Apr 122018
 
 April 12, 2018  Posted by at 1:09 pm Finance Tagged with: , , , , , , , , , , , , ,  


Pieter Bruegel the Elder The Triumph of Death c1562

 

This is turning into a comedy. A black comedy, for sure, but still. As both the Skripal novichok ‘poisoning’ case in Britain and the ‘chemical attack’ in Douma, Syria fall flat on their faces on a total and absolute lack of evidence, it’s becoming clear that western ‘authorities’ are not at all planning to let go of the privilege that in times gone by allowed them to claim whatever they wanted and demand to be believed.

And despite the insane amounts of spying that underlies their business models and will lead to their demise(s), here is where social media do play a decisive role. See, if you’re an ‘authority’, there’s nothing you would rather do than to close down those social media that let people spread news that contradicts and/or doubts what you just said, and undermines that privilege. But that also would mean you can’t spy on them anymore through social media. A toss-up?!

Whatever the outcome will be, it’s obvious that Donald Trump is having war talks with his military and closest advisers. And they can basically tell him anything, he’s not a military man. Which is fine, Lincoln wasn’t either. But it does mean he’s vulnerable to narratives and briefings that are simply not true. Lincoln went to great lengths to surround himself with people who could trust.

What about Trump? Does he know that, as Paul Craig Roberts said on Twitter yesterday ..

The Russians know that they can, at will within a few minutes, sink the entire US fleet, destroy every US airplane & ship in the ME & within range of the ME, completely destroy all of Israel’s military capability & wipe out the military of the two-bit punk state of Saudi Arabia.

.. or do they keep that from him? Because if he did know, why have this entire circus going on? Why did the King of Twitter yesterday threaten with his new and shiny toys and then today switch to:

Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS. Where is our “Thank you America?”

We already knew that US military won’t be ready for another 10 days or so for an attack on Syrian targets. So that makes sense. It takes the surprise factor out of the game, but nobody seems to want to surprise anyone much anyway. Syrian and Russian military are already way out of the way, and left the most decrepit infrastructure behind for the coalition of the willing (no Germany, Canada) to waste their firepower on.

But does Trump really want to start shooting anything? Certainly only if he knows he will win. And that, he doesn’t. And there’s something else. he’s not only talking to his military people, he’s got a financial/economic team as well. What will the financial effects of a military action be? That might give him some pause. And his military guys can’t fill him in on that.

Can Trump risk imploding the ‘markets’? They’re not actually markets anymore, and that makes them much less predictable.

As Bill Holter says talking to Greg Hunter:

 

It’s Pure Math – We’re Headed for a Train Wreck

Holter also points out the explosion of global debt. Holter charges, “It’s now $237 trillion. The amount of debt grew by $21 trillion globally over the last 12 months. That’s roughly 10 %. How much did global GDP grow? 2% or 3%, I mean that is totally unsustainable.” The biggest worry for Holter right now is escalating military action in Syria. Holter warns, “This is so, so dangerous. Obviously, you worry about a hot war because with the weapons you have today, you could have WWIII start in a heartbeat. But look at the market today. It’s up 400 or 500 points. You have talk of trade wars. You have talk of hot wars. It’s amazing the markets can hold together and ignore potential annihilation.”

David Stockman has something very similar:

 

The Deep State Closes In On The Donald, Part 1

Yes, maybe Wall Street has figured out that the Donald is more bluster than bite. Yet when you consider the broader context and what the Russian side is now saying, it is just plain idiotic to own the S&P 500 at 24X. After all, earnings that have been going nowhere for the past three years (earnings per share have inched-up from $106 in September 2014 to $109 in December 2017), and now could be ambushed by a hot war accident in Syria that would rapidly escalate.

Indeed, did the robo-machines and boys and girls down in the casino not ponder the meaning of this message from the Kremlin? It does not leave much to the imagination: #Russian ambassador in Beirut : “If there is a strike by the Americans on #Syria , then… the missiles will be downed and even the sources from which the missiles were fired..”

Trump would be much more likely to fire away if he thought he would win. And even then. Even if he could win, the whole situation is replete with unknown unknowns. If god forbid the thing escalates and the US and Russia end up facing each other, what will China do? Don’t forget that Beijing and the PBOC play an instrumental part in propping up the world economy, and the S&P 500.

It wouldn’t be hard for Xi to pull that carpet out from under Trump’s feet; it would be costly for China too, but if war were the reality, the rules and priorities change. And you can bet Xi and his people have run through the kinds of scenarios many many times. They’re prepared to “withdraw upon themselves”.

As for the US, the ‘markets are holding on to crazy levels so far despite the threat that hangs in the air, but once the first rockets fly, and gold and bitcoin -oil?- are still available, why hold on to stocks?

It’s the insanity of the so-called markets that makes them so vulnerable and unpredictable. And starting a war on very shaky grounds increases that unpredictability by a factor of 10 or so. And the MSM may -well, there’s no doubt- still fill their role as cheerleaders the way they used to, but social media are a different story.

And besides, which investors are going to say, hell, I feel so patriotic, I’m going to hold on to stocks that have been onvervalued for years already, just to support Bolton and McCain and Tony Blair and Boris Johnson’s fantasies? Who would do that who understands that it is at least quite possible that Russia has the better weapons today? Or that perhaps this kind of conflict is simply not winnable anymore?!

I don’t think there’ll be many. Nor do I think Trump wants to be known as the man who collapsed the S&P 500. So, abandoned buildings in the desert it is. And lots of CNN. Anderson Cooper’s your MC.

 

 

Apr 032018
 


Vincent van Gogh Field with Irises near Arles 1888

 

Stocks’ Second-Quarter Start Is the Worst Since the Great Depression (BBG)
Stocks Lose Critical Buyer at Worst Time (BBG)
Rising Rates Sounding Alarm Bells for Debt-Laden US Consumers (BBG)
China’s State-Owned Banks Told To Stop Local Government Loans (SCMP)
Chinese Families Are Racking Up Debt On An Unprecedented Scale (SCMP)
Young Lose Out In Britain’s Housing Wealth Boom (Times)
Swedes Turn Against Cashlessness (G.)
Bernie Sanders Agrees With Trump: Amazon Has Too Much Power (NW)
German Prosecutors Ask Court To Extradite Carles Puigdemont To Spain (G.)
The Peril of Psychographics (New Yorker)
Erdogan ‘Has Gone Completely Crazy’ – Greek Defense Minister (K.)
Greek Confiscations Target State Debtors With Small Arrears (K.)
‘Sentinel’ Dolphins Die in Brazil Bay. Some Worry a Way of Life Has, Too (NYT)
Underwater Melting Of Antarctic Ice Far Greater Than Thought (G.)

 

 

How’s that for a headline?

Stocks’ Second-Quarter Start Is the Worst Since the Great Depression (BBG)

If you feel like the second quarter began badly, you’d be right. U.S. stocks had their worst April start since 1929, according to data compiled by Bloomberg. The S&P 500 index slumped 2.2%, a rout exceeded only by its 2.5% decline 89 years ago, a prelude to the devastating crash later that year that brought on the Great Depression. (Back then, the index only comprised 90 stocks.) China’s retaliatory trade tariffs combined with President Donald Trump’s criticism of Amazon.com Inc. to send equities into a tailspin Monday.

Shares in the online retailer tumbled, encouraging a sell-off in consumer discretionary and technology stocks. The S&P 500 closed below its 200-day moving average – a key technical support – and volatility climbed. The stock slide also looked pretty bad when compared to the beginning of other quarters. Equities lost more than on any other quarterly first day since October 2011, when stocks plummeted 2.8%, Bloomberg data show.

Read more …

Is there a buyback blackout? Or, better question: should stocks depend on buybacks to such an extent?

Stocks Lose Critical Buyer at Worst Time (BBG)

The stock market’s missing a key participant as the second quarter kicks off with a rout. Corporate America is stuck on the sidelines as the S&P 500 Index plunges to its lowest level since early February. That’s to comply with regulations under which companies refrain from discretionary stock buybacks for about five weeks before reporting earnings through the 48 hours that follow. So, with first-quarter reporting season kicking into high gear in two weeks, companies must sit on their hands while the market fizzles. The timing of discretionary buybacks has gained traction in recent years with corporate appetite dwarfing all other investors as the biggest source of demand for U.S. stocks. Strategists such as Goldman Sachs’s David Kostin have pointed out that it’s no coincidence the late-January selloff occurred during a blackout period.

S&P 500 firms have bought back almost $4 trillion of their own shares since the bull market began nine years ago, data compiled by S&P Dow Jones Indices show. That demand helped mitigate damage in early February when stocks tumbled into the first correction in two years. Goldman Sachs’ buyback desk had its busiest week ever during the rout and companies were called “basically the only buyers.” Volume in S&P 500 stocks was about 7% above the 30-day average Monday. Not everyone agrees that the buyback blackout is partly to blame for Monday’s selloff. According to Marko Kolanovic, JPMorgan’s global head of quantitative and derivative strategy, the majority of buybacks are usually done through preset programs that are not subject to blackout.

Moreover, stocks typically go up more when repurchases are announced than when the transactions actually occur. “The whole story about blackout is misconception,” Kolanovic wrote in an email. So, what could be behind the selloff? Kolanovic’s team last week attributed the recent downturn to an “irrational response” to global trade tensions. The S&P 500 is trading at below-average valuations even as earnings growth is picking up, a sign that any weakness would be worth buying, the strategists wrote in a March 27 note.

Read more …

“..an estimated $350 trillion of contracts are based on Libor..”

Rising Rates Sounding Alarm Bells for Debt-Laden US Consumers (BBG)

A healthy economy can be a dangerous thing. Americans have a history of loading up on debt in good times, then paying dearly when the bills come due. Adding to the pain: A booming economy is often accompanied by rising interest rates, which make mortgages, credit cards and other debt much more expensive. As the U.S. Federal Reserve raises rates, there are signs that consumers could be putting themselves in peril. “When consumers are confident, or over-confident, is when they get into credit-card trouble,” said Todd Christensen at Debt Reduction Services in Boise, Idaho. The nonprofit credit counseling service has seen a noticeable uptick in people looking for help with their debt, he said.

Spending on U.S. general purpose credit cards surged 9.4% last year, to $3.5 trillion, according to industry newsletter Nilson Report. Card delinquencies are also rising. U.S. household debt climbed in the fourth quarter at the fastest pace since 2007, according to the Federal Reserve. “There are warning signs out there,” said Kevin Morrison, senior analyst at the Aite Group. Especially concerning is a surge in student and auto loans over the past decade, he said. Meanwhile, the Federal Reserve is steadily hiking rates, most recently on March 21 when the federal funds rate rose a quarter point to a target range of 1.5% to 1.75%.

Libor, a benchmark rate the world’s biggest banks charge each other, is also on the rise. The 3-month Libor reached 2.3% last week, the highest since November 2008. That could be a problem for companies, especially those with lower credit ratings, looking to refinance debt. Overall, an estimated $350 trillion of contracts are based on Libor, according to its administrator, ICE.

Read more …

So the shadow banks can take over?

China’s State-Owned Banks Told To Stop Local Government Loans (SCMP)

The central Chinese government has sent a blunt message intended to dissolve the marriage between banks and local governments, the nexus in China’s debt-fuelled growth model. In a directive full of “must nots”and “shalls” posted on its website last week, China’s Ministry of Finance, under the newly appointed minister Liu Kun, told state-owned financial institutions not to provide any funding to local governments, with the exception of buying government bonds. At the first meeting of the Central Economic and Financial Commission, the supreme economic decision making body headed by Xi Jinping on Monday, the Chinese president said local governments and state-owned enterprises must cut debt further.

China’s state-owned banks were told to check the registered capital of projects sponsored by local authorities, to appraise borrowers’ real repayment capabilities and not to accept local government’s guarantees for repayment or return, according to the ministry’s directive. Banks “must not provide any form of funding directly to local governmental departments or directly via local state-owned enterprises and institutions” and “must not increase new loans to local government financing vehicles irregularly”, according to the notice. It added that banks must not lend any money to local governments to be used as capital in projects, government investment funds or public-private partnership projects, it added.

Yin Zhongqing, deputy director of the financial and economic affairs committee at the National People’s Congress, told the South China Morning Post last month that at least 20 trillion yuan of “hidden debt” had been accumulated in the past three years. The national institution of finance and development under the Chinese Academy of Social Sciences last week estimated the total liabilities of local government financing vehicles was 30 trillion yuan, while another 10 trillion yuan of debt could be buried in public-private partnerships.

Read more …

“A man with a 50,000 yuan debt is responsible; 200,000 yuan of debt is financially savvy; 1 million yuan of debt is a homeowner; 10 million yuan of debt is classy; and a 1 billion yuan debt is chairman of a listed company … if you don’t have any debt, you must be a total loser.”

Chinese Families Are Racking Up Debt On An Unprecedented Scale (SCMP)

Chinese families with their long tradition of saving money are now accumulating debt at a rate never been seen before, according to data compiled by a state-backed think tank in Beijing. But the National Institution for Finance and Development also said mounting debt was not a concern because Chinese households still had far more savings than debts. The country’s household leverage ratio – or the ratio between debt incurred by families and GDP – surged to 49% at the end of last year from 17.9% at the end of 2008, going up about 3.5 percentage points annually, the think tank said in a report released on Thursday.

So in the period from 1993, when the data became available, to 2008, the household debt ratio went from 8.3% to 17.9%, with an annual rise of 0.65 percentage points. But in 2016 and 2017, that annual increase accelerated to about 4.9 percentage points, the think tank said. The rapid accumulation of household debt was the biggest factor behind the rise in China’s overall leverage last year, as the corporate sector’s debt ratio fell and local government borrowing was reined in, at least on the surface, it said.

Liu Lei, a researcher with the think tank, said at a briefing on Thursday that real household debt could be “8 percentage points” higher if special housing funds, peer-to-peer lending programmes and private micro loans were factored in. In August, Shanghai-based brokerage Haitong Securities said in a report that while China’s actual household debt ratio was not high compared to many developed countries such as the US and UK, its rate of increase was dangerous. “It took 40 years for the household debt ratio in the US to rise from a level of 20% to about 50%, but it took only less than 10 years in China,” according to the Haitong economists led by Jiang Chao.

[..] China’s excessive money printing in the last decade and skyrocketing property prices have benefited those who maximised their leverage to buy real estate, while the country’s savers bore the brunt of monetary easing, leading to a dramatic shift in attitude on saving versus borrowing. That change in attitude can be seen in a popular saying widely circulated on Chinese social media in recent years: “A man with a 50,000 yuan debt is responsible; 200,000 yuan of debt is financially savvy; 1 million yuan of debt is a homeowner; 10 million yuan of debt is classy; and a 1 billion yuan debt is chairman of a listed company … if you don’t have any debt, you must be a total loser.”

Read more …

There’s so much wrong here, where to begin? Get out while you can.

Young Lose Out In Britain’s Housing Wealth Boom (Times)

Three quarters of housing wealth in Britain is held by the over-50s, according to research revealing the generational divide in the property market. Such homeowners hold £2.8 trillion of equity. The over-65s own 43 per cent of housing wealth, £1.6 trillion, the study by the estate agent Savills found. Lawrence Bowles, a research analyst at the company, said: “The extent to which wealth is concentrated in older hands is something we have not seen in a long time.” Owners have piled up equity by living longer, paying off their mortgages and watching as prices grew steadily in the final decades of the last century. “It is looking likely that we will see more people downsizing in order to free up that equity,” Mr Bowles said.

At the other end of the spectrum, homeowners under 35 hold just £221 billion of equity but owe £223 billion in mortgage debt. This age group holds £6 of equity in every £100 compared with £75 held by their parents. First-time buyers face prices that are 5.2 times higher than average incomes, while in London prices are about 14 times higher than average earnings. In most regions, it takes about eight years for the typical first-time buyer to save a deposit. This rises to nine years in the southeast and to nearly ten in London, where the average 20 per cent deposit is now above £80,000.

Read more …

“If Putin invades…”

Swedes Turn Against Cashlessness (G.)

It is hard to argue that you cannot trust the government when the government isn’t really all that bad. This is the problem facing the small but growing number of Swedes anxious about their country’s rush to embrace a cash-free society. Most consumers already say they manage without cash altogether, while shops and cafes increasingly refuse to accept notes and coins because of the costs and risk involved. Until recently, however, it has been hard for critics to find a hearing. “The Swedish government is a rather nice one, we have been lucky enough to have mostly nice ones for the past 100 years,” says Christian Engström, a former MEP for the Pirate Party and an early opponent of the cashless economy.

“In other countries there is much more awareness that you cannot trust the government all the time. In Sweden it is hard to get people mobilised.” There are signs this might be changing. In February, the head of Sweden’s central bank warned that Sweden could soon face a situation where all payments were controlled by private sector banks. The Riksbank governor, Stefan Ingves, called for new legislation to secure public control over the payments system, arguing that being able to make and receive payments is a “collective good” like defence, the courts, or public statistics. “Most citizens would feel uncomfortable to surrender these social functions to private companies,” he said. “It should be obvious that Sweden’s preparedness would be weakened if, in a serious crisis or war, we had not decided in advance how households and companies would pay for fuel, supplies and other necessities.”

The central bank governor’s remarks are helping to bring other concerns about a cash-free society into the mainstream, says Björn Eriksson, 72, a former national police commissioner and the leader of a group called the Cash Rebellion, or Kontantupproret. Until now, Kontantupproret has been dismissed as the voice of the elderly and the technologically backward, Eriksson says. “When you have a fully digital system you have no weapon to defend yourself if someone turns it off,” he says. “If Putin invades Gotland [Sweden’s largest island] it will be enough for him to turn off the payments system. No other country would even think about taking these sorts of risks, they would demand some sort of analogue system.”

In this sense, Sweden is far from its famous concept of lagom – “just the right amount” – but instead is “100% extreme”, Eriksson says, by investing so much faith in the banks. “This is a political question. We are leaving these decisions to four major banks who form a monopoly in Sweden.”

Read more …

A few days ago Elizabeth Warren agreed with Trump on China, now Sanders agrees about Amazon. What’s happening to the world?

Bernie Sanders Agrees With Trump: Amazon Has Too Much Power (NW)

Independent Vermont senator and 2016 presidential hopeful Bernie Sanders echoed President Donald Trump in expressing concern about retail giant Amazon. Sanders said that he felt Amazon had gotten too big on CNN’s “State of the Union” Sunday, and added that Amazon’s place in society should be examined. “And I think this is, look, this is an issue that has got to be looked at. What we are seeing all over this country is the decline in retail. We’re seeing this incredibly large company getting involved in almost every area of commerce. And I think it is important to take a look at the power and influence that Amazon has,” said Sanders. The senator’s comments came on the heels of a number of tweets from Trump, who has long criticized the online retailer.

Read more …

WIll Europe start chasing elected politicians?

German Prosecutors Ask Court To Extradite Carles Puigdemont To Spain (G.)

German prosecutors have asked a court to permit the extradition of former Catalan separatist leader Carles Puigdemont to Spain. Prosecutors in the northern town of Schleswig said on Tuesday they have submitted a request to the regional court following “intensive examination” of the European arrest warrant issued by Spain. Puigdemont has been detained in Germany since 25 March. Spain accuses the 55-year-old of rebellion in organising an unauthorised referendum. The Schleswig court is likely to take several days to decide whether to extradite Puigdemont. His lawyers have urged the German government to intervene in the case, citing the “political dimension.”

Read more …

Just stop collecting the data. Problem solved.

The Peril of Psychographics (New Yorker)

In September, 2016, Alexander Nix, the C.E.O. of Cambridge Analytica, the data and messaging company that was working at the time with Donald Trump’s supposedly flagging Presidential campaign, explained his firm’s work like this: “If you know the personality of the people you’re targeting, you can nuance your messaging to resonate more effectively with those key audience groups.” The fancy term for this is psychographic targeting. A few weeks later, Trump won the Presidency, against all odds and predictions, sending political operatives and journalists scrambling for explanations. “There was a huge demand internally for people to see how we did it,” Brittany Kaiser, Cambridge Analytica’s former business-development director, told the Guardian last Friday. “Everyone wanted to know: past clients, future clients.”

Whether Cambridge Analytica’s targeting work actually swayed the outcome of the election has been a subject of debate since then—because the firm’s record is spotty, psychographic targeting in political campaigns is a relatively new concept, and it has not yet been definitely shown that C.A. successfully used these methods on behalf of Trump’s campaign. Christopher Wylie, the former C.A. employee who recently came forward to detail how the company improperly acquired personal data from fifty million Facebook users, has said that the company used that data to create a “psychological warfare mindfuck tool.”

But Aleksandr Kogan, the Cambridge University researcher who provided the company with the Facebook data, has described it as “not that accurate at the individual level.” Kogan’s conclusion tracks with research that has been done by the U.K.-based Online Privacy Foundation, whose research director, Chris Sumner, recently told me that psychographics are much more accurate for groups rather than individual people.

Read more …

The US and France are turning their backs on Turkey. Feel emboldened by that?

Erdogan ‘Has Gone Completely Crazy’ – Greek Defense Minister (K.)

Raising the incendiary rhetoric another notch, Defense Minister Panos Kammenos lashed out against Recep Tayyip Erdogan Monday, saying that the Turkish president “has gone completely crazy.” Speaking to journalists outside the Parliament in Athens about the fate of the two Greek soldiers held in Turkey and Ankara’s provocations in the Aegean, Kammenos said there are no lines of communication with Erdogan. “We’re talking about Erdogan, who goes out and publicly insults the US and [Israeli Prime Minister Benjamin] Netanyahu,” he said, adding that “Turkey has no courts while its justice system works under the orders of the sultan [Erdogan].”

The two soldiers, he said, could, under these circumstances, be held there for 15 years. “You cannot answer to a madman,” he said, referring to the Turkish leader. The two soldiers have been held for a month in Turkey without any charges being brought against them yet. Kammenos, who is also the leader of the right-wing junior coalition partner, Independent Greeks (ANEL), said Turkish authorities have so far found nothing to prosecute the two soldiers but warned of a worst-case scenario reminiscent of the film “Midnight Express,” based on the travails of an American who served time in a Turkish prison in the 1970s.

“If you watch ‘Midnight Express,’ you will see that they kept on making up charges against him,” he said, adding that “nothing works democratically there [Turkey].” He also expressed concern that an incident could occur in the Aegean. “They may want to provoke this but you must know that the Turkish military is in a dire state at this moment,” he said, adding that, for its part, Greece “is ready.” He clarified that Greece will not take the bait but noted that if Turkey violates Greek national sovereignty, then “we will respond as we should.”

Read more …

On the poorest in Greece: “..the state conducted 1.72 million confiscations of salaries, pensions and rent payments last year..”

See, the poor owe €1.2 billion. 40,000 rich individuals and companies owe €90 billion.

Greek Confiscations Target State Debtors With Small Arrears (K.)

Over 3.3 million taxpayers owe the tax authorities amounts of less than 3,000 euros each. According to figures published by the Independent Authority for Public Revenue, the state conducted 1.72 million confiscations of salaries, pensions and rent payments last year, mostly concerning small debtors. Debtors owing up to 3,000 euros account for 80.5% of all debtors, and they owe 1.2 billion euros. These debts were run up in recent years and mainly stem from failure to pay income tax and the Single Property Tax (ENFIA), whereas bigger debts to the tax authorities concern 40,000 individuals and companies and add up to 90 billion euros, originating from fines and activated guarantees. It is quite impressive that the number of state debtors has increased by some 3 million in the years of the financial crisis, climbing from 1 million in 2010 to 4.1 million today.

Read more …

“Nostalgia aside..” Nostalgia? What? Nostalgic for life? When everything’s dead, we go and be nostalgic?

‘Sentinel’ Dolphins Die in Brazil Bay. Some Worry a Way of Life Has, Too (NYT)

Something ominous was happening in the turquoise waters of Sepetiba Bay, a booming port outside Rio de Janeiro. Beginning late last year, fishermen were coming across the scarred and emaciated carcasses of dolphins, sometimes five a day, bobbing up to the surface. Since then, scientists there have discovered more than 200 dead Guiana dolphins, or Sotalia guianensis, a quarter of what was the world’s largest concentration of the species. The deaths, caused by respiratory and nervous system failures linked to a virus, have subsided, but scientists are working to unravel the mystery behind them. How, they ask, did a virus that might ordinarily have claimed a handful of dolphins end up killing scores of them?

And does part of the answer, scientists and local residents ask, lie in the bay itself, at once a testament to Brazil’s economic power and a portent of environmental risk. The dolphins are “sentinels,” said Mariana Alonso, a biologist at the Biophysics Institute at the Federal University of Rio de Janeiro, one of a number groups working to understand the epidemic. “When something is wrong with them, that indicates the whole ecosystem is fractured.” [..] Sepetiba Bay, 40 miles west of downtown Rio, became one of the principal gateways for Brazilian exports over the past generation. In 2017, 39 million tons of iron ore and other commodities shipped from there.

The wooden fishing boats that crisscross the bay now weave around massive merchant ships loaded with iron and steel. Though people still swim in its waters, four ports and a constellation of chemical, steel and manufacturing plants have risen on its shores. One of world’s most prominent iron ore producers, Vale, occupies a new terminal in an old fishing spot on nearby Guaiba Island. “When I was a child, buffalo roamed the farms around my village, and we had apples and coconuts,” said Cleyton Ferreira Figueiredo, 28, a convenience store cashier who, nostalgia aside, also sees advantages in the development. “Now everything is more urban, with schools and facilities. There are more jobs, and it takes me 15 minutes to get home when I finish.”

Read more …

A little scary.

Underwater Melting Of Antarctic Ice Far Greater Than Thought (G.)

Hidden underwater melt-off in the Antarctic is doubling every 20 years and could soon overtake Greenland to become the biggest source of sea-level rise, according to the first complete underwater map of the world’s largest body of ice. Warming waters have caused the base of ice near the ocean floor around the south pole to shrink by 1,463 square kilometres – an area the size of Greater London – between 2010 and 2016, according to . The research by the at the University of Leeds suggests climate change is affecting the Antarctic more than previously believed and is likely to prompt global projections of sea-level rise to be revised upward.

Until recently, the Antarctic was seen as relatively stable. Viewed from above, the extent of land and sea ice in the far south has not changed as dramatically as in the far north. But the new study found even a small increase in temperature has been enough to cause a loss of five metres every year from the bottom edge of the ice sheet, some of which is more than 2km underwater. “What’s happening is that Antarctica is being melted away at its base. We can’t see it, because it’s happening below the sea surface,” said Professor Andrew Shepherd, one of the authors of the paper. “The changes mean that very soon the sea-level contribution from Antarctica could outstrip that from Greenland.”

The study measures the Antarctic’s “grounding line” – the bottommost edge of the ice sheet across 16,000km of coastline. This is done by using elevation data from the European Space Agency’s CryoSat-2 and applying Archimedes’s principle of buoyancy, which relates the thickness of floating ice to the height of its surface.

Read more …

Feb 112018
 
 February 11, 2018  Posted by at 11:23 am Finance Tagged with: , , , , , , , , , ,  


Vincent van Gogh Peach trees in blossom 1888

 

What Crushed Stocks? (WS)
Test Of Nerve For Markets As 10 Years Of Cheap Money Come To An End (G.)
Market Tests Millennial Traders Who’ve Never Seen A Crash (BBG)
Bond-Stock Clash Has Just Begun as Inflation Looms (BBG)
IMF Chief Lagarde Says Market Swings Aren’t Worrying (R.)
UK Labour Vows Renationalisation Of Water, Energy And Rail (G.)
Australia’s Big Banks Focus On Job Cuts As Inquiry Looms (R.)
Treating Mental Illness Could Save Global Economy Billions (CNBC)
Pain Pill Giant Purdue to Stop Promotion of Opioids to Doctors (BBG)
Asylum Seekers In UK Living In ‘Disgraceful, Unsafe’ Housing (G.)
Russia Might Sell S-400 Systems To US If Americans Feel Insecure (RT)
Oxfam Staff Partied With Prostitutes In Chad, Haiti, (G.)
Maclean’s Is Asking Men To Pay 26% More For Latest Issue (Maclean’s)
US Professor Fired After Telling Student ‘Australia Isn’t A Country’ (RT)

 

 

Bond markets are 10x stock markets?!

What Crushed Stocks? (WS)

On Friday at around 1:40 p.m., during whiplash-inducing market moves, the S&P 500 index was down 1.9%, bringing the total loss for the week to 8.3%, which would have been the biggest weekly loss since November 2008, after the Lehman bankruptcy. But dip-buyers jumped in courageously and saved the day. The S&P 500 ended up 1.5%, bringing to the total loss for the week to 5.2%, the worst week since, well, the selloff in January 2016. Everyone has their own reasons why stocks plunged last week. Some blamed algorithmic trading. Others blamed the short-volatility financial complex that blew up.

More specifically, Jim Cramer blamed “a group of complete morons” who traded in this space. Others blamed the stratospheric valuations of stocks that had been rallying for eight years with only a few dimples in between, and it’s simply time to unwind some of those gains. Whatever the factors might have been, rising bond yields certainly had something to do with it. They tend to hit stocks, eventually. Last week, prices of short-dated Treasuries edged down and prices of long-dated Treasuries edged down, and their yields edged up, but there was some turmoil in the middle, with some interesting consequences.The three-month Treasury yield rose to 1.55% on Friday, the highest since September 11, 2008. Investors are beginning to price in a rate hike in March:

But the two-year yield, after having surged to 2.16% on February 1, got very nervous, dropping and bouncing during the week, and fell sharply on Friday, ending the week at 2.05%:

The 10-year yield closed on Friday at 2.83% and in late trading went on to 2.85%. The interesting thing about this is the difference (the “spread”) between the two-year yield and the 10-year yield. It surged. This spread is one of the indications of the slope of the yield curve and was one of the most watched bond-data points during the scare last year over an “inverted” yield curve. This is a phenomenon where the two-year yield would be higher than the 10-year yield. The last time this happened was before the Financial Crisis. By early January, the spread between the two-year yield and the 10-year yield had dropped as low as 50 basis points (0.5 percentage points), the lowest since October 2007. As the two-year yield kept spiking, the 10-year yield had started rising, but not fast enough. All this has changed, and the 10-year yield has been rising faster than the two-year yield and the spread has widened to 78 basis points on Friday:

The 30-year yield rose to 3.14% on Friday. For the first time, it is now back where it had been on December 14, 2016, when the Fed stopped flip-flopping and started getting serious about raising its target range for the federal funds rate. The market responded to each rate hike with increases in short-term yields but defied the Fed on longer-term yields, which fell until September 2017. So what happened last week was that the two-year yield fell, while the yields of most longer maturities stayed put or rose, steepening the yield curve from the two-year yield on up.

The chart below shows the “yield curves” as they occurred on these four dates: • Yields on Friday, February 9, 2018 (red line) • Yields on December 29, 2017 (black line) • Yields on August 29, 2017 (green line) two weeks before the QE unwind was detailed. • Yields on December 14, 2016 (blue line) when the Fed stopped flip-flopping, raised its rates, and became a clockwork. Note how the spread has widened at the longer-dated ends between the black line (December 29, 2017) and the red line (Friday), and how the slope of the red line has steepened, with the 30-year yield surging 40 basis points over those six weeks. That’s a big move:

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The cheap money has BEEN the entire market.

Test Of Nerve For Markets As 10 Years Of Cheap Money Come To An End (G.)

Stock markets are heading for a wild ride this year as central bankers strap on their bullet-proof vests and test investors’ willingness to accept higher interest rates. Last week’s share price crashes, which in two days wiped $4 trillion off the value of markets around the world, was just a foretaste of the battle to come. In the days following Monday’s crash, share values have recovered strongly only to dive again as competing theories about the path of interest rates and the likely impact on economic growth fight for attention. Most investors want the era of cheap borrowing to continue and many are willing to sell their shareholdings if it looks like coming to an end. Without low interest rates, they cannot borrow and invest cheaply, especially in the assets that for the past decade have gone up every year by much more than their salary – property and shares.

Countless businesses have also come to rely on low borrowing costs to keep going, and investors fear they might go bust should their bank raise loan rates. Weaning companies and investors off their addiction was never going to be easy, even 10 years after central banks first put their stimulus packages in place, and despite warnings that these measures need to end. For some time, the US Federal Reserve has taken on the role of the advance guard, forging a path towards higher rates for others to follow. But its campaign got off to a faltering start. Back in 2013 it was forced to retreat when it signalled in the mildest terms that it would begin withdrawing its quantitative easing programme. The main effect of QE was to drive down long-term interest rates, allowing investors to borrow cheaply not just over one or five years, but for 30 years.

And so its withdrawal was as much of a blow for some fund managers as an immediate rate rise. Wall Street and markets in Europe and Asia, where heavy selling turned into a rout, forced Fed officials to retreat. The Fed adopted a more incremental approach. It gave markets more warning and spaced out the policy decisions. As it entered 2017, US interest rates had trebled, but only from 0.25% to 0.75%. Yet the economy was booming more than ever. The Fed appeared ready to get tougher, and with justification, according to Karen Ward at JP Morgan Asset Management. After the heavy lifting needed to get the industrialised world back from bankruptcy, she said, “economies are now rested”. Ward, who until recently was an adviser to the chancellor, Philip Hammond, said: “Households and businesses are feeling better about the future. They do not need a boost in quite the same way. Central banks can ease off the accelerator without troubling either growth or markets.”

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The problem is not that they’ve never seen a crash, the problem is they’ve never seen a functioning market.

Market Tests Millennial Traders Who’ve Never Seen A Crash (BBG)

In his career in finance—all seven years of it—Ben Kumar has seen some tough days. There was 2013, when traders worried about the Federal Reserve, and 2016, with the Brexit vote. But, at 29, Kumar and many millennials like him on Wall Street and the City of London have never endured a full-blown crash. For them, markets have always bounced back—fast—and gone on to heights. Now, with world stocks sinking and central banks withdrawing stimulus that’s supported markets for years, elders worry Kumar’s generation isn’t ready for its trial. Kumar is chill. “Find me someone who worked in the era of 15% inflation and I’ll talk to them about Bitcoin and the Internet,” said the 29-year-old, a fund manager at Seven Investment Management in London .

After $3 trillion was erased from global stocks in a week, he’s weighing whether to buy on the dip now—or wait a bit longer. “I don’t even think that this move is a wake-up call,” he said on Tuesday. Many bankers older than 40 shudder at the thought of what will happen if – or when – some unforeseen trigger sparks a crash that drags down not just stocks, but also bonds and currencies together. Etched in their memories is the Lehman Brothers collapse in 2008. In its wake, stock market valuations alone were cut in half. By contrast, most millennial investors have only worked in an era where central banks printed trillions of dollars to prop up their economies and markets. Since starting their careers, average interest rates in the developed world have barely nudged above 1%, inflation all but vanished, the S&P 500 Index more than doubled and bonds rallied so high that more than $7 trillion of debt is negative yielding.

“You have to have had that stage where you’re looking at the screen through your fingers to really appreciate risk-reward in this industry,” said Paul McNamara at GAM in London. “Not just seeing things go wrong, but going so much more wrong than you imagined was possible.”

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Why own stocks when bond yields rise? Still, inflation is a ludicrous fear.

Bond-Stock Clash Has Just Begun as Inflation Looms (BBG)

The tug-of-war between stocks and bonds is at the heart of the shakeout roiling financial markets. This week’s U.S. inflation report could hold the key to the next phase. Seemingly every time 10-year Treasury yields approached a four-year high last week, equities investors panicked, fearing the specter of higher inflation and a more aggressive pace of Federal Reserve rate hikes. Whether you want to say Treasuries are in a bear market or not, the surge in yields to start 2018 has left investors reassessing the value of equities and corporate bonds. Profits were easy when the 10-year yield traded in its narrowest range in a half-century, inflation stayed subdued and volatility across financial markets plumbed record lows. Gains are harder when low rates, a linchpin of the post-crisis recovery, start to disappear.

“What’s happening now is just price discovery between bonds and equities – how far can the bond market push yields up before the equity market cracks?” said Stephen Bartolini, portfolio manager at T. Rowe Price, which manages more than $10 billion in inflation-protected strategies. “The big fear in risk markets is that we get a big CPI print and it validates the narrative that inflation is coming back and the Fed is going to have to move faster.” The focus on inflation is nothing new, but it became even more critical after a Feb. 2 report showed average hourly earnings jumped in January at the fastest pace since 2009. That contributed to the dive in stocks. (It also led President Donald Trump to tweet about the “old days” when stocks would go up on good economic news.)

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Should be filed under Famous Last Words, but won’t be.

IMF Chief Lagarde Says Market Swings Aren’t Worrying (R.)

Sharp swings in global financial markets in the past few days are not worrying since economic growth is strong but reforms are still needed to avert future crises, the managing director of the International Monetary Fund said on Sunday. Christine Lagarde, speaking at a conference on global business and social trends in Dubai, said economies were also supported by plenty of financing available. “I‘m reasonably optimistic because of the landscape we have at the moment. But we cannot sit back and wait for growth to continue as normal,” she said in her first public comments on market movements since the latest round of turmoil at the end of last week.

“I‘m ringing not the alarm signal, but the strong encouragement and warning signal.” Global stock markets were hit by wild fluctuations, with the U.S. benchmark S&P 500 tumbling 5.2% last week, its biggest weekly percentage drop since January 2016. The volatility was fuelled by investor worries about rising interest rates and potential inflation. Lagarde repeated an IMF forecast, originally issued last month, that the global economy would growth 3.9% this year and at the same pace in 2019, which she said was a good backdrop for needed reforms.

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No society should ever relinquish control over its essentials.

UK Labour Vows Renationalisation Of Water, Energy And Rail (G.)

Labour launched a full-frontal attack on the privatised water industry last night, accusing companies of paying out the “scandalous” sum of £13.5bn in dividends to shareholders since 2010, while claiming huge tax breaks and forcing up prices for millions of customers. The assault by shadow chancellor John McDonnell came as he pledged total, “permanent” and cost-free renationalisation of water, energy and rail if Labour won power at the next election. The three privatisations in the 1980s and 1990s became hallmarks of the Tory governments of Margaret Thatcher and John Major. The dramatic intervention – which stunned the companies involved – was the strongest denunciation yet by Jeremy Corbyn’s Labour of the privatisation programme that has become part of the British political landscape of the last 40 years.

The Conservative party and the Confederation of British Industry both condemned McDonnell’s comments. The CBI said Labour’s renationalisation agenda would “wind the clock back on our economy” while chief secretary to the Treasury Liz Truss warned that placing politicians in charge of public utilities “didn’t work last time and won’t work this time”. McDonnell told the Observer that water companies could not even claim to offer choice to customers but instead operated regional monopolies, and were therefore able to increase prices without the risk of losing out to competitors, as well as “load up debt” while paying out huge dividends to shareholders. “It is a national scandal that since 2010 these companies have paid billions to their shareholders, almost all their profits, whilst receiving more in tax credits than they paid in tax,” he said.

“These companies operate regional monopolies which have profited at the expense of consumers who have no choice in who supplies their water. “The next Labour government will call an end to the privatisation of our public sector, and call time on the water companies, who have a stranglehold over working households. Instead, Labour will replace this dysfunctional system with a network of regional, publicly owned water companies.” Citing figures from the National Audit Office, the shadow chancellor said water bills had risen by 40% in real terms since privatisation of the industry in 1989. In 2016-17, the forecast average for water bills was £389 per household. McDonnell claimed that in 2017, privatised water companies paid out a total £1.6bn to their shareholders. Since 2010, the total was £13.5bn.

[..] Corbyn said that Labour would back a “great wave of change across the world in favour of public, democratic ownership and control of our services and utilities. “We can put Britain at the forefront of the wave of change across the world in favour of public, democratic ownership and control of our services and utilities,” he said. “From India to Canada, countries across the world are waking up to the fact that privatisation has failed, and taking back control of their public services,” he added.

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Banks and governments are accomplices in blowing this bubble.

Australia’s Big Banks Focus On Job Cuts As Inquiry Looms (R.)

Australia’s big banks are responding to a revenue crunch by cutting jobs and other costs, prompting fears on the eve of an inquiry into their businesses that the industry’s tarnished reputation is about to take another hit. Regulators’ demands that banks hold more capital and their scrutiny into internal operations have made cost-cuts the in-vogue metric at the so-called Big Four banks, Australia and New Zealand Bank, Commonwealth Bank of Australia, National Australia Bank and Westpac, to boost profits. But the strategic change will come at a cost for the banks. “If you can be the most successful at bringing your staff numbers down the quickest, that’s going to give you the quickest cost advantage,” said one senior bank insider with direct knowledge of the cost-cutting strategy.

But, added the insider, as jobs cuts mount, “society and the community will push back, won’t accept it.” Cost cuts are not limited to jobs, with banks preparing to make use of improved technology to reengineer back office functions, and reduce the number and physical size of their branches. But the insider said he expected the Big Four to shed up to 40,000 jobs over five years as part of that overhaul, making a reduced wages bill the primary saving. The focus on costs coincides with the start of a royal commission looking into misconduct in the financial sector starting Monday. Scandals that have shaken public confidence include allegations of interest rate rigging, claims of a toxic trading room culture within some banks, and accusations that some institutions withheld legitimate health insurance payouts and gave misleading financial advice.

The inquiry, expected to last a year and which can recommend criminal charges and legislative changes, could potentially result in restrictions that affect bank profits, similar to a government-imposed bank tax levied last year. According to the government, Australia’s big four are still among the most profitable banks in the world, earning net profit margins of 36.4% in the June quarter of 2017. Years of economic growth and a booming property market had encouraged executives to focus on lifting sales rather than trimming operations. “Top line revenue growth is going to be a struggle, so they need to look closely at their cost lines really seriously,” said Brad Potter, head of Australian equities at Nikko Asset Management, which owns shares in the major banks.

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It’s the economy that causes much of the illness. Putting dollar numbers on it is not the way to go.

Treating Mental Illness Could Save Global Economy Billions (CNBC)

Reducing mental illness is one of the key ways to increase happiness worldwide, according to a study by the Global Happiness Council (GHC). The report, published Saturday, said that while mental illness was one of the main causes of unhappiness in the world, the net cost of treating it was actually negative. “This is because people who are mentally ill become seriously unproductive. So when they are successfully treated, there are substantial gains in output. And these gains exceed the cost of therapy and medication,” GHC researchers said. The most common conditions associated with mental illness are depression and anxiety disorders, the study said. And at least a quarter of the global population were thought to experience these conditions over the course of their lifetime.

Researchers at the GHC also said that mental illness was a “major block” on the global economy as it was found to be the main illness among people of a working age. Therefore, treating the conditions, it said, would save national income per head by 5% — that equates to billions worldwide. The study estimated that for every $1 spent on treating depression, production would be restored by the equivalent of $2.5. And while physical healthcare costs were thought to balance out, the GHC claimed net savings when treating anxiety disorders was greatest of all — with production restored by the equivalent of $3 for every $1 spent. In the U.K., the National Health Service (NHS) estimates that around 10 to 15% of people are considered to have had a mental illness at some stage of their lives. There are many types of mental illness but most conditions fit into either a neurotic or psychotic category, according to the NHS.

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Any individuals will escape persecution.

Pain Pill Giant Purdue to Stop Promotion of Opioids to Doctors (BBG)

Pain-pill giant Purdue Pharma will stop promoting its opioid drugs to doctors, a retreat after years of criticism that the company’s aggressive sales efforts helped lay the foundation of the U.S. addiction crisis. The company told employees this week that it would cut its sales force by more than half, to 200 workers. It plans to send a letter Monday to doctors saying that its salespeople will no longer come to their clinics to talk about the company’s pain products. “We have restructured and significantly reduced our commercial operation and will no longer be promoting opioids to prescribers,” the company said in a statement. Instead, any questions doctors have will be directed to the company’s medical affairs department. OxyContin, approved in 1995, is the closely held company’s biggest-selling drug, though sales of the pain pill have declined in recent years amid competition from generics.

It generated $1.8 billion in 2017, down from $2.8 billion five years earlier, according to data compiled by Symphony Health Solutions. It also sells the painkiller Hysingla. Purdue is credited with helping develop many modern tactics of aggressive pharmaceutical promotion. Its efforts to push OxyContin included OxyContin music, fishing hats and stuffed plush toys. More recently, it has positioned itself as an advocate for fighting the opioid addiction crisis, as overdoses from prescription drugs claim thousands of American lives each year. Purdue and other opioid makers and distributors face dozens of lawsuits in which they’re accused of creating a public-health crisis through their marketing of the painkillers. Purdue officials confirmed in November that they are in settlement talks with a group of state attorneys general and trying to come up with a global resolution of the government opioid claims.

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At least there are still some truly pan-European values left.

Asylum Seekers In UK Living In ‘Disgraceful, Unsafe’ Housing (G.)

Asylum seekers are being placed in appalling housing conditions where they are at risk from abuse and violence, according to a survey published on Sunday documenting the lives of new arrivals. A year after the home affairs select committee found asylum seekers were being held in “disgraceful” conditions and called for a major overhaul of the system, new research suggests the situation remains poor. In-depth interviews with 33 individuals inside a north London Home Office asylum accommodation centre found that 82% had found mice in their rooms. The survey, by the human rights charity Refugee Rights Europe, also found that two-thirds of asylum seekers interviewed felt “unsafe” or “very unsafe”.

Others, some of whom have been diagnosed with post-traumatic stress disorder after fleeing violence and persecution from war zones, described how non-residents would enter the building and threaten residents, or simply use the kitchens and hallways to sleep. Of those interviewed, 30% alleged they had experienced verbal abuse in the accommodation from fellow residents or from staff, with 21% claiming they had experienced physical violence. “A number of respondents were under the impression that the cleaning staff may hold racist views. Sometimes this was expressed through abusive or hostile language in English, and, at other times, the respondents were shouted at in a foreign European language which they couldn’t understand,” said the study.

Marta Welander, head of Refugee Rights Europe, said: “An entire year has passed since the home affairs select committee released its alarming report on asylum accommodation in the UK, yet it seems as though little to nothing has changed. Our research revealed terrible hygiene standards and widespread problems with vermin. “Many of the [interviewees] said they felt unsafe in their accommodation, in particular the younger ones or those diagnosed with PTSD. Others explained they’re experiencing health problems, which they attributed to the unsanitary conditions in their bedrooms and communal areas.”

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C’mon, it’s funny.

Russia Might Sell S-400 Systems To US If Americans Feel Insecure (RT)

The head of Russia’s strategic defense industry corporation Rostec says Moscow is ready to sell S-400 air defense systems to any nation that feels insecure and wants to seal its airspace, including the US if it wants to. Just before the end of the year, Moscow agreed to supply S-400 surface-to-air missile batteries to Ankara, making Turkey the first NATO member state that will integrate Russian technology into the North Atlantic defense structure once the $2.5 billion order is delivered. On Wednesday, Sergey Chemezov, head of the Russian state conglomerate Rostec, extended the offer to purchase S-400 Triumf, or the SA-21 Growler as it is known by NATO, to the Pentagon. “The S-400 is not an offensive system; it is a defensive system. We can sell it to Americans if they want to,” Chemizov told the Wall Street Journal (WSJ) when asked about the strategic reasoning behind the S-400 sale to Turkey.

The S-400, developed by Russia’s Almaz Central Design Bureau, has been in service with the Russian Armed Forces since 2007. The mobile surface-to-air missile system which uses four projectiles can strike down targets 40-400 km away. The deployment of S-400 batteries to Syria served as one of the pillars to the successful Russian anti-Islamic State (IS, formerly ISIS/ISIL) campaign. While the Almaz Bureau is currently developing S-500 systems, foreign orders to purchase the S-400 have skyrocketed. Besides China and Turkey, who are awaiting order deliveries, India, Qatar and Saudi Arabia are currently negotiating to purchase the Russian military hardware. The growing demand can be attributed to the high reliability and long history of the S missile defense system family. The S-200, designed by Almaz in the 1960s, still serves many nations today. On Saturday, a Syrian S-200 Vega medium-to-high altitude surface-to-air missile was allegedly used to intercept an Israeli F-16.

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The humanitarian industrial complex in all its glory.

Oxfam Staff Partied With Prostitutes In Chad, Haiti, (G.)

Oxfam was hit with new allegations of staff involvement with prostitution on Saturday, after claims that employees at a second country mission had used sex workers while living at the organisation’s premises. Former staff who worked for the charity in Chad alleged that women believed to be prostitutes were repeatedly invited to the Oxfam team house there, with one adding that a senior member of staff had been fired for his behaviour in 2006. Roland van Hauwermeiren, who has since been embroiled in a sexual misconduct scandal in Haiti, was head of Oxfam in Chad at the time. Van Hauwermeiren resigned from Oxfam in 2011, after admitting that prostitutes had visited his villa in Haiti. One former Chad aid worker said on Saturday: “They would invite the women for parties. We knew they weren’t just friends but something else. “I have so much respect for Oxfam. They do great work, but this is a sector-wide problem,” the former staffer told the Observer.

[..] Oxfam said it could not confirm whether it had any records about a Chad staff member dismissed in 2006. Its staff in Chad at the time lived under a strict curfew due to security concerns: employees could not walk around freely and were confined to the guest house from early evening. Some employees had raised the issue of prostitutes with Van Hauwermeiren. Oxfam’s beleaguered chief executive, Mark Goldring, denied suggestions the charity had covered up revelations that staff had hired prostitutes in Haiti during a 2011 relief effort on the earthquake-hit island. His defence of Oxfam’s handling of the scandal came as Britain’s charity regulator said Oxfam had failed to mention allegations of abuse of aid beneficiaries in Haiti and potential sexual crimes involving minors in a report to it in 2011. It took no further action at the time.

[..] The scandal broke on Friday when the Times revealed that senior Oxfam staff had paid earthquake survivors for sex and that a confidential Oxfam report had referred to a “culture of impunity” among aid workers in Haiti. The Times on Saturday said Oxfam did not tell other aid agencies about the behaviour of staff involved after they had left to work elsewhere. Goldring told BBC Radio 4’s Today programme on Saturday: “With hindsight, I would much prefer that we had talked about sexual misconduct, but I don’t think it was in anyone’s best interest to be describing the details of the behaviour in a way that was actually going to draw extreme attention to it.”

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And what about next week?

Maclean’s Is Asking Men To Pay 26% More For Latest Issue (Maclean’s)

This month, Maclean’s has created two covers with two different prices—one at $8.81, the other at our regular price of $6.99—to reflect the 26% gap between full-time wages paid to men and women in Canada.It’s a cheeky way to draw attention to a gap that has barely budged in decades, but we’re not the first to do this. In 2016, a group of students at the University of Queensland in Australia put on a bake sale. They called it the Gender Pay Gap Bake Sale, and they priced their cupcakes higher for men than women to illustrate Australia’s pay equity gap. The fierce social media backlash (“Kill all women” and “Females are f–king scum, they should be put down as babies” and “I want to rape these feminist c–ts with their f–king baked goods”) was so horrific it made international headlines.

When we discussed the story during our Maclean’s news meeting at the time, we wondered what would happen if we tried it here in Canada. So let’s see, shall we? After years of stasis, pay equity is having its moment as the next beat in the cadence of the #MeToo movement. Our hope is that these dual covers stir the kind of urgent conversation here that is already happening elsewhere around the world. In England, Carrie Gracie, the BBC’s China editor, resigned earlier this year when her pay was revealed to be at least 50 per cent less than her two male counterparts, saying, “My managers had yet again judged that women’s work was worth much less than men’s.” #istandwithcarrie trended on Twitter. In Iceland, after women walked out of work at precisely 2:38 p.m.—a full workday minus 30%, to illustrate the pay gap there—the country enacted a new law that makes it mandatory for companies with 25 or more employees to show they provide equal pay.

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Surprised? Me neither.

US Professor Fired After Telling Student ‘Australia Isn’t A Country’ (RT)

Southern New Hampshire University has fired a lecturer who insisted that Australia was a continent – but not a country – and took some time to conduct “independent research” into the issue before reviewing a student’s paper. Ashley Arnold, 27, who is studying toward an online sociology degree at Southern New Hampshire University (SNHU), was “shocked” to learn she had failed an assignment, part of which required students to compare social norms between the United States and any other country – in her case Australia. Arnold was downgraded because her professor believed “Australia is a continent; not a country.” At first I thought it was a joke; this can’t be real. Then as I continued to read I realized she was for real,” she told BuzzFeed News. “With her education levels, her expertise, who wouldn’t know Australia is a country? If she’s hesitating or questioning that, why wouldn’t she just Google that herself?”

To address the professor’s apparent ignorance, Arnold sent a series of emails containing references from the school’s library which clearly stated Australia is both a continent and a country. Arnold even referred her to a section of the Australian government’s webpage called “About Australia” that said “Australia is an island continent and the world’s sixth largest country (7,682,300 sq km).” The female professor with PhD in philosophy, whose name is being kept private, was still not convinced, however, and said she needed to conduct “some independent research on the continent/country issue.” After reviewing Arnold’s paper the professor gave her a new grade of a B+, but never apologized, merely acknowledging that she had a “misunderstanding about the difference between Australia as a country and a continent.”

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Feb 102018
 
 February 10, 2018  Posted by at 11:26 am Finance Tagged with: , , , , , , , , , , , , ,  


Frank Larson Times Square, New York 1950s

 

Worst Week in 2 Years for Stocks Ends on High Note (BBG)
By Betting On Calm, Did Investors Worsen The Stock Market Fall? (G.)
The Scariest Chart For The Market (ZH)
‘Bond Vigilantes’ Are Saddled Up And Ready To Push Rates Higher (CNBC)
The Worst Of The Bond Rout Is Yet To Come, Says Piper Jaffray (CNBC)
US GDP Growth Is Not As Rosy As It Seems (Lebowitz)
2018 Won’t Kill The Speculators. But It Will Teach Them A Lesson Or Two (Xie)
Minimum Wage Awkward Pillar Of Emerging Social Europe (AFP)
Relations Between Britain And The EU Sink To A New Low (Ind.)
UK Has More Than 750,000 Property Millionaires (G.)
Brexit Plan To Keep Northern Ireland In Customs Union Triggers Row (G.)
Greek PM Steps In To Police Exploding Novartis Bribery Investigation (FPh)
EU’s Moscovici Says Greece Will Be ‘Sovereign Country’ After Bailout (K.)

 

 

The one thing that really matters now is volatility, and all the outstanding bets for or against it.

Worst Week in 2 Years for Stocks Ends on High Note (BBG)

U.S. equities ended their worst week in two years on a positive note, but rate-hike fears that pushed markets into a correction remain as investors await American inflation figures on Feb. 14. The S&P 500 tumbled 5.2% in the week, its steepest slide since January 2016, jolting equity markets from an unprecedented stretch of calm. At one point, stocks fell 12% from the latest highs, before a furious rally Friday left the equity benchmark 1.5% higher on the day. Still, the selloff has wiped out gains for the year. Signs mounted that jitters spread to other assets, with measures of market unrest pushing higher in junk bonds, emerging-market equities and Treasuries. The Cboe Volatility Index ended at 29, almost three times higher than its level Jan. 26.

The VIX’s bond-market cousin reached its highest since April during the week, and a measure of currency volatility spiked to levels last seen almost a year ago. Pressure on equities came from the Treasury market, where yields spiked to a four-year high, raising concern the Federal Reserve would accelerate its rate-hike schedule. Yields ended the week at 2.85%, near where they started, as Treasuries moved higher when equity selling reached its most frantic levels. Commodities including oil, gold and industrial metals moved lower Friday. The dollar, euro and sterling all declined. “Sometimes making a bottom can take time,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., said by phone. “Investors should be at least aware, cognizant, and expect a little more volatility after we go through this period of more cathartic volatility.”

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In more detail: volatility. Or in other words: how the Fed killed the market.

By Betting On Calm, Did Investors Worsen The Stock Market Fall? (G.)

Back in 2008, the non-financial world had to digest a lot of jargon in a hurry – collateralised debt obligations (CDOs), asset-backed securities (ABSs) and the rest of the alphabet soup of derivative products that contributed to the great banking crash. This week’s diet has felt similar. As the Dow Jones industrial average twice fell 1,000 points in a day, we have had to swallow tales about the VIX, the inverse VIX, the XIV, and ETPs. Did this overdose of three-letter acronyms really cause the stock markets to swoon? Have those geniuses in the back offices of investment banks really baffled themselves – and a lot of investors – with complexity again? The short answer to the second question is: yes. The chart shows one of the most spectacular blow-ups you could hope to see.

This is the XIV – it is actually the snappier name for the Credit Suisse VelocityShares Daily Inverse VIX Short Term exchange traded note – since the start of 2016. It was a beautiful investment until, suddenly, it was a disaster. What is the XIV? It was a way to bet that the S&P 500, the main US stock index, would be tranquil – in other words suffer few outbreaks of volatility. The measure of volatility is called the VIX and it is compiled and published by the Chicago Board Options Exchange by noting the prices of various option contracts in the market and then applying a mathematical formula. The VIX is more famously known as the “fear index”. In itself, the VIX is just a number – its long-term average is about 20, more than 30 is a worry, and more than 40 could herald a crisis.

For much of last year it was between 10 and 12 but on Tuesday it hit 50, before recoiling back to around 30 currently. The fun starts when products are invented to trade and speculate on how the VIX will perform. Conventional futures contracts came first. Then ETFs, or exchange-traded funds, a low-cost product that has taken the financial world by storm in the last couple of decades, followed. The XIV is slightly different (it’s a note, rather than a fund) but it comes from the same school. By trading S&P 500 options, or contracts to buy and sell the S&P at points in the future, it was structured to do the exact opposite of the VIX. If volatility in the stock market was low – as it was throughout 2016 and 2017 – owners of the XIV would do well. In the jargon, they were “short vol”. But, if volatility exploded, then the XIV would fall.

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Posted a different version of this chart (from Arbeter) yesterday, coming from Market Watch.

The Scariest Chart For The Market (ZH)

Interest-rates going up “for the right reason” is bullish, right? Each time interest rates have surged up to their long-term trendline, a ‘crisis’ has occurred…

But this time is different right? Because rates are “going up for the right reason.” Hhmm, the reaction in markets each time the yield on the 10-Year Treasury yield reaches its trendline is ominous…

So the question is – have interest rates ‘ever’ gone up for the right reason? Or is this narrative just one more bullshit line from a desperate industry of asset-gatherers and commission-takers? It does make one wonder what the relationship between US government ‘interest costs’ and global money flow really is. Does an engineered equity tumble spark safe-haven-buying and ease the pain as deficits and debt loads soar. It would certainly help as $300bn additional budget deals are passed, The Fed has left the game, and China is threatening to be a seller not a buyer…

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If everyone’s on the same side of the boat, somebody must be on the other.

‘Bond Vigilantes’ Are Saddled Up And Ready To Push Rates Higher (CNBC)

There’s reason to be concerned about bond vigilantes, who are no longer under “lock and key” and are free to push yields higher, Wall Street veteran Ed Yardeni told CNBC on Friday. Yardeni, a market historian, coined the term bond vigilantes in the 1980s to refer to investors who sell their holdings in an effort to enforce fiscal discipline. Having fewer buyers drives prices down — and drives yields up — in the fixed-income market. That, in turn, makes it more expensive for the government to borrow and spend. “They had been sort of put under lock and key by the central banks. The Fed had lowered interest rates down to zero in terms of short-term rates and that pushed bond yields down. And then they bought up a lot of these bond yields,” said Yardeni, president of Yardeni Research.

Now the Fed is slowly raising interest rates and starting to unwind its balance sheet. On top of that, new tax cuts were passed and a massive spending deal was just signed into law. “Now people are looking more at the domestic situation and saying, ‘You know what, maybe we need a higher bond yield,'” Yardeni said in an interview with “Power Lunch.” “They’ve saddled up, and they’re riding high. The posse is getting ready. They’re getting the message out.” Bond vigilantes last made their mark during the Clinton administration, when a bond market sell-off forced President Bill Clinton to tone down his spending agenda. Yardeni said while Clinton got the message back then, he doesn’t think the Trump administration has this time around.

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Sub: Rising rates slam stocks as market volatility rages on.

The Worst Of The Bond Rout Is Yet To Come, Says Piper Jaffray (CNBC)

It all started with bond yields. Spiking yields spilled over onto the stock market in the past week, first triggering a nearly 666-point drop on the Dow last Friday and then sparking two declines of more than 1,000 points within just 4 days. The bond rout will continue with yields on the 10-year possibly reaching 3% in the near term, according to Craig Johnson, senior technical strategist at Piper Jaffray. That is a level it has not reached since January 2014. “This is a 36-year reversal in rates,” Johnson told CNBC’s “Trading Nation” on Thursday. Bond yields, which move inversely to prices, have generally been in decline over the past 3 decades, indicating a long-term bull market for bond prices.

“When you reverse that downtrend from down to up you typically get a momentum response and a quick move up. That’s exactly what you’re seeing in the bond market right now,” added Johnson. “You’ve got to be careful in here right now.” The yield on 10-year Treasurys has risen at a fast clip since the U.S. election in November 2016. Bond yields held at around 1.8% prior to the election and have since moved up 100 basis points to hit a 4-year high of 2.86% this week. The uncertainty of a Trump presidency initially sent bond prices lower and yields higher at the end of 2016. Now, worries over the effect an accelerating economy and rising inflation might have on Federal Reserve policy this year have taken over. Historically, bond prices fall when interest rates rise.

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No savings and huge debt means less consumer spending. Which is what 70% of US GDP is made of.

US GDP Growth Is Not As Rosy As It Seems (Lebowitz)

Last Friday, GDP for the fourth quarter of 2017 was released. Despite being 0.3% short of expectations at 2.6% annual growth, it nonetheless produced enthusiasm as witnessed by the S&P 500 which jumped 25 points. One of the reasons for the optimism following the release was a strong showing of the consumer which notched 2.80% growth in real personal consumption. The consumer, representing about 70% of GDP, is the single most important factor driving economic growth and therefore we owe it to ourselves to better understand what drove that growth. This knowledge, in turn, allows us to better assess its durability. There are three core means which govern the ability of individuals to spend. The most obvious is income and wages earned.

To help gauge the effect of changes in income we rely on disposable income, or the amount of money left to spend after accounting for required expenses. Real disposable personal income in the fourth quarter, the same quarter for which GDP growth data was released, grew at a 1.80% year over year rate. While other indicators of wage growth are slightly higher, we must consider that payroll gains are not evenly distributed throughout the economy. In fact as shown below 80% of workers continue to see flat to declining growth in their wages. While this may have accounted for some of the growth in consumption we need to consider the two other means of spending over which consumers have control, savings and credit card debt.

Savings: Last month the savings rate in the United States registered one of the lowest levels ever recorded in the past 70 years. In fact, the only time it was lower was in a brief period occurring right before the 2008/09 recession. At a rate of 2.6%, consumers are spending 97.4% of disposable income. The graph below shows how this compares historically. [..] the savings rate is less than half of that which occurred since the 2008/09 recession and well below prior periods.

Credit Card Debt: In addition to reducing savings to meet basic needs or even splurge for extra goods, one can also use credit card debt. Confirming our suspicion about savings, a recent sharp increase in revolving credit (credit card debt) is likely another sign consumers are having trouble maintaining their standard of living. Over the last four quarters revolving credit growth has increased at just under 6% annually which is almost twice as fast as disposable income. Further, the 6% credit card growth rate is about three times faster than that of the years following the recession of 2008/09.

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The liquidity super machine is stalling.

2018 Won’t Kill The Speculators. But It Will Teach Them A Lesson Or Two (Xie)

A decade of massive, synchronised monetary and fiscal stimulus has led to the greatest asset bubble in history, to the tune of about $100 trillion, nearly 1.5 times the world’s GDP. Compared to 2-3% of GDP growth in the global economy, we should be mindful of the potential and huge cost associated with it. Even though the US stock market is more expensive than in 1929 or 2000, and China’s property valuation is higher than Japan’s a quarter-of-a-century ago, fear-driven selloffs have been rare and brief, leading to the belief that high asset prices are the new normal. Massive amounts of financial and business activities, especially in technology, are predicated on high asset prices going higher. The unusual longevity and resilience of high asset prices are largely because government actions — not herd behaviour in the market — are force-feeding the bubble.

Government actions will lose their grip only when growth expectations crash or inflation flares up. Neither is a major risk for 2018. Hence, 2018 won’t kill the speculators of the world. But 2018 will teach them a lesson or two. High-risk assets such as internet stocks and high-end properties will struggle like never before in the past decade. US interest rates will rise above inflation for the first time in a decade. And China is tightening, especially in the property sector, out of fear of a life-threatening financial crisis. China accounts for about half of global credit growth. The interaction between the US Federal Reserve’s quantitative easing and China’s credit targeting has been the liquidity super machine. It is stalling in 2018. The asset bubble demands that the excess liquidity-money supply rises faster than GDP to sustain it.

This year may see global money supply line up with GDP. The Fed is likely to raise interest rates from the current 1-1.25% and take the level to 2.5%. This is still low compared with the 4.5-5% nominal GDP growth rate. But the US stock market is more expensive than it was in 1929 or 2000. When the interest rate surpasses inflation, it will become wobbly. Policymakers are caught between a rock and a hard place. The structural problems that led to the 2008 crisis are still here. The global economy grows ever more dependent on asset bubbles. If the global asset bubble bursts, the economy will slide into recession. Hence, when a market wobbles — as it probably will in 2018 — policymakers will come out to soothe market sentiment and may even temporarily reverse the tightening.

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The EU is a feudal neo-liberal machine. There is no such thing as Soical Europe anywhere but in words. It’s about keeping the poor down, and dependent on your money.

Minimum Wage Awkward Pillar Of Emerging Social Europe (AFP)

Twenty-two out of 28 EU states have introduced a minimum wage, trumpeted as a key pillar in the construction of a social Europe. But huge disparities from one country to the next are fuelling resistance from opponents who see the policy as dragging down competitiveness, sovereignty as well as levelling down salaries. Brexit, as an expression of eurosceptic populism, has jolted the European Commission into going on the offensive as it looks to show the European Union is not just a common market but a bloc with a social dimension. A November 17 Social Summit for Fair Jobs and Growth last year set the ball rolling as all 28 EU members signed up to a Europe-wide charter on social rights, laying down 20 basic principles including statutory minimum wages as a mainstay of a policy framework to boost convergence.

“Adequate minimum wages shall be ensured, in a way that provide for the satisfaction of the needs of the worker and his/her family in the light of national economic and social conditions, whilst safeguarding access to employment and incentives to seek work,” according to the guidelines. But the non-binding declaration is, as such, merely symbolic, not least because “European treaties stipulate clearly that salaries come under the national purview,” notes Claire Dheret, head of employment and social Europe at the Brussels-based European Policy Centre (EPC). To date, the Gothenburg charter is being respected only partially, even if all but six EU states have a legal minimum wage, as witnessed by Eurostat data highlighting starkly varying levels from Bulgaria’s 460 leva (€235; $270) a month gross to €1,999 in Luxembourg, that is, nine times as much.

Even so, the discrepancy does shrink to around a factor of three when the cost of living in each state is taken into account. But the Eurostat data shows up major discrepancies between eastern and western states. Ten of the former pay a minimum of less than €500, whereas seven western EU members have set rates surpassing €1,300 euros. Five southern states pay between €650 and €850. The six without an official minimum, which have their own arrangements to cover the basic needs of low earners are Austria, Cyprus, Denmark, Finland, Italy and Sweden.

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We can repeat this every day: the mess gets messier.

Relations Between Britain And The EU Sink To A New Low (Ind.)

David Davis has been dragged into renewed war of words with Brussels over the Brexit transition period, accusing the EU of having a “fundamental contradiction” in its approach and wanting to “have it both ways” after a week of fruitless talks. Relations between Britain and the European Commission sank to a new low on Friday after Michel Barnier, the EU’s chief negotiator, casually claimed at a press conference the UK had cancelled an important meeting due to a “diary clash”. UK officials behind the scenes took offence to the claim and said the meeting had not been cancelled at all and instead took place in the afternoon. Mr Barnier sealed the state of mutual incomprehension, telling reporters in Brussels that he had “problems understanding the UK’s position” on the transition period.

In a statement issued on Friday afternoon after Mr Barnier’s press conference – a solo affair in contrast to previous joint outings – Mr Davis said the EU could not “have it both ways” on the transition period. “Given the intense work that has taken place this week it is surprising to hear that Michel Barnier is unclear on the UK’s position in relation to the implementation period,” he said. “As I set out in a speech two weeks ago, we are seeking a time-limited period that maintains access to each other’s markets on existing terms. “However for any such period to work both sides will need a way to resolve disputes in the unlikely event that they occur.

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And collapsing social services, health care etc. It’s a choice, not a flaw.

UK Has More Than 750,000 Property Millionaires (G.)

There are now more than 750,000 property millionaires in Britain, and in some towns in the south of England half of all homes cost more than £1m, according to analysis by website Zoopla. Despite a slowing property market, Zoopla estimated that the number of property millionaires has climbed to 768,553, a rise of 23% since August 2016. The figures underscore the hugely lopsided nature of the UK property market. Yorkshire and Humberside has 4,103 property millionaires, and Wales 2,223, while in London the figure is 430,720. The figures suggest that while one in 20 people in the capital are paper property millionaires, the same can be said for only one in every 1,400 people in Wales. Zoopla did not take into account the mortgage debt attaching to properties, just the number of properties valued at over £1m.

Outside London, Guildford in Surrey is the town with the most property millionaires, estimated at 5,889, followed by Cambridge and Reading. But Beaconsfield in Buckinghamshire emerges as having the greatest concentration of property wealth in just one town. Zoopla found that 49% of all the houses in the town of 12,000 people nestled below the Chiltern Hills are valued at more than £1m. Agents in the town – dubbed Mayfair in the Chilterns – are currently marketing an opulent six-bed home in Beaconsfield’s “golden triangle” for £6m, boasting a cinema, wine-tasting room and its own six-person smoke-mirrored passenger lift opening on to a galleried balcony with a “Sexy Crystals” chandelier. There is a separate annexe for staff.

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The EU plays the ultimate card: Scotland. The UK has no rebuttal. None. Nada.

Brexit Plan To Keep Northern Ireland In Customs Union Triggers Row (G.)

Officials from the UK and EU are drawing up a plan to in effect keep Northern Ireland in the customs union and the single market after Brexit in order to avoid a hard border. The opening of technical talks followed a warning from Brussels that keeping the region under EU laws was currently the only viable option for inclusion in its draft withdrawal agreement. The development, first reported by the Guardian on Friday and later confirmed by the EU’s chief negotiator, Michel Barnier, triggered an immediate row. Scotland’s first minister, Nicola Sturgeon, tweeted: “If NI stays in single market, the case for Scotland also doing so is not just an academic ‘us too’ argument – it becomes a practical necessity. Otherwise we will be at a massive relative disadvantage when it comes to attracting jobs and investment.”

Anne-Marie Trevelyan, a Tory MP and officer in the European Research Group of Brexit-supporting Conservatives, accused Barnier of “playing hardball”. “I am surprised that the media are reporting his comments as if they are the only voice and hard fact,” she said. “Perhaps Mr Barnier could remember that the UK is in negotiations, which is a two-way discussion.” “It is important to tell the truth,” Barnier said. “The UK decision to leave the single market and to leave the customs unions would make border checks unavoidable. Second, the UK has committed to proposing specific solutions to the unique circumstances of the island of Ireland. And we are waiting for such solutions. “The third option is to maintain full regulatory alignment with those rules of the single market and the customs union, current or future, that support north-south cooperation, the all-island economy and the Good Friday agreement. “It is our responsibility to include the third option in the text of the withdrawal agreement to guarantee there will be no hard border whatever the circumstances.”

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The present European commissioner for migration and home affairs is reported to have taken €40 million in bribes. He should lose his job, today.

Greek PM Steps In To Police Exploding Novartis Bribery Investigation (FPh)

Just days after 10 former ministers in Greece were implicated in bribery allegations against Novartis, the country’s prime minister is calling for a special parliamentary committee to investigate the charges, which have been pegged as slanderous by some politicians pulled into the widening scandal. Meanwhile, three former Novartis executives believed to have provided the meat of the allegations have come under fire, even as their lawyer fights to shield their identities. The investigation targeting Novartis’s Greece offices has been going on since last January, but it blew up earlier this week when news emerged that the case would be submitted to the Greek parliament, which would then decide whether to prosecute the 10 politicians. Novartis is the target of allegations that it bribed doctors and government officials to help boost sales of its drugs.

Now Prime Minister Alexis Tsipras wants the special committee to look into allegations that the 10 politicians received millions of euros in exchange for fixing drug prices and granting other favors to Novartis, according to local press reports. A spokesman for Novartis told FiercePharma that the company continues “to cooperate with requests from local and foreign authorities.” Novartis has not received an indictment related to the investigation in Greece, he added. According to press accounts of the prosecutors’ report, the allegations of bribery stemmed from testimony from three witnesses who worked for Novartis. The witnesses spoke to the FBI, which joined in the investigation in Greece. The employees reported that Greece’s health minister from 2006 to 2009 took €40 million ($49 million) in exchange for ordering “a huge amount” of Novartis products, according to The Greek Reporter.

The health minister working between 2009 and 2010 allegedly accepted €120,000 ($147,000) from the company and laundered it through a computer hardware firm, the news organization added. At least one of the politicians named in the report wants the identities of the three Novartis witnesses to be revealed. Dimitris Avramopoulos, who was the health minister from 2006 to 2009 and now serves as European commissioner for migration and home affairs, held a press conference Friday during which he said he will file a lawsuit demanding the names of the witnesses be made public, according to Politico.

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How dare he use the word sovereign in this context? Greece, like all other EU nations, was and is always sovereign. Demand his resignation.

EU’s Moscovici Says Greece Will Be ‘Sovereign Country’ After Bailout (K.)

On exiting its third international bailout in August, Greece will be an “absolutely sovereign country,” European Economic and Monetary Affairs Commissioner Pierre Moscovici told a conference on Friday organized by the Stavros Niarchos Foundation Cultural Center (SNFCC), French magazine Le Nouvel Observateur and Kathimerini in Athens. “There should be no precautionary credit line,” Moscovici said. “There should be an end to the programs.” The commissioner said that Greece “did what it had to do” but that economic and structural reforms must continue. He also drew attention to an “issue of administrative competence,” without elaborating. In addition, Moscovici expressed his confidence in Prime Minister Alexis Tsipras, who he described as “smart and flexible,” adding that their relationship was “perfect.” Tsipras and Finance Minister Euclid Tsakalotos decided to “play ball,” Moscovici said. He further said Tsakalotos’s predecessor Yanis Varoufakis wreaked major political and financial damage on Greece.

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Jan 072018
 
 January 7, 2018  Posted by at 10:43 am Finance Tagged with: , , , , , , , , ,  


Edward Hopper Gloucester Beach, Bass Rocks 1924

 

UPDATE: There still seems to be a problem with our Paypal widget/account that makes donating -both for our fund for homless and refugees in Greece, and for the Automatic Earth itself- hard for some people. What happens is that for some a message pops up that says “This recipient does not accept payments denominated in USD”. This is nonsense, we do. We notified Paypal weeks ago.

We have no idea how many people have simply given up on donating, but we can suggest a workaround (works like a charm):

Through Paypal.com, you can simply donate to an email address. In our case that is recedinghorizons *at* gmail *com*. Use that, and your donations will arrive where they belong. Sorry for the inconvenience.

 

 

 

Everyone Knows Pensions Are Screwed (Felder)
Shares Have Gone Through The Roof: Could They Possibly Go Even Higher? (G.)
States Threaten “Economic Civil War” On Washington (ZH)
UK Companies Will Face Huge New VAT Burden After Brexit (G.)
China To Move Millions Of People From Homes In Anti-Poverty Drive (G.)
Trump Takes Credit For Olympics Talks Between North and South Korea (G.)
11 Saudi Princes Sent to Maximum-Security Prison After Protesting Utility Bills
Scientists Lament The Likely Loss Of ‘Most Of The World’s Coral Reefs’ (Grist)

 

 

So Why Are They Investing In The Exact Same Fashion?

Everyone Knows Pensions Are Screwed (Felder)

The average pension fund assumes it can achieve a 7.6% rate of return on its assets in the future. As noted in Monday’s Wall Street Journal, the majority of these assets are invested in the stock market. The rest are invested in bonds, real estate and alternatives. An aggregate bond index fund yields 2.5% today. Real estate investment trusts, as a group, yield nearly 4%. Alternatives are a mixed bag but the point is that, in order for pensions to meet this 7.6% rate of return they require that stocks (and, to a much lesser degree, alternatives) do far better than even that optimistic assumption because the balance of the portfolio is nearly guaranteed to fall short of that mark. The trouble is that for stocks to return anywhere near 8% they would need to fall more than 50% first.

Warren Buffett famously said, “the price you pay determines your rate of return.” John Hussman puts an even finer point on it this week showing that if you want an 8% rate of return over the coming 12 years you should not be willing to pay more than 1,281 for the S&P 500 today. Currently, the index trades at roughly 2,690 thus it would take a major stock market crash for investors to have the opportunity to invest at a level that would enable them to achieve anything close to what pensions now require. But if stocks were to crash again, as they did after the last two times valuations reached current extremes, that would obviously create other problems for pensions that are now fully invested in risk assets and already underfunded to the tune of several trillion dollars.

Even if they don’t crash, however, it is now almost inevitable that pensions will face a massive crisis sometime over the next decade or so. Still, it’s fascinating to note that even though this issue is common knowledge today, investors as a group have decided to ensure they will come to the very same fate. Passive investing, which has exploded in popularity in recent years, is essentially a way for individual investors to model pension investing, typically with an even greater exposure to equities.

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Of course they could. But Jeremy Grantham’s ‘Melt-Up’ is being criticized by quite a few voices. The question is not ‘could they rise’, but ‘how long until they will plunge’?

Shares Have Gone Through The Roof: Could They Possibly Go Even Higher? (G.)

Shares are expensive – keep buying them. That appears to be investors’ consensus view. The storming run for stock markets in 2017 seemed almost too good to be trusted, but 2018 has started in similar style. In the US, the Dow Jones industrial average soared past 25,000 last week, almost exactly 12 months after 20,000 was achieved. In the UK, the FTSE 100 index stands at a record high. Even the Japanese market, for years an international laggard, is back at a 26-year high. Last year the MSCI World index – a proxy for a global stock market – delivered a return of 20.1%. Optimists expect more of the same. The other camp warns that a dangerous bubble is about to burst. Both sides could probably agree that the recent run in stock markets has been astonishing.

Or, rather, the truly remarkable feature has been the steady and unbroken pace of the march upwards. Stock markets, we used to think, offered thrills, spills and rollercoaster rides. Individual shares still provide such excitement, of course, but the overall market seems bizarrely free of stress. Andrew Lapthorne, who crunches the market numbers for French bank Société Générale, called 2017 “the year volatility died” in his end-of-year round-up. He wrote: “Those of us expecting greater market turbulence in 2017 could not have been more wrong. Not only did global equity markets perform well, but they did so with such low volatility and consistency that, if this were a fund, it would perhaps merit a visit from the authorities to check exactly what you were up to.”

What happened? First, investors seem to have decided that rising interest rates in the US, a big worry a year ago, are not the bogeyman they seemed. The US Federal Reserve has been a protective nurse. Rate rises have been gradual, and ultra-cheap money has been followed by very cheap. A US rate of 1.5% ain’t so bad. Second, President Donald Trump’s administration, amid its chaos and crises, has delivered the policy investors in companies cared about most: corporate tax cuts. Maybe a growth-generating splurge on infrastructure, the second part of his economic agenda, will follow.

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More of a partisan thing.

States Threaten “Economic Civil War” On Washington (ZH)

The new year has only just begun, but already Democratic politicians in the country’s largest high-tax states are threatening lawsuits and publicly touting proposed workarounds to help compensate tax payers for the elimination of the state and local tax (SALT) deductions which were dramatically rolled back, along with deductions for mortgage interest, as part of the White House’s tax reform plan. During his state of the state address earlier this week, New York Mayor Andrew Cuomo threatened to sue the federal government over the tax bill, claiming that the plan is unconstitutional and overly burdensome to New Yorkers. Cuomo said that the new law could raise some families’ taxes by as much as 25% and said the plan amounted to “double taxation.”

He later accused President Donald Trump of waging “economic civil war” on states that didn’t back him during the election, and promised to consider workarounds that would help lower residents’ federal tax bills, according to Bloomberg. Then, on Thursday, California Senate President Pro Tempore Kevin de Leon introduced a bill that the Washington Post said could become a model for how blue states push back against the Trump tax plan. According to the Trump tax plan, which took effect in January, taxpayers can only deduct up to $10,000 in state and local taxes when they file their federal return.

“De Leon’s bill, if it became law, would essentially allow Americans to deduct much more than the $10,000 limit by redirecting state tax payments into a type of charitable contribution that would be later redirected to the state. The new federal tax law, which was supported only by Republicans, went into effect in January and does not include any caps on charitable deductions. “The Republican tax plan gives corporations and hedge-fund managers a trillion-dollar tax cut and expects California taxpayers to foot the bill,” de León said in a statement. “We won’t allow California residents to be the casualty of this disastrous tax scheme.” Several states have said they are looking for ways to challenge or work around the law, particularly states such as California and New York where residents pay a higher level of local taxes that they have traditionally been able to deduct without any limits. New York Gov. Andrew M. Cuomo (D) has said he is looking at a way of challenging the new law in court.”

Then on Friday, incoming New Jersey Gov. Democrat Phil Murphy said he’s working on a plan similar to California’s that would allow taxpayers to pay a percentage of their state income taxes as if they were a charitable donation. The money will eventually be redirected to the state. And there’s nothing in the Republican tax plan that limits charitable deductions. Predictably, the White House has threatened to push back against these strategies. During a televised interview this week, Gary Cohn said the administration would be looking into ways to stop states from implementing these work-arounds.

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Seems easy to avoid.

UK Companies Will Face Huge New VAT Burden After Brexit (G.)

More than 130,000 UK firms will be forced to pay VAT upfront for the first time on all goods imported from the European Union after Brexit, under controversial legislation to be considered by MPs on Monday. The VAT changes spelled out in the taxation (cross-border trade) bill – one of a string of Brexit laws passing through parliament – are causing uproar among UK business groups, which say that they will create acute cashflow problems and huge additional bureaucracy. Labour and Tory MPs and peers said that the only way to avoid the VAT Brexit penalty would be to stay in the customs union or negotiate to remain in the EU-VAT area. On Sunday night the Tory chair of the all-party Treasury select committee, Nicky Morgan, said the committee would launch an urgent investigation.

She also said she would be writing to the head of HM Revenue and Customs to see what contingency plans were being made to avoid hitting UK firms. The bill, which has its second reading in the Commons on Monday, spells out clearly how VAT would have to be paid upfront by companies. The government’s own explanatory notes on the bill say the existing regime will end “so that import VAT is charged on all imports from outside the UK”. The Labour MP and former minister Chris Leslie said that the VAT hit to firms was “yet another aspect of Brexit that the Leave campaign failed to inform the public about”. He added that he would be tabling urgent amendments to ensure the UK remained in the EU VAT area – a move that would enrage pro-Brexit MPs.

UK companies that import machine parts or goods ready for sale from the EU can currently register with HMRC to bring them into the UK free of VAT. They register the VAT charge and reclaim it later, all as a paper exercise. VAT is added to the price of the product whenever it is sold to the final customer. Without a VAT deal with Brussels, importers will have to pay the VAT upfront in cash and then recover the money later, creating a huge outflow of funds before they can be recouped.

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“Once made, a promise is as weighty as a thousand ounces of gold..”

China To Move Millions Of People From Homes In Anti-Poverty Drive (G.)

Over the next three years Xi Jinping’s anti-poverty crusade – which the Communist party leader has declared one of the key themes of his second five-year term – will see millions of marginalised rural dwellers resettled in new, government-subsidised homes. Some are being moved to distant urban housing estates, others just to slightly less remote or unforgiving rural locations. Other poverty-fighting tactics – including loans, promoting tourism and “pairing” impoverished families with local officials whose careers are tied to their plight – are also being used. By 2020, Beijing hopes to have helped 30 million people rise above its official poverty line of about 70p a day while simultaneously reinforcing the already considerable authority of Xi, now seen as China’s most powerful ruler since Mao Zedong.

China’s breathtaking economic ascent has helped hundreds of millions lift themselves from poverty since the 1980s but in 2016 at least 5.7% of its rural population still lived in poverty, according to a recent UN report, with that number rising to as much as 10% in some western regions and 12% among some ethnic minorities. A recent propaganda report claimed hitting the 2020 target would represent “a step against poverty unprecedented in human history”. In his annual New Year address to the nation last week Xi made a “solemn pledge” to win his war on want. “Once made, a promise is as weighty as a thousand ounces of gold,” he said. The current wave of anti-poverty relocations – a total 9.81 million people are set to be moved between 2016 and 2020 – are taking place across virtually the whole country, in 22 provinces.

[..] Mark Wang, a University of Melbourne scholar who studies Beijing’s use of resettlements to fight poverty, attributed Xi’s focus on the issue partly to the seven years he spent in the countryside during Mao’s Cultural Revolution. Xi was born into China’s “red aristocracy” – the son of the revolutionary elder Xi Zhongxun – but was exiled to the parched village of Liangjiahe in the 1960s after his father strayed to the wrong side of Mao. Wang claimed those years of rural hardship continued to shape Xi’s political priorities: “From the bottom of his heart he knows the Chinese farmers … He understands what they want … He even knows the dirty language the people use in the fields when they are farming.”

But hard-nosed political calculations also explained Xi’s bid to paint himself as a champion of the poor – an effort undermined by a recent crackdown on migrants in Beijing which has reportedly seen tens of thousands of poor workers forced from the capital. “How can you make sure a billion people trust you and say: ‘This is our strong leader?’” asked Wang, who argued one answer was waging war on poverty.

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Dunk.

Trump Takes Credit For Olympics Talks Between North and South Korea (G.)

Donald Trump said on Saturday he was open to talking to Kim Jong-un and hoped good could come from negotiations between North and South Korea over this year’s Winter Olympics in Pyeongchang. The US president also took credit for those talks, saying: “If I weren’t involved they wouldn’t be talking about Olympics right now. They’d be doing no talking or it would be much more serious.” North and South Korea have agreed to discuss cooperation on the games as well as other issues in rare meetings set to begin on Tuesday in Panmunjom, a village that straddles the demilitarised zone between the two countries. Amid international concern over Pyongyang’s ballistic missile and nuclear programmes, the talks will be the first staged since December 2015. The discussions will be held at the Peace House on the South Korean side of Panmunjom.

[..] Speaking to reporters at Camp David in Maryland on Saturday, at the end of a week marked by the publication of an explosive book about his administration and his mental capacity for his job, the president was asked if he would speak to Kim on the telephone. “Sure, I believe in talking,” he said. “… Absolutely I would do that, no problem with that at all.” Asked if that meant there would be no prerequisites for such talk, the president said: “That’s not what I said at all.” Trump added: “[Kim] knows I’m not messing around, not even a little bit, not even 1%. He understands that. “At the same time, if we can come up with a very peaceful and very good solution, we’re working on it with [secretary of state] Rex [Tillerson], we’re working on it with a lot of people. “If something good can happen and come out of those talks it would be a great thing for all of humanity. That would be a great thing for the world. Very important.”

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Prines have been arrested, tortured, forced to sign away their fortunes. But now they protest over water bills? And think they’ll win that one?

11 Saudi Princes Sent to Maximum-Security Prison After Protesting Utility Bills

Saudi authorities made a fresh round of arrests of royal-family members as a group of princes staged a palace protest in the capital over the non-payment of their electricity and water bills. Security services on Thursday arrested the 11 princes after they refused to leave Qasr Al-Hokm in Riyadh, Saudi Arabia’s Attorney General, Sheikh Saud Al Mojeb, said in an emailed statement. The princes, who objected to a decree that ordered the state to stop paying their utility bills, will be held at al-Ha’er prison pending their trial, Al Mojeb said. “No one is above the law in Saudi Arabia, everyone is equal and is treated the same as others,” Al Mojeb said. “Any person, regardless of their status or position, will be held accountable should they decide not to follow the rules and regulations of the state.”

In November, authorities swept up dozens of Saudi Arabia’s richest and most influential people, including princes and government ministers, and detained them at the Ritz-Carlton in Riyadh. The arrests were ordered by a newly established anti-corruption committee, headed by Crown Prince Mohammed bin Salman. The prince’s anti-graft drive appeared designed to tap into a popular vein among young Saudis who are bearing the brunt of low oil prices and complaining, privately and on social media, that the kingdom’s elite were above the rule of law. King Salman on Saturday ordered extra pay for Saudi government workers and soldiers this year after the implementation of value-added taxation and a surge in fuel prices stirred grumbling among citizens, highlighting the kingdom’s struggle to overhaul its economy without risking a public backlash.

The handouts will cost the state more than 50 billion riyals ($13.3 billion), Saud Al-Qahtani, an adviser to the royal court, said on his Twitter account. The princes arrested at the palace were also seeking compensation for a death sentence that was issued against one of their cousins, who had been convicted of killing another man and executed in 2016, according to Al Mojeb’s statement. Earlier Saturday, the Jeddah-based newspaper Okaz reported the princes had been arrested. The Al-Ha’er facility south of Riyadh is one of Saudi Arabia’s maximum-security prisons. Many of Saudi Arabia’s Islamic militants who have fought abroad are held there.

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That’s where the life is.

Scientists Lament The Likely Loss Of ‘Most Of The World’s Coral Reefs’ (Grist)

“Before the 1980s, mass bleaching of corals was unheard of,” Terry Hughes, a coral scientist at Australia’s James Cook University and lead author of the new study, said in a statement. Hughes personally surveyed thousands of miles of the Great Barrier Reef during the 2015 and 2016 bleaching. “It broke my heart,” he told the Guardian last year. The new study finds that 94% of surveyed coral reefs have experienced a severe bleaching event since the 1980s. Only six sites surveyed were unaffected. They are scattered around the world, meaning no ocean basin on Earth has been entirely spared. The implications of these data in a warming world, taken together with other ongoing marine stressors like overfishing and pollution, are damning.

“It is clear already that we’re going to lose most of the world’s coral reefs,” says study coauthor Mark Eakin, coordinator of the National Oceanic and Atmospheric Administration’s Coral Reef Watch program. He adds that by 2050, ocean temperatures will be warm enough to cause annual bleaching of 90% of the world’s reefs. For conservation biologists like Josh Drew, whose work focuses on coral reefs near Fiji, that loss of recovery time amounts to a “death warrant for coral reefs as we know them.” “I’m not saying we’re not going to have reefs at all, but those reefs that survive are going to be fundamentally different,” says Drew, who is not affiliated with the new study. “We are selecting for corals that are effectively weedy, for things that can grow back in two to three years, for things that are accustomed to having hot water.”

Reefs are incalculably important not only as a harbor for life — they shelter about one-quarter of all marine species in just a half-percent of the ocean’s surface area — but also for human nutrition and many nation’s economies.

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Oct 302017
 
 October 30, 2017  Posted by at 9:36 am Finance Tagged with: , , , , , , , , ,  


Salvador Dalí Cadaques 1923

 

The Dollar’s Enjoying a Renaissance (BBG)
Biggest Stock Collapse in World History Has No End in Sight (BBG)
China’s Bonds Spell Disaster (BBG)
China’s Debt Battle Has Global Growth at Stake (BBG)
China Corporate Bond Investors’ Luck May Be About to Run Out (BBG)
China Bond Selloff Spreads to Stocks as Deleveraging Risks Mount (BBG)
US Regulator Wants To Loosen Leash On Wells Fargo (R.)
Damning Verdict On UK Austerity In Major Report (Ind.)
Plan To Create $400 Million Army in Sahel Faces UN Moment Of Truth (G.)
Greek Islanders Are ‘Heroes,’ Says European Commission VP (K.)
Bushman Banter’ Was Crucial To Hunter-Gatherers’ Evolutionary Success (G.)

 

 

“More than a dead cat bounce?!”

The Dollar’s Enjoying a Renaissance (BBG)

After getting pummeled all year by the euro, the dollar is having a moment. In Wall Street parlance, it may be more than just a dead-cat bounce, as politics, economic fundamentals and technicals have converged to give the greenback a boost. The U.S. currency surged in the immediate aftermath of Donald Trump’s election victory before suffering a long descent that lasted from December until last month. That’s when the political viability of U.S. fiscal policy reform in the shape of – as yet to be detailed – tax cuts (and maybe even tax reform) became increasingly likely. Although equity markets have reflected optimism all year that tax cuts would come, the dollar has conveyed doubt along with gold and bonds. The Bloomberg Dollar Index is up more than 4% from its low for the year on Sept. 8, partially rebounding from the more than 10% drop since the end of December.

There could be more to come in the short term if tax cuts happen, because the legislation is likely to contain a provision that would allow U.S. companies to repatriate significant foreign profits and further bolster the economy. That could spark more inflation and put U.S. monetary policy on a more aggressive path. In terms of the euro, the political situation in Europe has been a distraction. After the election of the far-right Alternative for Germany party to the Bundestag on Sept. 24, the independence movement in the Spanish autonomous region of Catalonia has devolved into a political rat’s nest. Uncertainty, regionalism and the risk of escalating discord in Spain are adding to the political dissonance – a stark contrast to the apparent acceptance of U.S. Senate Republicans of higher national debt levels in exchange for tax cuts.

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Lots of Bloomberg today. After the Party Congress, things start to look very different. Stocks and bonds both under a lot of pressure.

Biggest Stock Collapse in World History Has No End in Sight (BBG)

It’s going to take more than the biggest stock slump in world history to convince analysts that PetroChina has finally hit bottom. Ten years after PetroChina peaked on its first day of trading in Shanghai, the state-owned energy producer has lost about $800 billion of market value – a sum large enough to buy every listed company in Italy, or circle the Earth 31 times with $100 bills. In current dollar terms, it’s the world’s biggest-ever wipeout of shareholder wealth. And it may only get worse. If the average analyst estimate compiled by Bloomberg proves right, PetroChina’s Shanghai shares will sink 16% to an all-time low in the next 12 months.

The stock has been pummeled by some of China’s biggest economic policy shifts of the past decade, including the government’s move away from a commodity-intensive development model and its attempts to clamp down on speculative manias of the sort that turned PetroChina into the world’s first trillion-dollar company in 2007. Throw in oil’s 44% drop over the last 10 years and Chinese President Xi Jinping’s ambitious plans to promote electric vehicles, and it’s easy to see why analysts are still bearish. It doesn’t help that PetroChina shares trade at 36 times estimated 12-month earnings, a 53% premium versus global peers. “It’s going to be tough times ahead for PetroChina,” said Toshihiko Takamoto, a Singapore-based money manager at Asset Management One, which oversees about $800 million in Asia. “Why would anyone want to buy the stock when it’s trading for more than 30 times earnings?”

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No mincing words.

China’s Bonds Spell Disaster (BBG)

Qin Han, chief fixed-income analyst at Guotai Junan Securities, doesn’t mince his words when it comes to the rout in Chinese bonds. “Considering the pace of the slump, which is very fast, it’s fair to say we are likely in a bond disaster,” Qin said. Shorter-tenor notes led the selloff in government debt on Monday, making the yield curve inversion the steepest since at least 2006, according to data compiled by Bloomberg. Concern that rising borrowing costs and inflation will erode returns have weighed on the debt market in the past month, with one top-performing macro fund manager saying he was shorting Chinese bonds.

The yield on five-year government bonds surged nine basis points to 3.97% as of 1:29 p.m. in Shanghai, while the cost on 10-year notes jumped six basis points to 3.9%, with the spread reaching eight basis points earlier Monday. The yield gap will widen further, and the cost on debt due in a decade will likely reach 4% “very soon,” said Qin. “The yield will become even more inverted as fragile sentiment prevails,” he said. “Yes, this is overselling, but it’s not the time to buy yet as the overselling could last longer.”

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It’s not just China that’s affected.

China’s Debt Battle Has Global Growth at Stake (BBG)

It used to be that when America sneezed, the world caught a cold. This time around, it’s the risk of a sickly China that poses a bigger threat. The world’s second-largest economy is now trying to ward off the sniffles. While output is still growing at a pace that sees GDP double every decade, the problem remains that much of that has been fueled by a massive buildup of credit. Total borrowing climbed to about 260% of the economy’s size by the end of 2016, up from 162% in 2008, and will hit close to 320% by 2021 according to Bloomberg Intelligence estimates. Economy-wide debt levels are on track to rank among “the highest in the world,” according to Tom Orlik, BI’s Chief Asia Economist. That path may be what prompted outgoing People’s Bank of China Governor Zhou Xiaochuan to warn of the risk of a plunge in asset values following a debt binge, or a “Minsky Moment,” earlier this month.

Given that China is forecast by the International Monetary Fund to contribute more than a third of global growth this year, controlling China’s debt matters far beyond its borders. There are two key components of China’s credit clampdown, each posing challenges to policy makers. First is wringing out bets on property prices. As President Xi Jinping put it in a keynote policy speech to the Communist Party leadership on Oct. 18: Housing is for living in, not for speculation. The latest data show that in some areas, prices are still surging in many cities despite a raft of measures to make it harder for investors to buy real estate with borrowed money. Xi’an, China’s ancient capital, saw home values soar almost 15% in September from a year before. It will be up to regulators to come up with measures that deliver on Xi’s mandate without tipping housing into a downward spiral.

Property crashes in the U.S., Japan and U.K. over the past three decades amply illustrated how damaging they can be to economies. The second key challenge is progress in aligning borrowing costs with borrowers’ ability to repay — rather than with their relationship with the state. China’s financial system has long let companies that are state owned or are seen to be implementing state initiatives get funding more cheaply than others. That’s thanks to the assumption the government would step in if needed to back them up. To help encourage capital to be deployed more efficiently – and to prevent firms that are effectively insolvent keep going thanks to continued funding – policy makers have begun to gradually take away implicit support.

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“A majority of non-bank financial institutions’ debt holdings are corporate bonds, so their selloff can lead to severe consequences..”

China Corporate Bond Investors’ Luck May Be About to Run Out (BBG)

Investors in Chinese company bonds have so far avoided the brunt of a debt selloff that’s driven 10-year sovereign yields to the highest in three years. Their luck may be about to run out. Now that the Communist Party Congress is over, China’s bond holders may be about to get hit by “daggers falling from the sky,” said Huachuang Securities Co., referring to aggressive deleveraging policies. Plus, accelerating inflation and the risk that China’s central bank may follow the Federal Reserve in raising borrowing costs are casting a shadow over the entire bond market. That all means that the situation that’s existed for most of 2017 – sovereign yields rising, and corporate debt remaining relatively resilient – is at risk of cracking. As appetite for bonds of any kind dwindles and authorities roll out measures that target higher-risk investments, company securities are in the line of fire.

“It’s very likely we will see a significant increase in corporate yields in the coming year,” said David Qu, a market economist at Australia & New Zealand Banking in Shanghai. “The trigger could be tougher regulations or a default. A majority of non-bank financial institutions’ debt holdings are corporate bonds, so their selloff can lead to severe consequences. Banks are underestimating authorities’ intentions to tighten regulations.” Signs of a turnaround are already beginning to show, with the yield on three-year AAA notes – the most common grading for Chinese corporate debt – rising 21 basis points this month to the highest level since early June. The spread between those notes and government debt has climbed in October and was last at 116 basis points, though it’s still a long way from this year’s peak of 150 basis points in April.

Losses accelerated earlier this month after People’s Bank of China Governor Zhou Xiaochuan voiced concern about high borrowing levels and signaled that growth could beat expectations. If concerns on regulation intensify and risks of a debt repayment failure appear, the market may go through a major correction in the near term, Huachuang analysts including Qu Qing wrote in a note last week.

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How far will Xi go? Is that big yuan devaluation still in play?

China Bond Selloff Spreads to Stocks as Deleveraging Risks Mount (BBG)

Chinese stocks fell the most since early August, breaking the calm that persisted through the recent Communist Party Congress, as government bonds extended a monthly rout amid concern the government will step up efforts to reduce leverage in the financial sector. The Shanghai Composite Index dropped as much as 1.7% on Monday, and was 0.8% lower at 11:27 a.m. local time. Small-cap shares bore the brunt of the selling, with the ChiNext gauge tumbling as much as 2.5%. Equity indexes in Hong Kong pared gains. The 10-year yield climbed five basis points to 3.90%, a three-year high. While China’s equity market was subdued for most of this month amid state efforts to limit volatility during the twice-a-decade Party gathering, sovereign yields have been climbing.

There’s more than 1 trillion yuan ($150 billion) of funding provided by the central bank that matures this week, the most since February. “Pessimism in the bond market is spilling over to the stocks,” said Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong. “Surging yields of the government bonds are resulting in worsened sentiment and higher funding costs for companies, of which smaller ones will suffer most as they rely more heavily on the market rather than bank loans for financing.” There are also early signs economic data may weaken, after solid figures for most of this year buoyed equities. Chinese shares held steady during the week-long Congress amid speculation the “National Team,” as state-backed funds are referred to, would step in to avoid any large swings.

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Yeah, that sounds great. Wells Fargo should be shut down and its execs put on trial.

US Regulator Wants To Loosen Leash On Wells Fargo (R.)

A leading U.S. regulator wants to make it easier for Wells Fargo to pay employees when they leave, loosening a restriction in place since a phony accounts scandal hit the bank last year, according to people familiar with the matter. The initiative comes as President Donald Trump is trying to lighten rules on Wall Street and the bank regulator, Keith Noreika, acting Comptroller of the Currency (OCC), must weigh whether to vet new Wells Fargo executives. If Noreika’s approach prevails, the OCC could go easier on Wells Fargo and any other large banks sanctioned in the future. Since Noreika took control of the OCC in May, he has advocated easing up on sanctions imposed on Wells Fargo in the wake of the scandal over abusive sales practices, according to current and former officials.

Wells Fargo reached a $190 million settlement in September 2016 after admitting that its sales staff opened as many as 2.1 million accounts without customers’ consent. Since then the estimate has climbed to as many as 3.5 million. As part of the deal with regulators, incoming Wells Fargo executives can face a vetting from the OCC while severance payouts must be cleared by the OCC and a sister agency, the Federal Deposit Insurance Corporation. But Noreika wants officials to work faster when they review severance pay and the agency can choose to waive its check on incoming executives. Hundreds of Wells Fargo employees have had their severance payouts frozen when they left as regulators tried to determine what role those employees might have had in the scandal.

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High time for the Tories to leave.

Damning Verdict On UK Austerity In Major Report (Ind.)

Despite years of painful austerity, the UK’s level of public spending is today no lower as a share of national income than it was after 11 years of a Labour government in 2008, according to a report by the Institute for Fiscal Studies. The major report from the UK’s leading economic think tank shows that deep cuts have left the NHS, schools and prisons in a “fragile state”, and have merely returned public spending to pre-financial crisis levels. The document presents a challenge to claims that Conservative-driven austerity saved the public finances following years of Labour overspending. The think tank’s report goes on to conclude that in the light of the data, Chancellor Philip Hammond’s plan to abolish the UK’s deficit by the mid-2020s is “no longer sensible”.

With his critical Budget approaching in November, it challenges him to admit the target looks “increasingly unlikely” in the light of a worsening economic outlook, exacerbated by Britain’s “terrible” productivity and uncertainty over Brexit. The IFS analysis of public spending levels appears in its pre-Budget look at the Chancellor’s options published on Monday. It found public spending as a share of national income was at a similar level both now and shortly before the financial crash, an event David Cameron and George Osborne claimed Labour overspending left the country ill-prepared for. In 2007-08, public spending as a share of GDP was 39%, it peaked in 2009-10 at 45.1% and is forecast to be 39.6% this year, according to the IFS.

The main justification for austerity has been the need to reduce and eventually abolish the deficit, a target that the IFS refers to as “ever-receding”. The IFS argues Mr Hammond’s critical budget speech next month, will be given against a backdrop of a worsening economic outlook that demands austerity goals are rethought. [..] The IFS report said: “It looks like [Mr Hammond] will face a substantial deterioration in the projected state of the public finances. “He will know that seven years of ‘austerity’ have left many public services in a fragile state. And, in the known unknowns surrounding both the shape and impact of Brexit, he faces even greater than usual levels of economic uncertainty.”

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Armies. The only answer we have.

Plan To Create $400 Million Army in Sahel Faces UN Moment Of Truth (G.)

Unprecedented plans to combat human trafficking and terrorism across the Sahel and into Libya will face a major credibility test on Monday when the UN decides whether to back a new proposed five-nation joint security force across the region. The 5,000-strong army costing $400m in the first year is designed to end growing insecurity, a driving force of migration, and combat endemic people-smuggling that has since 2014 seen 30,000 killed in the Sahara and an estimated 10,000 drowned in the central Mediterranean. The joint G5 force, due to be fully operational next spring and working across five Sahel states, has the strong backing of France and Italy, but is suffering a massive shortfall in funds, doubts about its mandate and claims that the Sahel region needs better coordinated development aid, and fewer security responses, to combat migration.

The Trump administration, opposed to multilateral initiatives, has so far refused to let the UN back the G5 Sahel force with cash. The force commanders claim they need €423m in its first year, but so far only €108m has been raised, almost half from the EU. The British say they support the force in principle, but have offered no funds as yet. Western diplomats hope the US will provide substantial bilateral funding for the operation, even if they refuse to channel their contribution multilaterally through the UN. France, with the support of the UN secretary general, António Guterres, and regional African leaders, has been pouring diplomatic resources into persuading a sceptical Trump administration that the UN should financially back the force.

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With a straight face. But the refugees must stay on the islands, even if there’s no place for them.

Greek Islanders Are ‘Heroes,’ Says European Commission VP (K.)

The Greek islanders in the eastern Aegean who have helped thousands of refugees under adverse conditions are “heroes,” according to the European Commission’s First Vice President Frans Timmermans. In an interview with Sunday’s Kathimerini ahead of his visit to Greece on Monday, Timmermans said that, despite being under immense pressure, the mayors and residents of the islands are doing everything in their power to help refugees.Timmermans, who has described the situation on the islands as “unacceptable,” expressed concern over the difficulty the Greek government has in absorbing EU funds – around €1 billion – for infrastructure to shelter some 50,000 refugees.

“We are faced with a series of problems,” he said, adding that that the Commission’s experience “has shown that it’s hard to get the support we provide in the spot where it is needed most.” Timmermans, who was one of the main architects of last year’s deal between the EU and Turkey to stem the flow of migrants into Europe, said that people whose asylum applications have been processed should be returned to Turkey as stipulated in the agreement. But with just 1,600 returns having taken place since 2016, Timmermans said that “this doesn’t happen enough.” He refrained from placing blame on either Greece or Turkey but insisted that the system must not be changed. Migrants, he said, must stay on the islands, despite the difficulties, because their transfer to the mainland would send a wrong message and create a new wave of arrivals.

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” If the success of a civilisation is judged by its endurance over time, this means the Khoisan are by far the most successful, stable and sustainable civilisation in human history.”

Bushman Banter’ Was Crucial To Hunter-Gatherers’ Evolutionary Success (G.)

Barely a day goes by when proponents of greater taxation, universal income and other initiatives aimed at addressing systematic inequality are not accused of inciting the “politics of envy”. Doing so is an effective way of closing down debate; envy is, after all, among the deadliest of the “deadly sins”. Yet politicians inclined to dismiss inequality in this way may do so at their peril. For the evidence of our hunting and gathering ancestors suggests we are hard-wired to respond viscerally to inequality. In the 1960s, the Ju/’hoansi “Bushmen” of the Kalahari desert became famous for turning established views of social evolution on their head. But their contribution to our understanding of the human story is far more important than simply making us rethink our past.

Until then, it had been widely believed that hunter gatherers endured a near-constant battle against starvation. But when a young Canadian anthropologist, Richard B Lee, conducted a series of simple economic input-output analyses of the Ju/’hoansi as they went about their daily lives, he found not only did they make a good living from hunting and gathering, but they did so on the basis of only 15 hours’ work per week. On the strength of this, anthropologists redubbed hunter-gatherers “the original affluent society”. I started working with Ju/’hoansi in the early 1990s. By then, more than a half-century of land dispossession meant that, other than in a few remote areas, they formed a highly marginalised underclass eking out a living on the dismal fringes of an ever-expanding global economy. I have been documenting their often traumatic encounters with modernity ever since.

The importance of understanding how hunter-gatherers made such a good living has only recently come to light, thanks to a sequence of genomic studies and archaeological discoveries. These show that the broader Bushmen population (referred to collectively as Khoisan) are far older than we had ever imagined, and have been hunting and gathering continuously in southern Africa for well over 150,000 years. If the success of a civilisation is judged by its endurance over time, this means the Khoisan are by far the most successful, stable and sustainable civilisation in human history.

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Oct 102017
 
 October 10, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , ,  


Camille Pissarro Rue Saint-Lazare, Paris 1897

 

Britain Can’t Cope With A Fall In House Prices (Ind.)
A Remarkable Run for Stocks Gets More Extraordinary (BBG)
Bill Gross Blames Fed For ‘Fake Markets’ (R.)
ECB’s Knot Warns of Market Correction as Risk May Be Underpriced (BBG)
Catalan President To Declare “Gradual Independence” On Tuesday (ZH)
Dear Catalans – A Message From The Chairman (Ren.)
The Rise and Fall of Emmanuel Macron (Steve Keen)
Kobe Steel Faked Data For Metals Used In Planes And Cars (BBG)
Prepare For No-Deal Brexit, Theresa May Warns Britain (Ind.)
The Rising Of Britain’s ‘New Politics’ (John Pilger)
Saudi Arabia In Huge Arms Deals With US AND Russia (N.au)
India Had The Most Confident Consumers. Then Their Cash Disappeared (BBG)
The Big Amazon Subsidy is Doomed (WS)
No Joy in Trumpville (Kunstler)

 

 

Britain and many other countries. Their economies are propped up by bubbles.

Britain Can’t Cope With A Fall In House Prices (Ind.)

[..] most properties in the UK still belong to households. Families, by and large, don’t need to sell. So what would falling property prices mean for them? First, many pension funds and investment bonds rely on UK property to generate income for their beneficiaries. Second, we have what economists call the wealth effect. Economists have long associated consumers’ perceived real estate wealth with spending behaviour: if you believe your house is worth a lot, you feel financially secure. And then you allow yourself to save less and spend more. Just consider the rising number of people who plan to subsidise their retirement with wealth generated by their homes. If their assumed valuations start to look shaky, these people will spend less to build up their savings. The pain would be felt by many: about 64% of households in England are owner-occupiers.

The wealth effect is important in most developed economies but even more so in the UK which relies on ever-rising levels of consumer spending for its growth. A 10% fall in the value of dwellings in the UK would correspond to a loss of wealth equivalent to more than the value of all the cars exported from the UK in a decade. The climate of economic uncertainty, reduced consumption and falling real estate values brings an additional problem for the UK. Britain has long had a trade deficit, but it has also benefited from positive foreign direct investment. The current account itself has been in the red for nearly 20 years now but the hundreds of billions of inward foreign investment channelled to UK property over the same period meant that this deficit remained manageable – just about.

According to the Bank of England, overseas companies have accounted for roughly half of all UK commercial real estate transactions since 2013. If international investors expect prices to fall in any sustained way, the inflow of money would stop and many would sell up. Why buy or hold an asset just at the start of what might be a long decline? This would not only put pressure on real estate prices but would affect UK GDP, reduce government revenues and worsen the UK current account position. The credit rating of the UK would come under more pressure, and trillions of UK government debt would cost more to refinance. Then the UK government deficit would deteriorate further, taxes might rise to cover for this and the domino effect would be in full cry, spreading to all sectors of the economy, similar to events in Greece.

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Bloated. No heartbeat.

A Remarkable Run for Stocks Gets More Extraordinary (BBG)

With a 2% gain in September, the S&P 500 Index has set a record: positive returns in each of the first 10 months of the year. There’s never been a full calendar year when this has happened every month. Going back to November 2016, the index has ripped off 12 consecutive monthly gains. The S&P hasn’t had a down quarter since the third quarter of 2015, a streak of eight in a row without a loss. Since the start of 2013, 18 of the past 19 quarters have been positive. And it’s not like stocks are melting up either. They are going up slowly as volatility is slowly going down. Not only have stocks been consistently profitable recently, but they have done so with remarkably low volatility. This year, there has yet to be a 2% move up or down on the S&P 500.

For a frame of reference, in 2009, there were 55 separate 2% up or down days and there were 35 in 2011. The annualized volatility of daily returns on stocks since 1928 has been 18.7%. For 2017, that number is 7%, a little more than one-third of the long-term average. The average absolute daily price change this year on the S&P 500 is just 31 basis points. If the year ended right now, that would be the lowest daily price change on record since 1965. The worst peak-to-trough drawdown is just 2.8% this year. Over the past 100 years, the average intrayear drawdown in stocks has been around 16%. The shallowest calendar-year peak-to-trough drawdown was in 1995, when the worst loss in stocks was just 3.3% for the year.

So investors in U.S. stocks have had double-digit gains three-quarters of the way through the year, with increases every month, nonexistent volatility, and nothing even approaching a 5% correction. It’s looking like a record-breaking year in terms of a calm market. As far as investing in stocks goes, this year has been about as good as it gets – so far. It’s worth remembering that stocks are cyclical, even if those cycles don’t run on set schedules. The following shows the historical drawdown profile of the S&P 500 going back to just before the Great Depression:

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There are no investors: “There is no real advantage in the global marketplace. Everything is so tight, it is hard to pick a winner from a group that is fake.”

Bill Gross Blames Fed For ‘Fake Markets’ (R.)

Influential bond investor Bill Gross of Janus Henderson Investors said on Monday that financial markets are artificially compressed and capitalism distorted because of the U.S. Federal Reserve’s loose monetary policy. “I think we have fake markets,” Gross said at a Janus Henderson event. Investors should brace for higher Treasury bond yields as the Fed begins to unwind its quantitative easing program but yields will edge up “only gradually,” he said. Gross, who oversees the $2.1 billion Janus Henderson Global Unconstrained Bond Fund, said the Fed’s loose monetary policy had resulted in investors chasing yield and thus producing tight corporate spreads everywhere around the globe.

“Even China and South Korea – perfect examples of the risk trade – are at very narrow (corporate spread) levels. There is no real advantage in the global marketplace. Everything is so tight, it is hard to pick a winner from a group that is fake.” Gross reiterated his warning that Fed Chair Janet Yellen and other global policy makers should not rely on historical models such as the Taylor Rule and the Phillips curve “in an era of extraordinary monetary policy.” Economists John Taylor and A.W. Phillips devised models for guiding interest-rate policy based, respectively, on inflation and the unemployment rate. Those models disregard the importance of private credit in the economy, according to Gross.

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In complete denial of what they have wrought.

ECB’s Knot Warns of Market Correction as Risk May Be Underpriced (BBG)

Financial markets may be underpricing global risks, leaving them vulnerable to a major correction, according to European Central Bank Governing Council member Klaas Knot warned. As global stocks surge, measures of volatility suggest unprecedented calm even as crises around the world – including the Catalan separatists in Spain, Turkey’s diplomatic row with the U.S., North Korea’s missile tests and the danger of a hard Brexit – make political headlines. “It increasingly feels uncomfortable to have low volatility in the markets on the one hand while on the other hand there are risks in the global economy,” said Knot, who is also the president of the Dutch Central Bank.

Similarly, a sooner-than-expected normalization of U.S. monetary policy – where financial markets see a slower pace of rate hikes than what the Federal Reserve communicates – would quickly turn investor sentiment, the DNB wrote in a report on financial stability which Knot presented in Amsterdam on Monday. That makes the “risk of sharp market corrections real,” it said. Still, Knot said there’s “no one within the context of the ECB already talking about an increase of interest rates. Rates will “stay low for a long time.” In the run-up to the next policy decision on Oct. 26, ECB officials are showing differing preferences for the way forward with quantitative easing, which is set to run at €60 billion a month and total almost €2.3 trillion by the end of December.

Executive Board member Peter Praet, who crafts the policy proposals, said last week that calm markets may allow the final stages of the bond-buying plan to be dragged out. “The program has achieved what realistically could be expected from it,” Knot said about QE, adding that it supported growth, reduced investment costs and ended deflationary risks.

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Talk!

Catalan President To Declare “Gradual Independence” On Tuesday (ZH)

In the latest twist ahead of tomorrow’s much anticipated “next step” announcement to be made by the Catalan secessionists, which is still to be formalized, Spain’s EFE newswire reports that Catalonian President Carles Puigdemont has reportedly drafted a declaration of “gradual independence”, that will be “gradually effective” and which will plan to start a constituent process. The declaration, which will cap what El Periodico dubbed “the most critical moment for Catalonia” will allegedly insist on Catalonia’s wish to negotiate with central government and the need for mediation, although in an indication that Puigdemont may be back tracking from his hard-line “binary” stance, EFE adds that the Declaration won’t lead to parliamentary vote, and as such may be non-binding. The news is the latest development in a fast-paced day, in which as we reported earlier this morning, the ruling People’s Party issued a thinly veiled death threat to the President of Catalonia.

“Let’s hope that nothing is declared tomorrow because perhaps the person who makes the decalartion will end up like the person who made the declaration 83 years ago.” Additionally, perhaps as a Plan B, Catalan secessionists opened a second-front in their campaign against the government in Madrid, urging the opposition Socialists to forge a coalition to oust Spanish Prime Minister Mariano Rajoy, Bloomberg reported and added that while the Socialists have so far refused to sign up to the plan, the Catalan groups pushing it have already persuaded the populist Podemos party to back and accept a Socialist-only government. Should the Socialists get on board, the alliance would have 172 seats in the 350-strong chamber and would look to add the Basque Nationalists to form a majority. Rajoy heads a minority administration with 134 deputies and can be toppled with a no-confidence motion.

Meanwhile, as reported overnight, Catalan secessionist leader Carles Puigdemont faced increased pressure on Monday to abandon plans to declare independence from Spain, with France and Germany expressing support for the country’s unity. The Madrid government, grappling with Spain’s biggest political crisis since an attempted military coup in 1981, said it would respond immediately to any such unilateral declaration.

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But then there’s this.

Dear Catalans – A Message From The Chairman (Ren.)

Dear Catalans, I must confess that I feel rather like St. Paul must have felt when he wrote to the Corinthians – the need to address an entire region is a grave affair. But the matter I must address today is of great importance to our community of nations: Enough is enough. We need to get a few things cleared up before this regrettable idea of independence goes any further. There are a number of things that have been rather opaque since we set up the EU. This was deliberate – there was simply no reason for you to know until now. There should never have been any need to disclose this information, and indeed there wouldn’t have been, were it not for those tiresome Brits setting such a terrible example for everyone last year. We must resolve this matter quickly so that we can all get back to the business of being one big happy family again. Here’s what you need to know: We ‘own’ Spain, and Spain ‘owns’ you.

Since you have seen reason to doubt the binding nature of this arrangement, perhaps I should explain to you how it works: Catalonia is a wholly owned subsidiary of Spain – this is all covered in the constitution, and is totally binding, although you may not have realised that when you voted upon it. 1) It was democratic you see – one simply must read the small print, but of course one never does, does one? 2) Spain is a subsidiary of the EU – this is all covered by EU treaty, which of course is also binding, as has been explained on a number of occasions by our Head of European Political Operations, dear Jean-Claude. The following points may be difficult for you to understand, because we’ve never had to explain the structure beyond this point.

3) The EU is not owned by anyone, but of course ‘ownership’ and ‘control’ are really the same thing, but without all the legal drudgery that has become so tiresome of late. 4) The EU is controlled by the monetary system that we put in place. I am not referring to the euro, which is simply the local mechanism for this region. I am referring to the banking system, which over-arches everything. The banks are the organisations that loan the money into existence in the first place. You didn’t know that did you? Don’t worry, very few people do…and that’s worked very well until now. This is how it works: a) Governments don’t actually buy anything with taxes. They spend money that the banks loan to them by buying their IOUs, AKA sovereign bonds. b) When governments eventually get round to collecting taxes they use them to cancel some of their IOUs, plus they pay interest on all of them – naturally.

c) Since all politicians inevitably make promises that they can’t afford in order to get elected – a practice that we encourage by funding both sides – there is never enough taxation collected to fully redeem the IOUs, and there never will be. Why not? Because of the 8th wonder of the world – compound interest! Governments across the globe are paying the banks interest on interest on interest on money that they could have just printed for themselves in the first place!

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Major demo’s all over France today. Macron plans to fire 100,000+ civil servants.

The Rise and Fall of Emmanuel Macron (Steve Keen)

Since his election, Macron’s popularity has plunged faster than any French president in history. Attempts to explain this decline have focused on his pompous approach to governance—literally professing to want to govern like Jupiter. But there is a deeper cause. He has misdiagnosed the origins of the French economic malaise, and therefore his Jovian economic thunderbolts will do more harm than good. It’s easy to show the blatant errors in the president’s perspective by merely looking at the data. Macron’s economic agenda cites an excessively large public sector as the fundamental cause of France’s malaise, and the main ‘Evidence for the Prosecution’ is the towering level of government debt: as of March 2017, this was 111% of GDP, almost twice the 60% of GDP maximum allowed by the Maastricht Treaty.

But private liabilities are worse still: 187% of GDP. So, why does Macron, in common with politicians of almost all stripes, not worry about this far higher level of debt? The reason is that, given he was schooled in mainstream economics for his Master’s degree at ENA (École Nationale d’administration), Macron accepts the argument that private debt doesn’t matter. It’s just a “pure redistribution”, to quote Ben Bernanke, which “absent implausibly large differences in marginal spending propensities” between savers and lenders, “should have no significant macroeconomic effects.” This comforting belief is sharply contradicted by the data for countries which, like France, have a private debt ratio well in excess of 100% of GDP. If Bernanke’s assumption were correct, there would be little or no correlation between credit (the annual change in private debt) and unemployment.

However, in his home country of the USA, the relationship between credit and unemployment since 1990 is minus 0.91: meaning rising credit reduces unemployment, and falling credit increases it. In France’s case, the correlation is lower but still substantial at minus 0.62, when according to mainstream economics, it should be close to zero. So credit matters, not merely because savers are much less likely to consume than debtors, but because bank credit creates new money. Since this new cash is spent by the borrowers, it adds to aggregate demand. And falling credit over time—which France has generally been experiencing since the early 1970s—therefore implies rising unemployment.

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This could spiral out of control. Why would any company take the risk of deadly incidents, instead of demanding recalls?

Kobe Steel Faked Data For Metals Used In Planes And Cars (BBG)

Kobe Steel unleashed an industrial scandal that reverberated across Asia’s second-largest economy after saying its staff falsified data related to strength and durability of some aluminum and copper products used in aircraft, cars and maybe even a space rocket. The Japanese company’s stock ended 22% lower in Tokyo as customers including Toyota, Honda and Subaru said they had used materials from Kobe Steel that were subject to falsification. Boeing, which gets some parts from Subaru, said there’s nothing to date that raises any safety concerns. Rival aluminum makers gained. Kobe Steel’s admission raises fresh concern about the integrity of Japanese manufacturers, and follows Takata misleading automakers about the safety of its air bags, and last week’s recall by Nissan of cars after regulators discovered unauthorized inspectors approved vehicle quality.

Kobe Steel said on Sunday the products were delivered to more than 200 companies but didn’t disclose customer names, with the falsification intended to make the metals look as if they met client quality standards. Chief Executive Officer Hiroya Kawasaki is now leading a committee to probe quality issues. The fabrication of figures was found at all four of Kobe Steel’s local aluminum plants in conduct that was systematic, and for some items the practice dated back some 10 years ago, Executive Vice President Naoto Umehara said on Sunday. Toyota said it has found Kobe Steel materials, for which the supplier falsified data, in hoods, doors and peripheral areas. “We are rapidly working to identify which vehicle models might be subject to this situation and what components were used,” Toyota spokesman Takashi Ogawa said. “We recognize that this breach of compliance principles on the part of a supplier is a grave issue.”

Kobe Steel said it discovered the falsification in inspections on products shipped from September 2016 to August 2017, adding there haven’t been any reports of safety issues. The products account for 4% of shipments of aluminum and copper parts as well as castings and forgings. “The incident is serious,” said Takeshi Irisawa at Tachibana Securities. “At the moment, the impact is unclear but if this leads to recalls, the cost would be huge. There’s a possibility that the company would have to shoulder the cost of a recall in addition to the cost for replacement.”

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We might be in for some crazy surprises in the UK. They’ve lost the script.

Prepare For No-Deal Brexit, Theresa May Warns Britain (Ind.)

Theresa May has warned the British public to prepare for crashing out of the EU with no deal, setting out emergency plans to avoid border meltdown for businesses and travellers. As hopes of an agreement appeared to fade at home and abroad, the Prime Minister – for the first time – set out detailed “steps to minimise disruption” on Brexit day in 2019. They included plans for huge inland lorry parks to cope with the lengthy new customs checks that will be needed – to avoid ports becoming traffic-choked. The move came as Ms May admitted she expected the deadlocked negotiations to drag on for another year before any possible breakthrough. At Westminster, Brexiteer Tories exploited the Prime Minister’s weakness – after last week’s attempted coup – to demand that Chancellor Philip Hammond, and other voices of compromise, be sidelined.

Bernard Jenkin attacked the EU for “refusing to discuss the long term relationship between the EU and the UK”, asking the Prime Minister: “When does she call time?” Meanwhile, in Brussels, Ms May’s insistence that she would make no further compromises in the talks – she told the EU “the ball’s in their court” – was firmly rebuffed. “There has been, so far, no solution found on step one, which is the divorce proceedings, so the ball is entirely in the UK’s court for the rest to happen,” said Margaritis Schinas, the European Commission’s chief spokesman. Laying bare the impasse, Brexit Secretary David Davis did not attend the first day of the resumed talks, although he is expected to be in Brussels on Tuesday.

In the Commons, the Prime Minister continued to insist that “real and tangible progress” towards an agreement had been made since her high-profile speech in Florence last month. But she also made clear that new policy papers on trade and customs were intended to show Britain could operate as an “independent trading nation” – even if no trade deal was reached.

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Always Pilger.

The Rising Of Britain’s ‘New Politics’ (John Pilger)

Delegates to the recent Labour Party conference in Brighton seemed not to notice a video playing. The world’s third biggest arms manufacturer, BAE Systems, supplier to Saudi Arabia, was promoting guns, bombs, missiles, naval ships and fighter aircraft. It seemed a perfidious symbol of a party in which millions of Britons now invest their political hopes. Once the preserve of Tony Blair, it is now led by Jeremy Corbyn, whose career has been very different and is rare in British establishment politics. Addressing the conference, the campaigner Naomi Klein described the rise of Corbyn as “part of a global phenomenon. We saw it in Bernie Sanders’ historic campaign in the US primaries, powered by millennials who know that safe centrist politics offers them no kind of safe future.”

In fact, at the end of the US primary elections last year, Sanders led his followers into the arms of Hillary Clinton, a liberal warmonger from a long tradition in the Democratic Party. As President Obama’s Secretary of State, Clinton presided over the invasion of Libya in 2011, which led to a stampede of refugees to Europe. She gloated at the gruesome murder of Libya’s president. Two years earlier, Clinton signed off on a coup that overthrew the democratically elected president of Honduras. That she has been invited to Wales on 14 October to be given an honorary doctorate by the University of Swansea because she is “synonymous with human rights” is unfathomable. Like Clinton, Sanders is a cold-warrior and “anti-communist” obsessive with a proprietorial view of the world beyond the United States.

He supported Bill Clinton’s and Tony Blair’s illegal assault on Yugoslavia in 1998 and the invasions of Afghanistan, Syria and Libya, as well as Barack Obama’s campaign of terrorism by drone. He backs the provocation of Russia and agrees that the whistleblower Edward Snowden should stand trial. He has called the late Hugo Chavez – a social democrat who won multiple elections – “a dead communist dictator”. While Sanders is a familiar American liberal politician, Corbyn may be a phenomenon, with his indefatigable support for the victims of American and British imperial adventures and for popular resistance movements. [..] And yet, now Corbyn is closer to power than he might have ever imagined, his foreign policy remains a secret. By secret, I mean there has been rhetoric and little else. “We must put our values at the heart of our foreign policy,” he said at the Labour conference. But what are these “values”?

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Stop!

Saudi Arabia In Huge Arms Deals With US AND Russia (N.au)

Saudi Arabia has been quietly planning to build its own military empire and over the last week, it’s announced how it plans to do so. With Donald Trump and Vladimir Putin’s help. Despite increasing criticism over the United States’ military sales to Saudi Arabia, the US State Department has paved the way for the potential purchase of controversial — and expensive — military equipment. On Saturday, the US State Department announced the approval to sell Saudi Arabia 44 THAAD anti-missile defence systems, 360 interceptor missiles, 16 mobile fire-control and communication stations and seven THAAD radars at an estimated price tag of $US15 billion, according to a press release from the Pentagon’s Defence Security Cooperation Agency.

The sale, supplied by Lockheed Martin and Raytheon – also includes 43 trucks, generators, electrical power units, communications equipment, tools, test and maintenance equipment and “personnel training and training equipment”. The department said the sale of the equipment to the Saudi people would help provide a balance to a relatively unstable environment in the Gulf and to help the US forces enlarge its allied grip on the region. “THAAD’s exo-atmospheric, hit-to-kill capability will add an upper-tier to Saudi Arabia’s layered missile defence architecture.” Meanwhile, King Salman of Saudi Arabia has entered into a preliminary agreement to purchase Russia’s S-400 surface-to-air missile defence system, he announced in Moscow last week. The king has been visiting Russian President Vladimir Putin in talks over oil and Syria, Saudi’s al Arabiya television reported. It is the first visit of a Saudi monarch to visit Mr Putin. It is expected the sale will beef-up security in the nuclear-hungry Middle East.

The US sale has not yet “concluded”, it confirmed. US Congress has 30 days to object. The THAAD – Terminal High Altitude Area Defence – missile system is used to defend against incoming missile attacks and “is one of the most capable defensive missile batteries in the US arsenal and comes equipped with an advanced radar system”, according to AFP. “This sale furthers US national security and foreign policy interests, and supports the long-term security of Saudi Arabia and the Gulf region in the face of Iranian and other regional threats,” the State Department said in a statement.

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“Manufacturing jobs are forecast to fall about 30% this year..”

India Had The Most Confident Consumers. Then Their Cash Disappeared (BBG)

Consumption was India’s big story. Its 1.3 billion population was expected to guzzle everything from iron to iPhones, driving global growth and cheering investors such as Apple and Goldman Sachs. For a while everything seemed smooth. Indians were the world’s most confident consumers and the $2 trillion economy was the fastest-growing big market. Then, last November, Prime Minister Narendra Modi voided 86% of currency in circulation, worsening a slowdown that had started earlier in the year. Climbing global oil prices and a tightening Federal Reserve could also complicate domestic policy making. “There are a number of uncertainties which are clouding the short-term outlook of the Indian economy,” said Kaushik Das, Mumbai-based chief economist at Deutsche Bank. “Risk of policy error remains high.”

Indians fell off the top of Mastercard’s Asia Consumer Confidence Index in the first half of 2017, and a report from the nation’s central bank last week confirmed the bleak outlook. About 27% of Indians surveyed said incomes have fallen, pushing overall sentiment into the “pessimistic zone.” Employment “has been the biggest cause of worry,” the Reserve Bank of India said. Government data show food price deflation, hurting rural incomes, and supply of new houses in India’s top eight cities falling 33% January-September, hit by a demand slowdown. Convincing Indians to consume would first require assuring them they’ll have a job. It won’t be easy for Modi to do so. Manufacturing jobs are forecast to fall about 30% this year and broader surveys show the hiring outlook is near a 12-year low. There was an absolute decline in employment between March 2014 and 2016, “perhaps happening for the first time in independent India”.

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Politics can’t and won’t keep up.

The Big Amazon Subsidy is Doomed (WS)

Amazon battled states for years to avoid having to collect sales taxes. Walmart was on the other side of the fight, along with state revenue offices. Walmart had to add sales taxes to all its sales in California, whether online or brick-and-mortar, which at the time ranged from 7.25% to 9.75% depending on location. For shoppers, that price difference was reason enough to switch to Amazon. It was in essence a massive taxpayer subsidy for Amazon. But Amazon lost that battle and started charging sales taxes in California in September, 2012. State after state followed. By early 2017, Amazon was charging sales taxes in all 45 states that have state-wide sales taxes and in Washington DC.

Still, even in 2016, online retailers dodged paying $17.2 billion in sales taxes on out-of-state sales, according to the National Conference of State Legislatures. For them, it’s a massive price advantage that other retailers didn’t get. The fight over sales taxes is based on a Supreme Court case of 1992 – Quill Corp. v. North Dakota – that barred states from forcing companies to collect sales taxes if they didn’t have physical facilities in those states, such as stores or warehouses. For Amazon, this got increasingly complicated as it is building out its distribution network, with warehouses and facilities around the country. So now Amazon is collecting sales taxes. Problem solved? Nope.

Amazon only collects sales taxes on sales of inventory that it owns (first-party sales). But Amazon is also a platform that sells merchandise owned by other sellers (third-party sales). About half of the goods sold on the Amazon platform fall into this category. Amazon leaves sales tax collections to the 2 million merchants on its platform. But they claim that it’s not their job to collect sales taxes, and most of them don’t collect them. Hence, third-party sales still get the taxpayer subsidy. Amazon isn’t the only out-of-state retailer or platform. It’s just the biggest one. eBay and many others are impacted by it too. Legally, this remains murky. But states and brick-and-mortar retailers are fighting to get the subsidy scrapped. “It’s a fairness issue,” Minnesota Senator Roger Chamberlain told Bloomberg. “Right now, there’s an unlevel playing field that disadvantages brick-and-mortar stores.”

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“History is a trickster.”

No Joy in Trumpville (Kunstler)

I took advantage of the calm before the storm, to pay a visit on Saturday to my hometown, Trumpville, a.k.a. Manhattan. My college buddy had a son who was acting in an off-Broadway play (closing night, so don’t bother asking). The city I knew as a kid — which, frankly, I never liked very much — seemed as lost and far away as Peter Stuyvesant’s quaint Dutch colonial outpost did to me in 1962. That lost city of my childhood was one in which a boy could breeze right into the Metropolitan Museum of Art on a weekday afternoon — my school was one block away from it — without the least hindrance. The place was free. There was no “donation” shakedown at the entrance. And hardly anyone was there. Do you know why? Answer: because most of the adults on the island were at work. It was a mostly middle-class city back then.

I know. It’s hard to believe, given the more recent developments in American life — the salient one being the extreme and perverse financialization of the economy. That is actually what you see manifested on-the-ground (and up-in-the-air) when you visit New York these days. To be specific, what I saw sitting on a bench along the High Line — a walking trail built on an old railroad trestle through the former Meatpacking District into Chelsea — was all the wealth of the flyover states funneled into a few square miles of land on the edge of the Atlantic Ocean. As I watched the endless stream of tourists and hipsters stride by in their selfie raptures, I pictured the various downtowns of the Midwest I’ve visited over the years — St Louis, Kansas City, Minneapolis, Detroit, Akron, Dayton, Cleveland, Louisville, Tulsa, and many more — and remembered the incredible desolation of their centers.

There was no one there, certainly no tourists or hipsters, really no activity to speak of. They were ghost cities. The net effect of financialization has been the asset-stripping of every other place in America for the benefit of a very few cities on the coasts, and especially the financial engineers within them. Thus, the ironic rise of New Yorker Trump as the avatar and supposed savior of all those people “out there” in their dying hometowns and beyond. And their tremendously bitter enmity against the “blue” coastal elites, of which Trump is a nonpareil exemplar. History is a trickster.

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Jul 182017
 
 July 18, 2017  Posted by at 1:03 pm Finance Tagged with: , , , , , , ,  


Hieronymus Bosch Ascent of the Blessed c1510

 

Reading the news on America should scare everyone, and every day, but it doesn’t. We’re immune, largely. Take this morning. The US Republican party can’t get its healthcare plan through the Senate. And they apparently don’t want to be seen working with the Democrats on a plan either. Or is that the other way around? You’d think if these people realize they were elected to represent the interests of their voters, they could get together and hammer out a single payer plan that is cheaper than anything they’ve managed so far. But they’re all in the pockets of so many sponsors and lobbyists they can’t really move anymore, or risk growing a conscience. Or a pair.

What we’re witnessing is the demise of the American political system, in real time. We just don’t know it. Actually, we’re witnessing the downfall of the entire western system. And it turns out the media are an integral part of that system. The reason we’re seeing it happen now is that although the narratives and memes emanating from both politics and the press point to economic recovery and a future full of hope and technological solutions to all our problems, people are not buying the memes anymore. And the people are right.

Tyler Durden ran a Credit Suisse graph overnight that should give everyone a heart attack, or something in that order. It shows that nobody’s buying stocks anymore, other than the companies who issue them. They use ultra-cheap leveraged loans to make it look like they’re doing fine. Instead of using the money/credit to invest in, well, anything, really. You can be a successful US/European company these days just by purchasing your own shares. How long for, you ask?

There Has Been Just One Buyer Of Stocks Since The Financial Crisis

As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.” What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

Why this rush by companies to buyback their own stock, and in the process artificially boost their Earning per Share? There is one very simple reason: as Reuters explained some time ago, “Stock buybacks enrich the bosses even when business sags.” And since bond investor are rushing over themselves to fund these buyback plans with “yielding” paper at a time when central banks have eliminated risk, who is to fault them.

More concerning than the unprecedented coordinated buybacks, however, is not only the relentless selling by institutions, but the persistent unwillingness by “households” to put any new money into the market which suggests that the financial crisis has left an entire generation of investors scarred with “crash” PTSD, and no matter what the market does, they will simply not put any further capital at risk.

In other words, the system doesn’t only keep zombies alive, making it impossible for anyone to see who’s healthy or not, no, the system itself has become a zombie. The article mentions Blackrock’s Larry Fink talking about ‘cash on the sidelines’, but puhlease… Central banks have injected another $2 trillion into the zombie system this year alone, and that gives you that graph. Basically no-one supposedly on the sideline has a penny left.

So that’s your stock markets. Let’s call it bubble no.1. Another effect of ultra low rates has been the surge in housing bubbles across the western world and into China. But not everything looks as rosy as the voices claim who wish to insist there is no bubble in [inject favorite location] because of [inject rich Chinese]. You’d better get lots of those Chinese swimming in monopoly money over to your location, because your own younger people will not be buying. Says none other than the New York Fed.

Student Debt Is a Major Reason Millennials Aren’t Buying Homes

College tuition hikes and the resulting increase in student debt burdens in recent years have caused a significant drop in homeownership among young Americans, according to new research by the Federal Reserve Bank of New York. The study is the first to quantify the impact of the recent and significant rise in college-related borrowing—student debt has doubled since 2009 to more than $1.4 trillion—on the decline in homeownership among Americans ages 28 to 30. The news has negative implications for local economies where debt loads have swelled and workers’ paychecks aren’t big enough to counter the impact. Homebuying typically leads to additional spending—on furniture, and gardening equipment, and repairs—so the drop is likely affecting the economy in other ways.

As much as 35% of the decline in young American homeownership from 2007 to 2015 is due to higher student debt loads, the researchers estimate. The study looked at all 28- to 30-year-olds, regardless of whether they pursued higher education, suggesting that the fall in homeownership among college-goers is likely even greater (close to half of young Americans never attend college). Had tuition stayed at 2001 levels, the New York Fed paper suggests, about 360,000 additional young Americans would’ve owned a home in 2015, bringing the total to roughly 2.9 million 28- to 30-year-old homeowners. The estimate doesn’t include younger or older millennials, who presumably have also been affected by rising tuition and greater student debt levels.

Young Americans -and Brits, Dutch etc.- get out of school with much higher debt levels than previous generations, but land in jobs that pay them much less. Ergo, at current price levels they can’t afford anything other than perhaps a tiny house. Which is fine in and of itself, but who’s going to buy the existent McMansions? Nobody but the Chinese. How many of them would you like to move in? And that’s not all. Another fine report from Lance Roberts, with more excellent graphs, puts the finger where it hurts, and then twists it around in the wound a bit more:

People Buy Payments –Not Houses- & Why Rates Can’t Rise

Over the last 30-years, a big driver of home prices has been the unabated decline of interest rates. When declining interest rates were combined with lax lending standards – home prices soared off the chart. No money down, ultra low interest rates and easy qualification gave individuals the ability to buy much more home for their money. The problem, however, is shown below. There is a LIMIT to how much the monthly payment can consume of a families disposable personal income.

In 1968 the average American family maintained a mortgage payment, as a percent of real disposable personal income (DPI), of about 7%. Back then, in order to buy a home, you were required to have skin in the game with a 20% down payment. Today, assuming that an individual puts down 20% for a house, their mortgage payment would consume more than 23% of real DPI. In reality, since many of the mortgages done over the last decade required little or no money down, that number is actually substantially higher. You get the point. With real disposable incomes stagnant, a rise in interest rates and inflation makes that 23% of the budget much harder to sustain.

In 1968 Americans paid 7% of their disposable income for a house. Today that’s 23%. That’s as scary as that first graph above on the stock markets. It’s hard to say where the eventual peak will be, but it should be clear that it can’t be too far off. And Yellen and Draghi and Carney are talking about raising those rates.

What Lance is warning for, as should be obvious, is that if rates would go up at this particular point in time, even a lot less people could afford a home. If you ask me, that would not be so bad, since they grossly overpay right now, they pay full-throttle bubble prices, but the effect could be monstrous. Because not only would a lot of people be left with a lot of mortgage debt, and we’d go through the whole jingle mail circus again, yada yada, but the economy’s main source of ‘money’ would come under great pressure.

Don’t let’s forget that by far most of our ‘money’ is created when private banks issue loans to their customers with nothing but thin air and keyboard strokes. Mortgages are the largest of these loans. Sink the housing industry and what do you think will happen to the money supply? And since inflation is money velocity x money supply, what would become of central banks’ inflation targets? May I make a bold suggestion? Get someone a lot smarter than Janet Yellen into the Fed, on the double. Or, alternatively, audit and close the whole house of shame.

We’ve had bubbles 1, 2 and 3. Stocks, student debt and housing. Which, it turns out, interact, and a lot. An interaction that leads seamlessly to bubble 4: subprime car loans. Mind you, don’t stare too much at the size of the bubbles, of course stocks and housing are much bigger issues, but focus instead on how they work together. As for the subprime car loans, and the subprime used car loans, it’s the similarity to the subprime housing that stands out. Like we learned nothing. Like the US has no regulators at all.

Fears Mount Over a New US Subprime Boom – Cars

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis.

But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo. Few things capture this phenomenon like the partnership between Fiat Chrysler and Banco Santander. [..] Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s.

If it’s alright with you, we’ll deal with the other main bubble, no.5 if you will, another time. Yeah, that would be bonds. Sovereign, corporate, junk, you name it. The 4 bubbles we’ve seen so far are more than enough to create a huge crisis in America. Don’t want to scare you too much all at once. Just you read the news again tomorrow. There’ll be more. And the US Senate is not going to do a thing about it. They’re too busy not getting enough votes for other things.

 

 

 

 

Jun 132017
 
 June 13, 2017  Posted by at 9:55 am Finance Tagged with: , , , , , , , , ,  


Pablo Picasso Les femmes d’Alger Version 0 1955

 

The Average Stock Is Enormously, Tremendously Overvalued (Katsenelson)
72% Of US Businesses Are Not Profitable (Simon Black)
UBS Has Some Very Bad News For The Global Economy (ZH)
Fed To Raise Interest Rates, Give More Detail On Balance Sheet Winddown (R.)
EU Plans to Force Relocation of Euro Clearing After Brexit (BBG)
Norway Central Bank Explains How Money Is Created (Norges Bank)
Qatar Spends $8 Million To Airlift 4,000 Cows (BBG)
Things To Come (Jim Kunstler)
Multi-Million Dollar Upgrade Planned To ‘Failsafe’ Arctic Seed Vault (G.)
EU To Open Case Against Poland, Hungary, Czech Republic Over Refugees (R.)
ECB Unlikely to Include Greece in QE in Coming Months (BBG)
Greek Debt Deal ‘Not Far’ Says New French Finance Minister (AFP)
One Dead As 6.3-Magnitude Earthquake Rocks Greek Islands Lesbos, Chios (AFP)

 

 

No markets, no discovery, just smoke.

The Average Stock Is Enormously, Tremendously Overvalued (Katsenelson)

We are constantly looking for new stocks by running stock screens, endlessly reading (blogs, research, magazines, newspapers), looking at holdings of investors we respect, talking to our large network of professional investors, attending conferences, scouring through ideas published on value investor networks, and finally, looking with frustration at our large (and growing) watch list of companies we’d like to buy at a significant margin of safety. The median stock on our watch list has to decline by about 35–40% to be an attractive buy. But maybe we’re too subjective. Instead of just asking you to take our word for it, in this letter, we’ll show you a few charts that not only demonstrate our point, but also show the magnitude of the stock market’s overvaluation and, more importantly, put it into historical context.

Each chart examines stock market valuation from a slightly differently perspective, but each arrives at the same conclusion: the average stock is overvalued somewhere between tremendously and enormously. If you don’t know whether “enormously” is greater than “tremendously” or vice versa, don’t worry, we don’t know either. But this is our point exactly: When an asset class is significantly overvalued and continues to get overvalued, quantifying its overvaluation brings little value. Let’s demonstrate this point by looking at a few charts. The first chart shows price-to-earnings of the S&P 500 in relation to its historical average. The average stock today is trading at 73% above its historical average valuation. There are only two other times in history that stocks were more expensive than they are today: just before the Great Depression hit and in the 1999 run-up to the dot-com bubble burst.

We know how the history played in both cases—consequently stocks declined, a lot. Based on over a century of history, we are fairly sure that, this time too, stock valuations will at some point mean revert and stock markets will decline. After all, price-to-earnings behaves like a pendulum that swings around the mean, and today that pendulum has swung far above the mean. What we don’t know is how this journey will look in the interim. Before the inevitable decline, will price-to-earnings revisit the pre-Great Depression level of 95% above average, or will it maybe say hello to the pre-dot-com crash level of 164% above average? Or will another injection of QE steroids send stocks valuations to new, never-before-seen highs? Nobody knows. One chart is not enough. Let’s take a look at another one called the Buffett Indicator. Think of this chart as a price-to-sales ratio for the whole economy, that is, the market value of all equities divided by GDP. The higher the price-to-sales ratio, the more expensive stocks are.

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What does this say about where the S&P is?

72% Of US Businesses Are Not Profitable (Simon Black)

Total Household Wealth is exactly what it sounds like– the total net worth of every person in the United States, from Bill Gates down to the youngest newborn baby. So when you add up all the 330+ million folks in the Land of the Free and tally up their combined net worth, the total is $94 trillion. The thing is that the VAST majority of that wealth, especially the incredible growth over the last 8 years, has been from increases in just two asset classes: real estate and the stock market. In fact, stocks and real estate alone account for roughly 2/3 of the wealth increase since 2009. I’ll come back to that in a moment. Now, simultaneously, we see plenty of other interesting data, also published by the Federal Reserve and US federal government. Both the Fed and Census Bureau, for example, tell us that over 80% of businesses in the US are “nonemployer” companies, i.e. businesses which only employ one person (the owner), and often provide his/her primary source of income.

Yet according to the Federal Reserve, only 35% of these small businesses are profitable. Most are operating at a loss. In other words, only 35% of the companies which make up 80% of American businesses are profitable. You’re probably already doing the arithmetic– this means that a whopping 72% of all US businesses are NOT profitable. That hardly sounds like record wealth to me. Shifting gears, there’s the little factoid that an astounding 40% of young Americans are living with their parents– the highest%age in the last 75 years. And who can blame them considering student debt in the Land of the Free also hit a record $1.4 trillion three months ago, more than double the amount since the Great Recession. Speaking of record debt, US credit card debt passed a record $1 trillion, and total US consumer credit hit a record $3.8 trillion last month. Again, all of this hardly seems like ‘wealth’ to me.

Then there’s the issue of wages, which have remained essentially flat since the 2009 Great Recession if you adjust for inflation. According to the US Department of Labor, inflation-adjusted wages, aka “real hourly compensation” in the US fell an annualized 0.9% last quarter, and fell a dismal 5.6% in the previous quarter. Adjusted for inflation, the average American isn’t making any more money. Once again, this is a pitiful excuse for ‘wealth.’ American businesses aren’t more productive either. The same Labor Department report shows that productivity in the Land of the Free was flat in the first quarter of this year. And productivity actually declined in 2016– something that hasn’t happened in at least the last 50 years. Not to mention total economic growth in the Land of the Free has been pretty pitiful, logging a pathetic 1.6% last year. And GDP growth in the first quarter of 2017 was just 1.2% on an annualized basis. The US economy has exceed hasn’t surpassed 3% growth in more than 10-years.

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Oversaturated with debt.

UBS Has Some Very Bad News For The Global Economy (ZH)

[..] fast forwarding just over three months later, where are we now? To answer that question, overnight UBS released its much anticipated update on the current state of the global credit impulse, and it’s nothing short of a disaster. As Kapteyn writes in what may have been the most eagerly awaited report in recent UBS history, “we have been inundated with questions about the chart below, first published in March. Yes, the global credit impulse is still falling. And yes, it matters because the correlation of this global credit impulse with global domestic demand is 0.61.” But it’s what follows next that should send shivers down the spine of anyone still clutching to the failed “recovery” narrative:

From peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis (-6% of global GDP), even if the dispersion of the decline is much narrower. Currently 55% of the countries in our sample have experienced a -0.3 standard deviation deterioration in their credit impulse (median over 12 months) compared to 77% of countries in Dec ’09 when the median decline was -1.4 stdev.” Here is what the stunning collapse in the credit impulse looks like as of today:

While we urge all readers to get in touch with their friendly UBS sales coverage for the full report, here is a quick primer from UBS on what the current data is telling us, not so much about China where the credit impulse slowdown was discussed previously, but about the world’s biggest economy. From UBS: The credit impulse in the US has also turned down, seemingly on the back of a sharp drop in demand for C&I loans. The slowdown is more visible in the bank loan data than the Flow of Funds data we are using to calculate the credit impulse (the FoF is 3x as broad and includes non-bank credit as well). But the slowdown is nonetheless at odds with confidence being expressed about investment and future borrowing plans.

The US credit impulse was running at 0.7% GDP back in September 2016 and by March had fallen to -0.53% GDP (recovering somewhat in April based on bank loan data). Why does this matter? Because as UBS shows in the chart below, in the US the correlation between activity and the impulse is very strong, and the lack of credit growth could constrain an acceleration in GDP from weak Q1 levels (the credit impulse suggests domestic demand growth should be close to 1% rather than the 2+% which consensus is currently tracking).

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Yawn.

Fed To Raise Interest Rates, Give More Detail On Balance Sheet Winddown (R.)

The U.S. Federal Reserve is widely expected to raise its benchmark interest rate this week due to a tightening labor market and may also provide more detail on its plans to shrink the mammoth bond portfolio it amassed to nurse the economic recovery. The central bank is scheduled to release its decision at 2 p.m EDT on Wednesday at the conclusion of its two-day policy meeting. Fed Chair Janet Yellen is due to hold a press conference at 2:30 pm EDT. “The expectation of a rate hike…is widely held, and has been reinforced by the most recent round of Fed communications,” said Michael Feroli, an economist with J.P. Morgan. Economists polled by Reuters overwhelmingly see the Fed raising its benchmark rate to a target range of 1.00 to 1.25% this week.

The Fed embarked on its first tightening cycle in more than a decade in December 2015. A quarter%age point interest rate rise on Wednesday would be the second nudge upwards this year following a similar move in March. Since then, the unemployment rate has fallen to a 16-year low of 4.3% and economic growth appears to have reaccelerated following a lackluster first quarter. However, other indicators of the economy’s health have been more mixed. The Fed’s preferred measure of underlying inflation has retreated to 1.5% from 1.8% earlier in 2017 and investors are growing increasingly doubtful policymakers will be able to stick to their anticipated pace of tightening of three interest rate rises this year and next.

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There’s money in derivatives yet.

EU Plans to Force Relocation of Euro Clearing After Brexit (BBG)

Firms that clear euro-denominated derivatives may be forced to relocate to the European Union from London after Brexit under EU proposals to be rolled out on Tuesday, according to a person with knowledge of the matter. Under the European Commission’s plans for overhauling supervision of clearinghouses that are based outside the bloc, firms deemed systemically important to the EU financial system could be required to accept direct oversight by the bloc’s authorities, the person said, asking not to be named because the proposals aren’t yet public. Firms could also be forced to move their euro clearing operations to a location inside the EU, the person said.

This so-called location requirement has spurred warnings from the industry of skyrocketing costs, and has helped to turn clearing into a political football as the EU and U.K. prepare for divorce negotiations. In a June 8 letter to Valdis Dombrovskis, the EU’s financial-services policy chief, the International Swaps and Derivatives Association said a survey of data from 11 banks showed that requiring euro-denominated interest-rate derivatives to be cleared by an EU-based clearinghouse would boost initial margin by as much as 20%. The proposals to be published on Tuesday are largely in line with initial plans floated last month by the commission, the EU’s executive arm.

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Central banks and shunned economists seem to be the only ones who understand this.

Norway Central Bank Explains How Money Is Created (Norges Bank)

Today, there are two forms of central bank money. One of the forms is common knowledge – banknotes and coins. The other, bank reserves at Norges Bank, is less well known. The sum total of banknotes and coins and bank reserves at Norges Bank is about NOK 85 billion.[5] But the total money supply is much larger than this. Customer deposits in banks are also money. These deposits, referred to as deposit money, total more than NOK 2 trillion in Norway. This money is created by banks, not by Norges Bank. Chart 1 shows the money supply and the supply of banknotes and coins in Norway since 1960. In Norway, the money supply mainly comprises deposit money in banks.[6] In the early 1960s, banknotes and coins accounted for a fifth of the money supply. Current accounts and cheques were already becoming commonplace.

Since then, banks’ deposit money has increased dramatically, and today, banknotes and coins make up less than 2.5% of the money supply. In other words, virtually all the money we use has been created by banks. So how do banks create money? The answer to that question comes as quite a surprise to most people. When you borrow from a bank, the bank credits your bank account. The deposit – the money – is created by the bank the moment it issues the loan. The bank does not transfer the money from someone else’s bank account or from a vault full of money. The money lent to you by the bank has been created by the bank itself – out of nothing: fiat – let it become. The money created by the bank does not disappear when it leaves your account. If you use it to make a payment, it is just transferred to the recipient’s account.

The money is only removed from circulation when someone uses their deposits to repay a bank, as when we make a loan repayment.[7] The money supply is therefore only reduced when banks’ claims on the rest of the economy decrease. Banks also fund lending by raising loans themselves instead of creating money in the form of deposits. In order to reduce risk, banks also use other forms of investment in addition to lending.[8] Nevertheless, the money supply is growing at almost at the same pace as total bank credit. To sum up: banks create money out of nothing and withdraw it when loans are repaid. Growth in total bank credit is normally matched by growth in the money supply.[9] This does not sound encouraging. Is money an illusion? Why is today’s privately issued deposit money often perceived to be as safe as money issued by the central bank?

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Flying pigs would have been even nicer.

Qatar Spends $8 Million To Airlift 4,000 Cows (BBG)

Call it the biggest bovine airlift in history. The showdown between Qatar and its neighbors has disrupted trade, split families and threatened to alter long-standing geopolitical alliances. It’s also prompted one Qatari businessman to fly 4,000 cows to the Gulf desert in an act of resistance and opportunity to fill the void left by a collapse in the supply of fresh milk. It will take as many as 60 flights for Qatar Airways to deliver the 590-kilogram beasts that Moutaz Al Khayyat, chairman of Power International Holding, bought in Australia and the U.S. “This is the time to work for Qatar,” he said. Led by Saudi Arabia, Qatar stands accused of supporting Islamic militants, charges the sheikhdom has repeatedly denied.

The isolation that started on June 5 has forced the world’s richest country by capita to open new trade routes to import food, building materials and equipment for its natural gas industry. The central bank said domestic and international transactions were running normally. Turkish dairy goods have been flown in, and Iranian fruit and vegetables are on the way. There’s also a campaign to buy home-grown produce. Signs with colors of the Qatari flag have been placed next to dairy products in stores. One sign dangling from the ceiling said: “Together for the support of local products.” “It’s a message of defiance, that we don’t need others,” said Umm Issa, 40, a government employee perusing the shelves of a supermarket before taking a carton of Turkish milk to try. “Our government has made sure we have no shortages and we are grateful for that. We have no fear. No one will die of hunger.”

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“..they had no idea what to do about it, except maybe try to escape the moment-by-moment pain of their ruined lives with powerful drugs. And then, a champion presented himself..”

Things To Come (Jim Kunstler)

As our politicos creep deeper into a legalistic wilderness hunting for phantoms of Russian collusion, nobody pays attention to the most dangerous force in American life: the unraveling financialization of the economy. Financialization is what happens when the people-in-charge “create” colossal sums of “money” out of nothing — by issuing loans, a.k.a. debt — and then cream off stupendous profits from the asset bubbles, interest rate arbitrages, and other opportunities for swindling that the artificial wealth presents. It was a kind of magic trick that produced monuments of concentrated personal wealth for a few and left the rest of the population drowning in obligations from a stolen future. The future is now upon us. Financialization expressed itself in other interesting ways, for instance the amazing renovation of New York City (Brooklyn especially).

It didn’t happen just because Generation X was repulsed by the boring suburbs it grew up in and longed for a life of artisanal cocktails. It happened because financialization concentrated immense wealth geographically in the very few places where its activities took place — not just New York but San Francisco, Washington, and Boston — and could support luxuries like craft food and brews. Quite a bit of that wealth was extracted from asset-stripping the rest of America where financialization was absent, kind of a national distress sale of the fly-over places and the people in them. That dynamic, of course, produced the phenomenon of President Donald Trump, the distilled essence of all the economic distress “out there” and the rage it entailed.

The people of Ohio, Indiana, and Wisconsin were left holding a big bag of nothing and they certainly noticed what had been done to them, though they had no idea what to do about it, except maybe try to escape the moment-by-moment pain of their ruined lives with powerful drugs. And then, a champion presented himself, and promised to bring back the dimly remembered wonder years of post-war well-being — even though the world had changed utterly — and the poor suckers fell for it. Not to mention the fact that his opponent — the avaricious Hillary, with her hundreds of millions in ill-gotten wealth — was a very avatar of the financialization that had turned their lives to shit. And then the woman called them “a basket of deplorables” for noticing what had happened to them.

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The permafrost is not all that perma.

Multi-Million Dollar Upgrade Planned To ‘Failsafe’ Arctic Seed Vault (G.)

The Global Seed Vault, built in the Arctic as an impregnable deep freeze for the world’s most precious food seeds, is to undergo a multi-million dollar upgrade after water from melting permafrost flooded its access tunnel. No seeds were damaged but the incident undermined the original belief that the vault would be a “failsafe” facility, securing the world’s food supply forever. Now the Norwegian government, which owns the vault, has committed $4.4m (NOK37m) to improvements. The vault is buried 130m inside a mountain in the Svalbard archipelago and contains almost a million packets of seeds, each a variety of an important food crop. The vault was opened in 2008, sunk deep into the permafrost, and was expected to provide protection against “the challenge of natural or man-made disasters” and “to stand the test of time”.

But the vault’s planners had not anticipated the extreme warm weather seen recently at the end of the world’s hottest ever recorded year. “The background to the technical improvements is that the permafrost has not established itself as planned,” said a government statement. “A group will investigate potential solutions to counter the increased water volumes resulting from a wetter and warmer climate on Svalbard.” One option could be to replace the access tunnel, which slopes down towards the vault’s main door, carrying water towards the seeds. A new upward sloping tunnel would take water away from the vault.

A former Svalbard coal miner, Arne Kristoffersen, told the Guardian most coal mines on the islands had upward sloping entrance tunnels: “For me it is obvious to build an entrance tunnel upwards, so the water can run out. I am really surprised they made such a stupid construction.” Hege Njaa Aschim, the Norwegian government’s spokeswoman for the vault, said: “The construction was planned like that because it was practical as a way to go inside and it should not be a problem because of the permafrost keeping it safe. But we see now, when the permafrost is not established, maybe we should do something else with the tunnel, so that is why we have this project now.”

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Hollow threats.

EU To Open Case Against Poland, Hungary, Czech Republic Over Refugees (R.)

The European Union’s executive will decide on Tuesday to open legal cases against three eastern members for failing to take in asylum-seekers to relieve states on the front lines of the bloc’s migration crisis, sources said. The European Commission would agree at a regular meeting to send so-called letters of formal notice to Poland and Hungary, three diplomats and EU officials told Reuters. Two others said the Czech Republic was also on the list. This would mark a sharp escalation of the internal EU disputes over migration. Such letters are the first step in the so-called infringement procedures the Commission can open against EU states for failing to meet their legal obligations. The eastern allies Poland and Hungary have vowed not to budge. Their staunch opposition to accepting asylum-seekers, and criticism of Brussels for trying to enforce the scheme, are popular among their nationalist-minded, eurosceptic voters.

Speaking in Hungary’s parliament earlier on Monday, Prime Minister Viktor Orban said: “We will not give in to blackmail from Brussels and we reject the mandatory relocation quota.” A spokeswoman in Brussels did not confirm or deny the executive would go ahead with the legal cases, but referred to an interview that Commission head Jean-Claude Juncker gave to the German weekly Der Spiegel last week. “Those that do not take part have to assume that they will be faced with infringement procedures,” he was quoted as saying. Poland and Hungary have refused to take in a single person under a plan agreed in 2015 to relocate 160,000 asylum-seekers from Italy and Greece, which had been overwhelmed by mass influx of people from the Middle East and Africa. Poland’s Interior Minister Mariusz Blaszczak was quoted as saying on Monday by the state news agency PAP: “We believe that the relocation methods attract more waves of immigration to Europe, they are ineffective.”

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Not going to happen, it would solve many of Greece’s problems, and Germany is not done with it yet.

ECB Unlikely to Include Greece in QE in Coming Months (BBG)

The ECB is unlikely to include Greek bonds in its asset-purchase program for the foreseeable future, a person familiar with the matter said, as European creditors aren’t prepared to offer substantially easier repayment terms on bailout loans to improve the nation’s debt outlook. Euro-area finance ministers will meet in Luxembourg on June 15 to discuss debt-relief measures that the ECB has said are needed before it will consider purchasing Greek bonds. The so-called Eurogroup is expected to complete a review of Athens’s rescue program that would allow for the disbursement of at least €7.4 billion in aid needed for a similar amount of bond repayments in July. An agreement among the ministers will likely allow the IMF – whose participation in the rescue program is a requirement for many nations – to commit in principle to a conditional loan, said the person.

But the extent and wording of debt-relief commitments probably won’t convince the Governing Council of the ECB to buy Greek bonds. And while the government of Prime Minister Alexis Tsipras is relying on quantitative easing to aid Greece’s return to the public debt market, the ECB won’t factor fiscal consequences into its policy-making decisions and excessive emphasis on QE inclusion would be misguided, according to the person. [..] The ECB’s quantitative easing is scheduled to continue until December 2017, with economists saying purchases will be gradually tapered throughout 2018. This would leave little time for purchases of Greek bonds before the program’s end.

Meanwhile, France, which is trying to bridge differences on the debt issue, has proposed automatically reducing loan repayments when Greece misses growth targets, according to two people with knowledge of the talks. European officials see the proposal as a step in the right direction but doubt it will be enough to convince the ECB to include Greece in its bond purchase program if the IMF maintains its position that the country’s debt is unsustainable. Other euro-area member states so far have opposed France’s proposal, the people said.

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Is Macron going to stand up to Merkel and Schäuble? I’m not convinced.

Greek Debt Deal ‘Not Far’ Says New French Finance Minister (AFP)

A deal on debt relief for Greece is “not far,” France’s new finance minister Bruno Le Maire said Monday ahead of crunch eurozone talks on the issue on Thursday. “I am optimistic that we will have a good solution. We are not far from agreement,” Le Maire said ahead of a meeting with Greek PM Alexis Tsipras. “We are really doing our best to find an agreement,” he had said earlier after seeing his Greek counterpart Euclid Tsakalotos. “It’s difficult. It’s complicated,” he said. At the June 15 meeting, Le Maire said he planned to propose a “mechanism” of “flexibility” to lessen Greek debt repayment based on its economic growth. “It’s a mechanism which should allow us to revise certain (debt) parameters based on Greek growth,” he told reporters.

The issue of debt relief for Greece has sharply divided its international creditors, the EU and the IMF, for months in the latest round of talks. The impasse has held up a tranche of bailout cash which Greece needs to repay loans in July, and Athens says its fragile recovery has also been impaired. Tsipras has said he will ask EU leaders to resolve the issue at the end of June if no solution is forthcoming on Thursday. “Piling drama on the problem helps no one,” he said on Monday. The Europeans expect Greece’s economy to grow strongly and its government to bring in large surpluses in revenue in the coming years, allowing it to pay down its debts. But the IMF is less optimistic, arguing there must be further relief for Athens before it can label its debt sustainable and justify loaning Greece any more cash.

New French President Emmanuel Macron last month called Tsipras after his election, saying he was in favour of “finding a deal soon to alleviate the weight of Greece’s debt over time.” Macron’s position puts him at odds with Germany where Greek debt relief – following three different bailouts with public money for the country since 2010 – is seen as a vote loser ahead of general elections in September. Macron explained his thinking about Greece in an interview to the Mediapart website two days before his election. “I am in principle in favour of a concerted restructuring of Greek debt and in keeping Greece in the eurozone. Why? Because the current system is unsustainable,” he said.

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Wonder what the older, religious people on Lesbos must be thinking by now. It once was a quiet place.

One Dead As 6.3-Magnitude Earthquake Rocks Greek Islands Lesbos, Chios (AFP)

A woman died and 10 people were hurt on Monday when a 6.3-magnitude earthquake struck the Greek islands of Lesbos and Chios and the Aegean coast of western Turkey, officials said. The middle-aged victim had been trapped for around seven hours in the ruins of her home in the Lesbos village of Vrisa, the area that bore the brunt of the strong quake and where several homes collapsed. “Our fellow citizen who was trapped in the house that collapsed in Vrisa was pulled out dead,” Lesbos mayor Spyros Galinos said in a tweet. The earthquake also struck the Aegean coast of western Turkey after 1200 GMT.

Video footage shot by a Vrisa resident on a cellphone showed masonry from several single and two-level homes clogging the streets. “It’s a difficult situation, we are facing a disaster,” Christiana Kalogirou, governor of the north Aegean region, told Greek state TV station ERT, adding: “Some 10 people are injured.” “The army is bringing in tents so people can spend the night,” she said, adding that the south of Lesbos had taken the brunt of the quake. The tremor, felt as far as Athens and Izmir in Turkey, damaged at least three churches and shops in south Lesbos, local owners said, while rock slides blocked some roads.

Read more …

Mar 142017
 
 March 14, 2017  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , , ,  


Arthur Rothstein Family leaving South Dakota drought for Oregon 1936

 

Wall Street Buzz Over Trump Gives Shiller Dot-Com Deja Vu (BBG)
This Is The Most Overvalued Stock Market On Record – Even Worse Than 1929 (MW)
Wall Street Has Found Its Next Big Short in US Credit Market: Malls (BBG)
Fed, In Shift, May Move To Faster Pace Of Rate Hikes (R.)
The Mystery of the Treasury’s Disappearing Cash (Stockman)
Countries With National Health Insurance Spend Less, Live Longer Than US (M&B)
Rand Paul, Tulsi Gabbard Introduce Bill To Stop The US Arming Terrorists (TAM)
Several States Jointly Sue To Block Trump’s Revised Travel Ban (R.)
Shadow Banking Has Made China’s Credit Markets More Complex And Opaque (BI)
The Pause That Refreshes (Jim Kunstler)
Iceland’s Recovery Shows Benefits Of Letting Over-Reaching Banks Go Bust (Tel.)
Merkel Calls Erdogan Attack ‘Absurd’ as Tensions Escalate (BBG)
UK Parliament Passes Brexit Bill And Opens Way To Triggering Article 50 (G.)
Theresa May Rejects Scotland’s Demand For New Independence Vote (G.)
‘1st In Canada’ Supermarket Donation Plan Aids Food Banks, Tackles Waste (G.)
Stock Of Properties Conceded To The Greek State Or Confiscated Grows (G.)

 

 

“They’re both revolutionary eras..” “This time a ‘Great Leader’ has appeared. The idea is, everything is different.”

Wall Street Buzz Over Trump Gives Shiller Dot-Com Deja Vu (BBG)

The last time Robert Shiller heard stock-market investors talk like this in 2000, it didn’t end well for the bulls. Back then, the Nobel Prize-winning economist says, traders were captivated by a “new era story” of technological transformation: The Internet had re-defined American business and made traditional gauges of equity-market value obsolete. Today, the game changer everyone’s buzzing about is political: Donald Trump and his bold plans to slash regulations, cut taxes and turbocharge economic growth with a trillion-dollar infrastructure boom. “They’re both revolutionary eras,” says Shiller, who’s famous for his warnings about the dot-com mania and housing-market excesses that led to the global financial crisis. “This time a ‘Great Leader’ has appeared. The idea is, everything is different.”

For Shiller, the power of a new-era narrative helps answer one of the most hotly debated questions on Wall Street as stocks set one high after another this year: Why are traders so fixated on the upsides of a Trump presidency when the downside risks seem just as big? For all his pro-business promises, the former reality TV star’s confrontational foreign policy and haphazard management style have bred uncertainty – the one thing investors are supposed to hate most. Charts illustrating the conundrum have been making the rounds on trading floors. One, called “the most worrying chart we know” by SocGen at the end of last year, shows a surging index of global economic policy uncertainty severing its historical link with credit spreads, which have declined in recent months along with other measures of investor fear. The VIX index, a popular gauge of anxiety in the U.S. stock market, has dropped more than 30 percent since Trump’s election.

[..] For Hersh Shefrin, a finance professor at Santa Clara University and author of a 2007 book on the role of psychology in markets, the rally is just another example of investors’ remarkable penchant for tunnel vision. Shefrin has a favorite analogy to illustrate his point: the great tulip-mania of 17th century Holland. Even the most casual students of financial history are familiar with the frenzy, during which a rare tulip bulb was worth enough money to buy a mansion. What often gets overlooked, though, is that the mania happened during an outbreak of bubonic plague. “People were dying left and right,” Shefrin says. “So here you have financial markets sending signals completely at odds with the social mood of the time, with the degree of fear at the time.”

Shiller says when markets are as buoyant as they are now, resisting the urge to pile in is hard regardless of what else might be happening in society. “I was tempted to do it, too,” he says. “Trump keeps talking about a new spirit for America and so you could (A) believe that or (B) you could believe that other investors believe that.” On whether stocks are nearing a top, Shiller can’t say with any certainty. He’s loathe to make short-term forecasts. Despite the well-timed publication of his book “Irrational Exuberance” just as the dot-com bubble peaked in early 2000, the Yale University economist had warned (with caveats) that shares might be overvalued as early as 1996. Investors who bought and held an S&P 500 fund in the middle of that year made about 8 percent annually over the next decade, while those who invested at the start of 2000 lost money. The index sank 49 percent from its high in March 2000 through a bottom in October 2002.

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“Don’t be fooled by the booming headline indexes.”

This Is The Most Overvalued Stock Market On Record – Even Worse Than 1929 (MW)

This is the most dangerous and overvalued stock market on record — worse than 2007, worse than 2000, even worse than 1929. Or so warns Wall Street soothsayer John Hussman in his scariest jeremiad yet. “Presently, we observe the broadest market valuation extreme in history,” writes the chairman of the cautious Hussman Funds investment group, “with the steepest median valuations on record, and the most reliable capitalization-weighted measures within a few percent of their 2000 peaks.” On top of such warning signs as “extreme valuations, bullish sentiment, and consumer confidence,” he adds, “market action has deteriorated in interest-sensitive sectors… As of Friday, more than one-third of stocks are already below their 200-day moving averages.” Don’t be fooled by the booming headline indexes.

More NYSE stocks hit new 52-week lows last week than new 52-week highs, he notes. In a nutshell: Run. OK, so, it is always easy to criticize. Husssman, a professional economist and well-known Wall Street figure, has been here before. He’s been warning about stock-market valuations for several years. He’s in that camp that the permabulls, wrongly, call “permabears.” He’s been wrong — or, perhaps, just very early — many times. But he was, notably, also correct and prescient about both the 2000 and 2008 crashes before they happened, when few others were. Opinions, of course, are free. But facts are sacred. And more than a few are suggesting caution. According to the World Bank, the total U.S. stock market is now valued at more than 150% of annual GDP. That is way above historic norms, and about the same as it was at the market extreme of 2000.

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Where are Americans going to meet now? Online?

Wall Street Has Found Its Next Big Short in US Credit Market: Malls (BBG)

Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall. It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago. Like the run-up to the housing debacle, a small but growing group of firms are positioning to profit from a collapse that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators. With bad news piling up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities are growing.

In recent weeks, firms such as Alder Hill Management – an outfit started by protégés of hedge-fund billionaire David Tepper – have ramped up wagers against the bonds, which have held up far better than the shares of beaten-down retailers. By one measure, short positions on two of the riskiest slices of CMBS surged to $5.3 billion last month – a 50% jump from a year ago. “Loss severities on mall loans have been meaningfully higher than other areas,” said Michael Yannell at Gapstow Capital, which invests in hedge funds that specialize in structured credit. Nobody is suggesting there’s a bubble brewing in retail-backed mortgages that is anywhere as big as subprime home loans, or that the scope of the potential fallout is comparable.

After all, the bearish bets are just a tiny fraction of the $365 billion CMBS market. And there’s also no guarantee the positions, which can be costly to maintain, will pay off any time soon. Many malls may continue to limp along, earning just enough from tenants to pay their loans. But more and more, bears are convinced the inevitable death of retail will lead to big losses as defaults start piling up. The trade itself is similar to those that Michael Burry and Steve Eisman made against the housing market before the financial crisis, made famous by the book and movie “The Big Short.” Often called credit protection, buyers of the contracts are paid for CMBS losses that occur when malls and shopping centers fall behind on their loans. In return, they pay monthly premiums to the seller (usually a bank) as long as they hold the position. This year, traders bought a net $985 million contracts that target the two riskiest types of CMBS. That’s more than five times the purchases in the prior three months.

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Run! Hide!

Fed, In Shift, May Move To Faster Pace Of Rate Hikes (R.)

The Federal Reserve, which has struggled to stoke inflation since the financial crisis and up until now raised rates less frequently than it and markets expected, may be about to hit the accelerator on rate hikes. On Wednesday, the U.S. central bank is almost universally expected to raise its benchmark interest rates, a move that just a few weeks ago was viewed by the markets as unlikely. And with inflation showing signs of perking up, Fed policymakers may signal there could be more than the three rate rises they have forecast for this year. “They do not have as much room to be patient as they did before,” said Tim Duy, an economics professor at the University of Oregon, who expects Fed policymakers to lift their rate forecasts this week.

Policymakers have their eyes on achieving full employment and 2-percent inflation. The faster the economy approaches those goals, Duy said, the quicker the Fed will want to tighten policy to avoid getting behind the curve. “That’s an acceleration in the dots,” he said, referring to forecasts published by the Fed that show policymakers’ individual rate-hike forecasts as dots on a chart. The economy already appears closer to its goals than the Fed had expected in December, the last time it released forecasts. The jobless rate, at 4.7%, is below what policymakers see as the long-run norm, and inflation, at 1.7%, is already in the range they had expected by year end. As Fed policymakers prepare to raise rates this week for the second time in three months, the inflation terrain they face looks steeper than it has been since the financial crisis when one of the central bank’s policy aims was to generate inflation.

There are signs of more inflation globally, the dollar is pushing down less on U.S. prices, domestic inflation expectations have picked up and Friday’s closely watched monthly jobs report showed wages rising 2.8% year-on-year in February, with payrolls rising a sturdy 235,000. The Fed’s preferred inflation measure, the so-called core PCE price index, recorded its biggest monthly increase in five years in January and was up 1.7% year-on-year after a similar gain in December. Most Fed policymakers say such data gives them increasing confidence that inflation will eventually reach the Fed’s goal after years of undershooting.

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“..the bureaucrats have apparently decided to sabotage what they undoubtedly believe to be the usurper in the White House.”

The Mystery of the Treasury’s Disappearing Cash (Stockman)

As of October 24, the U.S. Treasury was flush with $435 billion of cash. That was because the department’s bureaucrats had been issuing debt hand-over-fist and piling up a cash hoard, apparently, for the period after March 15, 2017 when President Hillary Clinton would need to coax another debt ceiling increase out of Congress. Needless to say, Hillary was unexpectedly (and thankfully) retired to Chappaqua, New York. But the less discussed surprise is that the U.S. Treasury’s cash hoard has virtually disappeared in the run-up to the March 15 expiration of the debt ceiling holiday. That’s right. As of the Daily Treasury Statement (DTS) for March 7, the cash balance was down to just $88 billion — meaning that $347 billion of cash has flown out the door since October 24.

And I find that on March 8 alone the Treasury consumed another $22 billion of cash — bringing the balance down to $66 billion! To be sure, there has been no heist at the Treasury Building — other than the normal larceny that is the stock-in-trade of the Imperial City. What’s different this time around is that the bureaucrats have apparently decided to sabotage what they undoubtedly believe to be the usurper in the White House. To this end, they’ve been draining Trump’s bank account rather than borrowing the money to pay Uncle Sam’s monumental bills. This has especially been the case since the January 20 inauguration. The net Federal debt on March 7 was $19.802 trillion — up $237 billion since January 20th. But that’s not the half of it. During that same 47 day period, the Treasury bureaucrats took the opportunity to pay-down $57 billion of maturing treasury bills and notes by tapping its cash hoard.

In all, they drained $294 billion from the Donald’s bank account during that brief period — or about $6.4 billion per day. You wouldn’t be entirely wrong to conclude that even Putin’s alleged world class hackers couldn’t have accomplished such a feat. At this point I could don my tin foil hat because this massive cash drain was clearly deliberate. Last year, for example, during the same 47 day period, the operating deficit was even slightly larger — $253 billion. But the Treasury funded that mainly by new borrowings of $157 billion, which covered 62% of the shortfall. Its cash balance was still $223 billion on March 7. Again, that cash balance is just $66 billion right now. Moreover, the Trump Administration has only a few business days until its credit card expires on March 15 — so it’s also way too late for an eleventh hour borrowing spree to replenish its depleted cash account. (Besides that, I’m predicting a very dangerous market event will start on the 15th.)

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Not that we can’t make it even worse.

Countries With National Health Insurance Spend Less, Live Longer Than US (M&B)

We see health as a basic human right. Every society should provide medical care for its citizens at the level it can afford. And, while the United States has made some progress in improving access to care, the results do not justify the costs. So, while we agree with President Trump’s statement that the U.S. health care system should be cheaper, better and universal, the question is how to get there. In this post, we start by setting the stage: where matters stand today and why they are unacceptable. This leads us to the real question: where can and should we go? As economists, we are genuinely partial to market-based solutions that allow individuals to make tradeoffs between quality and price, while competition pushes suppliers to contain costs.

But, in the case of health care, we are skeptical that such a solution can be made workable. This leads us to propose a gradual lowering of the age at which people become eligible for Medicare, while promoting supplier competition. Before getting to the details of our proposal, we begin with striking evidence of the inefficiency of the U.S. health care system. The following chart (from OurWorldInData.org) displays life expectancy at birth on the vertical axis against real health expenditure per capita on the horizontal axis. The point is that the U.S. line in red lies well below the cost-performance frontier established by a range of advanced economies (and some emerging economies, too). Put differently, the United States spends more per person but gets less for its money.


Life Expectancy and Health Expenditure per capita, 1970-2014

It really doesn’t matter how you measure U.S. health care outlays, you will come away with the same conclusion: the U.S. system is extremely inefficient compared to that of other countries. Today, for example, health expenditures account for more than 17% of U.S. GDP. This is more than twice the average of the share in the 42 other countries shown in the figure, and more than 40% higher than the next highest (which happens to be Sweden at 12%).

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“..considering the Trump administration is directly sending American troops to fight in Syrian territory, perhaps the various rebel groups on the ground have outlived their usefulness..”

Rand Paul, Tulsi Gabbard Introduce Bill To Stop The US Arming Terrorists (TAM)

According to a press release released Friday by the office of Rep. Tulsi Gabbard, Sen. Rand Paul has introduced their bill, the Stop Arming Terrorists Act, in the U.S. Senate. The bipartisan legislation (H.R.608 and S.532) aims to prohibit any federal agency from using taxpayer dollars to provide weapons, cash, intelligence, or any support to al-Qaeda, ISIS, and other terrorist groups. It would also prohibit the government from funneling money and weapons through other countries that are directly or indirectly supporting terrorists.

Gabbard said: “For years, the U.S. government has been supporting armed militant groups working directly with and often under the command of terrorist groups like ISIS and al-Qaeda in their fight to overthrow the Syrian government. Rather than spending trillions of dollars on regime change wars in the Middle East, we should be focused on defeating terrorist groups like ISIS and al-Qaeda, and using our resources to invest in rebuilding our communities here at home.” [..] “The fact that American taxpayer dollars are being used to strengthen the very terrorist groups we should be focused on defeating should alarm every Member of Congress and every American. We call on our colleagues and the Administration to join us in passing this legislation.

Rand Paul provided much-needed support for the bill, stating: “One of the unintended consequences of nation-building and open-ended intervention is American funds and weapons benefiting those who hate us. This legislation will strengthen our foreign policy, enhance our national security, and safeguard our resources.” The legislation is currently co-sponsored by Reps. John Conyers (D-MI); Scott Perry (R-PA); Peter Welch (D-VT; Tom Garrett (R-VA); Thomas Massie (R-KY); Barbara Lee (D-CA); Walter Jones (R-NC); Ted Yoho (R-FL); and Paul Gosar (R-AZ). It is endorsed by Progressive Democrats of America (PDA), Veterans for Peace, and the U.S. Peace Council.

One of Trump’s campaign narratives that resonated deeply with his voter base was an anti-radical Islam agenda, which separated him from Clinton’s campaign as he vowed to “bomb the shit” out of ISIS-controlled oil fields. However, his voter base may or may not be somewhat disillusioned now given that he just approved an arms sale to Saudi Arabia that was so controversial it was even blocked by Obama, a president who made a literal killing from arms sales to the oil-rich kingdom (ISIS adheres to Saudi Arabia’s twisted form of Wahhabist philosophy). In the context of recent events, whether or not the Trump administration will get fully behind Gabbard’s bill remains to be seen. But considering the Trump administration is directly sending American troops to fight in Syrian territory, perhaps the various rebel groups on the ground have outlived their usefulness and the bill will be allowed to proceed unimpeded.

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“The first hurdle for the lawsuits will be proving “standing,” which means finding someone who has been harmed by the policy. With so many exemptions, legal experts have said it might be hard to find individuals who would have a right to sue..”

Several States Jointly Sue To Block Trump’s Revised Travel Ban (R.)

A group of states renewed their effort on Monday to block President Donald Trump’s revised temporary ban on refugees and travelers from several Muslim-majority countries, arguing that his executive order is the same as the first one that was halted by federal courts. Court papers filed by the state of Washington and joined by California, Maryland, Massachusetts, New York and Oregon asked a judge to stop the March 6 order from taking effect on Thursday. An amended complaint said the order was similar to the original Jan. 27 directive because it “will cause severe and immediate harms to the States, including our residents, our colleges and universities, our healthcare providers, and our businesses.” A Department of Justice spokeswoman said it was reviewing the complaint and would respond to the court.

A more sweeping ban implemented hastily in January caused chaos and protests at airports. The March order by contrast gave 10 days’ notice to travelers and immigration officials. Last month, U.S. District Judge James Robart in Seattle halted the first travel ban after Washington state sued, claiming the order was discriminatory and violated the U.S. Constitution. Robart’s order was upheld by the 9th U.S. Circuit Court of Appeals. Trump revised his order to overcome some of the legal hurdles by including exemptions for legal permanent residents and existing visa holders and taking Iraq off the list of countries covered. The new order still halts citizens of Iran, Libya, Syria, Somalia, Sudan and Yemen from entering the United States for 90 days but has explicit waivers for various categories of immigrants with ties to the country.

[..] The first hurdle for the lawsuits will be proving “standing,” which means finding someone who has been harmed by the policy. With so many exemptions, legal experts have said it might be hard to find individuals who would have a right to sue, in the eyes of a court. To overcome this challenge, the states filed more than 70 declarations of people affected by the order including tech businesses Amazon and Expedia, which said that restricting travel hurts their revenues and their ability to recruit employees. Universities and medical centers that rely on foreign doctors also weighed in, as did religious organizations and individual residents, including U.S. citizens, with stories about separated families.

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That’s the whole idea.

Shadow Banking Has Made China’s Credit Markets More Complex And Opaque (BI)

A research note from Goldman Sachs highlights how large, complex and opaque China’s credit market has become over the last decade. In a report called Mapping China’s Credit, analysts Kenneth Ho and Claire Cui write that the rise in China’s total debt started with a RMB 4 trillion ($AU770 billion) stimulus package in 2009 to counter the global financial crisis. Since late 2008, debt to GDP (excluding financial debt) has risen from 158% to 262%. Including financial debt bumps the figure up to 289%. The rise in China’s debt to GDP follows a similar increase in America, where last week bond fund manager Bill Gross discussed the risks associated with the US debt to GDP ratio, which sits at around 350%. The analysts note they’re struggling to break down and make sense of the country’s credit market.

“Given the development of the shadow banking sector, and the introduction of a number of retail investment channels such as wealth management products, it has become much more difficult to analyse and monitor China’s credit growth,” they say. In 2006, 85% of China’s credit was supplied by bank loans (offset by deposits). According to Ho and Cui’s estimates, the share of credit from bank loans has reduced to 53%. In its place, approximately 31% of debt is now supplied through bond and securities markets, and 16% through the shadow banking sector (more on that later). Ho and Cui write that as China’s debt pool has grown, larger state-related companies have seen a significant increase in leverage through traditional loans from state-affiliated banks. In addition, however, a decrease in domestic interest rates has encouraged smaller companies and individual investors to shift savings away from bank deposits.

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“The Democrats reduced themselves to a gang of sadistic neo-Maoists seeking to eradicate anything that resembles free expression..”

The Pause That Refreshes (Jim Kunstler)

Let’s take a breather from more consequential money matters at hand midweek to consider the tending moods of our time and place — while a blizzard howls outside the window, and nervous Federal Reserve officials pace the grim halls of the Eccles Building. It is clear by now that we have four corners of American politics these days: the utterly lost and delusional Democratic party; the feckless Republicans; the permanent Deep State of bureaucratic foot-soldiers and errand boys; and Trump, the Golem-King of the Coming Greatness. Wherefore, and what the fuck, you might ask. The Democrats reduced themselves to a gang of sadistic neo-Maoists seeking to eradicate anything that resembles free expression across the land in the name of social justice.

Coercion has been their coin of the realm, and especially in the realm of ideas where “diversity” means stepping on your opponent’s neck until he pretends to agree with your Newspeak brand of grad school neologisms and “inclusion” means welcome if you’re just like us. I say Maoists because just like Mao’s “Red Guard” of rampaging students in 1966, their mission is to “correct” the thinking of those who might dare to oppose the established leader. Only in this case, that established leader happened to lose the sure-thing election and the party finds itself unbelievably out-of-power and suddenly purposeless, like a termite mound without a queen, the workers and soldiers fleeing the power center in an hysteria of lost identity.

They regrouped briefly after the election debacle to fight an imaginary adversary, Russia, the phantom ghost-bear, who supposedly stepped on their termite mound and killed the queen, but, strangely, no actual evidence was ever found of the ghost-bear’s paw-print. And ever since that fact was starkly revealed by former NSA chief James Clapper on NBC’s Meet the Press, the Russia hallucination has vanished from page one of the party’s media outlets — though, in an interesting last gasp of striving correctitude, Monday’s New York Times features a front page story detailing Georgetown University’s hateful traffic in the slave trade two centuries ago. That should suffice to shut the wicked place down for once and for all!

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What does it say that only one small island can get it right?

Iceland’s Recovery Shows Benefits Of Letting Over-Reaching Banks Go Bust (Tel.)

It looks set to be a week packed with big financial milestones. In the US, the Federal Reserve will raise interest rates, putting the country on a path towards getting back to a normal price for money. In the Netherlands, a tense election may deal the fragile eurozone another blow. In this country, Theresa May could finally trigger Article 50, starting the process of taking the UK out of the European Union. The most significant event, however, as is so often the case, may well be something that hardly anyone is paying attention to. On Sunday, Iceland ended capital controls, finally returning its economy to normal after a catastrophic banking collapse back in 2008 and 2009. Why does that matter? Because Iceland was the one country that defied the global consensus and did not bail out its bankers.

True, there was shock to the system. But it was relatively short, and once the pain was dealt with, the country has bounced back stronger than ever. There is, surely, a lesson in that. It might well be better just to let banks go to the wall. Next time around, we should follow Iceland’s example. The crash of 2008 hit every country in the world. And yet none was quite so completely destroyed as Iceland. A tiny country, home to just 323,000 people, with cod fishing and tourism as its two major industries, it deregulated its finance sector and went on a wild lending spree. Its banks started bulking up in a way that might have made Royal Bank of Scotland’s Fred Goodwin start to wonder if his foot wasn’t pressed too hard on the accelerator. When confidence collapsed, those banks were done for.

In every other country in the world, the conventional wisdom dictated the financiers had to be bailed out. The alternative was catastrophe. Cash machines would stop working, trade would grind to a halt, and output would collapse. It would be the 1930s all over again. The state had no option but to dig deep, and pay whatever it took to keep the financial sector alive. But Iceland did not have that option. Its banks had run up debts of $86bn, an impossible sum for an economy with a GDP of $13bn in 2009. Even Gordon Brown, in full “saving the world’” mode, might have baulked at taking on liabilities of that scale. Iceland did the only thing it could do under the circumstances. It let its banks go bust: as British depositors quickly found out to their cost.

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Much more to come. See my article yesterday, Caesar, Turkey and the Ides of March

Merkel Calls Erdogan Attack ‘Absurd’ as Tensions Escalate (BBG)

Chancellor Angela Merkel derided as “clearly absurd” Turkish President Recep Tayyip Erdogan’s accusation that Germany supports terrorism, as Ankara announced retaliatory measures against the Dutch government amid escalating tensions with Europe. After Erdogan excoriated Merkel’s government for “openly giving support to terrorist organizations” on Monday, the Turkish government announced it would block the Dutch ambassador from re-entering the country. Erdogan has blasted European leaders, including accusing Germany of using “Nazi practices,” after a string of rallies by Turkish ministers on European soil were canceled. “The chancellor has no intention of participating in a competition of provocations” with Erdogan, her chief spokesman, Steffen Seibert, said in an emailed statement on Monday. “She’s not going to join in with that. The accusations are clearly absurd.”

Erdogan is seeking votes from Turkish expatriates in a referendum next month on constitutional changes that would make the presidency his country’s highest authority. He has lashed out at the EU and risked deepening tensions, particularly with Merkel. In an interview on Monday, he said Merkel’s government “mercilessly” supported groups such as the Kurdish PKK group, which has waged a separatist war with the Turkish military for more than three decades. “I don’t want to put all EU countries in the same basket, but some of them can’t stand Turkey’s rise, primarily Germany,” Erdogan told A Haber television. The standoff came to a head over the weekend when the Dutch government prevented Turkish ministers from participating in referendum campaign rallies. Some 3 million Turks outside their country can vote, though fewer than half of them did so in the last general election in 2015.

Merkel struck an unusually strident tone earlier this month, slamming Erdogan for trivializing World War II-era crimes by using a Nazi comparison to censure Germany for canceling ministers’ appearances. Such a tone “can’t be justified,” Merkel said March 6 after Erdogan’s previous outburst. European leaders have been vocal in their disapproval of the referendum, saying the executive-centered system that Erdogan is planning to introduce will concentrate power in the president’s hands at the expense of democracy in a NATO member state and EU membership applicant.

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The fight’s only just starting.

UK Parliament Passes Brexit Bill And Opens Way To Triggering Article 50 (G.)

Theresa May’s Brexit bill has cleared all its hurdles in the Houses of Parliament, opening the way for the prime minister to trigger article 50 by the end of March. Peers accepted the supremacy of the House of Commons late on Monday night after MPs overturned amendments aimed at guaranteeing the rights of EU citizens in the UK and giving parliament a “meaningful vote” on the final Brexit deal. The decision came after a short period of so-called “ping pong” when the legislation bounced between the two houses of parliament as a result of disagreement over the issues. The outcome means the government has achieved its ambition of passing a “straightforward” two-line bill that is confined simply to the question of whether ministers can trigger article 50 and start the formal Brexit process.

It had been widely predicted in recent days that May would fire the starting gun on Tuesday, immediately after the vote, but sources quashed speculation of quick action and instead suggested she will wait until the final week of March. MPs voted down the amendment on EU nationals’ rights by 335 to 287, a majority of 48, with peers later accepting the decision by 274 to 135. The second amendment on whether to hold a meaningful final vote on any deal after the conclusion of Brexit talks was voted down by 331 to 286, a majority of 45, in the Commons. The Lords then accepted that decision by 274 to 118, with Labour leader Lady Smith telling the Guardian that continuing to oppose the government would be playing politics because MPs would not be persuaded to change their minds.

“If I thought there was a foot in the door or a glimmer of hope that we could change this bill, I would fight it tooth and nail, but it doesn’t seem to be the case,” she said. But the decision led to tensions between Labour and the Lib Dems, whose leader, Tim Farron, hit out at the main opposition. “Labour had the chance to block Theresa May’s hard Brexit, but chose to sit on their hands. Tonight there will be families fearful that they are going to be torn apart and feeling they are no longer welcome in Britain. Shame on the government for using people as chips in a casino, and shame on Labour for letting them,” he said.

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We can be independent, but you can not.

Theresa May Rejects Scotland’s Demand For New Independence Vote (G.)

Theresa May has faced down Nicola Sturgeon’s demand for a second referendum on Scottish independence, accusing the SNP leader of “tunnel vision” and rejecting her timetable for a second vote. The prime minister said that the Scottish leader’s plan to hold a second referendum between the autumn of 2018 and spring 2019 represented the “worst possible timing,” setting the Conservative government on a collision course with the administration in Holyrood. The first minister’s intervention had been timed a day ahead of when May had been predicted to trigger article 50, but No 10 later indicated that it would not serve notice to leave the EU until the end of the month. The confirmation of the later date, in the aftermath of the speech, fuelled speculation the prime minister had been unnerved by Sturgeon.

Buoyed by three successive opinion polls putting support for independence at nearly 50/50, Sturgeon said that she had been left with little choice than to offer the Scottish people, who voted to remain in the EU, a choice at the end of the negotiations of a “hard Brexit” or living in an independent Scotland. “The UK government has not moved even an inch in pursuit of compromise and agreement. Our efforts at compromise have instead been met with a brick wall of intransigence,” the first minister said, claiming that any pretence of a partnership of equal nations was all but dead. Downing Street denied that it had ever planned to fire the starting gun on Brexit this week, but critics pointed out that ministers had failed to deny the widespread suggestion in media reports over the weekend. The Guardian understands that May will now wait until the final week of March to begin the process, avoiding a clash with the Dutch elections and the anniversary of the Rome Treaty, and giving the government time to seek consensus in different parts of the country.

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This should be so obvious, and implemented in law everywhere. It already is in France.

‘1st In Canada’ Supermarket Donation Plan Aids Food Banks, Tackles Waste (G.)

Supermarkets in Quebec will now be able to donate their unsold produce, meat and baked goods to local food banks in a program – described as the first of its kind in Canada – that also aims to keep millions of kilograms of fresh food out of landfills. The Supermarket Recovery Program launched in 2013 as a two-year pilot project. Developed by the Montreal-based food bank Moisson Montréal, the goal was to tackle the twin issues of rising food bank usage in the province and the staggering amount of edible food being regularly sent to landfills. Provincial officials said the pilot – which last year saw 177 supermarkets donate more than 2.5m kg of food that would have otherwise been discarded – would now begin expanding across the province.

“The idea behind it is: ‘Hey, we’ve got enough food in Quebec to feed everybody, let’s not be throwing things out,’” Sam Watts, of Montreal’s Welcome Hall Mission, which offers several programs for people in need, told Global News on Friday. “Let’s be recuperating what we can recuperate and let’s make sure we get it to people who need it.” Recent years have seen food bank usage surge across Canada, with children making up just over a third of the 900,000 people who rely on the country’s food banks each month. In Quebec, the number of users has soared by nearly 35% since 2008, to about 172,000 people per month.

The program’s main challenge was in developing a system that would allow products such as meat and frozen foods to be easily collected from grocers and quickly redistributed, said Watts. “There is enough food in the province of Quebec to feed everybody who needs food. Our challenge has always been around management and distribution,” he added. “Supermarkets couldn’t accommodate individual food banks coming to them one by one by one.” More than 600 grocery stores across the province are expected to take part in the program, diverting as many as 8m kg of food per year.

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Austerity. Germans can now buy Greek homes on the cheap. Insane.

Stock Of Properties Conceded To The Greek State Or Confiscated Grows (G.)

The austerity measures introduced by the government are forcing thousands of taxpayers to hand over inherited property to the state as they are unable to cover the taxation it would entail. The number of state properties grew further last year due to thousands of confiscations that reached a new high. According to data presented recently by Alpha Astika Akinita, real estate confiscations increased by 73 percent last year from 2015, reaching up to 10,500 properties. The fate of those properties remains unknown as the state’s auction programs are fairly limited. For instance, one auction program for 24 properties is currently ongoing. The precise number of properties that the state has amassed is unknown, though it is certain they are depreciating by the day, which will make finding buyers more difficult.

Financial hardship has forced many Greeks to concede their real estate assets to the state in order to pay taxes or other obligations. Thousands of taxpayers are unable to pay the inheritance tax, while others who cannot enter the 12-tranche payment program are forced to concede their properties to the state. Worse, the law dictates that any difference between the obligations due and the value of the asset conceded should not be returned to the taxpayer. The government had announced it would change that law, but nothing has happened to date. Property market professionals estimate that the upsurge in forfeiture of inherited property will continue unabated in the near future as the factors that have generated the phenomenon, such as high unemployment, the Single Property Tax (ENFIA) etc, remain in place.

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