money back and whether they need to boost capital to support their risk exposure,” Lars Heymann, partner at a unit of auditing and consulting firm PKF Fasselt Schlage, whose clients include shipping companies, said in an interview at his office in Hamburg. HSH Nordbank reported €9 billion of bad shipping debt, or about 43% of its loans to the industry, in fourth-quarter earnings published April 10. Nonperforming shipping loans at Commerzbank, Germany’s second-biggest bank, amounted to about €3.9 billion at the end of 2013, or 27% of its lending to the maritime industry, according to the company.

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US Failing To Push Economic Sanctions Against Russia Through EU Allies (RT)

The new round of sanctions against Russia, which the EU and the US plan to unveil Monday, will not target the Russian economy. Washington said it won’t use economic sanctions without the EU also signing up to them. G7 members agreed Friday to roll out a third round of anti-Russian sanctions over the Ukrainian crisis. But those would be an extension of the previous two rounds of sanctions, which targeted 33 individuals in Russia and Ukraine and a Russian bank, which the Western government deemed responsible for the crisis in Ukraine or close enough to President Vladimir Putin to have leverage on him.

“What we will hear about in the coming days, what we will agree … is an expansion of existing sanctions, measures against individuals or entities in Russia,” UK Foreign Secretary William Hague told Sky News on Sunday. The new round will slap travel bans and asset freezes on 15 more people, according to numerous insider reports. But it’s unlikely that they would have any greater effect on Russian policies than the sanctions already in effect. If anything, so far sanctions against the officials have only resulted in mocking calls from Russian MPs, politicians and ordinary citizens to add their names on the blacklists.

Imposing sanctions on some sectors of the Russian economy, which could actually hurt the country, remains an elusive goal for Washington. At the same time America, whose economic ties with Russia are mediocre at best compared to Europe’s, is unwilling to act alone. Otherwise, it would appear that there is conflict between Russia and the US, not Russia and the world, a narrative that Washington is struggling to promote.

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Living Behind The CNN Curtain (Max Keiser)

Good Bye, Lenin! is a 2003 German tragicomedy film. Directed by Wolfgang Becker, it captures the confusion inhabitants of East Germany (the GDR) had after the Berlin Wall came down and the West suddenly flooded in. What the East Berliners didn’t appreciate, to comic effect, was how incredibly behind the times they had become. Consumer culture and technology had leaped dramatically during the preceding Cold War years in ways that were unimaginable. I am reminded of this film whenever I hear Secretary of State John Kerry or presumptive Presidential candidate Hillary Clinton speak.

Their words appear to come from a time warp from a previous era before the US middle class fell behind Canada’s when measured in terms of standard of living; before America’s press freedom dropped to 46 on the Reporters Without Borders league table, and before the America’s prison population skyrocketed to over 2 million to swell the profits of private prison operators like Corrections Corp. of America. What those living behind what I call the ‘CNN Curtain’ in America, a population that represents 5% of the world’s population miss, is that the other 95% has been busy these past 15 years (post China entering the World Trade Organization) inventing a post-America future.

Many think that the past 15 years has been notable for an uptick in globalization but I would posit that the modern growth of financialization is more important; and the commensurate gapping of wealth and income that we’ve seen – resulting in the most extreme concentration of wealth amongst the new robber barons of Wall St. and the City of London in history. In many ways, since China joined the WTO, we’ve witnessed a de-globalization in terms of a breakaway from the dominant ideology of the 20th century that drove American soft power and global hegemony. Instead of a unipolar world, we’ve seen a fracturing and a move away from the ‘freedom and democracy’ meme emanating from Washington D.C. and the rise of the so-called BRIC nations of the East and ‘Global South’ who see the world quite differently and have the resources and capital to shape their own destinies.

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US Nuke Sites Still Controlled By Antique Computers With Floppy Disks (BI)

A major cheating scandal amongst Air Force nuclear missile launch officers has brought increased scrutiny on the U.S. nuclear arsenal, and an upcoming report from CBS “60 Minutes” gives a rare look inside the day-to-day military job plagued with low morale and weak management. In a report to air on Sunday, CBS Correspondent Lesley Stahl traveled to a missile field near an Air Force base in Cheyenne, Wyo., revealing a nondescript site — the silo is below ground — that looks like a fenced-in lot surrounded by farms.

But inside, she found technology still being used that was built in the 1960s, to include analog telephone systems that missileers complain makes communication difficult, and decades-old computer systems using floppy disks, which an Air Force general regards as good for security, as it is not connected to the internet. When asked of why she was given access to such a secure facility on CBS “This Morning,” Stahl speculated that the Air Force “wanted to assure people that while there was cheating, they’re dealing with it, and basically, the system is safe. And anytime they find it isn’t, they’re gonna pounce on it.”

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How many trillions does the Vatican control? The world’s first multinational had first pickings wherever they came.

John Paul II Canonization Sponsored By Banks, Oil Giant (CNBC)

He has railed against the “tyranny” of global capitalism and the “idolatry of money” but even Pope Francis needs a little corporate coin sometimes – as proven by the list of sponsors for Sunday’s canonizations. An oil and gas giant, several banks and Switzerland-based food megacorp Nestle are among more than a dozen financial backers of the Rome event. Hundreds of thousands of people are due to come to the Eternal City to see Pope John Paul II, who reigned from 1978 to 2005, and Pope John XXIII, who was pontiff from 1958 to 1963, canonized as saints. The list of sponsors is dominated by Italian corporations, including energy firms Eni and Enel, banking company Intesa SanPaolo and railway network Ferrovie Italiane.

It’s perhaps an unlikely roll call of names to be associated with a Vatican event, six months after Pope Francis launched an attack on the global economic system as part of his call for a greater focus on the needs of the world’s poor. The Catholic Church sits upon enormous assets – the Vatican Bank manages $8 billion worth of worldwide investments as well as 33,000 accounts for clergy and parishes – but its governing body, the Holy See, made a loss of $18.4 million in 2011. The presence of corporate sponsors might instead be explained by Rome’s perilous financial position. It faces a budget deficit of $1.17 billion and in February was turned down for a massive central government bailout to help it pay city employees and buy fuel for buses.

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Who’s surprised?

Developing World Exploitation Being Funded By Australian Banks (Guardian)

Australia’s biggest banking institutions have provided financial support to companies involved in illegal logging, forced evictions and child labour, according to a new report from Oxfam Australia. A new report released on Monday says ANZ, Westpac, National Australia Bank and the Commonwealth Bank have invested in a range of countries across the Asia Pacific that had been involved in land grabs that left locals homeless. “From PNG and Cambodia to Indonesia and Brazil, our banks have backed companies accused of forcing people from their land,” said Oxfam Australia’s chief executive, Dr Helen Szoke. “This involvement has also resulted in billions of dollars of exposure for everyday Australians who have their money in accounts with these banks, or who own bank shares directly or through their superannuation funds.”

According to the report, ANZ Bank provided financial support for a sugar plantation involving child labour and forced evictions, and Westpac is supporting a timber company logging rainforest in Papua New Guinea. NAB funds a palm oil company, Wilmar, which has been linked to land grabs in Indonesia and Malaysia, and the Commonwealth Bank has invested in an agricultural business which operates a Brazilian sugar mill that is accused of evicting indigenous communities from their land. “The banks need to say which companies they’re investing in, and where those companies have pushed people off the land, to work with those companies to change their practices and provide compensation to communities,” Szoke said.

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Giant Chinese 3D Printer Builds 10 Houses In Just 1 Day (RT)

A private company located in eastern China has printed ten full-size houses using a huge 3D printer in the space of a day. The process utilizes quick-drying cement, but the creators are being careful not to reveal the secrets of the technology. China’s WinSun company, used a system of four 10 meter wide by 6.6 meter high printers with multi-directional sprays to create the houses. Cement and construction waste was used to build the walls layer-by-layer, state news agency Xinhua reported.

“To obtain natural stone, we have to employ miners, dig up blocks of stone and saw them into pieces. This badly damages the environment,” stated Ma Yihe, the inventor of the printers. Yihe has been designing 3D printers for 12 years and believes his process to be both environmentally friendly and cost-effective. “But with the 3D printing, we recycle mine tailings into usable materials. And we can print buildings with any digital design our customers bring us. It’s fast and cheap,” Yihe said.

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Zeitgeist. Bob Prechter says you can see a society’s mood in dress length and movie themes.

How Disaster Movies Took Over Cinema (Guardian)

“There was extensive polling in the United States in the 1950s and 1960s,” says Kramer, “and people really believed that the end was nigh. There was a very widespread awareness of how much damage nuclear weaponry could do, and people truly expected that nuclear armageddon would happen soon. Another concern was the state of the environment. In polls that were taken in 1965, it didn’t register. But by 1970, a good percentage of the population felt that humanity was treating the planet so destructively that it threatened our existence. The Poseidon Adventure and Jaws tapped into those anxieties, but from Star Wars onwards they became an important reference point.”
Today, those concerns are more important than ever. The global-disaster movie (the mega-disaster movie? the disaster movie-plus?) has become so commonplace recently that we’re now expected to take the most horrific scenarios for granted. Just last year, a delightful children’s cartoon, The Croods, showed dozens of species being wiped out by shifting tectonic plates. Two bloke-ish comedies, This Is the End and The World’s End, invited us to chuckle as the human race was all but eradicated. Two family-friendly blockbusters obliterated London (thanks, GI Joe: Retaliation and Star Trek Into Darkness), and two monster movies (Pacific Rim and World War Z), obliterated pretty much everywhere else.

And it’s not just mainstream movies that are in a genocidal mood. “It’s intriguing that arthouse cinema has got in on the act,” says Sanders. “Lars von Trier’s Melancholia and Jeff Nichols’ Take Shelter suggest that oblivion is just around the corner, and if the philosophising minds of von Trier and Nichols are interested, then perhaps it’s time to make an apocalypse-proof shelter.”

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