Feb 072019
 
 February 7, 2019  Posted by at 10:15 am Finance Tagged with: , , , , , , , , , , , , , ,  


René Magritte The Pleasure Principle (Portrait of Edward James) 1937

 

Led By Donkeys (G.)
Tusk: Special Place In Hell For Brexiteers Without Even Sketch Of A Plan (Ind.)
Corbyn Lays Out Labour’s Terms For Backing May On Brexit (G.)
Not Opposing Brexit Could Lose Labour 45 Seats (G.)
Yellen: Next Fed Move May Be A Rate Cut (CNBC)
Fed’s Quarles Sees 2019 As An ‘Interim’ Year For Bank Stress Tests (R.)
Press Needs More Than Super Bowl Ad To Fix Its Plunging Credibility (ZH)
Homo Credulus (Bowman)
French, German Farmers Must Destroy Crops After GMOs Found In Monsanto Seeds (RT)
The Killing Of Large Species Is Pushing Them Towards Extinction (G.)
Global Warming Could Exceed 1.5ºC Within Five Years (G.)

 

 

50 days to Brexit. Don’t be surprised if that whole country dissolves before our eyes.

Perfect name, good actions.

Led By Donkeys (G.)

At 5.55am, Talgarth Road, one of the major arteries into west London, is just beginning to clog up with early rush-hour traffic. A man named Dave, his white van pulled over into a loading bay, is putting up a billboard poster by the side of the carriageway. The previous one was an advert for Calvin Klein featuring the model Lara Stone. Over the course of 20 minutes, Dave covers Stone up, expertly pasting rectangles of paper over her, using a ladder for the high ones, then sweeping over with his brush. The first rectangle, in the top left corner, contains a headshot of Jacob Rees-Mogg and the beginning of his Twitter handle. As Dave lines up edges, pastes and brushes, and Stone disappears, a quote emerges from Rees-Mogg.

This one wasn’t a tweet; he said it in parliament. “We could have two referendums. As it happens, it might make more sense to have a second referendum after the renegotiation is completed.” There are three other men here, dressed in hoodies, lumberjack shirts and beanies, lurking around and admiring the work. Their work – because Richard, Adam and Chris are three of the four key people behind Led By Donkeys, the remainer guerrilla activists highlighting the hypocrisy and lies of politicians by posting their damning quotes on billboards around the country. Less guerrilla now, actually: they’ve gone legit, this hoarding is paid for. Before, they just took them over.

[..] It all began, as most good ideas do, in the pub. They were talking about the infamous David Cameron tweet – “Britain faces a simple and inescapable choice – stability and strong government with me or chaos with Ed Miliband” – which was doing the rounds again after Theresa May cancelled the vote on her deal in December. And someone said: why don’t they slap it on a billboard, make it the tweet you can’t delete? The next day, on the WhatsApp group, one of them said they had found someone who would print it out for them. They all agreed: “Let’s just fucking do it.” It was cheaper to do five, so they cobbled together four more tweets – from Michael Gove, David Davies, John Redwood and Liam Fox – not really thinking they’d ever put them up. Initial outlay was about 200 quid, plus £90 on a ladder from B&Q.

Read more …

Tusk is an idiot, but he was right when he said thet as both May and Corbyn want to Leave, there is no political leadership for Remain. But the majority of Britons by now want to Remain. Don’t underestimate the danger of this.

Tusk: Special Place In Hell For Brexiteers Without Even Sketch Of A Plan (Ind.)

A war of words has further undermined Theresa May’s mission to Brussels to rescue her Brexit deal, after the EU warned of a “special place in hell” for politicians who botched the project. Downing Street and Tory politicians hit back angrily after the extraordinary attack by Donald Tusk on those who triumphed in the referendum “without even a sketch of a plan how to carry it safely”. The prime minister’s spokesman urged people to ask whether such language was “helpful” – before noting, sarcastically, that was impossible “because he didn’t take any questions”. Andrea Leadsom, the Commons leader, condemned the comments by Mr Tusk, the European Council president, as “disgraceful” and “spiteful”, saying such behaviour “demeans him”.

Sammy Wilson, Brexit spokesman of the Democratic Unionist Party (DUP), which props up the Tories in power, went further – branding him a “devilish, trident-wielding, Euro maniac”. But pro-EU Tory Anna Soubry backed him and named Boris Johnson, David Davis and Nigel Farage as among his likely targets, for having “abdicated all responsibility”. The fury overshadowed the tough message for Ms May before she lands in Brussels on Thursday morning – that the EU will never agree to reopening the divorce deal, as she has vowed to do. The prime minister will again demand either an end date for the Irish backstop or an exit mechanism from it for there to be any hope of the Commons passing the deal. Ms May appeared to drop her third option – replacing the backstop with ill-defined “alternative arrangements”, based on unproven technology – to the anger of some Brexiteer Tories.

Read more …

Vote Corbyn, get May.

Corbyn Lays Out Labour’s Terms For Backing May On Brexit (G.)

Jeremy Corbyn has written to the prime minister, offering to throw Labour’s support behind her Brexit deal if she makes five legally binding commitments – including joining a customs union. The Labour leader held private talks with Theresa May last week for the first time since her deal was rejected by a historic margin of 230 votes in January. In a follow-up letter sent on Wednesday, he laid out in the clearest terms yet what commitments he is seeking in exchange for offering Labour support. His intervention will dismay backbench Labour MPs and grassroots activists still hoping he will switch the party’s policy towards demanding a second Brexit referendum – which is not mentioned in the letter.

And it comes as No 10 prepares to publish legislation underpinning workers’ rights, perhaps as early as next week, in an attempt to win support from Labour backbenchers. In his letter, Corbyn calls for the government to rework the political declaration setting the framework for Britain’s future relationship with the EU – and then enshrine these new negotiating objectives in UK law, so that a future Tory leader could not sweep them away after Brexit. He says the changes to the political declaration must include:

• A “permanent and comprehensive UK-wide customs union”, including a say in future trade deals.
• Close alignment with the single market, underpinned by “shared institutions”.
• “Dynamic alignment on rights and protections”, so that UK standards do not fall behind those of the EU.
• Clear commitments on future UK participation in EU agencies and funding programmes.
• Unambiguous agreements on future security arrangements, such as use of the European arrest warrant.

Read more …

Britain can no longer manage with two parties. Same as so many countries.

Not Opposing Brexit Could Lose Labour 45 Seats (G.)

A trade union affiliated with the Labour party has claimed that Jeremy Corbyn’s party could lose an additional 45 seats in a snap election if it fails to take an anti-Brexit position, in a leaked report. The report, drawn up by the transport union TSSA and including extensive polling, was sent to the leftwing pressure group Momentum. It appears to be an attempt to pile pressure on the Labour leader over Brexit. It claims that “Brexit energises Labour remain voters” disproportionately, and warns: “There is no middle way policy which gets support from both sides of the debate.” The Guardian understands that while the report was sent to Momentum, it was not commissioned or requested by the group.

Sources inside the party stressed that there were risks from turning either way on Brexit – and other polls showed a different picture. The document – marked strictly confidential – says: “There can be no disguising the sense of disappointment and disillusionment with Labour if it fails to oppose Brexit and there is every indication that it will be far more damaging to the party’s electoral fortunes than the Iraq war. “Labour would especially lose the support of people below the age of 35, which could make this issue comparable to the impact the tuition fees and involvement in the coalition had on Lib Dem support.” The document starts by pointing out that the TSSA has “supported Jeremy Corbyn’s leadership from the very beginning”.

It says that the party’s supporters view Brexit as a “Tory project”. It adds that four-fifths of them believe the current deal will hurt the British economy and 91.4% of Labour voters do not trust the government to deliver a good Brexit for people such as them.

Read more …

Only in hindsight will Americans see the damage done by these people.

Yellen: Next Fed Move May Be A Rate Cut (CNBC)

The Federal Reserve’s next move may well be an interest rate cut if weakening growth around the world starts infecting the U.S. economy, former central bank Chair Janet Yellen said Wednesday. Weakening economies in China and Europe are posing danger to an otherwise strong U.S. economy, Yellen told CNBC’s Steve Liesman during a “Power Lunch” interview. “Of course it’s possible. If global growth really weakens and that spills over to the United States where financial conditions tighten more and we do see a weakening in the U.S. economy, it’s certainly possible that the next move is a cut,” she said. “But both outcomes are possible.” The former central bank head cited “slowing global growth” as the biggest threat to the economy she once watched over. “The data from China has been recently weak, the European data has also come in weaker than expected,” she said.

Read more …

The very last people who should conduct such tests.

Fed’s Quarles Sees 2019 As An ‘Interim’ Year For Bank Stress Tests (R.)

U.S. bank stress tests conducted during an “interim” period this year will help the Federal Reserve decide what permanent changes to make to the closely followed examinations, the Fed’s point person on financial supervision Randal Quarles said on Wednesday. On Tuesday the Fed said it would make its stress testing of large banks more transparent in 2019, providing financial firms significantly more information about how their portfolios would perform under potential economic shocks. The changes respond to long-running bank complaints that the current stress-testing process is cumbersome and opaque. Less complex banks with assets between $100 billion and $250 billion, such as SunTrust Banks and Fifth Third Bancorp, do not have to face 2019 stress tests, as the Fed is moving to a two-year cycle for testing those firms.

“Our challenge now is to preserve the strength of the test, while improving its efficiency, transparency, and integration into the post-crisis regulatory framework,” Federal Reserve Vice Chairman of Supervision Randal Quarles said in remarks prepared for delivery at a Council for Economic Education event in New York. “Our experience with this ‘interim’ year will inform the move to a permanently longer testing cycle – a change that would, of course, be subject to a full notice and comment process.” The 2019 tests also include factoring in a jump to 10 percent unemployment from the current 4 percent rate, as well as elevated stress in corporate loan and commercial real estate markets in the most severe scenario.

Read more …

The press, including WaPo, have changed tactics. They no longer try for a larger audience, they make their existing readers more faithful. More subscribers, much ‘better’ targeted ads.

Press Needs More Than Super Bowl Ad To Fix Its Plunging Credibility (ZH)

Media Bias: While journalists are getting pink slips across the country, the Washington Post decided to dump a boatload of cash for a Super Bowl image ad that tried to portray the news media as national heroes. Here’s a better, and much cheaper, idea to restore the industry’s shattered reputation: Be less blatantly partisan. In the 60-second ad, Tom Hanks intones about the importance of journalists against the backdrop of historic events. Thankfully, during these times, the ad says, “There’s someone to gather the facts. To bring you the story. No matter the cost. Because knowing empowers us. Knowing helps us decide. Knowing keeps us free.” The problem with journalists today, however, is that they aren’t interested in gathering facts or empowering the public with knowledge.

Instead, they are interested mainly in pushing their agenda — a basic failing of the profession brought into high relief over the past two years. The latest IBD/TIPP Poll makes this abundantly clear. The poll asked several questions to gauge the public’s perception of the mainstream news media. What did it find? First, that fully half the country says its trust in the media decreased over the past two years. A tiny 8% say it’s increased. That includes a plurality of independents (49%). Even among Republicans, who’ve long grown accustomed to media bias, 81% say their trust in the press has dropped over the past two years. Geographically, those in the Midwest and the South are mostly likely to say their trust in the press has declined (52% and 57%, respectively) since Trump took office.

Men are far more likely than women (54% vs. 47%). And those with incomes over $75,000 (51% of home distrust the media more) more than lower-income households. These findings alone should be alarming. After all, as any corporate executive knows, you can’t run a successful business when a vast and increasing share of your customer base doesn’t trust the product you are selling. It gets worse. The poll found that more than two-thirds of the public (69%) think the news media “is more concerned with advancing its points of view rather than reporting all the facts.” Only 29% of the public disagrees with that statement. In other words, nearly seven out of 10 adults in the country think the Post ad’s blather about “gathering the facts” is bull. That includes 72% of independents, 95% of Republicans, and — surprisingly enough — 43% of Democrats.

Read more …

And how can the press pull off its tricks? Easy as pie. Edward Bernays and Goebbels.

Homo Credulus (Bowman)

Given the right circumstances… a little programing… and enough time for it all to marinate in his soft, mammalian brain… there is almost nothing Homo Credulus will not learn to embrace. Don’t believe us? Take a look at the historical record; you’ll soon wonder how we ever got this far. Sure, you’ll discover gizmos and flying contraptions… art and agriculture… music and mathematics. You’ll witness spectacular scientific breakthroughs, the number “0” and a man’s footprint on the moon. You’ll also find automobiles with so many cup holders, you won’t know where to holster your oversized 7/11 Big Gulp. But you’ll also scratch you head. Perhaps you’ll even weep. And if you think hard enough, you’ll put a few things to serious question…

“Central banks?” “Modern democracy?” “The Rosie O’Donnell Show?” How has mankind survived such atrocities? Self inflicted, no less! And why, moreover, does he rush so earnestly to repeat and replay his worst mistakes? Don’t be too hard on yourself, Dear Reader. After all, repetition is nothing new… You’ll recall that it was the Greeks who first gave the world democracy – from the Greek, demokratia, literally “Rule by ‘People’”. (And yes, it was those very same Greeks who put their own beloved Socrates to death… by a majority vote of 140-361.) Today, democracy is a cherished tenet of “the West.” It is woven into the civic religion, sewn into the social fabric. Men march off eagerly to fight for it, to proselytize it … and to die in forgotten ditches defending it. At least, that’s what they believe they’re doing. As usual, the poor saps have been duped.

The phrase “Making the world safe for democracy” was actually a marketing slogan, coined back in the 1910s, as a way to sell “The Great War” to America. Weary from their own disastrous Civil War just a few decades earlier, in which hundreds of thousands gave up the ghost, Americans were mostly inward looking at the time. That is to say, they wanted little to do with what they largely saw as a “European affair.” Polls might have indicated no appetite for battle… but the nation’s politicians were nonetheless starved for military misadventure. They sensed big profits abroad, both in manufacturing armaments and making onerous bank loans to foreign lands. Sure, “the nation” would have to fill tank and trench with warm young bodies… but very few soldiers would carry senatorial surnames along with their rifles.

Read more …

Too late already. A deliberate Monsanto policy.

French, German Farmers Must Destroy Crops After GMOs Found In Monsanto Seeds (RT)

French and German farmers have been forced to dig up thousands of hectares of rapeseed fields after authorities found an illegal GMO strain mixed in with the natural seeds they’d bought from Bayer-Monsanto. Authorities discovered the illicit seeds in three separate batches of rapeseed seeds last fall, but the public has only just been notified. While Bayer issued a recall, by the time the farmers learned of it some of the seeds had already been planted, covering 8,000 ha in France and 3,000 ha in Germany. Bayer-Monsanto estimated the number of rogue seeds at just about .005 percent of the total volume of rapeseed seeds sold to both nations under the brand name Dekalb, but each country has a ban on GMO cultivation, with strict penalties for “accidental” contamination of standard crops.

The agrochemical giant refused to estimate the total cost of the GMO contamination, which knocks out not only this season’s crop but also the next season’s, as farmers will be barred from growing rapeseed next year “to avoid re-emergence of the GMO strain,” according to Bayer-Monsanto’s French COO Catherine Lamboley. They offered to compensate farmers €2,000 per hectare, which would work out to about €20 million between both countries. The cause of the contamination is unknown, Lamboley said, claiming the seeds were produced in Argentina “in a GMO-free area” and declaring that the company “has decided to immediately stop all rapeseed production in Argentina.” The rogue GMO seeds were of a variety grown in Canada that is banned in Europe, although imported food made with the modified rapeseed is permitted for human and animal consumption as long as it is adequately labeled.

Read more …

Except those farmed.

The Killing Of Large Species Is Pushing Them Towards Extinction (G.)

The vast majority of the world’s largest species are being pushed towards extinction, with the killing of the heftiest animals for meat and body parts the leading cause of decline, according to a new study. While habitat loss, pollution and other threats pose a significant menace to large species, also known as megafauna, intentional and unintentional trapping, poaching and slaughter is the single biggest factor in their decline, researchers found. An analysis of 362 megafauna species found that 70% of them are in decline, with 59% classed as threatened by the International Union for Conservation of Nature. Direct killing by humans is the leading cause across all classes of animals, the study states.

A range of maladies including intensive agriculture, toxins and invasive competitors are also helping to trigger these declines. This situation adds to the “mounting evidence that humans are poised to cause a sixth mass extinction event”, according to the research, published in Conservation Letters. It adds that “minimizing the direct killing of the world’s largest vertebrates is a priority conservation strategy that might save many of these iconic species and the functions and services they provide.” Humans cause the deaths of large creatures in a variety of ways, from snares that entangle mountain gorillas and the poaching of elephants for ivory to the killing of the Chinese giant salamander, which can grow up to 6ft long and is considered a delicacy in Asia.

Read more …

So what are you going to do about it? Appeal to your politicians?

Global Warming Could Exceed 1.5ºC Within Five Years (G.)

Global warming could temporarily hit 1.5C above pre-industrial levels for the first time between now and 2023, according to a long-term forecast by the Met Office. Meteorologists said there was a 10% chance of a year in which the average temperature rise exceeds 1.5C, which is the lowest of the two Paris agreement targets set for the end of the century. Until now, the hottest year on record was 2016, when the planet warmed 1.11C above pre-industrial levels, but the long-term trend is upward. Man-made greenhouse gases in the atmosphere are adding 0.2C of warming each decade but the incline of temperature charts is jagged due to natural variation: hotter El Niño years zig above the average, while cooler La Ninã years zag below.

In the five-year forecast released on Wednesday, the Met Office highlights the first possibility of a natural El Niño combining with global warming to exceed the 1.5C mark. Dr Doug Smith, Met Office research fellow, said: “A run of temperatures of 1C or above would increase the risk of a temporary excursion above the threshold of 1.5C above pre-industrial levels. Predictions now suggest around a 10% chance of at least one year between 2019 and 2023 temporarily exceeding 1.5C.” Climatologists stressed this did not mean the world had broken the Paris agreement 80 years ahead of schedule because international temperature targets are based on 30-year averages.

“Exceeding 1.5C in one given year does not mean that the 1.5C goal has been breached and can be redirected towards the bin,” said Joeri Rogelj, a lecturer at the Grantham Institute. “The noise in the annual temperatures should not distract from the long-term trend.”

Read more …

Jun 232017
 
 June 23, 2017  Posted by at 9:55 am Finance Tagged with: , , , , , , , , ,  


Fred Lyon Embarcadero lunch San Francisco 1948

 

Americans Are Dying With An Average Of $61,500 In Debt (ZH)
34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)
Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)
Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)
UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)
UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.) /span>
Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)
Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)
Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)
EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)
Dear Oliver: About Those Putin Interviews (RM)
Arab States Send Qatar 13 Demands To End Crisis (R.)
In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

 

 

Double or nothing?!

Americans Are Dying With An Average Of $61,500 In Debt (ZH)

According to a recent study, the average total household debt in America is just over $132,500, broken down as per the chart below… and thanks to the Fed’s recent and ongoing rate increases, the repayment of said debt will become increasingly more difficult. So difficult, in fact, that most Americans will be saddled with a sizable chunk of it at the time of their death. Actually, most already are. According to December 2016 data from credit bureau Experian provided to credit.com, 73% of American consumers had outstanding debt when they were reported as dead. Those consumers carried an average total balance of $61,554, including mortgage debt. Without home loans, the average balance was $12,875. As credit.com reports, the data is based on Experian’s FileOne database, which includes 220 million consumers.

To determine the average debt people have when they die, Experian looked at consumers who, as of October 2016, were not deceased, but then showed as deceased as of December 2016. Among the 73% of consumers who had debt when they died, about 68% had credit card balances. The next most common kind of debt was mortgage debt (37%), followed by auto loans (25%), personal loans (12%) and student loans (6%). The breakdown of unpaid balances was as follows: credit cards, $4,531; auto loans, $17,111; personal loans, $14,793; and student loans, $25,391. And, as a reminder, debt doesn’t just disappear when someone dies.

What happens to that debt when you die, aside from it continuing to accrue interest until someone remembers to inform the creditors? “Debt belongs to the deceased person or that person’s estate,” said Darra L. Rayndon, an estate planning attorney with Clark Hill in Scottsdale, Arizona. If someone has enough assets to cover their debts, the creditors get paid, and beneficiaries receive whatever remains. But if there aren’t enough assets to satisfy debts, creditors lose out (they may get some, but not all, of what they’re owed). Family members do not then become responsible for the debt, as some people worry they might. That’s the general idea, but things are not always that straightforward. The type of debt you have, where you live and the value of your estate significantly affects the complexity of the situation. For example, federal student loan debt is eligible for cancellation upon a borrower’s death, but private student loan companies tend not to offer the same benefit. They can go after the borrower’s estate for payment.

Read more …

Let’s do a stress test that assumes the Fed is no longer around, see what happens.

34 Biggest Banks in US Clear First Hurdle In Fed’s Annual Stress Tests (R.)

The 34 largest U.S. banks have all cleared the first stage of an annual stress test, showing they would be able to maintain enough capital in an extreme recession to meet regulatory requirements, the Federal Reserve said on Thursday. Although the banks, including household names like JPMorgan Chase and Bank of America, would suffer $383 billion in loan losses in the Fed’s most severe scenario, their level of high-quality capital would be substantially higher than the threshold that regulators demand, and an improvement over last year’s level. “This year’s results show that, even during a severe recession, our large banks would remain well capitalized,” said Fed Governor Jerome Powell, who leads banking regulation for the central bank. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.”

The Fed introduced the stress tests in the wake of the financial crisis to ensure the health of the banking industry, whose ability to lend is considered crucial to the health of the economy. Since the first test was conducted in 2009, big banks have seen losses abate, loan portfolios improve and profits grow. The banks that now undergo the exam have also strengthened their balance sheets by adding more than $750 billion in top-notch capital, the Fed said. Banks and their investors have been hoping the improvements would prompt the Fed to allow them to use more capital for stock buybacks and dividends, especially as the Trump administration is seeking to relax financial regulations. Wall Street analysts and trade groups quickly cheered the results on Thursday, saying regulators should feel comfortable easing tough rules put in place since the financial crisis. “We see today’s…stress test results as a positive for Trump administration efforts to deregulate the banks,” said Jaret Seiberg, a policy analyst with Cowen & Co.

Read more …

The biggest debts are still in mortgages. Falling home prices will hurt most.

Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries (WS)

The comforting news in the results from the Federal Reserve’s annual stress test is that the largest 34 bank holding companies would all survive a recession. Based on this glorious accomplishment, the clamoring has already started for regulators to allow these banks to pay bigger dividends and to blow more money on share buybacks, and for these regulators to slash regulation on these banks and make their life easier and riskier in general. We don’t want these banks to survive a recession in too good a condition apparently. And it would likely be better for Wall Street anyway if banks could lever up with risks so that a few of them would get bailed out during the next recession. Let’s remember, for the Fed’s no-holds-barred bailout-year 2009, Wall Street executives and employees were doused with record bonuses.

The Fed’s bailouts were good for them. And it has been good for them ever since. The less comforting news in the stress test is that credit card debt – generally the most expensive and risky debt for consumers – has now moved to the top of the Fed’s worry list in the “severely adverse scenario” of the stress test. The projected losses for the 34 largest banks – not counting the losses at the 4,997 smaller banks – are expected to hit $100 billion, up nearly 9% from the stress test a year ago. The projected losses rose for several reasons, including that credit card balances have grown by 5.6% from a year ago to over $1 trillion. The delinquency rate has risen to 2.4%. The Fed is also blaming looser lending standards. Sharing the top spot on the Fed’s worry list in the “severely adverse scenario” are Commercial & Industrial loans, whose balances are over twice as large, at $2.1 trillion, but whose projected losses are also pegged at $100 billion. In total, the “severely adverse scenario” sees $493 billion in losses for these 34 banks:

Read more …

“..investors, drunk with the liquor of loose money..”

Citizens Will Soon Turn Their Rage Towards Central Bankers (Albert Edwards)

Albert Edwards pwrites “Theft redux: the citizens will soon turn their rage towards Central Bankers.” The core of his argument is familiar: “While politics in the West reels from a decade of economic crisis and stagnation, asset prices continue to surge on the back of continued rapid growth in G3 QE. In an age of “radical uncertainty” how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central bank independence will be (and should be) the next casualty of the current political turmoil.” That’s just the beginning from Edwards, who appears to be getting increasingly angrier and more frustrated with a market that makes increasingly less sense: his fiery sermon continue with the following preview of the “inevitable catastrophe that lies ahead.”

“Evidence of the impact of monetary madness on assets prices is all around if we care to look. I read that a parking spot in Hong Kong was just sold for record HK$5.18 million ($664,200). What about the 3.5x oversubscribed 100 year Argentine government bond? Sure, everything has a market clearing price, even one of the most regular defaulters in history. But what concerned me most about the story was it was demand from investors (“reverse enquires”) that prompted the issue. Is it just me or can I hear echoes of the mechanics of the CDO crisis? But no one cares when the party is still raging and investors, drunk with the liquor of loose money, are blind to the inevitable catastrophe that lies ahead. There is a lot of anger out on the streets, as demonstrated most visibly in recent elections.

Even in France where investors feel comforted that a “moderate” has gained (absolute?) power, it is salutary to remember that the two establishment parties have just been decimated by a man who had never before stood for public office! This is perhaps even more radical than Trump’s anti-establishment victory under the Republican umbrella. The global political situation is incredibly fluid and unpredictable. While a furious electorate has turned its pent up anger on the establishment political parties, the target for their rage is misguided. I am not completely alone in thinking it is the unelected and virtually unaccountable central bankers who are primarily responsible for the poverty of working people and who will be ultimately held to account in the next crisis.

Read more …

In other news: ” Government-funded new social housing has fallen 97% since 2010″.

UK Homelessness Surges 34% Under Tories Since 2010 (Ind.)

The number of families being declared homeless has rocketed by more a third since the Conservatives took power in 2010, analysis of new official statistics by The Independent has revealed. Between April 2016 and March 2017, 59,100 families were declared homeless by local authorities in England – a rise of 34% on the same period in 2010-11. The statistics paint a bleak picture of the UK housing crisis and the impact a lack of decent, affordable homes is having on thousands of families. There has been a 60% increase in the number of families being housed in insecure temporary accommodation. In particular, bed and breakfast-type hotels are increasingly being used to house families for long periods of time as local councils struggle to find them proper homes to live in.

There are now 77,240 families in England currently living in temporary accommodation – up from 48,240 just six years ago. Of these, almost fourth-fifths (78%) are families with children, meaning there are currently 120,500 children living in insecure, temporary homes. Of those being housed temporarily, 6,590 households are living in B&Bs, including 3,010 families with children. Almost half have been living in this type of accommodation, which often sees families crammed into one room and forced to share limited bathroom and cooking facilities with strangers, for more than six weeks. This is illegal under the Homelessness (Suitability of Accommodation) Order 2003, which banned local authorities from housing families with children in B&Bs for more than a six-week period.

Read more …

The Tories are done. Someone should tell them.

UK High Court Judges Tory Policy Causes ‘Real Misery For No Purpose’ (Ind.)

Today, the High Court ruled that the benefits cap, one of the Tories’ flagship welfare policies, is unlawful, because it amounts to illegal discrimination against single parents with small children. It’s likely that the Government will be forced to alter or completely scrap their benefits cap, a policy that limits the total amount a household can receive in benefits to £23,000 in London and £20,000 elsewhere in the UK. High Court judge Justice Collins described the benefit cap as causing “real damage” to single parent families and said “real misery is being caused to no good purpose”. This is the fundamental truth at the heart of Tory welfare policy – misery without progress or reason.

Welfare reform as part of the coalition government’s austerity measures has driven thousands more people into poverty and in many tragic cases, some deaths occurred after individuals were declared fit to work. Austerity was not inevitable. It was an ideologically-motivated programme designed to force the poorest and most vulnerable in our society to shoulder the burden of a financial crisis that they had less than nothing to do with creating. Four claimants brought this case to court. Two of them had been made homeless as a result of domestic violence, and were trying to work as many hours as possible while taking care of children under the age of two. Imagine fleeing an abusive partner, seeking support from a domestic violence service that’s had its funding brutally slashed by the Tory government, trying to work and look after a small child, then having your benefits cut, again by the Tory government.

The claimants are not alone. The benefits cap has inflicted a massive amount of suffering, with 200,000 children from the very lowest income families affected, as their parents’ income has fallen drastically. In real terms, this means that these children’s lives have become even more difficult, and they weren’t easy to begin with. This means a colder house, less food to eat, more shame at school due to unwashed clothes, uniforms that are too small, worn-through shoes. It means stressed, unhappy and increasingly desperate parents, and in family, children can’t fail to pick up on this mood of misery. [..] In this wealthy, highly developed country, poverty is the single biggest threat to the wellbeing of children and families. Poverty affects a quarter of all children in Britain, a massive, disgraceful, inexcusable proportion. one in five parents are struggling to feed their children, and 50% of all parents living in food poverty have gone without meals in order to give their children more to eat.

Read more …

There goes the bubble. Look out below.

Buy-to-Let Uk Property Sales Fall By Almost 50% In A Year (G.)

The number of properties bought by landlords has almost halved in a year after a tax and regulatory clampdown, prompting a leading banking body to downgrade its forecasts for buy-to-let lending in 2017 and 2018. The Council of Mortgage Lenders said buy to let had had a weak start to 2017, with lending falling faster than expected as landlords withdrew from the market in response to major tax changes and tighter lending rules. The data follows a series of recent surveys and indices suggesting the housing market is running out of steam. However, the crackdown on buy to let may have helped young people trying to get a foot on the property ladder. CML said house purchase activity was being driven predominantly by first-time buyers, with their numbers up 8% in the 12 months to April.

Buy-to-let homebuying activity was “nearly half what it was a year ago” and had averaged around 6,000 purchases a month over the last 12 months, said the body, which represents banks and building societies. The number of landlord purchases involving a mortgage was 5,300 in April this year. This compared with 10,300 in February 2016 and 11,800 in July 2015. As a result, the CML has cut its forecast for buy-to-let lending from £38bn being lent in both 2017 and 2018 to £35bn in 2017 and £33bn in 2018. The organisation warned against hitting landlords with any further changes to taxation and lending rules, saying the figures “re-emphasise the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed”.

Read more …

Download report here: Addicted to Debt – Tracking Canada’s rapid accumulation of private sector debt .

Canada’s Private Sector Debt Growing Faster Than Any Advanced Economy (PA)

For the first time ever, Canada’s private sector is racking up debt faster than any other of the world’s 22 advanced economies, putting the country at risk of serious economic consequences, according to new research by the Canadian Centre for Policy Alternatives. A new report authored by CCPA Senior Economist David Macdonald reveals that Canada added $1 trillion in private sector debt over the past five years ($2016), with the corporate sector responsible for the majority of it. Economies can become dependent on debt in order to fuel economic and asset price growth. With both rapid private debt accumulation and a high private debt-to-GDP ratio, even a small change in debt growth rates, brought on by changes in interest rates for instance, could have a devastating impact on the larger economy.

“Private sector debt growth is one of the best predictors of economic crisis, and Canada is now the only advanced economy squarely in the debt ‘danger zone’ of having high private sector debt that continues to rise rapidly,” Macdonald says. The report identifies several areas of concern:
• Canada has never before led the advanced economies in private debt growth;
• The last time Canada was close to leading the world in private debt growth was the early 1990s, just as housing prices plummeted and then stagnated for a decade;
• The country’s private debt-to-GDP ratio has risen by a fifth since 2011, from 182% to 218%. The US ratio currently stands at 152%;
• The $315 billion increase in household debt since 2011 ($2016) is almost entirely attributable to the rise in mortgage debt related to rapid home prices increases;
• Corporate debt is less well studied, and rose $671 billion since 2011 ($2016), accounting for two thirds of private debt accumulation over that time;
• Corporate debt was largely spent on mergers and acquisitions as well as real estate purchases, neither of which make the country more productive.

“Canada’s economy has become addicted to binging on ever more private sector debt, and weaning us off it should be our primary public policy concern,” adds Macdonald, who recommends further study of corporate debt and consideration of a housing speculators’ tax to further reign in mortgage debt increases.

Read more …

Well, it can’t be because Buffett see a bright future in Canada’s housing market. So draw your own conclusion.

Warren Buffett Becomes Lender Of Last Resort For Canada’s Home Capital (BBG)

Warren Buffett has become the lender of last resort for Home Capital. The billionaire investor agreed to buy shares at a deep discount and provide a fresh credit line for the Canadian mortgage company, tapping a formula he used to prop up lenders from Goldman Sachs to Bank of America. Buffett’s Berkshire Hathaway Inc. will buy a 38% stake for about C$400 million ($300 million) and provide a C$2 billion credit line with an interest rate of 9% to backstop the embattled Toronto-based lender, Home Capital said late Wednesday in a statement. The interest on the one-year loan would net Berkshire at least C$180 million if it’s fully tapped.

“While the terms of the new credit line with Berkshire Hathaway remain harsh, we believe the purpose of this loan is to motivate Home Capital’s management to bolster their own funding sources,” said Hugo Chan at Kingsferry Capital in Shanghai, which owns shares in Home Capital. “This again shows Mr. Buffett’s masterful capital allocation skills,” said Chan, citing his investment motto: “be greedy when others are fearful.” The financial backing from Buffett sent the stock higher Thursday, though it comes at a cost, in keeping with his past bailouts of financial firms. Buffett has buoyed some of the biggest U.S. corporations in times of trouble, including a combined $8 billion injection to prop up Goldman Sachs and General Electric when credit markets froze during the 2008 financial crisis.

In the Home Capital deal, Buffett’s firm agreed to pay an average price of C$10 a share, a 33% discount to Wednesday’s closing price of C$14.94. Berkshire would become the largest shareholder in Home Capital, which has a market value of about C$1 billion. Home Capital surged 27% to C$19 in Toronto on Thursday. That gives Buffett a 90% return on paper for the equity investment, assuming the deal goes through.

Read more …

They always have, it’s an MO.

EU Political Class Rides Roughshod over Citizens’ Concerns & Frustrations (DQ)

Merkel has expressed a willingness to go along with two central French demands — the appointment of a Eurozone finance minister and the creation of a common budget — as long as certain conditions are met. “We can of course think about a Eurozone budget as long as it’s clear that this is really strengthening structures and achieving sensible results,” she said. [..] Back on the table is a proposal to upgrade the grossly unaccountable Luxembourg-based European Stability Mechanism (ESM) into a full-fledged European Monetary Fund. As we’ve noted before, creating a European Monetary Fund (EMF) would be an important statement of intent. If Europe’s core countries are truly set on taking the EU project to a whole new level, such as by pursuing the creation of an EU army, an EU border force (with full powers), fiscal union, and ultimately political union, some form of burden sharing will ultimately be necessary.

The establishment of a fully operational EMF could be an important move in that direction. The EMF would essentially act as a fiscal backdrop to the banking system, something the Eurozone has desperately needed ever since its creation. As Bruegel proposes, it would serve as a fiscal counterpart of the ECB to guarantee the financial stability of the euro area in the event of a sovereign or banking crisis, or a threat thereof — of which there are plenty these days, in particular emanating from Italy’s broken banking system. Naturally, the creation of an EMF would deal a further blow to the fading remnants of national sovereignty in Europe. But that’s a price that many (but certainly not all) of Europe’s elite is more than happy to pay; some would say that destroying national sovereignty was the ultimate goal of the EU all along.

In a survey of more than 10,000 EU citizens and 1,800 EU elites carried out by Chatham House, of the elites, 37% believe the EU should get more powers, 28% want to keep the status quo and 31% would prefer to return more powers to individual member countries. This enthusiasm for a more centralized, more powerful EU is not shared with equal enthusiasm by European citizens: 48% want powers returned to the individual member countries. Citizens, overall, do not feel they have benefited from European integration in the same way Europe’s elite does. Whereas 71% of elites report feeling they have gained something from the EU, the figure among the public is only 34%. Even more worrisome for national leaders, a clear majority of the public — 54% — feel that their country was a better place to live 20 years ago, before the euro existed.

Read more …

I’ve seen a few parts. Liked them quite a bit.

Dear Oliver: About Those Putin Interviews (RM)

Dear Mr. Stone: I have just finished watching all four episodes of The Putin Interviews. May I give you my critique? Overall, I felt that the series is Very Good but felt just short of Great. I will explain below what I feel could have made it Great. First, I want to tell you what I really loved about it. 1. You have an easy style. I felt as if Mr. Putin was at ease with you, and you with him. You have a warm command of the English language and can transmit your ideas into language in a very personable way — an art that is missing among so many American media people these days. I felt that you drew out a candid side of Putin, well, that is, as far as a man of his intellectual prowess and disciplined self-control will allow. 2. Best moment of the show: Sitting next to Vlad and watching Dr. Strangelove! Oh my goodness, most people would not even dream of adding such a thing to their bucket list.

3. I loved the walking tour of the President’s offices and the general background of the Kremlin architecture and decor. I pay attention to the daily, tweeted photos from the Kremlin’s official account. I have seen those desks and tables a million times in the photos. But now I have them all within a mental frame, thanks to your film. Question: I was burning to know why Vlad had a pair of scissors and multi-colored construction paper in the middle of his desk, did you happen to ask him, off-camera?

Where It Fell Short Mr. Stone, I hated that so much time was wasted talking about the contrived “Russia hacked the election” meme. Hillary might not know why she lost the election, but the rest of the nation does. When my father would get on a roll with his bad jokes, Mom would tell us kids: “Don’t encourage him.” Well, you too need to stop encouraging the MSM to keep breathing life into a dead meme.

You also wasted time re-hashing Crimea. “Read My Lips,” Vlad said, “the Crimeans ASKED, BEGGED, AND VOTED to rejoin Russia.” Good grief, when McCain’s and Nuland’s beloved neo-Nazi Svoboda party took illegal control of Ukraine, their first move was to try and make it illegal to speak Russian. Geez, half the people in Ukraine ARE Russian! Mr. Putin has exercised considerable restraint towards Ukraine.

Mr. Stone, I have been following the development of BRICS, the “Silk Road Project,” and the EEU (European Economic Union) for a half-decade now. I can’t have a conversation with my neighbors and friends about all of that here in America because not one of them has heard anything about it! You had a great opportunity to ask Mr. Putin to school us on the Sino-Russian version of a multi-polar world without war, but you totally blew it. I don’t think you ever asked Vlad about China, did you?

 

Read more …

Saudi Arabia accuses Qatar of supporting terrorism. Rich.

Arab States Send Qatar 13 Demands To End Crisis (R.)

Four Arab states boycotting Qatar over alleged support for terrorism have sent Doha a list of 13 demands including closing Al Jazeera television and reducing ties to their regional adversary Iran, an official of one of the four countries said. The demands aimed at ending the worst Gulf Arab crisis in years appear designed to quash a two decade-old foreign policy in which Qatar has punched well above its weight, striding the stage as a peace broker, often in conflicts in Muslim lands. Doha’s independent-minded approach, including a dovish line on Iran and support for Islamist groups, in particular the Muslim Brotherhood, has incensed some of its neighbors who see political Islamism as a threat to their dynastic rule.

The list, compiled by Saudi Arabia, the United Arab Emirates (UAE), Egypt and Bahrain, which cut economic, diplomatic and travel ties to Doha on June 5, also demands the closing of a Turkish military base in Qatar, the official told Reuters. Qatar must also announce it is severing ties with terrorist, ideological and sectarian organizations including the Muslim Brotherhood, Islamic State, al Qaeda, Hezbollah, and Jabhat Fateh al Sham, formerly al Qaeda’s branch in Syria, he said, and surrender all designated terrorists on its territory, The four Arab countries accuse Qatar of funding terrorism, fomenting regional instability and cozying up to revolutionary theocracy Iran. Qatar has denied the accusations.

[..] on Monday, Foreign Minister Sheikh Mohammed bin Abdulrahman al-Thani said Qatar would not negotiate with the four states unless they lifted their measures against Doha. The countries give Doha 10 days to comply, failing which the list becomes “void”, the official said without elaborating, suggesting the offer to end the dispute in return for the 13 steps would no longer be on the table.

Read more …

Bunch of sicko’s.

Edward Snowden on Twitter: “Biggest @AP scoop in a long time: US government behind UAE torture in Yemen, with some reportedly grilled alive.

In Yemen’s Secret Prisons, UAE Tortures and US Interrogates

Hundreds of men swept up in the hunt for al-Qaida militants have disappeared into a secret network of prisons in southern Yemen where abuse is routine and torture extreme — including the “grill,” in which the victim is tied to a spit like a roast and spun in a circle of fire, an Associated Press investigation has found. Senior American defense officials acknowledged Wednesday that U.S. forces have been involved in interrogations of detainees in Yemen but denied any participation in or knowledge of human rights abuses. Interrogating detainees who have been abused could violate international law, which prohibits complicity in torture. The AP documented at least 18 clandestine lockups across southern Yemen run by the United Arab Emirates or by Yemeni forces created and trained by the Gulf nation, drawing on accounts from former detainees, families of prisoners, civil rights lawyers and Yemeni military officials.

All are either hidden or off limits to Yemen’s government, which has been getting Emirati help in its civil war with rebels over the last two years. The secret prisons are inside military bases, ports, an airport, private villas and even a nightclub. Some detainees have been flown to an Emirati base across the Red Sea in Eritrea, according to Yemen Interior Minister Hussein Arab and others. Several U.S. defense officials, speaking on condition of anonymity to discuss the topic, told AP that American forces do participate in interrogations of detainees at locations in Yemen, provide questions for others to ask, and receive transcripts of interrogations from Emirati allies. They said U.S. senior military leaders were aware of allegations of torture at the prisons in Yemen, looked into them, but were satisfied that there had not been any abuse when U.S. forces were present.

“We always adhere to the highest standards of personal and professional conduct,” said chief Defense Department spokeswoman Dana White when presented with AP’s findings. “We would not turn a blind eye, because we are obligated to report any violations of human rights.” In a statement to the AP, the UAE’s government denied the allegations. “There are no secret detention centers and no torture of prisoners is done during interrogations.” Inside war-torn Yemen, however, lawyers and families say nearly 2,000 men have disappeared into the clandestine prisons, a number so high that it has triggered near-weekly protests among families seeking information about missing sons, brothers and fathers.

None of the dozens of people interviewed by AP contended that American interrogators were involved in the actual abuses. Nevertheless, obtaining intelligence that may have been extracted by torture inflicted by another party would violate the International Convention Against Torture and could qualify as war crimes, said Ryan Goodman, a law professor at New York University who served as special counsel to the Defense Department until last year

Read more …

Nov 282016
 
 November 28, 2016  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , , , ,  Comments Off on Debt Rattle November 28 2016


NPC Hendrick Motor Co., Carroll Avenue, Takoma Park, Maryland 1928

US Shoppers Spend 3.5% Less Over Holiday Weekend (R.)
Some Of The Biggest UK Banks May Not Clear New Public Stress Tests (BBG)
China’s Bad Banks Serve Zombies, Not Investors (BBG)
PBOC Deputy Governor Talks Up Yuan Strength (CNBC)
Modi’s Rural Supporters May Not Hang On Much Longer (BBG)
India’s Modi Calls For Move Towards Cashless Society (R.)
Greek Banks Call For Taxing Cash Withdrawals (Kath.)
Trump Faces Dilemma As US Oil Reels From Record Biofuels Targets (R.)
Oil Trades Near $46 Amid Skepticism OPEC to Reach Output Deal (BBG)
Fillon Would Beat Le Pen in Both Rounds of Election – Polls (BBG)
Renzi Faces Pressure To Stay In Office As Italy Referendum Defeat Looms (R.)
Recount: Losers Who Won’t Lose (Mehta)

 

 

There’ll be a deluge of data on this coming out where everyone can find their favorite numbers. Everybody happy!

US Shoppers Spend 3.5% Less Over Holiday Weekend (R.)

Early holiday promotions and a belief that deals will always be available took a toll on consumer spending over the Thanksgiving weekend as shoppers spent an average of 3.5% less than a year ago, the National Retail Federation said on Sunday. The NRF said its survey of 4,330 consumers, conducted on Friday and Saturday by research firm Prosper Insights & Analytics, showed that shoppers spent $289.19 over the four-day weekend through Sunday compared to $299.60 over the same period a year earlier. The survey found that 154 million people made purchases over the four days, up from 151 million a year ago. However, there was a 4.2% rise in consumers who shopped online and a 3.7% drop in shoppers who purchased in a store.

The U.S. holiday shopping season is expanding, and Black Friday is no longer the kickoff for the period it once was, with more retailers starting holiday promotions as early as October and running them until Christmas Eve. NRF Chief Executive Officer Matt Shay said the drop in spending is a direct result of the early promotions and deeper discounts offered throughout the season. “Consumers know they can get good deals throughout the season and these opportunities are not a one-day or one-weekend phenomenon and that has showed up in shopping plans,” he said. Shay said more 23% of consumers this year have not even started shopping for the season, which is up 4% from last year and indicates those sales are yet to come. The NRF stuck to its forecast for retail sales to rise 3.6% this holiday season, on the back of strong jobs and wage growth.

Read more …

That graph is full-tard baseless and ridiculous.

Some Of The Biggest UK Banks May Not Clear New Public Stress Tests (BBG)

The Bank of England added a new, higher bar to its third round of public stress tests. Some of the U.K.’s biggest banks will scrape through; others may not clear it. The seven major British lenders tested will probably beat the lowest measures of strength required to pass the annual BOE health check when it is released Wednesday, Autonomous Research aid in a note this month. RBS and Barclays risk a “soft fail” of tougher thresholds set for lenders deemed to be integral to the global banking system, they said. HSBC and Standard Chartered’s results may be rattled by a Chinese recession scenario.

Each bank now must top its individual hurdle rate and a new threshold, called the systemic reference point, that takes into account the potential global repercussions if the lender collapses. Firms that fall short of either measure will have to boost their capital ratios, though the BOE will force them to take “less intensive” action if they only miss the SRP. “With bank investing these days, you need to be more cognizant of the economy, the rate environment and crucially of the regulator,” especially if one bank does much worse than its peers in a stress test, said Barrington Pitt Miller at Janus Capital in Denver.

Read more …

It’s what they’re for.

China’s Bad Banks Serve Zombies, Not Investors (BBG)

China’s zombie companies can rest easy. It’s a shame the same can’t be said for investors in the nation’s banks.The big five lenders, starting with Agricultural Bank of China, plan to set up bad banks that will convert soured debt to equity. Agricultural Bank, Industrial & Commercial Bank of China, Bank of China, China Construction Bank and Bank of Communications will fork out 10 billion yuan ($1.5 billion) each to establish the asset-management companies, Caixin magazine reported. That banks are forging ahead with debt-to-equity swap plans, albeit via asset-management firms they happen to own, is great news for all those struggling steel and construction companies facing potential closure.

State Council guidelines issued last month indicate that zombie corporations – those ailing state firms plagued by overcapacity – can’t count on bailouts, but it’s difficult to determine which ones are actually destined for the scrapheap.The nation’s top lenders, also all backed by Beijing, are unlikely to want to be seen as responsible for mass unemployment by refusing to rescue companies, no matter how dire their situation. In fact, those companies may have an even better chance of getting capital infusions, considering financial institutions will probably be keen to use their investment-banking units to help monetize equity assets.On the face of it, bank investors might also feel relieved that lenders are farming out bad debt to distinct vehicles.

Using an asset-management company should ensure that the equity resulting from the bad-debt switch doesn’t sit on a bank’s balance sheet. That will help lenders conserve precious capital: Had the equity been on their books, they would have had to apply a risk weighting of 400%, and get special approval from the State Council. Structuring it this way will also allow banks to maintain their much-coveted dividends. But dig a bit deeper and you realize this isn’t a scenario that will necessarily play out well, and not just because equity stakes, even those held at arm’s length, are inherently riskier than loans.For one, how will these asset-management firms be funded long term?

The answer is probably by the banks themselves.According to the State Council, the debt-to-equity swaps can be financed by “social capital,” a catch-all phrase that generally includes high-yielding wealth-management products. Those investment structures come with an implicit guarantee from the banks that issue them, as lenders have found in the past when they’ve had to rescue funds in trouble. It’s ironic that just as authorities have been trying to rein in shadow banking, the debt-to-equity swap plan provides an added reason to gorge.

Read more …

They even push up the yuan a tad to coincide with the publication of the remarks. All under control.

PBOC Deputy Governor Talks Up Yuan Strength (CNBC)

Comparing the yuan’s recent moves against the dollar misses the currency’s underlying strength of the against a more appropriately watched basket, People’s Bank of China (PBOC) Deputy Governor Yi Gang said in remarks released on Chinese state-run media at the weekend. In a question-and-answer format interview with Xinhua news agency that was posted on the central bank’s website, Yi said the yuan remained a strong and stable currency in the global monetary system, while noting concerns about a slide against the dollar after Donald Trump’s victory in the Nov. 8 presidential election. The yuan plunged to eight-and-a-half year lows versus the dollar last week.

On Monday, the PBOC set the yuan’s central parity rate against the dollar at 6.9042, stronger than the 6.9168 level set on Friday. “Referencing the yuan against a basket of currencies can better reflect the overall competitiveness of a country’s goods and services,” Yi said. Given that economic structures, cycles and interest rate policies differed in various countries, fixating on a single currency was not suitable and may cause the yen to be “over-managed,” he added. Yi said the yuan’s movements were due to domestic factors in the U.S., as they reflected the rise of the greenback on the back of improvements in the U.S. economy and inflation, alongside expectations of a quickening in the pace of Federal Reserve interest rate hikes.

Read more …

By now it’s time to wonder how massive the protests will be, and where Modi’s reaction will lead.

Modi’s Rural Supporters May Not Hang On Much Longer (BBG)

The most ardent supporters of Prime Minister Narendra Modi’s surprise currency withdrawal are those you’d least expect: India’s rural poor, who are suffering the most with the prolonged cash shortages. But the backing of many from India’s villages – based on a belief that Modi’s actions will even out the scale of inequality and reduce corruption – may be short-lived. The jury is still out on the political and economic impact of the decision to target unaccounted cash. And it will be another two months before the government releases inflation, industrial production and growth figures – key areas that may be affected by the prime minister’s shock move on Nov. 8 to ban high-denomination notes, taking out 86% of circulating currency.

Meanwhile, five states, including the most populous state of Uttar Pradesh, will go to elections, leaving the ruling Bharatiya Janata Party vulnerable to a voter backlash if one of its major support bases sees no benefit from the demonetization process. To intensify the campaign against the note ban, several opposition parties called for nationwide protests on Monday, saying the process is a political move dressed up as a fight against corruption. It is not clear whether demonetization will eliminate so-called black money, or who will pay the price if it fails, said Arati Jerath, a New Delhi-based author who has written about Indian politics for about four decades. It will take at least another three weeks to gauge the economic and political impact, she said.

Jerath points to the public reaction to Indira Gandhi’s decision to impose a state of emergency in 1975 as an example of how quickly the tide of public opinion can change. Initially people supported the emergency, welcoming improvements in law and order and the punctuality of government officials. Later they turned against Gandhi when they realized its negative effects, particularity arbitrary abuse of power by bureaucrats, she said. If the Modi government fails to address concerns around cash withdrawals and the situation worsens, there could be food shortages, farmers’ distress, layoffs, rising unemployment and a slowdown of the economy. “At the moment people are patient, they are really giving it a chance, waiting and watching,” said Jerath. “If the situation does not improve by the middle of next month, there will be a backlash against demonetization.”

Read more …

Yeah. Have them all drive Teslas too, right?

India’s Modi Calls For Move Towards Cashless Society (R.)

Indian Prime Minister Narendra Modi on Sunday urged the nation’s small traders and daily wage earners to embrace digital payment channels, as a cash crunch following the government’s surprise ban on high-value bank notes drags on. Modi, speaking in his monthly address on national radio, said the government understands that millions have been affected by the ban on 500-rupee and 1000-rupees notes, but defended the action. The government says the bank-note ban announced on Nov. 8 is aimed at cracking down on corruption, people with unaccounted wealth, and counterfeiting of notes.

“I want to tell my small merchant brothers and sisters, this is the chance for you to enter the digital world,” Modi said speaking in Hindi, urging them to use mobile banking applications and credit-card swipe machines. “It’s correct that a 100% cashless society is not possible. But why don’t we make a beginning for a less-cash society in India?,” Modi said. “We can gradually move from a less-cash society to a cashless society.” More than 90% of consumer purchases in India are transacted in cash, Credit Suisse estimates. While a smartphone boom and falling mobile data prices have led to a surge in digital payments in recent years, the base still remains low. Modi urged technology-savvy young people to spare some time teaching others how to use digital payment platforms.

Read more …

Pushing plastic. A new global sport.

Greek Banks Call For Taxing Cash Withdrawals (Kath.)

Banks are proposing that the government take a series of measures to combat tax evasion, which are centered around reducing the use of cash in favor of increasing online transactions. The proposal that stands out concerns the taxing of cash withdrawals. As bank executives say, cash is easily channeled to the so-called shadow economy, so imposing a tax on withdrawals would drastically reduce transactions in cash and therefore the illegal economy as well.

Lenders are also asking for the compulsory use of cards or other online means for all transactions concerning professions where there are strong indications of tax evasion or cash is used as the main means of payment. Credit and debit cards as well as the new technologies that allow for contactless transactions, such as cell phone apps, should be possible to use even for the smallest transactions, from the purchase of a newspaper to buying a bus ticket, banks argue. The illegal economy in Greece is estimated at some €40 billion every year, with state coffers losing out on tax revenues of around €15 billion per annum.

Read more …

Pitting real bad policy vs really really bad.

Trump Faces Dilemma As US Oil Reels From Record Biofuels Targets (R.)

The Obama administration signed its final plan for renewable fuel use in the United States last week, leaving an oil industry reeling from the most aggressive biofuel targets yet as President-elect Donald Trump takes over. The Renewable Fuel Standard (RFS) program, signed into law by President George W. Bush, is one of the country’s most controversial energy policies. It requires energy firms to blend ethanol and biodiesel into gasoline and diesel. The policy was designed to cut greenhouse gas emissions, reduce U.S. reliance on oil imports and boost rural economies that provide the crops for biofuels. It has pitted two of Trump’s support bases against each other: Big Oil and Big Corn.

The farming sector has lobbied hard for the maximum biofuel volumes laid out in the law to be blended into gasoline motor fuels, while the oil industry argues that the program creates additional costs. Balancing oil and farm interests is likely to prove a challenge for Trump, who has promised to curtail regulations on the oil industry but is already being reminded by biofuels advocates of the importance of the program to the American Midwest, where he received strong support from voters on Nov. 8. Oil groups are renewing their calls to change or repeal the program following Wednesday’s announcement, when the Environmental Protection Agency (EPA) set record mandates for renewable fuels – for the first time hitting levels targeted by Congress nearly a decade ago.

The EPA plan is “completely detached from market realities and confirms once again that Congress must take immediate action to remedy this broken program,” said Chet Thompson, President of the American Fuel and Petrochemical Manufacturers, in a statement. It is unclear what Trump’s plans for the program will be and his transition team did not respond to Reuters’ requests for comment. Both camps are expecting an administration receptive to their demands, though both have expressed concern and uncertainty over Trump’s plans for the program, according to experts, industry and political sources.

Read more …

Pump baby pump.

Oil Trades Near $46 Amid Skepticism OPEC to Reach Output Deal (BBG)

Oil halted declines near $46 amid skepticism over OPEC’s ability to reach an agreement to cut output and as representatives prepare to meet Monday amid last-minute negotiations over the deal the group aims to formalize Wednesday. Futures were little changed in New York after earlier falling as much as 2% and dropping 4% on Friday. Saudi Arabia for the first time on Sunday suggested OPEC doesn’t necessarily need to curb output and pulled out of a scheduled meeting with non-member producers, including Russia. OPEC will hold an internal meeting in Vienna Monday to resolve its differences, and as part of the final push to reach an agreement, oil ministers from Algeria and Venezuela are heading to Moscow to get the group’s biggest rival on board.

OPEC is heading into the final stretch before its November 30 meeting to adopt a deal first floated in September to collectively reduce output. Saudi Arabia, the group’s de facto leader, is seeking to reverse the pump-at-will policy it supported in 2014 and is now pushing members to agree how they will individually shoulder the first production cuts in eight years. Saudi oil minister Khalid Al-Falih said the oil market will recover in 2017 even without cuts. “The market is currently quite pressured by the uncertainties raised from various reports, including Saudi Arabia pulling out of Monday’s talks with non-OPEC nations,” Seo Sang-young at Kiwoom Securities said by phone. “It’s also highly suspicious whether OPEC will keep its promises even if it achieves an accord because the members are constantly raising production.”

Read more …

Wanna bet?

Fillon Would Beat Le Pen in Both Rounds of Election – Polls (BBG)

Francois Fillon, the former prime minister who won the French Republican presidential nomination Sunday, would beat National Front leader Marine Le Pen in both rounds of a presidential election, two polls showed. In a scenario where incumbent Francois Hollande is running along with former Economy Minister Emmanuel Macron, Fillon would win the first round with 32% of the vote against 22% for Le Pen and 8% for Hollande, according to a poll by Odoxa for France 2 television. In the run-off two weeks later, he would defeat Le Pen 71% to 20%. A Harris Interactive poll showed Fillon winning the first round with 26% support compared with 24% for Le Pen and 9% for either Hollande or Manuel Valls as leader of the Socialists. The same survey showed him winning against Le Pen in the second round 67% to 33%.

Read more …

“What needs to be considered… is what is good for the country.” Translation: what is good for the incumbent class.

Renzi Faces Pressure To Stay In Office As Italy Referendum Defeat Looms (R.)

When a handful of European leaders met Barack Obama in Berlin this month to say their goodbyes, Italian Prime Minister Matteo Renzi informed the group that he may well lose power before the U.S. president. While Obama leaves office on Jan. 20, Renzi has promised to resign if he does not win a Dec. 4 referendum on constitutional reform, opening the way for renewed political instability in the eurozone’s third largest economy. “I have no desire to hang around if I lose,” Renzi told the gathering, according to a diplomatic source who was at the low-key Nov. 18 meeting. Opinion polls now predict Renzi’s defeat, in what would be the third big anti-establishment revolt by voters this year in a major Western country, following Brexit and the U.S. election of Donald Trump.

Pressure is mounting on Renzi to drop his threat and instead agree to remain in power to deal with the fallout from a ‘No’ vote, including the risk of a fullblown banking crisis. Obama himself said in October that Renzi should “hang around for a while no matter what” and a number of businessmen and senior government officials contacted by Reuters said they feared the worst if the prime minister abandoned his post. “My personal opinion is that Renzi should stay,” Industry Minister Carlo Calenda said in an interview on Friday. “What needs to be considered… is what is good for the country.” The Italian president could appeal to Renzi’s sense of responsibility and ask him to seek a new mandate from parliament. His response might depend on the size of any defeat, with one advisor saying the 41-year-old premier could quit politics altogether if he suffers a huge snub next Sunday.

Read more …

Is it really that hard to throw out Soros?

Recount: Losers Who Won’t Lose (Mehta)

President-elect Trump won 306 electoral votes versus Hillary Clinton’s 232 (24% less electoral votes). Similar to 2000, the surrendering party then reversed course and put the nation through a recount, just for the sake of it. What are the odds that such an exercise here would yield successful for Ms. Clinton? Based on statistical randomness of re-assessing voter intent, the chance of Hillary emerging as the victor is far less than 10%. Anything can happen, but these lean odds do not rise to the level of putting our peaceful democracy into the hands of a temptuous recount scheme every time a stung party loses (let alone misleadingly blame it on something else from Russia’s Putin, to sexism, to “in hindsight the popular vote would be reasonable”, to FBI Director Comey).

All Americans should instead focus on how the 6 states that flipped this election, were all economically ignored and all flipped to Donald Trump. The only viable path for a Hillary Clinton victory at this stage is to astoundingly uncover a wide-spread (across three states) fraud. And that’s equally unlikely, since the basis for the voting aberrations occurred in less populated counties and anyway the three states employ three different voting mechanisms, so the fraud would have had to somehow occur through different transmission vehicles (paper voting, and electronic voting) and we would require a speedy judicial resolution for states such as Pennsylvania that sidestepped back-up recordings from their direct voting equipment.

We should note the following statistical facts about the electoral vote in the three recount states:
10 votes, Wisconsin (Trump leads by 0.9 %age points)
20 votes, Pennsylvania (Trump leads by 1.1 %age points)
16 votes, Michigan (Trump leads by 0.2 %age points)

Given that Mr. Trump won by 74 electoral votes, Ms. Clinton would need to flip all three states noted above, in order to liquidate this deficit (i.e., >74/2 = >37 votes). The leads described above however, among 4.4 million voters from these three states, is highly statistically significant on a state-level (and certainly when all three states are combined). It would be remarkably unlikely that we would arbitrarily second-guess every one of these millions of voters’ intents and, convert any (certainly let alone all) of these three states.

Read more …

Oct 062016
 
 October 6, 2016  Posted by at 9:19 am Finance Tagged with: , , , , , , , ,  


Lewis Wickes Hine 12-year-old newsie, Hyman Alpert, been selling 3 years, New Haven CT 1909

World Is Swimming In Record $152 Trillion In Debt: IMF (R.)
Australia Private-Sector Debt Rises Faster Than Almost Anywhere Else (Aus.)
One-Third Of European Banks Fail IMF Stress Test: (WSJ)
EU Readies Plan for Derivatives Clearing Crisis, the New Too-Big-to-Fail (BBG)
The Noose Is Tightening Quickly On The Global Economy (Alt-M)
Fed’s Fischer Says Low Neutral Rate A Sign Of Potential Economic Trouble (R.)
Goldman Warns Of “Upward Shock” To Rates, Hints At Trillions In Losses (ZH)
Stiglitz Sees Italy, Others Leaving Euro Zone In Coming Years (R.)
Two Thirds Of Young American Adults Live With Their Parents (ZH)
The Math of Escaping From Syria (R.)
Nearly Half Of All Children In Sub-Saharan Africa Live In Extreme Poverty (G.)

 

 

Never mind public debt. $100 trillion in private debt is the big number.

World Is Swimming In Record $152 Trillion In Debt: IMF (R.)

The world is swimming in a record $152 trillion in debt, the IMF said on Wednesday, even as the institution encourages some countries to spend more to boost flagging growth if they can afford it. Global debt, both public and private, reached 225% of global economic output last year, up from about 200% in 2002, the IMF said in its new Fiscal Monitor report. The IMF said about two thirds of the 2015 total, or about $100 trillion, is owed by private sector borrowers, and noted that rapid increases in private debt often lead to financial crises. While debt profiles vary by country, the report said that the sheer size of the debt could set the stage for an unprecedented private deleveraging that could thwart a still-fragile economic recovery.

“Excessive private debt is a major headwind against the global recovery and a risk to financial stability,” IMF Fiscal Affairs Director Vitor Gaspar told a news conference. “Financial recessions are longer and deeper than normal recessions.” While the United States has de-leveraged since the 2008-2009 financial crisis, the report cited the buildup of private debt in China and Brazil as a significant concern, fueled in part by a long era of low interest rates. The report comes as IMF managing director Christine Lagarde is urging the Fund’s 189 member governments that have “fiscal space” – the ability to sustainably borrow and spend more – to do so to boost persistently weak growth.

The Fund’s call for targeted fiscal support for consumer demand comes is accompanied by calls for continued accommodative monetary policy and accelerated structural reforms aimed at boosting countries’ economic efficiency. If a major deleveraging of private debt were to occur, the IMF report recommends that fiscal policy should include targeted interventions to restructure private debt or repair bank balance sheets to mininize damage to the overall economy.

Read more …

An Australian take on the IMF debt report, which singles out the country along with Canada.

Australia Private-Sector Debt Rises Faster Than Almost Anywhere Else (Aus.)

Private-sector debt is rising faster in Australia than almost anywhere else in the world, according to the IMF, which is concerned record debt globally may be setting the stage for a future downturn. The fund estimates that total debt levels have kept climbing since the global financial crisis, and are now equivalent to 225% of global GDP, up from 200% before the crisis. “Excessive private debt is a major headwind against the global recovery and a risk to financial stability”, said the head of the fund’s fiscal department, Vitor Gaspar, releasing the fund’s latest review of government finances. The IMF says private-sector debt in most advanced countries reached a peak in 2012 and started coming down, with the biggest reductions recorded in countries such as Ireland and Slovenia that entered the financial crisis with elevated debts.

The IMF says private-sector debt in most advanced countries reached a peak in 2012 and started coming down, with the biggest reductions recorded in countries such as Ireland and Slovenia that entered the financial crisis with elevated debts. In some cases, however, private debt has continued to accumulate at a fast pace-notably, Australia, Canada, and Singapore, the fund says. The IMF estimates that, since 2013, private debt has risen as a share of GDP by 15 percentage points, more than in any other advanced nation. Private debt in Australia has risen from 188% of GDP to 225% since the global financial crisis, mostly driven by lending to households. Mr Gaspar said the risk was not just that private debt could revert to the government in a crisis, as occurred when many advanced country governments had to take over banks during the financial crisis.

“Rapid increases in private debt often end up in financial crises and financial recessions are longer and deeper than normal recessions”, he said. The fund says even without a financial crisis, high private-sector debt will hamper growth because highly indebted borrowers eventually cut back their consumption and investment. It says there is no consensus about the threshold at which debt levels start affecting growth, but says the longer that debt keeps rising, the greater becomes the sensitivity of the economy to any unexpected shocks. The IMF report shows that Australia s federal and state government debt remains one of the lowest in the advanced world, projected to peak at 21.6% of GDP in 2018, compared with an average of 80.5% for the advanced countries in the G20.

Read more …

Why Draghi said there are too many banks in Europe. M&A can hide a lot of debt, or have taxpayers shoulder it.

One-Third Of European Banks Fail IMF Stress Test: (WSJ)

Historic debt levels and dwindling policy ammunition risk derailing the meager recovery forecast for next year. Anemic global growth is “setting the stage for a vicious feedback loop in which lower growth hampers deleveraging and the debt overhang exacerbates the slowdown,” the emergency lender warned. The IMF lays out three major risks to the financial system. First, European banks are facing a chronic profitability crisis. Many haven’t been able to clear the legacy debt off their balance sheets and investors are increasingly skeptical they’ll be remain profitable based on their current structures. But it’s not just market perceptions. The IMF estimates that the recent plunge in bank equity price could curb lending until 2018.

It also conducted a survey of more than 280 banks covering most of the banking systems in the U.S. and Europe to see if an economic recovery would be enough to propel them into long-term profitability. While a large majority of U.S. banks passed, nearly one-third of Europe’s banking system flunked. “A cyclical recovery helps but is not enough,” Mr. Dattels says. Those banking duds—representing $8.5 trillion in assets—remain weak and unable to generate sustainable profits even if growth picks up in the fund’s stress test. “Banks and policy makers need to tackle substantial structural challenges to survive in this new era.” Banks need to first resolve the massive stock of nonperforming loans. That requires banking authorities to fix their insolvency rules, a problem the IMF has been bugging Europe about for years. If officials could finally resolve that problem, it could turn a net capital cost to European banks of €85 billion to a net gain of €60 billion, the fund estimates.

Read more …

One goal in mind: save large financial institutions. Not citizens.

EU Readies Plan for Derivatives Clearing Crisis, the New Too-Big-to-Fail (BBG)

The EU plans to give authorities sweeping powers to tackle ailing derivatives clearinghouses to prevent their failure from wreaking havoc throughout the financial system. Draft EU legislation seen by Bloomberg sets out rules on saving or shuttering clearinghouses that would apply to firms such as London-based LCH. The proposals cover everything from the creation of resolution authorities to the powers they would have when winding a company down, including writing down shares, debt and collateral. Having forced most clearing to go through central counterparties to manage risk in the financial system, the EU will come out with recovery and resolution proposals by year-end. Clearing has come into focus after emerging as a pawn in the post-Brexit battle for London’s financial-services industry.

“If we are going to rely more on CCPs, we need to have a clear system in place to resolve them if things go wrong,” Valdis Dombrovskis, the EU’s financial-services chief, said last month. Governments around the world were spooked by the damage inflicted by derivatives trades that went awry during the financial crisis. Since then, they’ve taken steps to ensure trading in the contracts is reported and centrally cleared. Clearinghouses stand between the two sides of a derivative wager and hold collateral, known as margin, from both in case a member defaults. Many transactions were previously conducted directly between traders without a third party requiring collateral. Swaps trading, when it was largely unregulated, amplified the 2008 meltdown and prompted a $182 billion U.S. rescue of AIG.

Read more …

“The very system they are built around is a corrupt and unsustainable model, and I hold that this is by design.”

The Noose Is Tightening Quickly On The Global Economy (Alt-M)

The supposed “catalyst” for the 2008 crash is primarily attributed to the fall of Lehman Brothers. I highly recommend any of the “bullish” economists out there arguing today that the central banks intend to prolong a stock rally indefinitely examine the statements made in the mainstream about Lehman and by Lehman leading up to their eventual death rattle. Then, absorb and really think on some of the recent statements and tactics used by Deutsche Bank. Specifically, note Lehman’s use of accounting and derivatives gimmicks and the cycling of funds through various accounts in order to make the company appear solvent. Then, take a look at revelations coming out of places like Italy that Deutsche Bank has been using the same model of false accounts and market manipulation, once again, with derivatives as a main tool for fraud.

Also notice the same outright dismissals of all pertinent evidence that Deutsche Bank might be suffering a capital shortfall, as CEO John Cryan blames “speculators” for the companies losses. Lehman’s Dick Fuld and Bear Stearns’ Jimmy Cain both blamed “speculators” and “rumors and conspiracies” for the fall of their companies during the derivatives debacle eight years ago. It would seem that history doesn’t just rhyme, it sometimes repeats exactly. Below is a rather revealing chart from the folks at Zero Hedge comparing the collapse of Lehman Brothers stock value to the steady decline of Deutsche Bank. To be clear, Lehman was no catalyst. It was only a litmus test for a system completely devoid of tangible value and drowning in toxic debt. Lehman was a part of a much larger problem, it was not the cause of the problem. The same is true for Deutsche Bank.

The panic growing around Germany’s second largest financial institution, Commerzbank, as it moves to lay off nearly 10,000 employees and suspend its dividend is another crisis indicator separate from Deutsche Bank. The clear solvency issues in Italy’s major banks, including Monte dei Paschi, are yet another explosive element.

Keep in mind that when these edifices begin to crumble and Europe enters a state of financial emergency, the mainstream media and numerous governments will continue to blame speculators. They will also claim that the entire disaster was set in motion through a “domino effect”; the first domino probably being Deutsche Bank. This will be a lie. There is no line of dominoes. One bank will not be bringing down the other banks — yes, there is terrible interdependency, but the real issue is that ALL of these banks are falling due to their own cancerous behaviors. The very system they are built around is a corrupt and unsustainable model, and I hold that this is by design.

Read more …

Wow, he presents what has long been obvious as some sort of epiphany: “We could be stuck in a new longer-run equilibrium characterized by sluggish growth.”

Fed’s Fischer Says Low Neutral Rate A Sign Of Potential Economic Trouble (R.)

Evidence that the so-called natural rate of interest has fallen to low levels could mean the economy is stuck in a low-growth rut that could prove hard to escape, Federal Reserve Vice Chair Stanley Fischer said on Wednesday. Speaking to a central banking seminar in New York, the Fed’s second-in-command said he was concerned that the changes in world savings and investment patterns that may have driven down the natural rate could “prove to be quite persistent…We could be stuck in a new longer-run equilibrium characterized by sluggish growth.” As a result, he said, central bankers may face a future where the short-term interest rates set by policymakers never get far above zero, and the unconventional tools used during the financial crisis become a “recurrent” fact of life.

“Ultralow interest rates may reflect more than just cyclical forces,” Fischer said, but “be yet another indication that the economy’s growth potential may have dimmed considerably.” Fischer’s remarks did not address current Fed policy or interest rate plans. It is not the first time a Fed official has openly expressed concerns about an underlying decline in U.S. economic potential, or fretted that the crisis shifted savings and investment patterns in a damaging way. Over the past year in particular there has been a vigorous debate, backed up by fresh research, about the “natural” rate of interest. Sometimes referred to as a neutral or equilibrium rate, it is in many ways an abstraction – not a rate that is set by the Fed or used in transactions, but an estimate of the underlying rate that would keep the price level stable while the economy grows at potential.

A number of developments have led many at the Fed to conclude that the natural rate is currently very low, and that its decline may reflect a loss of economic potential. There are immediate implications for the Fed: a low natural rate means the Fed could not move its short-term federal funds rate very high before policy becomes too tight.

Read more …

Nothing new here either.

Goldman Warns Of “Upward Shock” To Rates, Hints At Trillions In Losses (ZH)

[..] “The total face value of all US bonds, including Treasuries, Federal agency debt, mortgages, corporates, municipals and ABS, is $40 trillion (Securities Industry and Financial Markets Association). The Barclays US aggregate is a smaller number, $17 trillion, as the index excludes some categories of debt, such as money markets, with low duration. To end up with a more palatable number, Goldman uses the Barclays measure of debt outstanding, although it admits this may lead to an understatement of the total loss potential. Using either measure, total debt outstanding has grown by over 60% in real Dollars since 2000.”

[..] Doing the math, and combining a duration estimate of 5.6 years with the SIFMA total estimated notional exposure of $40trn, and current Dollar price of bonds of $105.6, indicates that, to first order, a 100bp shock to interest rates would translate into a market value loss estimate would be $2.4 trillion. That is the part Garzarelli forgot to write about. Which is ironic, because in trying to paint a bullish picture, the Goldman strategist in effect admitted that not just the Fed, but the entire world is trapped: should the global economy continue to contract, global bond yields will continue to sink, with trillions more bonds going negative yield, leading to even more debt issuance, and resulting in a ZIRP (and NIRP) trap from which there is no escape.

On the other hand, if – as Goldman hopes – inflation does materialize, however briefly, the resultant MTM loss will be staggering. Keep in mind that $2.4 trillion is only in the US. Now add tens of trillions of record low yielding global debt, including some $10.5 trillion in negative yield bonds around the globe, and one can make the case that the global MTM hit from an even 1% rise in rates would be somewhere between $5 and $8 trilion dollars! So, according to Goldman, here is the rather unpleasant choice facing the world: continue slowly sinking into a deflationary singularity, coupled with ever greater systemic leverage which makes escape from the ZIRP/NIRP trap impossible as social unrest builds up and ultimately spills over into the streets, or unleash an inflationary impulse, one which crushes countless debt holders, leads to trillions in losses, and requires yet another consolidated bailout…. oh, and also more social unrest.

Read more …

If Italy leaves, there’s no EU left.

Stiglitz Sees Italy, Others Leaving Euro Zone In Coming Years (R.)

Nobel Prize-winning economist Joseph Stiglitz predicted in a interview out on Wednesday that Italy and other countries would leave the euro zone in coming years, and he blamed the euro and German austerity policies for Europe’s economic problems. Europe lacks the decisiveness to undertake needed reforms such as the creation of a banking union involving joint bank deposit guarantees, and also lacks solidarity across national boundaries, Stiglitz was quoted as saying by Die Welt newspaper. “There will still be a euro zone in 10 years, but the question is, what will it look like? It’s very unlikely that it will still have 19 members. It’s difficult to say who will still belong,” the paper quoted Stiglitz as saying. “The people in Italy are increasingly disappointed in the euro.”

“Italians are starting to realize that Italy doesn’t work in the euro,” he added. He said Germany had already accepted that Greece would leave the euro zone, noting that he had advised both Greece and Portugal in the past to exit the single currency. Concerns about the euro zone have escalated in Germany in recent months amid growing concern about a shift away from austerity in southern Europe, the loose money policies of the ECB and the rise of the right-wing Alternative for Germany party. Stiglitz told the paper the euro and austerity policies in Germany were at fault for Europe’s economic malaise. The break-up of the single currency or the division into a north euro and a south euro were the only realistic options for reviving Europe’s stalled economy, the paper quoted him as saying.

Read more …

‘Target groups’ may be somewhat confusing: one survey looks at 15-29 year-olds, the other at 18-34 year-olds. But the trends are clear enough.

Two Thirds Of Young American Adults Live With Their Parents (ZH)

As part of its periodic report on “Society at a Glance” which looks at how youth across member states are faring in terms of several social indicators, such as employment, poverty, marriage and health, the OECD also provided a unique glimpse into modern household composition, namely the%age of young adults, those aged 15-29, living at home. What it found is that since the Great Recession, there have been significant shifts worldwide in the number of young adults living at home. From 2007 to 2014, the number of youth living at home in countries belonging to the OECD increased by 0.7%, rising to 59.4%.

As expected, the nations hit hardest by the global economic slowdown such as Italy, Slovenia and Greece had the highest%age of youth living at home with their parents, at 80.6%, 76.4% and 76.3%, respectively. In itself, that is hardly surprising, since countries like Greece and Italy were not only among the harfest hit by the recession, and have a culture of young adults living longer at home, but also have some of the highest unemployment rates for young people. In fact, as the chart below shows, some 15% of young adults in OECD countries, or a whopping 40 million, were what the report classifies as NEET: not in employment, education or training, with both Italy and Greece at the very top, just behind Turkey.

On the other end of the spectrum, Canada had the lowest%age of youth living with parents, with just 30% of the country’s youth still living at home. The Nordic countries, including Denmark, Sweden, Finland and Norway, also had low numbers of young adults living at home. In terms of deterioration, France was by far the leader, with the number of young people cohabitating with their parents rising 12.5% to 53.5% from 2007 to 2014. Report authors attribute the increase in part to the high numbers of young adults in France who are not in the workforce or in education. In France, some 16.6% of young adults were not in a job or education institution in 2015, also a notable an increase over the previous few years.

Cited by US News, Claire Keane, an economist with the OECD’s social policy division said that “we really think this is a crisis story,” In France, she says, many benefits flow through families to reach young people. “They are relying on parents for financial support.” As for the US, there has been a 3.9% increase in the proportion of youth living with their parents from 2007 to 2014, significantly higher than the OECD average. As a result, today, about 66.6% of American 15- to 29 year-olds live with their parents as opposed to on their own or with a roommate, compared to around 62.8% before the crisis.

Read more …

Syria was a relatively wealthy country not long ago. So was Libya. Guess what happened?

The Math of Escaping From Syria (R.)

– Duration of Syrian Civil War: 5 years, 6 months, approximately. – Number of refugees through Oct. 1: 302,975. – Number of refugees drowned en route to Europe: 3,502 We’ve seen the pictures. We’ve read the stories. The numbers are stark. A single boat crossing on the Mediterranean cost $2,200 per passenger in the summer of 2015, up from an average $1,500 a year earlier, according to refugees’ accounts. For Syrians, as with most migrants seeking asylum, money is scarce; a report by the Syrian Economic Forum showed average monthly income for a citizen of Aleppo was around $80 last year. So if you’re a refugee, you face the prospect of spending as much as two years of your wages for a journey on which 1 of 87 refugees have drowned.

How bad is the economy you’re leaving behind? Let’s take the Great Recession of 2007 to 2009 in the U.S. as a comparison. GDP decreased at an average annual rate of 3.5%. Unemployment reached a high of 10% in Oct. 2009. In that year, 14.3% of the U.S. were living below the poverty line. In Syria, GDP fell 30% in 2013 and another 36% in 2014; 82% of the population lives below the poverty line; unemployment is at 60%. And 2016 looks pretty bleak as well. And that’s leaving aside falling bombs, chemical weapons and woefully inadequate medical care. Also connecting with international aid groups takes time, as many Syrians are located in hard to reach areas.

And let’s not forget you are probably a kid. More than 50% of refugees are under the age of 18 – and haven’t had educational access for years; not to mention the added trauma of witnessing extreme violence. So spending up to two years of your wages and risking your life to get to a safe haven, versus staying in a country where it’s likely you will die a violent death suddenly seems like a remarkably sound decision.

Read more …

How many billions have been spent on ending world hunger? Or maybe we should ask how many have been spent on warfare.

Nearly Half Of All Children In Sub-Saharan Africa Live In Extreme Poverty (G.)

Nearly half of all children in sub-Saharan Africa are living in extreme poverty, according to a joint Unicef-World Bank report released on Tuesday, with figures showing that almost 385 million children worldwide survive on less than $1.90 (£1.50) a day, the World Bank international poverty line. Extreme poverty leads to stunted development, limited future productivity as adults, and intergenerational transmission of poverty, the report (pdf) says. The figures – based on data from 89 countries, and representing 84% of the developing world’s population – indicate that much work will be needed to meet the sustainable development goal of eradicating extreme poverty by 2030.

Children are disproportionately affected by extreme poverty – they make up just a third of the population studied, but comprise half of the extreme poor. They are twice as likely as adults to be living on less than $1.90 a day, the report claims, with 19.5% of children in developing countries living in extremely poor households, compared to just 9.2% of adults. “It’s almost a double blow – firstly, that children are twice as likely as an adult to live in extreme poverty, but also that children are much less likely than an adult to be able to cope with extreme poverty because of stunting, infant mortality, and early childhood development,” said Unicef’s deputy executive director, Justin Forsyth. “Extreme poverty can either kill you, or ruin your potential for the rest of your life.”

Read more …

Aug 032016
 
 August 3, 2016  Posted by at 8:23 am Finance Tagged with: , , , , , , , , ,  


NPC O Street Market, Washington DC 1925

Bank Shares Plunge Across Europe As Stress Tests Warn Of Contagion (G.)
Bank of England’s Stress Tests ‘Worse Than Useless’ (Ind.)
Global Bond Market Rally Unravels as Japan Shows Limit to Demand (BBG)
HSBC Reports 29% First-Half Profit Slump (G.)
Bitcoin Sinks After Hackers Steal $65 Million From Exchange (BBG)
The One-Size Euro Might Not Be So Tight After All (BBG)
China Inc. Has $1 Trillion in Cash That It’s Too Scared to Spend (BBG)
China’s Trouble With Bubbles (BBG)
Investment In Greek Economy Fell 66% Between 2007 And 2015 (Kath.)
Pay Time: The Big Squeeze On Small Business (West)
Vancouver Enacts 15% Property Tax To Stave Off Chinese Investment Surge (AFR)
Furious Sheep (Dmitry Orlov)
Why Capitalism Has Turned Us Into Narcissists (G.)
What Kind Of School Punishes A Hungry Child? (G.)
Bodies Of 120 Migrants Washed Up On Libya Shores In Past 10 Days (R.)

 

 

“Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than 2007-08.”

Bank Shares Plunge Across Europe As Stress Tests Warn Of Contagion (G.)

Bank shares across Europe have slumped, as investors digested the results of health checks on major lenders and the impact of low interest rates on their long-term health. Shares in Germany’s Commerzbank hit record lows after a warning that profits would be down this year. This compounded the findings of stress tests by the European Banking Authority watchdog last week, which left the Frankfurt-based institution in the bottom half of the results from health checks on 51 major lenders. The worst performer in the stress tests, Italy’s Banca Monte dei Paschi di Siena (MPS), suffered a 16% in its shares on Tuesday and Italy’s biggest bank Unicredit fell 7% after heavy losses the day before.

The pan-European bank stock index was down 3.5% as the prospect of prolonged period of low interest rates makes it more difficult for banks to make profits. The Bank of England will conduct a bank industry assessment this year, which prompted the Adam Smith Institute – a leading thinktank – to publish a report calling for the abandonment of the “worse than useless” stress tests unless changes can be made. Kevin Dowd, professor of finance and economics at Durham University, and author of the report, said: “As the EU banking system goes into a renewed crisis, the UK banking system is in no fit state to withstand the storm. Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than 2007-08.

“The Bank of England is asleep at the wheel again, and we will be back to beleaguered banksters begging for bailouts – and the taxpayer will be ripped off yet again, but bigger this time.”

Read more …

Stress tests are meant to be useless. Pure lipstick.

Bank of England’s Stress Tests ‘Worse Than Useless’ (Ind.)

The Bank of England’s annual stress tests of the UK’s banks, designed to ensure Britain’s lenders will not be at the heart of another destructive financial crisis, have been branded “worse than useless”, by a new report. Kevin Dowd, professor of finance and economics at Durham University, argues in a paper published today by the Adam Smith Institute that the Bank’s tests, which model various adverse economic scenarios each year such as a major fall in UK house prices or a Chinese property crash, have a series of “fatal flaws” and that the central bank is “asleep at the wheel”. “The purpose of the stress-testing programme should be to highlight the vulnerability of our banking system and the need to rebuild it. Instead, it has achieved the exact opposite, portraying a weak banking system as strong”.

Professor Dowd warns that the eurozone banking system is on the precipice of another crisis, which will also engulf the UK’s major lenders. “Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than 2007-08” he said. “The Bank of England is asleep at the wheel again, and we will be back to beleaguered banksters begging for bailouts – and the taxpayer will be ripped off yet again, but bigger this time.” Among the flaws in the Bank’s testing exercise identified by Professor Dowd are the fact that the stress tests rely on analytical “risk weights” for banks’ assets, which have been much criticised for potentially underplaying the true riskiness of various assets such as mortgages and sovereign debt.

Read more …

A potential global earthquake.

Global Bond Market Rally Unravels as Japan Shows Limit to Demand (BBG)

The record-setting global bond market rally is coming undone. Bonds in Bank of America’s G-7 Government Index yielded 0.58% on average, the highest level in five weeks. The move is a rebound from the record low of 0.45% set in July. Japan led the selloff, and yields are rising from Australia to Germany. Global bonds surged from the end of June as the U.K.’s vote to leave the EU drove expectations the global economy would slow enough to keep the Federal Reserve from raising interest rates. Now investors and analysts are questioning whether yields dropped too far. Donald Trump said U.S. interest rates are artificially low, while Bill Gross said record-low yields aren’t worth the risk. A rally in long-term Japanese government bonds is probably over, according to PIMCO.

Read more …

BBG: “Pretax earnings fell 45% to $3.61 billion from a year earlier..”

HSBC Reports 29% First-Half Profit Slump (G.)

HSBC has admitted it is breaching a US regulator’s order to bolster its defences against financial crime as it announced a slump in first-half profits. The UK’s biggest bank also announced a $2.5bn share buyback following the sale of its Brazilian business in a move intended to demonstrate its financial strength. As the bank reported a 29% fall in first-half profits to $9.7bn, it also made a series of legal disclosures that confirmed it had received requests for information from various regulatory and law enforcement authorities around the world in relation to Mossack Fonseca, the Panama law firm linked to tax-haven companies.

Among the legal disclosures is a reference to an order agreed in October 2010 with the US Office of the Comptroller of the Currency which required the bank to “establish an effective compliance risk management programme across HSBC’s US businesses”. “HSBC Bank USA is not currently in compliance with the OCC order. Steps are being taken to address the requirements of the orders,” HSBC said, without providing details. In February the bank had revealed an official monitor it installed after a $1.9bn fine over money laundering four years ago had raised “significant concerns” about the slow pace of change to its procedures to combat crime. “Through his country-level reviews the monitor identified potential anti-money laundering and sanctions compliance issues that the [department of justice] and HSBC are reviewing further.”

Read more …

Bitcoin has turned into a Chinese bubble machine. “Chinese exchange OKCoin was the largest overall bourse for trading in the digital currency, over 90% of which is denominated in the Chinese yuan.”

Bitcoin Sinks After Hackers Steal $65 Million From Exchange (BBG)

Bitcoin plunged after one of the largest exchanges halted trading because hackers stole about $65 million of the digital currency. Bitcoin slumped 5.3% against the dollar as of 10:17 a.m. on Wednesday in Tokyo, bringing its two-day drop to 13%. Prices also sank 6.2% on Monday, although it was not clear if that initial move was related to the hack. Hong Kong-based exchange Bitfinex said on Tuesday that it halted trading, withdrawals and deposits after discovering the security breach. The exchange said it was still investigating details and cooperating with law enforcement, but acknowledged that some bitcoin have been stolen from its users.

“Yes – it is a large breach,” Fred Ehrsam, co-founder of Coinbase, a cryptocurrency wallet and trading platform, wrote in an e-mail. “Bitfinex is a large exchange, so it is a significant short term event, although Bitcoin has shown its resiliency to these sorts of events in the past.” Bitfinex confirmed in a message to Bloomberg News on Wednesday that the hackers took 119,756 bitcoin, or about $65 million at current prices. More than $1.5 billion has been wiped out from bitcoin’s market capitalization this week, according to research from CoinDesk. “We will look at various options to address customer losses later in the investigation,” Bitfinex wrote in a blog post. “We ask for the community’s patience as we unravel the causes and consequences of this breach.”

The Hong Kong exchange was the largest for U.S. dollar-denominated transactions over the past month, according to bitcoincharts.com. Chinese exchange OKCoin was the largest overall bourse for trading in the digital currency, over 90% of which is denominated in the Chinese yuan.

Read more …

Between the lines you can see just how faulty the design of the euro is. It makes the rich countries much richer, but the poor so much poorer that the system MUST collapse. Greed is blind.

The One-Size Euro Might Not Be So Tight After All (BBG)

It’s a given that the euro can’t have the right exchange rate for all of its 19 diverse members, all of the time. Yet at the helm of the ECB, Mario Draghi may be making it a closer fit for more countries, more of the time. Angel Talavera, an economist at Oxford Economics in London, has calculated for Bloomberg Benchmark what would have been the equilibrium exchange rate for 8 euro-area economies between 2011 and 2015 ” the rate that would be best suited to an economy’s domestic and external profiles. Germany’s economic strength and positive balance of payments would warrant the euro trading at around $1.40, while Greece’s woes would require it to be below parity with the dollar.

At the beginning of Draghi’s term, the euro was too strong for pretty much everyone, and has typically aligned itself more to the needs of “core” economies, Germany included. That hasn’t been helpful. “What would normally happen with a country that has its own currency is that the currency will appreciate or depreciate over time to help correct those imbalances,” Talavera said. “In the case of the Eurozone obviously you can’t have both things happening, so those imbalances are not correcting, but rather amplifying most of the time.” His calculations bear this out. At the height of the sovereign-debt crisis in 2011 the spread between the optimal rate for Germany and Greece was $0.32. By the end of last year the gap had widened to $0.42.

Given the structure of the euro, though, there may be only so much that the current set of policies can do. According to Talavera’s Oxford Economics study, the ECB’s monetary policy has always been plagued by a paradox: while it has has been “generally right for the common currency area as a whole, it has proven to be wrong for most of its individual members most of the time.”

Read more …

Really? So what are their debts at the same time?

China Inc. Has $1 Trillion in Cash That It’s Too Scared to Spend (BBG)

Never before have China’s companies had so much cash and so little to spend it on. With investment opportunities sparse amid the country’s weakest economic expansion in a quarter century, Chinese firms reported an 18% jump in cash holdings during their latest quarter, the biggest increase in six years. The $1.2 trillion stockpile – which excludes banks and brokerages – grew at a faster pace than in the U.S., Europe and Japan, according to data compiled by Bloomberg. While there are worse problems than having too much cash, China Inc.’s unprecedented hoard is frustrating both policy makers and investors. Because companies lack the confidence to spend on new projects, government attempts to boost growth by pumping money into the financial system are falling short.

Stockholders, meanwhile, would rather see bigger dividends or share buybacks than a buildup of idle cash on corporate balance sheets. “This is actually becoming a bigger and bigger issue,” said Herald van der Linde at HSBC. “Cash is becoming a point of debate.” The impulse to hoard instead of invest is relatively new for a country where corporate risk-taking has been rewarded for much of the past 25 years. But as economic growth moves deeper below 7% from double-digit levels just a few years ago, the change in mindset has been stark. Growth in China’s private spending on fixed assets, which topped 10% last year, slowed to 2.8% in the six months through June, the weakest level on record. “The drivers aren’t there” for Chinese firms to invest, said Sean Taylor at Deutsche Asset Management in Hong Kong.

Read more …

Moving into ever more and newer bubbles is the only thing that keeps China going.

China’s Trouble With Bubbles (BBG)

The collapse of China’s stock markets a year ago was eye-catching, but in the end, hardly earth-shattering. Despite the pain for millions of retail investors, the fact is that stocks remain a small part of the financial system in China. Their brief, giddy rise and spectacular collapse never really threatened the wider Chinese economy, let alone the global financial system. That doesn’t mean the rest of the world should rest easy, however. While equities remain subdued, bubbles are growing in bonds and real estate – two markets that play a much bigger role in the mainland economy. The question is whether Chinese regulators can handle a new crisis any better than the old one.

Faith that China can safely manage fast-growing, debt-fueled bubbles assumes its regulators aren’t just as good as their peers in the rest of the world, they’re better. Last year’s events should call that confidence into question. Throughout the first half of 2015, policymakers allowed leverage to grow unchecked. When the market peaked and margin calls accelerated the decline, the combined force of financial regulators, public security officials and the state press were powerless to stop the slide. The situation places a premium on policies, rather than personalities, that can prevent things from unraveling. China needs to find a way to tap the brakes on credit without sending the markets into a downward spiral. Tighter rules and larger capital requirements for wealth management products – a key source of risk – are a start.

But as long as loan growth continues to accelerate faster than GDP, it’s hard to argue that a true basis for stability has been established. For evidence the underlying problems remain unsolved, look no further than China’s other asset markets. One might’ve expected that after the trauma of the stock crash, Chinese investors would become a shade more cautious. Nothing could be further from the truth. The equity boom-and-bust was followed almost immediately by a similar cycle in the metal market, which saw steel prices surge almost 80%. Property prices in Shenzhen are up 64% in the last nine months. Leveraged bets in the fixed income market mean yields continue to creep down, even as default risks grow.

Read more …

Thank the IMF for this.

Investment In Greek Economy Fell 66% Between 2007 And 2015 (Kath.)

Investment in the Greek economy plummeted more than 60% between 2007 and 2015, according to data published in Eurobank’s weekly bulletin on Tuesday. According to the lender’s economists, fixed capital investment declined by €40 billion or 66.1% during the period in question. At the same time, Greece’s GDP fell €56.7 billion. The Eurobank document described the drop in investment since 2007 as “deep and prolonged.” The reduction in investment was mainly felt in the housing market (€23.8 billion euros), followed by machinery and equipment (€12.1 billion) and other types of construction (€2.3 billion).

Eurobank said some of the key reasons for the dramatic slide in the amount of capital being invested in the Greek economy were the increases and frequent changes in taxation, the rising cost of capital, the reduction in lending by banks, the rise of uncertainty, an inability to create an investor-friendly environment despite some progress in this area, and expectations of weak economic activity. The lender also notes that net fixed capital formation, which measures gross investment minus depreciation, has been in negative territory since the end of 2010. The most recent data show that the annual shortfall is close to €11 billion.

To underline how damaging the last few years, and the collapse in investment described earlier, have been for the Greek economy, Eurobank’s weekly report pointed out that unemployment in December 2007 was at 8.1%, meaning there were just 403,000 people out of work. By the end of 2015, the jobless rate had risen to 24.2%, with 1.1 million people without work. During this eight-year spell, 860,000 jobs disappeared.

Read more …

Time for Fonterra to collapse. It’s too big for its own good.

Pay Time: The Big Squeeze On Small Business (West)

US cereal giant Kellogg’s and New Zealand milk multinational Fonterra have put the squeeze on local suppliers by stretching their payment terms out to a crushing 120 days. Along with other multinationals such as Unilever and Nestle, Kellogg’s and Fonterra already had their suppliers on 90-day terms, a punishing delay for family businesses who have to pay staff and a slew of other costs within the month. The move to 120 days does not bode well for small business, already fed up with “being used as a bank”, as one framed it. “Small business is the engine room of the economy,” he said, declining to be named for fear of reprisals, “And we are bankrolling these multinationals. I’ve got staff, super, rent and electricity to pay: and GST and payroll tax to collect. I can’t tell my staff to wait for 120 days to be paid”.

Kellogg’s was ducking for cover when rung for comment, its media team refusing to return calls. Fonterra issued this statement via a spokesperson: “In 2011, we identified that international best practice was to pay vendors supplying goods and services on a 60 day global standard payment from the end of the month in which the invoice was received. Part of our 2015 business transformation was to speed up compliance to this global standard term. We have 20,000 vendors globally and 16,000 or 80% of them have had no change to their payment terms.” According to a Fonterra document seen by this reporter, however, the new terms are “1st of the month, 3 months following invoice date”.

As for Fonterra’s claim of “international best practice”, payment terms in Europe have been moving the other way, by law. Since March 2013, the maximum delay for companies in the EU to for pay for goods and services is 30 days, unless agreed by both parties in writing, in which case it may be 60 days.

Read more …

Get ready for the NAFTA law suits.

Vancouver Enacts 15% Property Tax To Stave Off Chinese Investment Surge (AFR)

As of Tuesday, foreign buyers of property in Vancouver, which like Sydney is one of the world’s hottest real estate markets, will have to pay a 15% transaction tax. Property prices in Vancouver trail only Sydney and Hong Kong on the list of the world’s least-affordable housing markets, a Demographia survey shows. Trying to correct that, the NSW government said two months ago that it would levy a 4% stamp-duty surcharge on foreign buyers beginning next year and also charge an extra 0.75% land-tax surcharge on residential real estate, where prices are buoyed by incoming investment from mainland China. British Columbia legislators passed the new law on Friday going into a three-day holiday weekend even as local property agents called for exemptions for deals made to buy but not yet complete.

The new tax means non-Canadian residents buying a $2 million home will have to pay an additional $300,000 in tax. “While investment from outside Canada is only one factor driving price increases, it represents an additional source of pressure,” British Columbia Finance Minister Michael de Jong said in a statement. “This additional tax on foreign purchases will help manage foreign demand while new homes are built to meet local needs. A surge in purchases by Chinese property buyers has resulted in driving up the value of more than 90% of detached homes in Vancouver to more than C$1 million ($1.04 million), compared with 19% 10 years ago. Vancouver’s average home price is Canada’s highest, at $1.2 million, the Royal Bank of Canada estimates.

Read more …

“Should you be asked what does matter to you, concentrate on such issues as the candidates’ body language, fashion sense and demeanor.”

Furious Sheep (Dmitry Orlov)

you have to understand the way the electoral game is played. It is played with money—very large sums of money—with votes being quite secondary. In mathematical terms, money is the independent variable and votes are the dependent variable, but the relationship between money and votes is nonlinear and time-variant. In the opening round, the moneyed interests throw huge sums of money at both of the major parties—not because elections have to be, by their nature, ridiculously expensive, but to erect an insurmountable barrier to entry for average citizens. But the final decision is made on a relatively thin margin of victory, in order to make the electoral process appear genuine rather than staged, and to generate excitement.

After all, if the moneyed interests just threw all their money at their favorite candidate, making that candidate’s victory a foregone conclusion, that wouldn’t look sufficiently democratic. And so they use large sums to separate themselves from you the great unwashed, but much smaller sums to tip the scales. When calculating how to tip the scales, the political experts employed by the moneyed interests rely on information on party affiliation, polling data and historical voting patterns. To change the outcome from a “lose-win” to a “lose-lose,” you need to invalidate all three of these:

• The proper choice of party affiliation is “none,” which, for some bizarre reason, is commonly labeled as “independent,” (and watch out for American Independent Party, which is a minor right-wing party in California that has successfully trolled people into joining it by mistake). Be that as it may; let the Furious Sheep call themselves the “dependent” ones. In any case, the two major parties are dying, and the number of non-party members is now almost the same as the number of Democrats and Republicans put together.

• When responding to a poll, the category you should always opt for is “undecided,” up to and including the moment when you walk into the voting booth. When questioned about your stands on various issues, you need to remember that the interest in your opinion is disingenuous: your stand on issues matters not a whit (see study above) except as part of an effort to herd you, a Furious Sheep, into a particular political paddock. Therefore, when talking to pollsters, be vaguely on both sides of every issue while stressing that it plays no role in your decision-making. Should you be asked what does matter to you, concentrate on such issues as the candidates’ body language, fashion sense and demeanor.

Read more …

This reviewer misses the point entirely, as evidenced by stupid things like “A cheerful worker is as much as 12% more productive.”

Why Capitalism Has Turned Us Into Narcissists (G.)

It is no wonder that the notion of happiness has been taken into public ownership, given the remarkable spread of spiritual malaise around the globe. Around a third of American adults and close to half in Britain believe that they are sometimes depressed. Even so, more than half a century after the discovery of antidepressants, nobody really knows how they function. Work over which individuals have little control can heighten the risk of heart disease. (Co-operatives, by contrast, are apparently good for your health.) So-called austerity has made people sicker and driven some to death. Vastly unequal nations such as the UK and the US breed mental health problems far more than more egalitarian ones such as Sweden.

Illness, absenteeism and “presenteeism” (coming into work purely to be physically present) are estimated to cost the US economy as much as $550bn (£417bn) a year. There is evidence that a competitive ethos can trigger mental illness among the winners as well as the losers, not least in the case of sport stars. Despite the living disproof known as Donald Trump, the more you chase after money, status and power, the lower your sense of worth is likely to be. Given their pathologically upbeat culture, Americans tend to downplay their dejectedness, while the French, with their suspicion that happiness is unsophisticated, are more likely to under-report it. It is the kind of thing that cavorts at the end of piers wearing a striped jacket and red plastic nose.

Happiness is excellent for business. A cheerful worker is as much as 12% more productive. A science of human sentiments – what Davies calls “the surveillance, management and government of our feelings” – is thus one of the fastest growing forms of manipulative knowledge. So is market research into shopping, which now uses extensive face-scanning programmes in order to reveal customers’ emotional states. The more bright-eyed neuroscientists claim they are close to discovering a “buy button” in the brain.

Read more …

if you’re still wondering why Brexit happened after reading this, good luck and good night. Britain is a thoroughly sick nation. Not saying it’s unique in that. But…

What Kind Of School Punishes A Hungry Child? (G.)

Michaela community school in Wembley was widely criticised last week for placing children in “isolation” because their parents were late with lunch payments. The lunches are compulsory, with parents being charged £75 upfront for each six-week period. Fall even a week behind, and you may be warned that your child faces “lunch isolation”, where “they will receive a sandwich and a piece of fruit only”. That’s not counting the side order of segregation and humiliation. The child will spend the whole 60 minutes away from their friends, and “only when the entire outstanding amount is paid in full will they be allowed into ‘family lunch’ with their classmates”.

“A sandwich is fine – at least the child is being fed,” you might think. But a sandwich is not “fine”. The School Food Plan, by Leon founders Henry Dimbleby and John Vincent, states that only 1% of packed lunches, which typically comprise a sandwich and snacks, meet the nutritional requirements for school meals. It is easier to get nutrients into a hot meal. After the story broke, Michaela’s headteacher, Katharine Birbalsingh, insisted she was not punishing children for being poor: the sanction didn’t apply to pupils receiving free school meals (more than one in five of those at the school) or whose families had money problems. The problem was the small number of families who were “playing the system”, “trying to get other poor families to pay for their child’s food” and “betraying their children”.

We have heard these accusations before. Back in 2013, Lord Freud claimed that food bank users were simply abusing a free facility, thus demonstrating his lack of understanding of the obstacles between a hungry mother and a food bank parcel. A willingness to seek help, for example. Swallowed pride. A referral from a doctor or social worker. Perhaps the bus fare to the nearest centre, with children in tow.

Read more …

The.Beat.Goes.On.

Bodies Of 120 Migrants Washed Up On Libya Shores In Past 10 Days (R.)

The bodies of 120 migrants have washed up on the shores of Libya in the past 10 days, not from previously known shipwrecks in the Mediterranean, the International Organization for Migration (IOM) said on Tuesday. A total of 4,027 migrants or refugees have died worldwide so far this year, three-quarters of them in the Mediterranean while trying to reach Europe, IOM spokesman Joel Millman told a briefing. That represents a 35% increase on the global toll during the first seven months of 2015, he said.

Read more …

Jul 302016
 
 July 30, 2016  Posted by at 7:59 am Finance Tagged with: , , , , , , , , ,  


Jack Delano Street scene on a rainy day in Norwich, Connecticut 1940

US GDP Grew a Disappointing 1.2% in Q2 As Q1 Revised Down to 0.8% (WSJ)
Rescue Package In Place For Europe’s Oldest Bank, Weakest In Stress Tests (G.)
ECB Bond Buying Risks Blocking Debt Restructurings (R.)
Chinese Capital Outflows May Still Be Happening – But In Disguise (BBG)
Bank of Japan’s Quest for 2% Inflation (BBG)
The Bank of Japan Is At A Crossroads (BBG)
US Authorities Subpoena Goldman In 1MDB Probe (R.)
Australia Headed For Recession As Early As Next Year – Steve Keen (ABC.au)
‘Sell The House, Sell The Car, Sell The Kids’ – Gundlach (R.)
British Columbia Violates NAFTA With Its Foreign Property Tax (FP)
Another “Smoking Gun” Looms As Hillary Campaign Admits Server Hacked (ZH)
Greek Islands Appeal For Measures To Deal With Influx Of Refugees (Kath.)
England’s Plastic Bag Usage Drops 85% Since 5p Charge Introduced (G.)

 

 

Only positive is consumer spending. But without knowing how much of that is borrowed (let alone manipulated), it’s a meaningless number.

US GDP Grew a Disappointing 1.2% in Q2 As Q1 Revised Down to 0.8% (WSJ)

Declining business investment is hobbling an already sluggish U.S. expansion, raising concerns about the economy’s durability as the presidential campaign heads into its final stretch. GDP, the broadest measure of goods and services produced across the U.S., grew at a seasonally and inflation adjusted annual rate of just 1.2% in the second quarter, the Commerce Department said Friday, well below the pace economists expected. Economic growth is now tracking at a 1% rate in 2016—the weakest start to a year since 2011—when combined with a downwardly revised reading for the first quarter. That makes for an annual average rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since at least 1949.

The output figures are in some ways discordant with other gauges of the economy. The unemployment rate stands at 4.9% after a streak of strong job gains, wages have begun to pick up, and home sales hit a post-recession high last month. Consumer spending also remains strong. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2% rate in the second quarter, the best gain since late 2014. On the downside, the third straight quarter of reduced business investment, a large paring back of inventories and declining government spending cut into those gains. “Consumer spending growth was the sole element of good news” in the latest GDP figures, said Gregory Daco at Oxford Economics. “Weakness in business investment is an important and lingering growth constraint.”

Read more …

“This is a market operation that will reinforce the capital position of the bank and free it completely of bad loans…” If it’s that easy, do it all over the place, I’d think. Who do they think they’re fooling?

Rescue Package In Place For Europe’s Oldest Bank, Weakest In Stress Tests (G.)

A rescue package of the world’s oldest bank has been announced after a health check of the biggest banks across the EU showed that Banca Monte dei Paschi di Siena’s financial position would be wiped out if the global economy and financial markets came under strain. The much-anticipated result of the stress tests – for which there was no pass or fail mark – of 51 banks showed that Italy’s third largest bank emerged weakest from the assessment. But the test – which exposed banks to headwinds in the global economy and dramatic movements in currency markets – also underlined the drop in the capital position of bailed-out Royal Bank of Scotland and the hit taken by Barclays observed under the imaginary scenarios. Banks from Italy, Ireland, Spain and Austria fared worst.

Regulators said that the tests showed that the bank sector was much stronger than it had been at the time of the 2008 financial crisis, which led to the introduction of the stress tests. Even so, the European Banking Authority (EBA), which conducted the tests on lenders, acknowledged that more needed to done.Under the latest stress test scenario, some €269bn (£227bn) would be wiped off the capital bases of the banks. “The EBA’s 2016 stress test shows the benefits of capital strengthening done so far are reflected in the resilience of the EU banking sector to a severe shock,” said Andrea Enria, EBA chair. “This stress test is a vital tool to assist supervisors in accelerating the process of repair of banks’ balance sheets, which is so important for restoring lending to households and businesses.

“The EBA’s stress test is not a pass [or] fail exercise. While we recognise the extensive capital raising done so far, this is not a clean bill of health. There remains work to do which supervisors will undertake.” The bank that fared the worst was MPS, which suffered a dramatic 14 percentage point fall in its capital position. It had been expected to perform badly and talks had already been underway before the results of the stress tests were published to try to find a way to bolster its capital. New EU regulations prevented the Italian government from pumping any taxpayer money into MPS so efforts were needed to try to stop of tens of thousands of ordinary Italians – who had bought its bonds – losing their savings. Italy’s banks are in the spotlight as they are weighed down by €360bn of bad debts.

Italy’s finance minister, Pier Carlo Padoan – who as recently as Sunday said there was no crisis in Italy – endorsed the deal put together to raise €5bn from private investors and sell €9.2bn of bad debts. “The government is greatly satisfied with the operation [the deal] launched … by Monte dei Paschi of Siena,” he said. “This is a market operation that will reinforce the capital position of the bank and free it completely of bad loans. The operation will allow the bank to develop a solid industrial plan, thanks to which it will boost its support for the real economy through lending to families and businesses.”

Read more …

Unintended consequences. Hilarious, really.

ECB Bond Buying Risks Blocking Debt Restructurings (R.)

The European Central Bank could scupper future eurozone debt restructurings if it increases the amount of a country’s bonds it can buy under its economic stimulus program, a top debt lawyer warned. The problem, on the radar of European authorities suffering a hangover from the 2012 crisis, has been pushed to the fore by expectations the ECB will need to raise limits on its bond purchases to keep its quantitative easing scheme on track.

Kai Schaffelhuber, a partner at law firm Allen & Overy, said that if the ECB permitted itself to buy more than a third of a country’s debt it would make a restructuring of privately-held bonds more difficult, a move that could increase the likelihood of taxpayer rescues. In a debt restructuring, a quorum of investors has to agree the terms of a deal. The ECB cannot participate because it is forbidden from directly financing governments. “They (the ECB) should avoid a situation where they are holding so much (of a) debt that a restructuring becomes virtually impossible,” said Schaffelhuber, whose firm worked on Greece’s 2012 debt restructuring.

Read more …

Samoa….

Chinese Capital Outflows May Still Be Happening – But In Disguise (BBG)

When there’s a will to get money out of China, there’s a way: overpay. Authorities in the world’s second-largest economy have been able to pursue a policy of managed depreciation for the Chinese yuan without spooking markets and eliciting expectations of major foreign-exchange volatility, the way the one-off devaluation did last August. One big reason is that Beijing seems to have had success in cracking down on the flood of money leaving the country, which had been prompting sizable drawdowns in the central bank’s foreign currency reserves, to prop up the value of the yuan. But a report from a Nomura team led by Chief China Economist Yang Zhao says these capital outflows have merely taken another form: the over-invoicing of imports from select locales.

And this time, it’s not just a Hong Kong story. “A detailed breakdown by region shows imports from some tax haven islands or offshore financial centres surged” in the first half of the year, he writes, “against the backdrop of a large decline in overall imports.” Now, it may be the China’s appetite for copra and coconut oil, two key Samoan exports, has indeed surged. But Zhao has a different explanation. “This suggests to us that capital outflows may have been disguised as imports in China’s trade with these tax-haven or offshore financial centres, though the precise volumes are unknown,” according to the economist. “With stronger capital controls in place we believe continued capital outflows via the current account are likely.”

Read more …

Exposing the uselessness of the whole idea.

Bank of Japan’s Quest for 2% Inflation (BBG)

The U.S. Federal Reserve, the Bank of England and the ECB are among the world’s monetary authorities that have set an inflation target right around 2%. Nowhere, though, does the quest for this special number carry drama like it does in Japan, where Bank of Japan Governor Haruhiko Kuroda has vowed to do whatever it takes to stimulate prices. On Friday in Tokyo, the BOJ indicated there were risks to achieving this target anytime soon.

1. What’s so special about 2%? The BOJ set its current inflation target in January 2013, less than a month after Prime Minister Shinzo Abe came to power with a plan to pull the economy out of two decades of stagnation. In Japan and many other developed economies, prices rising by 2% a year is seen as optimal for encouraging companies to invest and consumers to spend. It’s also thought to be low enough to avoid sparking the runaway inflation that crippled Germany’s Weimar Republic in the 1920s and Zimbabwe in more recent times.

2. How close has Japan gotten to 2% inflation? Not very. What Japan has had, on-and-off since the late 1990s, is deflation – inflation below 0% – with prices dropping across a wide range of goods.

3. What caused deflation? It began with the bursting of a real estate and asset-price bubble. Wounded banks curbed lending, companies focused on cutting debt, wages stagnated and consumers reined in spending. Households became accustomed to falling prices and put off purchases. The global financial crisis of 2008, and the devastating earthquake, tsunami and nuclear meltdown at the Fukushima Daiichi plant in 2011, entrenched what Kuroda describes as a “deflationary mindset” among consumers and companies in Japan. The nation’s aging and shrinking population is now making matters worse.

Read more …

I think they passed that crossroads long ago. Just didn’t recognize it for what it was.

The Bank of Japan Is At A Crossroads (BBG)

After more than three years of pumping out wave after wave of cheap money that’s failed to secure its inflation target, the Bank of Japan has signaled a rethink. Instead of buying yet more government bonds, cutting interest rates or pushing further into uncharted territory, the BOJ disappointed some Friday when its policy meeting concluded with only a modest adjustment. Governor Haruhiko Kuroda, 71, and his colleagues declared it was time to assess the impact of their policies, which have variously spurred strong criticism from bankers, bond dealers and some lawmakers and former BOJ executives. The next gathering, on Sept. 20-21, offers a chance to either provide greater evidence that the current framework should continue, head further into uncharted territory, or scale back.

Regardless of the decision, this isn’t where one of the world’s most aggressive central bankers wanted to be in his fourth year in office. In early 2013, he expressed confidence the BOJ had the power to ensure its 2% inflation target could be reached within about two years. This year, with the shock adoption of a negative interest rate policy backfiring through a welter of warnings from commercial banks, there’s a growing perception monetary policy is losing effectiveness. “We are at a turning point” for the BOJ, because “it can no longer assume that stepping harder on the gas pedal would make this car go faster,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners and a former IMF economist. “Arrow 2 will take the lead now,” he said, in a reference to the three arrows of Abenomics – monetary, fiscal and structural-reform policies.

Read more …

Yeah, that’ll result in some jail time….

US Authorities Subpoena Goldman In 1MDB Probe (R.)

U.S. authorities have issued subpoenas to Goldman Sachs for documents related to the bank’s dealings with scandal-hit Malaysian state fund 1MDB, the Wall Street Journal reported late on Friday. Goldman received the subpoenas earlier this year from the U.S. Department of Justice and the Securities and Exchange Commission , the Journal reported, citing a person familiar with the matter. The authorities also want to interview current and former Goldman employees in connection with the inquiries, but none of those meetings had occurred by Friday, WSJ said.

1MDB, which was founded by Malaysian Prime Minister Najib Razak in 2009 shortly after he came to office, is being investigated for money-laundering in at least six countries including the United States, Singapore and Switzerland. Najib has consistently denied any wrongdoing. U.S. law enforcement officials are attempting to identify whether Goldman violated federal law after failing to flag a transaction in Malaysia, the Journal reported in June. New York state regulators have also asked the Wall Street bank for details about probes into billions of dollars it raised in a bond offering for 1MDB, Reuters reported in June, citing a person familiar with the matter.

Read more …

Note – Steve says: “I’ve said “as early as” 2017 and “between 20% & 70% fall” but all people hear is 2017 & 70%..”

Australia Headed For Recession As Early As Next Year – Steve Keen (ABC.au)

Australia’s credit binge will lead to a bust as soon as next year, with house prices to fall between 40 and 70% and unemployment to rise sharply, Professor Steve Keen says. The professor famously lost a bet when he predicted a catastrophic crash in Australian house prices following the GFC and had to walk from Canberra to Mount Kosciusko as a result. But he says, this time, he is right and does not have his hiking boots at the ready. “We have borrowed ourselves so much to the hilt that we are now dependent on that continuing to rise over time and it simply won’t,” he told the ABC’s The Business.

Many believe the Reserve Bank has been a steady guiding hand to the Australian economy in the years since the GFC, but Professor Keen believes it has guided the economy “straight toward the shoals” by encouraging households to borrow with low rates which has led to asset bubbles. “They don’t know what they’re doing,” he said. “Our debt level according to the Bank of International Settlements, private debt level, has gone from 150% of GDP to 210% of GDP.” He argued that means a large part of the growth that Australia has enjoyed since the GFC, while many other countries plunged into recession, has been fuelled by a 60% rise in household debt. “Ireland did the same thing when they called themselves the Celtic Tiger and they don’t call themselves that anymore,” he said.

“Spain was doing the same thing during its housing bubble and we’ve replicated the same mistakes. He believes the Reserve Bank will be forced to take rates down to zero from their current level of 1.75% as the economy continues to slow, but that will not stop the collapse of the credit binge that has kept the country afloat until now. “[Lower rates] will suck more people in, it will suck more people in for a while and the [Reserve Bank] can delay this for a while by cutting the rates,” he said. He said the catalysts for the recession were the declining terms of trade, the continued fall in investment into the economy and the Federal Government’s “stupid” pursuit of a budget surplus. “The Government is frankly stupid about the economy and is obsessed about running surpluses when it is bad economics.”

Read more …

“The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”

‘Sell The House, Sell The Car, Sell The Kids’ – Gundlach (R.)

Jeffrey Gundlach, the chief executive of DoubleLine Capital, said on Friday that many asset classes look frothy and his firm continues to hold gold, a traditional safe-haven, along with gold miner stocks. Noting the recent run-up in the benchmark Standard & Poor’s 500 index while economic growth remains weak and corporate earnings are stagnant, Gundlach said stock investors have entered a “world of uber complacency.” The S&P 500 on Friday touched an all-time high of 2,177.09, while the government reported that U.S. GDP in the second quarter grew at a meager 1.2% rate. “The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview.

“The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.” Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine, said the firm went “maximum negative” on Treasuries on July 6 when the yield on the benchmark 10-year Treasury note hit 1.32%. “We never short in our mainline strategies. We also never go to zero Treasuries. We went to lower weightings and change the duration,” Gundlach said. Currently, the yield on the 10-year Treasury note is 1.45%, which has translated into some profits so far for DoubleLine. “The yield on the 10-year yield may reverse and go lower again but I am not interested. You don’t make any money. The risk-reward is horrific,” Gundlach said. “There is no upside” in Treasury prices.

Read more …

The perks of trade agreements.

British Columbia Violates NAFTA With Its Foreign Property Tax (FP)

The British Columbia government has suddenly introduced a penalty tax forcing non-Canadian purchasers of residential real estate in the Greater Vancouver Regional District to pay a 15% tax on all purchases registered from Aug. 2, 2016. This penalty tax discriminates by definition against foreign investors buying residential real estate in the Greater Vancouver Area: Canadian citizens buying residential real estate are exempt; foreign buyers must pay the tax. That discrimination is a glaring violation of our trade treaties. The North American Free Trade Agreement (NAFTA) and other Canadian trade agreements prohibit governments from imposing discriminatory policies that punish foreigners while exempting locals.

NAFTA’s national treatment obligation requires that citizens from other NAFTA partners investing in B.C. receive the same treatment from the government as the very best treatment received by Canadian investors. Americans and Mexicans forced to pay the 15% penalty tax would be able to pursue direct compensation for B.C.’s discriminatory tax from an independent international tribunal. [..] While the vast majority of Vancouver’s foreign property buyers might be Chinese, who were apparently the provincial government’s main target, enough investors from our dozens of treaty partners, comprising of hundreds of affected foreigners with trade rights, could be caught up in this tax, leading to mass claims. Those claims would be against the Canadian government, the signatory to NAFTA and the other international trade treaties, not B.C. Canadian taxpayers could be on the hook for hundreds of millions, or even billions, of dollars.

Read more …

Big kahuna remains: the classified mails on Hillay’s server(s).

Another “Smoking Gun” Looms As Hillary Campaign Admits Server Hacked (ZH)

In the third cyberattack on Democratic Party-related servers, Reuters reports that the computer network used by Democratic presidential candidate Hillary Clinton’s campaign was hacked. This follows hacks of the DNC and the DCCC (the party’s fund-raising committee) in the past week. Who to blame this time? Well with US intelligence head Jim Clapper having exclaimed that he was “somewhat taken aback by the hyperventilation [blaming Russia]” by Democratic surrogates, we suspect another scapegoat will need to be found. The latest attack, which was disclosed to Reuters on Friday, follows reports of two other hacks on the Democratic National Committee and the party’s fundraising committee for candidates for the U.S. House of Representatives.

“The U.S. Department of Justice national security division is investigating whether cyber hacking attacks on Democratic political organizations threatened U.S. security, sources familiar with the matter said on Friday. The involvement of the Justice Department’s national security division is a sign that the Obama administration has concluded that the hacking was state sponsored, individuals with knowledge of the investigation said. The Clinton campaign, based in Brooklyn, had no immediate comment and referred Reuters to a comment from earlier this week by campaign senior policy adviser Jake Sullivan criticizing Republican presidential candidate Donald Trump and calling the hacking “a national security issue.”

It was not immediately clear what information on the Clinton campaign’s computer system hackers would have been able to access, but the possibility of more ‘smoking guns’ only rises with each hack. Of course the finger will inevitably be pointed at Vladimir Putin (and his media-designated puppet Trump) but even The Director of Nation Intelligence has urged that an end be put to the “reactionary mode” blaming it all on Russia…

“We don’t know enough to ascribe motivation regardless of who it might have been,” Director of National Intelligence James Clapper said speaking at Aspen’s Security Forum in Colorado, when asked if the media was getting ahead of themselves in fingering the perpetrator of the hack. Speaking on Thursday, Clapper said that Americans need to stop blaming Russia for the hack, telling the crowd that the US has been running in “reactionary mode” when it comes to the numerous cyber-attacks the nation is continuously facing. “I’m somewhat taken aback by the hyperventilation on this,” Clapper said, as cited by the Washington Examiner. “I’m shocked someone did some hacking,” he added sarcastically, “[as if] that’s never happened before.”

Of course that won’t stop the endless distraction and guilt-mongering to avoid any accountability for actual content of anything that is released. Finally, does it not seem a little “reckless” that so many Democratic servers have been hacked so easily?

Read more …

It’s starting to increase again.

Greek Islands Appeal For Measures To Deal With Influx Of Refugees (Kath.)

As the influx of migrants from neighboring Turkey continues – with a slight but noticable increase – regional authorities and tourism professionals are calling for measures to support communities on the Aegean islands. Over the past two weeks, following a failed coup in Turkey on July 15, the influx of migrants has increased, according to government figures. Overall, more than 1,000 migrants landed on the five so-called hot spots: Lesvos, Chios, Kos, Samos and Leros since the failed coup. Those islands are now accommodating 9,313 migrants in camps, many of whom have been there for several months awaiting the outcome of asylum applications or deportation.

In a letter to Migration Policy Minister Yiannis Mouzalas and Alternate Defense Minister Dimitris Vitsas, the governor of the northern Aegean region, Christiana Kalogirou, asked for immediate steps to decongest the islands. “We are seeing a constant and apparently increasing flow of migrants and refugees toward the islands of the northern Aegean,” she wrote, noting that the maximum capacity of state reception centers has been exceeded on all the islands. A representative of an aid agency working on Lesvos said that the increase in migrant arrivals on the island has not yet fuelled tensions in the camps. “But if they keep arriving at the same rate, we’ll have a problem soon,” according to the worker who asked not to be identified.

Read more …

That’s how hard that is. 5p.

England’s Plastic Bag Usage Drops 85% Since 5p Charge Introduced (G.)

The number of single-use plastic bags used by shoppers in England has plummeted by more than 85% after the introduction of a 5p charge last October, early figures suggest. More than 7bn bags were handed out by seven main supermarkets in the year before the charge, but this figure plummeted to slightly more than 500m in the first six months after the charge was introduced, the Department for Environment, Food and Rural Affairs (Defra) said. The data is the government’s first official assessment of the impact of the charge, which was introduced to help reduce litter and protect wildlife – and the expected full-year drop of 6bn bags was hailed by ministers as a sign that it is working.

The charge has also triggered donations of more than £29m from retailers towards good causes including charities and community groups, according to Defra. England was the last part of the UK to adopt the 5p levy, after successful schemes in Scotland, Wales and Northern Ireland. Retailers with 250 or more full-time equivalent employees have to charge a minimum of 5p for the bags they provide for shopping in stores and for deliveries, but smaller shops and paper bags are not included. There are also exemptions for some goods, such as raw meat and fish, prescription medicines, seeds and flowers and live fish. Around 8m tonnes of plastic makes its way into the world’s oceans each year, posing a serious threat to the marine environment. Experts estimate that plastic is eaten by 31 species of marine mammals and more than 100 species of sea birds.

Read more …

Feb 212015
 
 February 21, 2015  Posted by at 12:45 pm Finance Tagged with: , , , , , , , ,  


Russell Lee “Yreka, California. Magazine stand” 1942

German-Led Bloc Willing to Let Greece Leave Euro: Malta (Bloomberg)
A Lawyer’s Mindset Where An Economist’s Is Needed? (Steve Keen)
Greece Should Not Give In to Germany’s Bullying (Legrain – Foreign Policy)
Tentative Deal For Extension Agreed At Eurogroup (Kathimerini)
The Euro’s Up In Smoke (Beppe Grillo)
Eurozone Chiefs Strike Deal To Extend Greek Bailout For Four Months (Guardian)
Greece Bends To Eurozone Will To Find Short-term Agreement (Open Europe)
Greece’s Debt Deal Isn’t The End Of Eurozone Drama (MarketWatch)
ECB’s Draghi Wants To Buy Bonds, But Who Will Sell? (Reuters)
It’s Up To Germany To End The Game Of Chicken With Greece (Guardian)
Is Greek PM Alexis Tsipras Going To Be Russia’s ‘Trojan Donkey’? (NewsCorp)
Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)
Expectations And Reality: What Maidan Gave Ukraine’s Economy (RT)
US Units of Deutsche Bank, Santander Likely to Fail Fed Stress Test (WSJ)
The US Government’s Stupid Tax War On Expatriates (MarketWatch)
NYC Could See 6-Foot Sea Rise By 2100 (NewsMaine)

“We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness..”

German-Led Bloc Willing to Let Greece Leave Euro: Malta (Bloomberg)

Germany and its allies are ready to let Greece leave the euro unless Prime Minister Alexis Tsipras accepts the conditions required to extend his country’s financial support, according to Malta’s finance minister, Edward Scicluna. Greece’s creditors are cranking up the pressure on Tsipras as he seeks a deal to prevent his country defaulting on its obligations as early as next month. By bowing to German demands, the premier risks a domestic backlash from voters and party members whom he’s promised an end to austerity. “Germany, the Netherlands and others will be hard and they will insist that Greece repays back the solidarity shown by the member states by respecting the conditions,” Scicluna said in an interview. “They’ve now reached a point where they will tell Greece ‘if you really want to leave, leave.’”

Talks between euro-region finance ministers in Brussels Friday aimed at agreeing an extension of Greece’s aid program were pushed back by an hour and a half, the group’s chairman, Dutch Finance Minister Jeroen Dijsselbloem, said on Twitter. The meeting will begin at 4:30 p.m. Brussels time and Dijsselbloem will make a statement at 3 p.m.nIn a formal request on Thursday to extend Greece’s euro-area backed rescue beyond its end-of-February expiry for another six months, Greek Finance Minister Yanis Varoufakis said he would accept the financial and procedural conditions of the Germany’s Finance Ministry almost immediately rebuffed the latest Greek formula, saying the country needs to make a firmer commitment to austerity. A “positive” conversation between Tsipras and German Chancellor Angela Merkel later on Thursday sparked investor optimism for a deal.

“We are perfectly prepared to refrain from any moves that would jeopardize financial stability or Greek competitiveness,” Varoufakis said in an interview Friday with The Telegraph. “But what we cannot accept is that the fiscal adjustment, agreed by the last government, be carried through just because the rules say so.” Investors are pricing in a positive outcome to the Eurogroup meeting with Greek bonds and stocks rising for a third day.

Read more …

“..is there a way to frame the Greek case in a way that a lawyer might understand?”

A Lawyer’s Mindset Where An Economist’s Is Needed? (Steve Keen)

A Twitter correspondent pointed out a simple fact that makes Schäuble’s inflexibility in negotiations with Varoufakis explicable: though he is a Minister of Finance, his PhD is in law. So is he implicitly approaching these negotiations as a lawyer would? Because from that point of view, what the Greeks are trying to do is to renege on a contract. And for a lawyer, changing the terms of a contract after you have signed it is a no deal. It’s either carry out the contract, or I’ll sue. Varoufakis, of course, is approaching the negotiations as an economist. From his point of view, the terms of the Troika’s package are a set of economic policies that have failed. And if policies have failed, the sensible economist tries different ones.

So did Greece sign a legal document, whose principles have to be adhered to, even if they have consequences the Greeks didn’t foresee when they signed? Or did Greece accept a set of economic policies, whose continuance should depend on whether those policies are achieving their intended objectives? There’s no doubt that the latter is the case. But if Schäuble is treating it as a legal treaty, then the fact that this is actually a set of failed economic policies, and not a legally binding treaty, won’t matter. He will refuse to “renegotiate the terms of the contract”. The negotiations will be such in name only.

So is there a way to frame the Greek case in a way that a lawyer might understand? Any contract involves consideration by each party to the other. In a contract of sale, the object being sold is the consideration from the seller; the money for the sale is the consideration from the buyer. So what is the consideration in this case? It is a combination of two things: the loans that were extended to the Greeks, and the Greeks carrying out an economic program which promised a set of economic outcomes—the key components of which are shown in Figure 1. These included that real economic growth would commence in 2012, and that unemployment would peak at 15.3% in 2012, and fall to 14.6% by 2014. [..]

Schäuble could then find himself repeating the whole process all over again, but this time with an opposite party who will delight in breaking agreements. He clearly hasn’t enjoyed negotiating with a leftwing academic economist who wears a leather jacket and wears his shirt outside his trousers. How, I wonder, will he enjoy negotiating with someone who prefers to wear jackboots?

Read more …

“Greece must be bled dry to service its foreign creditors in the name of European solidarity..”

Greece Should Not Give In to Germany’s Bullying (Legrain – Foreign Policy)

Ever since the initial bargain in the 1950s between post-Nazi West Germany and its wartime victims, European integration has been built on compromise. So there is huge pressure on Greece’s new Syriza government to be “good Europeans” and compromise on their demands for debt justice from their European partners – also known as creditors. But sometimes compromise is the wrong course of action. Sometimes you need to take a stand. Let’s face it: no advanced economies in living memory have been as catastrophically mismanaged as the eurozone has been in recent years, as I document at length in my book, European Spring.

Seven years into the crisis, the eurozone economy is doing much worse than the United States, worse than Japan during its lost decade in the 1990s and worse even than Europe in the 1930s: GDP is still 2% lower than seven years ago and the unemployment rate is in double digits. The policy stance set by Angela Merkel’s government in Berlin, implemented by the European Commission in Brussels, and sometimes tempered – but more often enforced – by the ECB in Frankfurt, remains disastrous. Continuing with current policies — austerity and wage cuts, forbearance for banks, no debt restructuring or adjustment to Germany’s mercantilism — is leading Europe into the ditch; the launch of quantitative easing is unlikely to change that. So settling for a “compromise” that shifts Merkel’s line by a millimeter would be a mistake; it must be challenged and dismantled.

While Greece alone may not be able to change the entire monetary union, it could act as a catalyst for the growing political backlash against the eurozone’s stagnation policies. For the first time in years, there is hope that the dead hand of Merkelism can be unclasped, not just fear of the consequences and nationalist loathing. More immediately, Greece can save itself. Left in the clutches of its EU creditors, it is not destined for the sunlit uplands of recovery, but for the enduring misery of debt bondage. So the four-point plan put forward by its dashing new finance minister, Yanis Varoufakis, is eminently sensible.

This involves running a smaller primary surplus – that is a budget surplus, excluding interest payments – of 1.5% of GDP a year, instead of 3% this year and 4.5% thereafter. Some of the spare funds would be used to alleviate Greece’s humanitarian emergency. The crushing debts of more than 175% of GDP would be relieved by swapping the loans from eurozone governments for less burdensome obligations with payments tied to Greece’s GDP growth. Last but not least, Syriza wants to genuinely reform the economy, with the help of the Organization for Economic Cooperation and Development (OECD), notably by tackling the corrupt, clientelist political system, cracking down on tax evasion, and breaking the power of the oligarchs who have a stranglehold over the Greek economy.

Had the Varoufakis plan been put forward by an investment banker, it would have been perceived as perfectly reasonable. Yet in the parallel universe inhabited by Germany’s Finance Minister Wolfgang Schäuble, such demands are seen as “irresponsible”: Greece must be bled dry to service its foreign creditors in the name of European solidarity.

Read more …

“Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF program..”

Tentative Deal For Extension Agreed At Eurogroup (Kathimerini)

Greece and the Eurogroup agreed on Friday a deal to extend the country’s loan agreement for another four months, pending on lenders approving reform proposals due to be submitted by the Greek side on Monday. The terms of the agreement reached after many hours of talks in Brussels Friday means that the country’s lenders – the European Central Bank, the European Commission and the International Monetary Fund – must approve the reforms proposed by Greece on Monday. “The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday, February 23,” the statement said. “The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April.”

Greece has yet to receive €7.2 billion in bailout installments that the previous government failed to secure. But the country’s creditors will only disburse these funds once the implementation of the measures has taken place by the end of April. “Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF program and the transfer of the 2014 SMP profits,“ said the statement. Greek Finance Minister Yanis Varoufakis stressed the importance of Greece being able to submit its own reforms and vowed to “work night and day between now and Monday” to produce a “fresh list of reforms.”

“The Greek authorities have expressed their strong commitment to a broader and deeper structural reform process aimed at durably improving growth and employment prospects, ensuring stability and resilience of the financial sector and enhancing social fairness,” said the Eurogroup statement. “The authorities commit to implementing long overdue reforms to tackle corruption and tax evasion, and improving the efficiency of the public sector. In this context, the Greek authorities undertake to make best use of the continued provision of technical assistance.” In the meantime, though, some €11 billion left in Greece’s bank recapitalization fund, the HFSF, will return to the European Financial Stability Facility (EFSF) but will be available for use should banks require it.

Read more …

“..to sell and lend to the countries on the periphery of Europe was always Germany’s preferred economic activity..”

The Euro’s Up In Smoke (Beppe Grillo)

“The Eurozone chess game has entered its third and final stage. Germany wins in three moves – Euro, deflation and purchase of public debt by the ECB (QE) – and in the last few years it has found a way to maximise its profits and reduce to zero its risks as Europe’s creditor.

Germany’s risks Let’s try analysing the problems of the Eurozone as they really are: problems of conflicting interests of creditors and debtors regulated by demand and supply. If you agree to make a loan to your neighbour, you open yourself up to three risks:
• that he’ll pay you back in a different currency that has perhaps been devalued unless you had a prior agreement about the repayment currency (currency risk);
• that with the amount you get back, you can buy fewer goods or property (inflation risk);
• that you don’t even have either of the first two problems because your neighbour simply goes bust and thus you lose everything (capital risk).

How Germany gains Germany is the Eurozone’s only big creditor with about €600 billion loaned to various countries, most of which are on the periphery of the Eurozone, including Italy. The Euro has given it this enviable status. If you produce lots and you consume and invest very little and you keep domestic wages and prices low, then you’ll always have cheap unconsumed goods to sell to your neighbours. And you might also be able to make money by providing credit that they will probably ask you for so that they can buy your goods that are so cheap and so good. This is Germany’s situation. It has always had this approach to the market economy in European affairs ever since 1870 with its roots in Calvinism. Thus to sell and lend to the countries on the periphery of Europe was always Germany’s preferred economic activity when everything was going well, before the crisis in 2008. Since then its only objective has been to get that credit returned and to protect its purchasing power.

Read more …

“We are going to write our own script on the reforms that need to be enacted..”

Eurozone Chiefs Strike Deal To Extend Greek Bailout For Four Months (Guardian)

Greece has stepped back from the prospect of a disorderly eurozone exit after reaching a last-ditch deal to resolve the impasse over its €240bn bailout. The outline agreement between Athens and its creditors in the single currency bloc to extend Greece’s rescue loans should help ease concerns that it was heading for the exit door from the euro. In return, the country’s leftwing government has pledged not to roll back austerity measures attached to the rescue, and must submit, before the end of Monday, a list of reforms that it plans to make. The chairman of the eurozone finance chiefs’ group, Jeroen Dijsselbloem, said Athens had given its “unequivocal commitment to honour their financial obligations” to creditors.

He said that the agreement was a “first step in this process of rebuilding trust” between Greece and its eurozone partners which would provide a strategy to get the country back on track. A senior Greek government official welcomed the agreement, saying it gave Athens time to negotiate a new deal. “Greece has turned a page,” the official added. Greece’s finance minister, Yanis Varoufakis, claimed victory, insisting there was “no substantive difference” between the deal and a Greek compromise text that had been dismissed by Germany’s finance ministry as a Trojan horse for Athens to throw off austerity. “We are going to write our own script on the reforms that need to be enacted,” he said

But the Greek prime minister, Alexis Tsipras, will almost certainly face fierce reaction over the deal, both from hardliners in his radical left Syriza party and from the populist right-wing Anel – his junior partner in the governing coalition – for agreeing to continue with austerity measures as part of the deal, given that he was elected on an anti-austerity programme. “Very heavy concessions have been made, politically poisonous concessions for the government,” Pavlos Tzimas, the veteran political commentator, told SKAI news.

Read more …

“The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.”

Greece Bends To Eurozone Will To Find Short-term Agreement (Open Europe)

Immediately after SYRIZA’s election victory in Greece, we predicted that:” While a compromise could still be possible, it will be quite painful to reach and will imply someone taking big steps back from their previous stance.” Tonight that looks to have been proven true – at least in the short term.

What does this agreement do and why? Tonight’s deal extends the current Master Financial Assistance Facility Agreement (MFAFA) by four months in order to allow Greece to fund itself in the short term and to allow time for negotiations over what happens afterwards.+ The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions (European Commission, ECB and IMF – formerly known as ‘the Troika’).+ Tonight’s agreement seems to essentially extend the existing agreement and the tied-in conditionality of the current Memorandum of Understanding.

What points has Greece capitulated on? Completion of the current review – Greece has basically agreed to conclude the current bailout. Any funding is conditional on such a process: “Only approval of the conclusion of the review of the extended arrangement by the institutions in turn will allow for any disbursement of the outstanding tranche of the current EFSF programme and the transfer of the 2014 SMP profits. Both are again subject to approval by the Eurogroup.” This is a clear capitulation for Greek Prime Minister Alexis Tsipras, who said the previous bailout was “dead” and the EU/IMF/ECB Troika is “over”.

Remaining bank recapitalisation funds – Greece wanted this money to be held by the Hellenic Financial Stabilisation Fund (HFSF) over the extension period, and possibly be open for use outside the banking sector. However, this has been denied and the bonds will return to the EFSF, although they will remain available for any bank recapitalisation needs. Role of the IMF – The Eurogroup statement says, “We also agreed that the IMF would continue to play its role”. Again, Greece has given in on this point and the Troika continues to exist and be strongly involved in all but name.

No unilateral action – According to the statement, “The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.” In light of this, a large number of promises that SYRIZA made in its election campaign will now be hard to fulfil. In the press conference given by Eurogroup Chairman Jeroen Dijsselbloem and EU Economics Commissioner Pierre Moscovici, it was suggested that this pledge also applied to the measures which were announced by Tsipras in his speech to the Greek parliament earlier this week – when he announced plans to roll back some labour market reforms passed by the previous Greek government.

Read more …

“You’ll get to go through it again in four months..”

Greece’s Debt Deal Isn’t The End Of Eurozone Drama (MarketWatch)

Rejoicing over the tentative resolution of the latest round of eurozone debt drama? Good for you. You’ll get to go through it again in four months. That is assuming Greece’s weekend exercise in picking its own austerity poison somehow proves mortifying enough to appease the “institutions” (don’t call them the troika anymore) overseeing the country’s bailouts while not enraging Greek voters who elected the new government on the promise it would stop Berlin and Brussels from imposing unrelenting austerity. That could prove to be a tall order. Failure on the latter front could mean new elections. Greek voters in January supported Greek Prime Minister Alexis Tsipras and his Syriza party on the idea that Greece didn’t want to leave the euro, but could no longer abide harsh austerity measures dictated by the dreaded troika..

Greek Finance Minister Yannis Varoufakis says Greece won a victory in that it will now be a “co-author” of its reforms, rather than having measures imposed by fiat by its creditors. Meanwhile, German Finance Minister Wolfgang Schaeuble was attempting to soothe German taxpayers. He emphasized to reporters that Athens won’t see any aid until it completes a satisfactory proposal, Reuters reported. And perhaps just to rub it in a little, he offered that the Greeks “certainly will have a difficult time to explain the deal to their voters, “ the report said. If Greek voters feel they got a raw deal, another election could be in the offing. If so, it would likely turn not on the question of austerity, but on a so-called Grexit.

So now Greece must submit a list of reforms to the institutions by the end of the day Monday. The institutions will review pore over it. There is scope for the process to break down between now and then. Varoufakis said Athens will craft its proposals in consultation with its partners, albeit at “arms length.” But even if everything goes smoothly, the question of what happens next for Greece, which will likely require a third bailout, will need to be answered in four months time.

Read more …

“If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5%, set against liabilities at 3.50-3.75 (percent),”

ECB’s Draghi Wants To Buy Bonds, But Who Will Sell? (Reuters)

At the height of the euro zone debt crisis in 2012, ECB President Mario Draghi’s problem was how to convince investors to hold on to European bonds. Now he faces a struggle to make them sell. Weeks before the European Central Bank begins a program to buy about 1 trillion euros of euro zone government bonds, banks, pension funds and insurers across the continent are hoarding them for regulatory or accounting reasons. That may complicate implementation of the quantitative easing program, aimed at reviving growth and inflation in the euro zone. The ECB might have to pay way above market prices, or take additional measures to encourage investors to sell. “We prefer to hold on to them,” said Antoine Lissowski at French insurer CNP Assurances. “The ECB’s policy … is reaching its limits now.”

Banks, which buy mainly short-term bonds, use government debt as a liquidity buffer. Selling would force them to invest in other assets, for which – unlike government bonds – regulators ask banks to set cash aside as a precaution. Alternatively, they can deposit money with the ECB, at a discouraging interest rate of minus 0.20%. Insurers and pension funds typically buy long-term debt. They could make hefty profits selling to the ECB. But the money would have to be re-invested in other bonds whose yields would be much lower than their long-term commitments to clients – a regulatory no-no. In 2012, many euro zone bonds offered double-digit yields. Today, Greece aside, the bloc’s highest yielding debt is a 30-year Portuguese bond offering 3.30%.

Between a quarter and a third of the market carries negative yields, meaning investors pay governments to park their money in debt. In Belgium, a country whose rates are taken as indicative of the euro zone average, benchmark 10-year bonds BE10YT=TWEB yield 0.7%, just above record lows around 0.5%. “If we were to sell bonds, we would make huge capital gains, but we will then have to reinvest that money at a yield of 0.5%, set against liabilities at 3.50-3.75 (percent),” said Bart de Smet, the CEO of Belgian insurer Ageas. Dutch banks ING and Rabobank, Spain’s Bankinter and rescued lender Bankia and France’s BNP Paribas said they were unlikely to sell when the ECB comes knocking. “The volume of sovereign bonds we own at the moment is not linked to monetary policy,” BNP Paribas deputy CEO Philippe Bordenave said. “It’s linked to the regulation.”

Read more …

“It is hard to imagine how Ireland, Portugal, Spain or even Italy could have stayed in the euro area in 2011-2012 had there been a worked-out exit route.”

It’s Up To Germany To End The Game Of Chicken With Greece (Guardian)

At the heart of the rift that runs through Europe at the moment lies a technocratic debate drowned in emotion. Germany has rejected Greece’s bailout request on the basis of the semantic difference between a programme extension (acceptable) and a loan extension (unacceptable). True, words are substance. But when the German finance minister, Wolfgang Schäuble, or his allies take the floor to explain their critical stance, the underlying reasons become evident: they quickly shift to moral and emotional grounds, invoking trust, values and cultural differences. The Greek side of the debate is not better. Opening the negotiations with a ridiculous request for war reparations, tolerating for several days caricatures of Schäuble as a Nazi in government-friendly newspapers, and comparing Eurogroup methods with waterboarding, the new Greek government went for a strategy of emotional alienation, rather than trust-building.

In a game of chicken, stubbornness leads to catastrophe. And stubbornness based on pride and prejudice is hard to abandon. This is why I have started to get seriously worried about where these negotiations are heading. We urgently need to bring back in some simple economic and political considerations to show that a compromise is not only a good solution; it’s the only solution. First, we need to make it absolutely clear that Grexit would be devastating for Greece, for Europe and for Germany. For Greece, because it would cause the banking system to collapse, import prices to skyrocket and growth prospects to disappear for several years, with horrifying prospects for the Greek population. For Europe because the euro area would be turned from an “irrevocable” currency union into some kind of fixed-exchange rate regime where countries can leave as soon as they come under market pressure.

It is hard to imagine how Ireland, Portugal, Spain or even Italy could have stayed in the euro area in 2011-2012 had there been a worked-out exit route. Finally, it would be devastating for Germany, not only because it would lose billions of euros from a Greek devaluation but even more so because it would put at risk Germany’s recent prosperity: a currency union is to the benefit of the largest export nation in Europe. Secondly, we need to remember that some of the Greek requests are economically reasonable. The country urgently needs to shift from a contractionary to a more neutral fiscal stance. Structural reforms were necessary but put additional pressure on domestic demand. The bailout money hasn’t benefitted the Greek population, but in its largest parts has gone straight from European bank accounts, through Athens, and back to the ECB or the IMF.

Read more …

“These are uncharted waters and founding fathers never envisaged or made provision for a nation leaving the euro.”

Is Greek PM Alexis Tsipras Going To Be Russia’s ‘Trojan Donkey’? (NewsCorp)

As newly elected Greek leader Alexis Tsipras earlier this month made a much heralded visit to mainland Europe to shore up support to end austerity measures in his country, he made a largely unreported transit stop in Cyprus. The stopover lasted only a few hours but in that time he received first-hand briefings of not only the dire financial precipice upon which the island also stood but equally the potentially huge oil and gas reserves waiting to be explored off its turquoise coastline. Symbolically the Leftist prime minister met not only with Greek Cyprus counterparts but also leading members of the Turkish Cypriot community, to declare his desire for reunification of the island, split in two between Greece and Turkey for more than 40 years but now largely divided over rights to those offshore hydrocarbon reserves.

Turk Cypriots applauded the significant move. It was the first time a Greek leader had visited the island and met them but for eurozone leaders the trip bore two other less obvious outcomes — Greece was prepared to break from tradition in a bid to find friends in the face of its financial crisis and more crucially was perhaps seeking those friendships to forge new ties with others like Russia. And there lies the issue at hand this week. Greece’s almost inevitable exit from the EU has less to do with its own economic predicament and the effect its collapse or exit or both would have on the broader 19 nation euro-using money markets, but its where and to whom it would then turn in a post Europe landscape.

There are other issues too including if Greece did finally leave the bloc, where would it leave the likes of Spain, Ireland and Portugal that all have upcoming national elections with governments wading through their respective austerity quagmires against huge domestic oppositions. It is conceivable they too may like or be forced to abandon their multi-billion dollar loans. Greece had a $270 billion bailout in 2010 and 2012 that it has sought to renegotiate to remove pegging the payback to austerity measures. The current bailout expires on February 28 hence the urgency to find a solution now. These are uncharted waters and founding fathers never envisaged or made provision for a nation leaving the euro.

Read more …

Nobody has a clue. They’re just pretending.

Has Greece’s ‘Lehman Moment’ Finally Arrived? (CNBC)

A key week for Greece’s economic future drew to a close on Friday with the country facing the very real threat that it’s running out of money and key analysts warming to the idea that it could be on its way out of the euro zone. Euro zone finance ministers are set to meet Friday to discuss Greece’s latest proposals to extend its loan agreement. But with Germany already rejecting the plan, there is very little hope that an agreement will be announced. Another meeting in Brussels for next week was already being touted before Friday’s meeting even began. The main problem for the fiscally disciplined countries like Germany is that, despite the ground Greece has given up in the last week, it is still asking for the bailout loan without all of the strict austerity conditions that come with the money.

Greek economist Elena Panaritis, former member of the Greek Parliament and the World Bank, drew comparisons with the collapse of the Lehman Brothers in 2008. As with the fall of the big U.S. bank, market-watchers feel euro zone policymakers want to show the world they will only be pushed so far — with the result being Greece would be allowed to exit the euro zone. Panaritis thought there was a “political statement as well as economic statement” being made during the negotiations. Randy Kroszner, a former U.S. Federal Reserve governor and the professor of economics at the University of Chicago Booth School of Business, agreed that there were comparisons between the two events.

“I think there a parallel, but the tools exist if the European Union wants to keep Greece in and if Greece is willing to stay in,” he told CNBC Friday. “Even though it may be quite ugly, the likelihood of complete chaos is much lower. So that gives policymakers more willingness to say ‘Hey, we’ll take that risk’.”

Read more …

Damning.

Expectations And Reality: What Maidan Gave Ukraine’s Economy (RT)

The major expectation of the Maidan protest a year ago was replacing the burden of corruption and mismanagement of the economy with the benefits of EU integration. The reality brought collapse and a debt trap. The protests that ousted President Viktor Yanukovich in February 2014 started after his government postponed the signing of a key EU integration treaty. The EU Association Agreement opens the Ukrainian market to European goods and required that its industries adopt European standards. Both would take a heavy toll on the already ailing economy due to the cost of modernization and the loss of Russian markets. Moscow also warned it would protect its home market from European goods by revoking the tax-free trade deal with Ukraine.

Critics of Yanukovich, most notably Arseny Yatsenyuk, then-leader of a major opposition party, dismissed such concerns. Speaking on political talk shows and from the Maidan stage, Yatsenyuk gave vivid descriptions of how Prime Minister Nikolay Azarov was hurting Ukraine with his policies and how he would do a better job. He promised visa-free travel to Europe for Ukrainian tourists and guest workers, rising wages and social benefits, reining in national debt, lowering utility prices, bringing in billions of dollars of foreign investments, and many other things. Azarov went with Yanukovich and was replaced with Yatsenyuk, but the reality under the new cabinet is nothing like the picture presented a year ago. The Ukrainian economy experienced a deep plunge in 2014.

Its GDP dropped 6.5% last year, according to IMF figures, the only two countries worse were South Sudan and Libya. The unemployment rate reached 9.3% in the third quarter of 2014, as compared to 7.7% in 2013. The figure is expected to rise sharply in 2015. Ukrainian job search websites report a 30 to 50% drop in the number of employment offers over a year. “The country is at war that they cannot afford to fight. There is no economy any longer. When you look at where the industrial base of Ukraine is and the conflict going on in the east there is absolutely no doubt as to why it is happening,” Gerald Celente told RT. “That $160 billion loss of trade with Russia has destroyed the economy when it was already in a severe recession. It went from very bad to worse than depression levels.”

Read more …

“Both Deutsche Bank and Santander passed ECB stress tests in October.”

US Units of Deutsche Bank, Santander Likely to Fail Fed Stress Test (WSJ)

Large European banks including Deutsche Bank and Banco Santander are likely to fail the U.S. Federal Reserve’s stress test over shortcomings in how they measure and predict potential losses and risks, according to people familiar with the matter. The expected rebuke would mark the second year large foreign banks, which were drawn into the Fed’s stress test regime in 2014, failed to meet the U.S. regulator’s expectations for risk management. As banks have bulked up their capital cushions to ensure they can withstand losses in periods of turmoil, the Fed has increasingly focused on more “qualitative” issues in its stress tests, including whether banks accurately measure potential losses in credit portfolios, collect risk exposure data accurately and have strong internal controls.

Failing the stress tests would likely subject the U.S. units of Deutsche Bank and Banco Santander to restrictions on paying dividends to their European parent companies or other shareholders. Santander is already under such a restriction after failing its first stress test run last year. Deutsche Bank is undergoing the U.S. stress test process for the first time this year. Both Deutsche Bank and Santander passed ECB stress tests in October. Those tests focused on whether the banks had enough capital to withstand a two-year recession but didn’t assess such things as governance, risk management, and other more subjective factors like the Fed’s test.

The Fed’s Board of Governors in Washington will disclose partial results of the test on March 5 and full results on March 11, including any capital restrictions. Last year, the board met just ahead of releasing the results to vote on whether banks should fail the tests for “qualitative” reasons. It ultimately rejected Citigroup Inc. as well as U.S. units of Santander, HSBC and RBS on such grounds. It cited the foreign banks for “significant deficiencies” in their capital planning process. It hasn’t disclosed such a board meeting yet this year. The Fed declined to comment on specific banks.

Read more …

Who wants a US passport these days?

The US Government’s Stupid Tax War On Expatriates (MarketWatch)

The U.S. government’s stupid, hateful and dishonest war on Americans living abroad claimed its latest scalp this week. London Mayor Boris Johnson, a dual British and American national, says he will join the growing lines of Americans overseas who are now being driven to renounce their U.S. citizenship by the federal government for no good reason. Johnson, a possible future British prime minister, was born to British parents in New York. His case is not important individually, but it is illustrative. A record number of Americans abroad renounced their citizenship last year, and the numbers are escalating fast. That’s in response to a growing set of U.S. financial laws that make it nearly impossible for them to keep two passports. Most people don’t understand the government’s war on U.S. expats and dual nationals, so they buy the official spin that it is just “cracking down” on “rich tax cheats.”

It is doing no such thing, and it knows that it is doing no such thing. Indeed some of its most onerous financial rules, while “cracking down” on overseas grandmas with a $30,000 retirement account, specifically and deliberately exempt billionaires with money in hedge funds and private-equity funds. Even National Taxpayer Advocate Nina Olson has pointed out in her official reports to Congress that the war on expats often punishes ordinary middle-class and even poor Americans abroad far more severely than it does the rich. Olson is appointed to her role by the Congress, but she says that when she called up the Treasury to discuss some of the problems, they didn’t bother to respond. Talk to the hand, honey. Oh, and doesn’t it say a bundle that while the U.S. Treasury was “cracking down” on Grandma Moses, it was waiving all penalties on U.S. Treasury Secretary Tim Geithner for failing to pay tens of thousands of dollars in taxes?

What is going on? To put a complicated issue in a nutshell, the federal government is currently ramping up a wide set of bizarre and impossible regulations on all Americans living abroad — and threatening them with the financial equivalent of the death penalty if they don’t comply. As an American expat, you can be arrested, thrown in jail and bankrupted by Uncle Sam for failing to disclose a $15,000 checking account on which you have paid all the taxes owed. You are liable to double taxation, required to spend thousands of dollars a year on professional advice simply to survive — oh yes, and you are effectively barred from investing in either U.S. or non-U.S. based mutual funds. Ha ha! You lose!

Read more …

That’s a whole extra full size guy…

NYC Could See 6-Foot Sea Rise By 2100 (NewsMaine)

A new study, published by the New York Panel on Climate Change, has revealed that many regions of New York could be under water by 2100 if the sea level continues to rise due to global warming. The researchers have predicted that the city could experience sea level rise as much as 6 feet in the future. They said that in the next 40 years, the sea level could reach 11 to 12 inches and have demonstrated that New York City’s Central Park’s mean annual precipitation has increased at a rate of approximately 0.8 inches in every 10 years over 1900 to 2013. This has raised the mean annual precipitation to 8 inches over this past decade. During this time period, Central Park has shown an increase in mean annual temperature at a rate of 0.3°F per decade. The researchers have said that this trend has varied ‘considerably’ over shorter periods of time.

The data has suggested that both the precipitation and the New York City’s temperature have shown an increase. It has further disclosed that NYC will face heat waves at a rate 3 times as much as the city does now by the 2080s, decreasing the’ extreme cold events’.The study has called the sea level rise in New York City as a significant hazard and the main risk will be on the ‘coastal communities, infrastructure, and ecosystems’. The new climate change report given by New York City Panel on Climate Change (NPCC) has revealed that New York City might be looking at high sea level rise in the future. According to NBC, the 2015 report has found that the flood damage in the future might exceed that of Hurricane Sandy. In a press release, NYC Mayor Bill de Blasio said, “NPCC’s findings underscore the urgency of not only mitigating our contributions to climate change, but adapting our city to its risks”.

Read more …

Nov 192014
 
 November 19, 2014  Posted by at 12:57 pm Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle November 19 2014


Christopher Helin Federal truck, City Ice Delivery Co. 1934

Japan’s Last Stand (Michael Pento)
Why Japan’s Money Printing Madness Matters (David Stockman)
New Repair Manual Needed For Japan’s Broken Economy (CNBC)
Kuroda Wins Wider Majority, Warns Inflation Could Dip Below 1% (Bloomberg)
Yellen Inherits Greenspan’s Conundrum as Long Rates Sink (Bloomberg)
Mission Accomplished: Stocks & Homeless Kids Hit All-Time Highs (Simon Black)
China’s Central Bank Makes The Fed Look Like A Bunch Of Amateurs (WolfStreet)
US Equity-Credit Divergence: A Warning (RCube)
ECB Plans ‘Intrusive’ Probe of Banks’ Risk-Weight Models (Bloomberg)
ECB Entering ‘Very Dangerous Territory’ Warns S&P (AEP)
ECB’s Stress Test Failed to Restore Trust in Banks (Bloomberg)
Goldman Sachs Says Boosting Asset-Backed Debt Business in Europe (Bloomberg)
Belgium New Sick Man Of Europe On Debt-Trap Fears (AEP)
Why Greek Bond Yields Are Spiking (CNBC)
Rich Hoard Cash As Their Wealth Reaches Record High (CNBC)
US Shale And OPEC Oil: Game Of Chicken? (CNBC)
What Blows Up First: Shale Oil Junk Bonds (John Rubino)
“$1.6 Trillion in Junk Bond Defaults Coming” (Daily Wealth)
Ukraine Says It Is Ready for ‘Total War’ as Nations Dispute Truce Format (Bloomberg)
Putin Says United States Wants To Subdue Russia But It Won’t Succeed (Reuters)
Blighted Harvest Drives Olive Oil Price Pressures (AP)

“The nation now faces a complete collapse of the yen and all assets denominated in that currency. This is clearly Japan’s last stand and there is no real exit strategy except to explicitly default on its debt.”

Japan’s Last Stand (Michael Pento)

Shortly after the bubble burst, Japan embarked on a series of stimulus packages totaling more than $100 trillion yen–leaving an economy that was once built on savings to eventually be saddled with a debt to GDP ratio that now exceeds 240%–the highest in the industrialized world. Making matters worse, the BOJ has more recently engaged in an enormous campaign to completely vanquish deflation, despite the fact that the money supply has been in a steady uptrend for decades. At the end of 2012, we were introduced to Abenomics, which is Premier Shinzo Abe’s plan to put government spending and central-bank money printing on steroids. His strategy is crushing real household incomes (down 6%) and caused GDP to contract 7.1% in Q2.

With the rumored delay of its sales tax, Japan is clearly making no legitimate attempt to pay down its onerous debt levels. Therefore, one has to assume this huge addition to their QE is an attempt to reduce debt through devaluation and achieve growth by creating asset bubbles larger than the ones previously responsible for Japan’s multiple lost decades. This will not return Japan back to the days of its “economic miracle”, where the economy grew on a foundation of savings, investment and production. [..] The sad reality is that Japan is quickly surpassing the bubble economy achieved during the late 1980’s. Its equity and bond markets have become more disconnected from reality than at any other time in its history.

The nation now faces a complete collapse of the yen and all assets denominated in that currency. This is clearly Japan’s last stand and there is no real exit strategy except to explicitly default on its debt. But an economic collapse and a sovereign debt default on the world’s third largest economy will contain massive economic ramifications on a global scale. Japan should be the first nation to face such a collapse. Unfortunately; China, Europe and the U.S. will also soon face the consequences that arise when a nation’s insolvent condition is coupled with the complete abrogation of free markets by government intervention.

Read more …

“Japan has actually been treading water for a long-time – going all the way back to July 1989 when the monumental bubble created by the BOJ during the 1980s was cresting. Japan’s index of total industrial production during July of that peak bubble year printed at 96.8. So here’s the real shocker: It was still printing at 96.8 in July 2014.”

Why Japan’s Money Printing Madness Matters (David Stockman)

This is getting hard to believe. The announcement that Japan has plunged into a triple dip recession should have been lights out for Abenomics. But, no, its madman prime minister has now called a snap election to enlist more public support for his campaign to destroy what remains of Japan’s economy. And what’s worse, he’s not likely to be stopped by the electorate or even the leadership of Japan Inc, which presumably should know better. Here’s what Japan leading brokerage had to say about the “unexpected” 1.6% drop in Q3 GDP – compared to the consensus expectation of a 2.2% gain and after the upward revised shrinkage of 7.3% in Q2. We think that the economy is gradually improving,” said Tomo Kinoshita, an economist at Nomura Securities.

“There’s no reason to be pessimistic about the economy going forward.” Really? How in the world can an economist perched at the epicenter of Japan Inc. think that its economy is improving when Japan’s constant dollar GDP has now fallen back to pre-Abenomics levels; and, in fact, is no higher than it was in late 2007 prior to the “financial crisis”? Indeed, aside from the Q1 pull-forward of spending to beat the consumption tax increase, Japan’s economy has remained stranded on the flat-line it attained after world trade recovered from its 2008-2009 plunge. But that’s only the most recent iteration of the stagnation story. Japan has actually been treading water for a long-time – going all the way back to July 1989 when the monumental bubble created by the BOJ during the 1980s was cresting. Japan’s index of total industrial production during July of that peak bubble year printed at 96.8. So here’s the real shocker: It was still printing at 96.8 in July 2014.

That’s right – after 25 years of the greatest government debt and money printing spree in recorded history, Japan’s industrial production has gone exactly nowhere. Given that baleful history and the self-evident failure of the Keynesian elixir to cure Japan’s economic stagnation problem, it might be asked why the entire country seemingly moves in lock-step toward bankruptcy behind the sheer foolishness of Abenomics. That’s especially the case because even the short-run impacts have been self-evidently damaging to the real economy and have been utterly inconsistent with promised results. To wit, Abenomics was supposed to send exports soaring and the trade accounts back into the black, thereby adding to GDP and household incomes. But what it has actually done has been to slash the global purchasing power of the yen by 35% since early 2013, causing Japan’s bill for imported energy, industrial materials and manufactured components and consumer goods to soar.

Read more …

There is no repair manual. Other than full restructuring, default, and grave loss of face (which Abe will never accept, he’d much rather try nation-wide seppuku)

New Repair Manual Needed For Japan’s Broken Economy (CNBC)

Japan is looking for new ideas to fix its badly broken economy. Amid fresh signs of economic contraction, Japanese Prime Minister Shinzo Abe on Tuesday called for an early election and put on hold a scheduled sales tax increase. The news came a day after data showed the world’s third-biggest economy unexpectedly shrank for a second-consecutive quarter in July-September, after the initial sales tax hike clobbered consumer spending. Abe is hoping the snap election – expected Dec. 14 – will give him a fresh mandate for his three-pronged economic revival plan known as “Abenomics” that includes massive government spending, and easy money credit policy and a package of reforms designed to spur growth. But he acknowledged Tuesday that he may need to come up with a new plan.

“I am aware that critics say ‘Abenomics’ is a failure and not working but I have not heard one concrete idea what to do instead. … Are our economic policies mistaken, or correct? Is there another option?” he asked at a televised news conference. “This is the only way to end deflation and revive the economy.” The appeal for new ideas should come as no surprise. Japan’s much-heralded, three-pronged Abenomics revival plan is beginning to look like a two-legged stool.

Read more …

More stimulus is utterly useless. I haven’t seen recent numbers, but the ratio of GDP generated per added dollar of debt must be way below zero. That’s where it all stops.

Kuroda Wins Wider Majority, Warns Inflation Could Dip Below 1% (Bloomberg)

Bank of Japan Governor Haruhiko Kuroda secured a wider majority today and warned inflation could fall below 1% after the world’s third-largest economy slid into recession. The BOJ board voted 8-1 to continue expanding the monetary base at an annual pace of 80 trillion yen ($683 billion) following a split decision to increase stimulus last month. Prime Minister Shinzo Abe is delaying a sales-tax increase and will lift spending as Kuroda implements unprecedented asset purchases. The central bank is targeting price gains of 2% in an economy that unexpectedly contracted in the quarter through September as Japan struggles to pull out of two decades of stagnation. “The BOJ will have to bolster stimulus again,” Takuji Aida, an economist at SocGen, said before today’s announcement.

“The economy is much weaker than expected and it will become clearer that the economy and inflation are veering away from the BOJ’s scenario.” Consumer prices excluding fresh food rose 3% in September from a year earlier, slowing from a 3.1% gain in August. Stripping out the effects of April’s increase in the sales tax, the central bank’s core measure of inflation was 1% in September, a level Kuroda said in July wouldn’t be breached. The yen is trading near a seven-year low. The prime minister has called an early election in a bid to extend his term and salvage his Abenomics policies. He delayed for 18 months the increase in the sales tax to 10%, after a bump to 8% in April helped tip Japan into its fourth recession since 2008. The economy shrank an annualized 1.6% last quarter following a 7.3% contraction in April-to-June.

Read more …

mistaking

Central bankers have come to pretend they control lots of things they absolutely don’t: “We wanted to control the federal funds rate, but ran into trouble because long-term rates did not, as they always had previously, respond to the rise in short-term rates .. ”

Yellen Inherits Greenspan’s Conundrum as Long Rates Sink (Bloomberg)

Alan Greenspan couldn’t control long-term interest rates a decade ago, and bond investors are betting Janet Yellen’s luck will be no better. When then-Federal Reserve Chairman Greenspan raised the benchmark overnight rate from 2004 to 2006, long-term borrowing costs failed to increase, thwarting his attempts to tighten credit and curb excesses that contributed to the worst financial crisis in 80 years. “We wanted to control the federal funds rate, but ran into trouble because long-term rates did not, as they always had previously, respond to the rise in short-term rates,” Greenspan said in an interview last week. He called this a “conundrum” during congressional testimony in 2005. The bond market is signaling that past may be prologue as Yellen’s Fed prepares to raise rates next year.

The yield on the 10-year U.S. Treasury note has fallen 0.71%age point in 2014 even as the Fed wound down its bond-buying program and mapped out a strategy to raise the benchmark federal funds rate from near zero, where it has been since 2008. Most Fed policy makers expect the central bank will raise the federal funds rate, which represents the cost of overnight loans among banks, some time next year, according to projections released in September. The stakes are higher this time because rates are lower and the yield curve is flatter.

Raising short-term rates in the face of stable or falling long-term rates could lead to a situation where the Fed “quickly inverts the yield curve and turns credit creation on its head,” said Tim Duy, an economics professor at the University of Oregon and a former U.S. Treasury economist. An inverted yield curve occurs when short-term securities yield more than longer-dated bonds. That discourages banks from extending credit because they finance long-term loans with short-term debt. Inverted yield curves typically precede recessions. Duy said the Fed has few options if long rates don’t rise after increases in the federal funds rate: the Fed would have little scope to raise the benchmark further, and not much room to cut if the economy were to slump. “I’m sort of wondering, what’s the game plan here,” Duy said.

Read more …

That graph hurts the eye. Do we really want to live in a world where this happens?

Mission Accomplished: Stocks & Homeless Kids Hit All-Time Highs (Simon Black)

Something is dreadfully wrong with this picture. In a report just released today by the National Center on Family Homelessness, a team of academics has demonstrated that the number of homeless children in the Land of the Free now stands at 2.5 million. This is far and away an all-time high and constitutes roughly one out of every 30 children in America. The report goes on to explain that among the major causes of this problem are the continuing impacts of the Great Recession that began in 2008. Funny thing, someone ought to tell these homeless kids that the economy is doing great. Of course, we know this to be true because the stock market is near its all-time high. The Dow Jones Industrial Average now stands at 17,633, just off its all-time high. Also near its all-time highs is the bond market, and coincidentally, the US debt – which is now within spitting distance of $18 trillion.

In other words, if these kids ever do manage to pick themselves up off the streets, they’ll work their entire lives to pay off a debt that they never signed up for. And it all comes down to a completely perverse, corrupt, debt-based paper money system. Yes, no matter what happens in the world, there are always going to be rich and poor. And as painful as it may be, there will always be homeless children. That’s not really the point. For the most part, financial wealth used to be something that people had to work to achieve. They had to produce something valuable for consumers. They had to develop new technologies and be innovative. They had to take chances and in many cases risk it all. That’s less and less the case today. Today one’s station in life is much more tied to how you grew up. If you were born poor, you have a 70% chance of staying poor (according to a recent study from the Pew Charitable Trust). And needless to say, if you’re born rich, you’re going to stay rich. Much of that is due to the monetary system.

Read more …

This is what QE has brought us. This and homeless children.

Rich Hoard Cash As Their Wealth Reaches Record High (CNBC)

The amount of individuals that hold more than $30 million in assets has climbed to a new record in 2014, according to a global survey on Wednesday, which also warned that a lack of diversification meant that this wealth is not protected from shocks to the financial system 12,040 of these new ultra high net worth (UHNW) individuals were minted in the year ending June 2014, said the Wealth-X and UBS World Ultra Wealth Report released on Wednesday. This meant a 6% increase from last year which pushed the global population of these millionaires to a record 211,275.

With the annual gross domestic product of the U.S. closing in on the $17 trillion mark, according to the World Bank, this means that the ultra-rich now have almost twice the wealth of the world’s largest economy. Nonetheless, Simon Smiles, chief investment officer at UBS Wealth Management, warned of the risks the wealthy few face. “This report finds that UHNW individuals hold nearly 25% – an extremely high proportion – of their net worth in cash,” he said in Wednesday’s accompanying press release. Fearing that their millions are being eroded away with inflation, Smiles also said that holding government bonds from Germany and the U.S. is no longer safe. The return outlook for these fixed income assets is highly and negatively “asymmetric,” he added.

“Wealth concentration is perhaps the biggest risk facing UHNW individuals,” he said. “Individuals have over two thirds of their wealth in their core businesses.” The majority of the millionaires are self-made and are involved in founder-owned private businesses, according to the report. The value of these private company holdings represents almost twice the amount that they hold in public company stakes, it said. Thus, this disproportionality exposes the rich to “exogenous shocks,” according to Smiles, such as technological change, new regulations and fresh upheavals in the world of geopolitics. The new report also predicted that the global UHNW population will reach 250,000 individuals in the next five years, an increase of 18% from this year’s figures.

Read more …

“By the time the Fed and the Bank of England made their moves in 2008 to bail out toppling megabanks, other financial institutions, and the largest investors in the world, the balance sheet of the PBOC had nearly quadrupled.”

China’s Central Bank Makes The Fed Look Like A Bunch Of Amateurs (WolfStreet)

The phenomenal credit expansion in China has taken many forms and has accomplished many phenomenal things, from building entire ghost cities to turning ambient air into a toxic cocktail. In the process, the credit bubble turned China into the second largest economy. Some of this freshly created money has been spread around. Hence, the growing middle class. Those with significant accumulation of wealth are trying to get some of it out of China before it all blows up or before the corruption crackdown or a purge or some other business misfortune takes it all down. In China’s state-controlled system, credit expansion is largely done by state-owned banks that have to keep lending no matter what. Then there’s the increasingly important shadow banking system. And finally, the People’s Bank of China – and no central bank is a match for it.

The chart below compares the growth of the balance sheets of the major central banks, starting in 2003, when the index was set at 100. While the other central banks – except for the ECB – kept their balance sheets nearly level between 2003 and the Financial Crisis, the PBOC’s balance sheet (top orange line) ballooned. By the time the Fed (yellow line) and the Bank of England (red line) made their moves in 2008 to bail out toppling megabanks, other financial institutions, and the largest investors in the world, the balance sheet of the PBOC had nearly quadrupled. Note the tiny Swiss National Bank (purple line) which is desperately trying to defend its franc cap by buying euros and dollars and selling newly printed francs. It works, but for how long? And note the Bank of Japan (green line) at the bottom. In 2003, after years of QE, its balance sheet was already relatively large, but in 2012, and particularly in early 2013, it set out on a record-setting binge, from an already large base.

Read more …

“The fact that all this is happening while bullish sentiment in the US is at record highs is of particular worry. Everyone is expecting higher equities due to lower yields and depressed food and energy prices. But when everyone is thinking alike, no one is really thinking….”

US Equity-Credit Divergence: A Warning (RCube)

Major equity/credit divergences should always be taken very seriously. They were among the best forward looking indicators at almost every major turning point for equities over the last 20 years. To recap: In 1998, equities were rallying hard, but US HY spreads failed to print new lows. Instead, they started widening in late 1997. Credit was telling us back then that Asia and Russia were severely slowing down while corporate balance sheet health was deteriorating. It preceded the 1998 crash. In 1999/2000, the divergence was even more pronounced. The S&P500 not only recovered from the Asian crisis but rallied strongly during the Tech bubble. US HY spreads had bottomed 3 years earlier! Corporate balance sheet were at the time very stretched. As a result, banks were tightening lending standards. The equity market eventually crashed, tracking the signal sent by widening credit spreads.

During 2007/2008, credit spreads bottomed in May 2007 and started widening immediately after, while equities kept moving higher for another 5 months (October 2007). Spreads were telling us just like in 2000 that private sector leverage had reach such an elevated level that banks were starting to close the credit flows. Again, the divergence timed the bear market that followed. In 2008/2009, spreads topped out in December while equities made new lows that were not confirmed by a new high on HY spreads. At that time, corporate balance sheet had started to adjust violently to the crisis. Capex had been cut to zero, the corporate sector was issuing equity (net positive liquidity impact) and cash flows had already bottomed and were starting to rise. Balance sheet health was improving, as evidenced by tightening credit spreads.

The bullish divergence timed the end of the bear market. In 2011, spreads bottomed in February while equities made a new high in April, as spreads widened further due to the European sovereign crisis. Equities reversed shortly after. Today, the divergence is visible again. US High Yield spreads bottomed in June and have widened substantially since then. Equities are still printing new highs. Are US HY spreads telling us that global growth is weaker than expected, a message also sent by flattening yield curves, depressed bond yields, defensive massive outperformance relative to cyclicals. Is it Europe? Russia? Emerging Markets? The fact that all this is happening while bullish sentiment in the US is at record highs is of particular worry. Everyone is expecting higher equities due to lower yields and depressed food and energy prices. But when everyone is thinking alike, no one is really thinking….

Read more …

As long as Europe is full of implicitly TBTP banks, it’s all lip service.

ECB Plans ‘Intrusive’ Probe of Banks’ Risk-Weight Models (Bloomberg)

The European Central Bank plans to clamp down on the complex models lenders use to gauge the risk of their assets, as it works to restore trust in the euro area’s financial system. The ECB, newly installed as the euro area’s single supervisor, plans to scrutinize lenders’ models and eliminate variations across the currency bloc, top policy makers have said. The Frankfurt-based central bank didn’t look at the way banks calculate asset risk in its year-long balance-sheet probe, completed last month. The Basel Committee on Banking Supervision said last week that variations among countries “undermine confidence” in capital ratios, the core measure of financial strength used to score banks in the ECB’s health check.

The ECB will “critically review the calculation of risk-weighted assets,” Sabine Lautenschlaeger, a member of the central bank’s Executive Board, said at a conference in Frankfurt today. “We want to reduce excessive variability, thereby restoring confidence in the calculation of risk-weighted assets.” Korbinian Ibel, who heads an ECB microprudential supervision department, said the central bank will be “intrusive” with model approvals and risk analysis. The ECB defines risk-weighted assets as “a measure of a bank’s total assets and off-balance sheet exposures weighted by their associated risk.” There are cases from across the euro area of banks that have boosted their capital levels thanks to making greater use of internal models, or by making changes to them.

Deutsche Bank adjusted its risk models in the last three months of 2012 to help lift its capital ratio even as the firm’s biggest quarterly loss since the 2008 financial crisis reduced its equity reserves. The bank cut risk-weighted assets by €55 billion ($68 billion) in the fourth quarter of 2012, almost half of which was achieved by modifying risk models and processes. Raiffeisen Bank’s main shareholder Raiffeisen Zentralbank, or RZB, was found with a €2.13 billion capital gap in the European Banking Authority’s 2011 stress test. It turned this shortfall into a surplus by the EBA’s June 2012 deadline without raising a cent of fresh cash. The biggest contribution to fill the gap, €1.45 billion, came from a “capital cleanup” that included measures reducing risk weightings such as switching to internal ratings from standardized ratings in some of its eastern European subsidiaries.

Read more …

Pushing Draghi et al into additional debt.

ECB Entering ‘Very Dangerous Territory’ Warns S&P (AEP)

The European Central Bank’s plans for €1 trillion of monetary stimulus is fraught with risk and is likely to fail without full-blown bond purchases, Standard & Poor’s has warned. The agency said the ECB’s blitz of ultra-cheap loans to banks (TLTROs) cannot generate more than €40bn of net stimulus once old loans are repaid, given regulatory curbs imposed on lenders. Jean-Michel Six, the agency’s chief European economist, said ‘doves’ on the ECB’s governing council know that the loan plan is unworkable but are going through the motions in order to persuade German-led ‘hawks’ that all conventional measures have been exhausted, even if this means a debilitating delay. “Risks of a triple-dip recession have increased,” said Mr Six. “The ECB has one last arrow and that is quantitative easing of €1 trillion, needed to restore the M3 money supply to trend growth.”

The ECB has suggested – with caveats – that it will boost its balance sheet by €1 trillion, saying this will be spread between TLTRO loans and asset purchases. The lower the share of TLTRO loans in this total, the more it will be forced to expand QE in the teeth of opppostion from Germany. “The ECB is moving into very dangerous territory,” said Mr Six. “Their own credibility is at risk as they take on more risk, but it is necessary. The agency also said the Bank of England has greatly under-estimated the degree of slack in the British economy and risks killing the recovery by tightening too soon “We don’t see any tangible signs of a housing bubble, except in a few streets in London,” said Mr Six. “The UK is cooling off. It is nothing to be alarmed about, but we think a premature rate rise could put the recovery in jeopardy. There is a long way to go before deciding the horse is going too fast and needs to be reined in.”

Key officials at the ECB continue to fight out their differences in public. Jens Weidmann, the head of the Bundesbank, said there was nothing automatic about further stimulus and underlined that the €1 trillion rise in the balance sheet was an expectation rather than a target. He also warned that it would encourage governments to relax fiscal austerity, an argument that most economists find baffling and not within the policy jurisdiction of a central bank official. “The purchase of government bonds – independently of legal limits – would set significant, additional false incentives,” he said. By contrast, the ECB’s president Mario Draghi has been nudging further towards full QE, stating explicitly that government bonds might be added to the mix of assets to be purchased.

Read more …

How is that possible?

ECB’s Stress Test Failed to Restore Trust in Banks (Bloomberg)

Europe still hasn’t regained investor confidence in its banks. The European Central Bank’s stress tests of the region’s lenders failed to provide an accurate gauge of their financial stability, according to 51% of respondents to the latest quarterly poll of investors, traders and analysts who are Bloomberg subscribers. The results were viewed as accurate by 32% of the people who responded, while 17% said they weren’t sure. The tests followed three previous efforts by another European regulator that were deemed unreliable after some banks that passed collapsed a few months later. Investors expected the ECB to take a tougher approach before it took over as the single supervisor of euro-zone banks this month.

While 25 of the 130 institutions failed the ECB’s test, an even smaller subset was asked to raise $8 billion of capital. “We’ve improved the banks with some more capital and more transparency, but it wasn’t good enough,” said Michael Nicoletos, managing director of Athens-based AppleTree Capital GS SA, which oversees about $45 million of investments. He participated in last week’s Bloomberg Global Poll. “I’m sure there are some banks that are in worse shape than they appeared in the test.” “Regulators never look forward,” said Florin Bota-Avram, a trader at Cluj-Napoca, Romania-based Banca Transilvania SA who participated in the poll. “They want to prevent the future crisis by looking at the past, but the future is always different than the past.”

Read more …

How to profit from Draghi’s desperation. Think Mario doesn’t know this: “Many European banks are capital constrained, so I don’t see the ECB’s ABS purchase program necessarily as a game changer”? I think he knows. But he’s a Goldman man.

Goldman Sachs Says Boosting Asset-Backed Debt Business in Europe (Bloomberg)

Goldman Sachs says it’s adding staff to its European asset-backed securities business as the bank prepares for a resurgence in the $305 billion market that shrank more than 40% over the past four years. New securities will be generated as hedge funds and private equity firms seek to repackage debt as they enter the direct lending market, according to Simone Verri, who is co-head of financial institutions group financing at Goldman in London. Investors buying bad loans from the region’s banks will also want to securitize the assets, he said. “We have invested a lot in this opportunity by hiring more people, especially for ABS structuring,” said Verri, a partner at the New York-based investment bank. “The specialty finance players and quasi-banking sector could use ABS to fund loan origination and that’s a very attractive commercial opportunity in the medium term.”

Oaktree Capital, the biggest distressed debt investor, and New York-based KKR have raised direct lending funds in Europe as banks retreat from the market because of new capital regulations. Financial firms will offload more than €100 billion ($125 billion) of loans this year after they restructured their balance sheets because of the European Central Bank’s asset quality review and stress tests, according to PricewaterhouseCoopers. Lenders create asset-backed notes by bundling individual loans such as mortgages, auto credit and credit-card debt into tradable bonds. “Buyers of loan portfolios need financing and they can get that either from an investment bank or eventually via selling ABS backed by these loans,” said Verri. “This could be an important development as non-performing loan disposals will improve banks’ balance sheets and risk capital.”

ECB President Mario Draghi has put asset-backed bonds at the center of his plans to stimulate the euro-area economy because the securities allow the transfer of risk from banks to investors, which may encourage lenders to offer more credit to companies. The central bank will buy the notes as part of a plan to expand its balance sheet by as much as €1 trillion. While the program signals the ABS market has been rehabilitated after being blamed for worsening the financial crisis, its impact on bank lending will be limited, said Verri. “Many European banks are capital constrained, so I don’t see the ECB’s ABS purchase program necessarily as a game changer,” said Verri. “It doesn’t address capital needs and therefore it doesn’t necessarily unlock credit origination.”

Read more …

Ambrose found a new patient. Has he tackled all EU countries by now?

Belgium New Sick Man Of Europe On Debt-Trap Fears (AEP)

Belgium is creeping back onto the eurozone’s danger list as economic woes spread deeper into the EMU-core, and protracted slump poisons debt dynamics. Fitch Ratings has issued a downgrade alert, warning that the country’s primary budget surplus is evaporating. It said public debt will reach 106.9pc of GDP next year. New accounting rules known as ESA2010 have revealed that Belgium is poorer than previously thought, lifting the debt ratio by 3.3pc of GDP overnight. This is in stark contrast to the upgrade for Britain, Ireland, and Finland, all deemed to be richer and therefore less troubled by debt. The agency placed Belgium on negative watch, deeming it ever further out of line among its AA-rated peers worldwide. The median debt ratio is 37pc. “Public debt dynamics have deteriorated owing to weaker real GDP growth and worse fiscal performance,” it said.

Yields on 10-year Belgian bonds have fallen to an historic low of 1.07pc – sliding in lockstep with German Bunds – but it is unclear whether this can last if markets start to focus on the economic fundamentals of EMU once again. The country is caught in a debt compound trap, much like southern European states. The toxic mix of near-zero growth and very low inflation is automatically causing the debt trajectory to ratchet upwards. The ratio was 99.7pc in 2013. Belgium has so far failed to reach “escape velocity” after stagnating for almost three years. The European Commission has cut its growth estimate to 0.9pc this year and in 2015, too low to stabilize the debt. Belgium has been in consumer price deflation for the last eight months, when adjusted for taxes. The Commission said the debt ratio will reach 107.8pc by 2016, and warned that it could spiral much higher if there is a deflationary shock. Indeed, it came out worse than Italy in the stress test scenario.

Read more …

The troika.

Why Greek Bond Yields Are Spiking (CNBC)

The cost of borrowing for embattled euro zone nation Greece got even more expensive on Thursday, as investors shunned the country’s sovereign debt ahead of tough negotiations with its international creditors. The yield on its 10-year sovereign spiked to 8.401% on Wednesday morning, after pushing sharply higher on Tuesday afternoon. At the beginning of the week, yields were trading around 8.042%. Yields this week have not reached the 9% level hit in mid-October when negative sentiment surrounding Greece spread to global markets. However, rising debt yields do highlight that the country’s economic woes are far from over, with a crucial deadline in early December looming large on the horizon.

“Greece still has sizeable financing needs in 2015 and it remains up in the air how these will be covered, which is likely to be causing market nervousness,” Sarah Pemberton, the European economist at Capital Economics, told CNBC via email. It comes as Athens attempts to exit its bailout program – which has been hugely unpopular in the country – ahead of schedule. The government is hoping to strike a deal with the so-called “Troika” of bailout monitors – the European Union, International Monetary Fund (IMF) and European Central Bank (ECB) – before a December 8 deadline. One stumbling block to this plan is Greece’s fiscal gap for 2015, with both sides unable to agree how large it could be and how it should be addressed.

Read more …

And bringing Venezuela to its knees in the process.

US Shale And OPEC Oil: Game Of Chicken? (CNBC)

The political rhetoric surrounding the recent drop in oil prices shows no signs of slowing, with Venezuela said that oil producing countries could soon meet to discuss the tumbling commodity. In a televised address late Monday, Venezuela President Nicolas Maduro said that a gathering of both OPEC countries and non-OPEC countries was being planned, according to the Associated Press. The discussions would be in the lead-up to a crucial OPEC meeting which is taking place in Vienna on November 27, and although Maduro was slim on details, he said he was confident that fellow OPEC nations would join together to help prices recover. It comes as Venezuela Foreign Minister Rafael Ramirez is currently on a tour of oil-producing nations including Russia and the Gulf States.

Global oil prices have plunged since peaking in June. From around $115 a barrel, Brent crude has lost around a third of its price and was trading near four-year lows on Tuesday at $79. Weak demand, a strong dollar and booming U.S. oil production are the three main reasons behind the fall, according to the International Energy Agency (IEA), which warned of a “new chapter” for oil markets, which could even affect the social stability of some countries. This shift was further underlined on Tuesday, when Reuters reported that Iraq was looking to base its 2015 budget on an oil price of $80 per barrel. The OPEC nations – which include the main swing producer, Saudi Arabia – are seen as key to the market, as they could agree to cut production and provide a floor for the price. However, political ramblings and a lack of formal production quotas have led many analysts to say that OPEC is unlikely to announce new policy at the end of the month.

Read more …

Fire in the hole!

What Blows Up First: Shale Oil Junk Bonds (John Rubino)

One of the surest signs that a bubble is about to burst is junk bonds behaving like respectable paper. That is, their yields drop to mid-single digits, they start appearing with liberal loan covenants that display a high degree of trust in the issuer, and they start reporting really low default rates that lead the gullible to view them as “safe”. So everyone from pension funds to retirees start loading up in the expectation of banking an extra few points of yield with minimal risk. This pretty much sums up today’s fixed income world. And if past is prologue, soon to come will be a brutally rude awakening. Most of the following charts are from a long, very well-done cautionary article by Nottingham Advisors’ Lawrence Whistler: Junk yield premiums over US Treasuries are back down to housing bubble levels:

Junk spreads 2014

So are default rates:

Junk default rates 2014

The supply of junk bonds is way higher than before the previous two market crashes:

Junk issuance 2014

[..] Here’s what happened to the various classes of debt the last time things got this out of whack (junk is purple):

Junk returns historical

Read more …

More junk bonds.

“$1.6 Trillion in Junk Bond Defaults Coming” (Daily Wealth)

Martin Fridson is – without question – the biggest name in his field. (He has been for decades. Right now, he’s extremely concerned… Last week, he shared his big concerns at our investment conference in the Dominican Republic. Fridson rules the world of speculative bonds. In his presentation, Fridson showed how high-yield bonds are just as good an investment (if not better) than stocks – during normal times. But times are not normal today… and Fridson is worried. He sees “the next junk-bond implosion” arriving as early as 2016, and lasting through 2019. In Fridson’s base case (not his pessimistic case), he sees $1.6 trillion dollars in total speculative bond defaults over the course of the next junk-bond implosion. Interest rates have fallen so low in America that investors have been “reaching” for yield. They have been buying much riskier investments, just to get a bit more interest to live on. And that’s dangerous…

Fridson’s base case is built relatively simply… based on historical cycles in high-yield bonds, and based on reversion to the mean over the long run. He explained this on Stansberry Radio last month: Right now the yield on the high-yield index is right around 6%. The long-run average on that is more like 9.5%… I think over five years, that it’s a very strong likelihood that we’re going to be back up to at least average levels at some point. So as the yield goes up, the price goes down, and that cuts into your return… If you just look at historical experience, you’d actually expect a slightly negative rate of return over the next five years. People are buying high-yield bonds today, expecting to earn 6%. They are not expecting to lose money. But if interest rates rise eventually on high-yield bonds – as Fridson expects – these people will lose money. Fridson expects that – in the worst of it – the interest rate on high-yield bonds will soar to more than 10%age points above Treasury bonds. Remember, bond prices go down when interest rates go up – so investors will lose a lot of money as that happens.

Read more …

There is nothing at Bloomberg anymore about Putin and Ukraine that’s not a political agenda.

Ukraine Says It Is Ready for ‘Total War’ as Nations Dispute Truce Format (Bloomberg)

Ukraine and Russia clashed over how to move toward a new cease-fire agreement, after President Petro Poroshenko said his country is ready for “total war” with Vladimir Putin’s forces. As NATO Secretary General Jens Stoltenberg criticized Russia for staging a “serious military buildup” and sending troops and weapons across its western border, Ukrainian Prime Minister Arseniy Yatsenyuk advocated new “Geneva format” talks including the U.S. to de-escalate the crisis. Russia said that framework, which followed April talks in the Swiss city that excluded pro-Russian separatists, would skirt a process that led to a Sept. 5 cease-fire in Minsk, Belarus. “There is the Minsk format,” Russian Foreign Minister Sergei Lavrov said today in the Belarusian capital. “Attempts to dissolve this format, to present it in a way that the insurgents, representatives of the southeast, may sit aside while the ‘grownups’ agree on what to do – such attempts are completely illusory.”

Read more …

Anybody doubt any of it?

Putin Says United States Wants To Subdue Russia But It Won’t Succeed (Reuters)

Russian President Vladimir Putin on Tuesday accused the United States of wanting to subdue Moscow but warned Washington it would never succeed. “They (United States) do not want to humiliate us, they want to subdue us, solve their problems at our expense,” Putin told a meeting with a core support group, the People’s Front, triggering loud applause. “No one in history ever managed to achieve this with Russia, and no one ever will.”

Read more …

Support your local olive grower!

Blighted Harvest Drives Olive Oil Price Pressures (AP)

If your favorite bottle of Mediterranean olive oil starts costing more, blame unseasonable European weather – and tiny insects. High spring temperatures, a cool summer and abundant rain are taking a big bite out of the olive harvest in some key regions of Italy, Spain, France and Portugal. Those conditions have also helped the proliferation of the olive fly and olive moth, which are calamitous blights. The shortfall could translate into higher shelf prices for some olive oils and is dealing another blow to southern Europe’s bruised economies as they limp out of a protracted financial crisis. “The law of supply and demand is a basic law of the market,” said Joaquim Freire de Andrade, president of growers’ association Olivum in Portugal’s southern Alentejo region, the country’s olive heartland.

“It’s a tough year.” Olive oil is big business in southern European Union countries. They are the source of more than 70% of the world’s olive oil, bringing export revenue of almost €1.8 billion ($2.2 billion) last year. The United States imported just over $800 million of that. For some European growers, this year’s harvest is a bust. In Spain, the world’s biggest producer, the young farmers’ association Asaja says 2014 is “another disaster” after a calamitous harvest two years ago. Spain’s output is forecast to plunge by more than 50%, with a drop of at least 60% in the southern Andalucia region.

Read more …

Oct 282014
 
 October 28, 2014  Posted by at 9:56 pm Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein Texas Panhandle Dust Bowl Mar 1936

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Alternative Stress Tests Find French Banks Are Weakest In Europe

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Oct 282014
 
 October 28, 2014  Posted by at 11:21 am Finance Tagged with: , , , , , , , , , ,  


Arthur Siegel Zoot suit, business district, Detroit, Michigan Feb 1942

Fears Grow Over QE’s Toxic Legacy (FT)
Draghi QE May Help Europe’s Rich Get Richer (Bloomberg)
Quantitative Easing Is Like “Treating Cancer With Aspirin” (Tim Price)
ECB Stress Tests Vastly Understate Risk Of Deflation And Leverage (AEP)
Under Full Capital Rules, 36 EU Banks Would Have Failed Test (Reuters)
3 Reasons Why You Should Expect A 30% Market Meltdown (MarketWatch)
US Banks See Worst Outflow of Money in ETF Since 2009 (Bloomberg)
The Great Recession Put Us in a Hole. Are We Out Yet? (Bloomberg)
China Fake Invoice Evidence Serve To Inflate Trade Data (Bloomberg)
Riksbank Cuts Key Rate to Zero as Deflation Fight Deepens (Bloomberg)
IMF Warns Gulf Countries Of Spending Squeeze (CNBC)
Shell Seeks 5 More Years for Arctic Oil Drilling Drive (Bloomberg)
Wind Farms Can ‘Never’ Be Relied Upon To Deliver UK Energy Security (Telegraph)
Equal Footing For Women At Work? Not Till 2095 (CNBC)
Lloyds Bank Confirms 9,000 Job Losses And Branch Closures As Profit Rises (BBC)
IRS Seizes 100s Of Perfectly Legal Bank Accounts, Refuses To Return Money (RT)
Bulk Of Americans Abroad Want To Give Up Citizenship (CNBC)
Tapering, Exiting, or Just Punting? (Jim Kunstler)
MH17 Might Have Been Shot Down From Air – Chief Dutch Investigator (RT)
MH17 Chief Investigator: No Actionable Evidence Yet In Probe (Spiegel)
Having Babies New Sex Ed Goal as Danes Face Infertility Epidemic (Bloomberg)
Medical Journal To Governors: You’re Wrong About Ebola Quarantine (NPR)

QE blows up the financial system instead of saving it. But some people and corporations will be much richer after.

Fears Grow Over QE’s Toxic Legacy (Tracy Alloway/FT)

“Bankruptcy? Repossession? Charge-offs? Buy the car YOU deserve,” says the banner at the top of the Washington Auto Credit website. A stock photo of a woman with a beaming smile is overlaid with the promise of “100% guaranteed credit approval”. On Wall Street they are smiling too, salivating over the prospect of borrowers taking Washington AutoCredit up on its enticing offer of auto financing. Every car loan advanced to a high-risk, subprime borrower can be bundled into bonds that are then sold on to yield-hungry investors. These subprime auto “asset-backed securities”, or ABS, have, like a host of other risky assets, been beneficiaries of six years of quantitative easing by the US Federal Reserve, which is due to come to an end this week. When the Fed began asset purchases in late 2008 the premise was simple: unleash a tidal wave of liquidity to force nervous investors to move out of safe investments and into riskier assets.

It is hard to argue that the tactic did not work; half a decade of low interest rates and QE appears to have sparked an intense scrum for riskier securities as investors struggle to make their return targets. Wall Street’s securitization machine has kicked back into gear to churn out bonds that package together corporate loans, commercial mortgages and, of course, subprime auto loans. At $359 billion sold last year, according to Dealogic data, issuance of junk-rated corporate bonds is at a record as companies take advantage of low rates to refinance debt and investors clamor to buy it. The question now is whether the rebound in sales of risky assets will prove to be a toxic legacy of QE in a similar way that the popularity of subprime mortgage-backed securities was partly spurred by years of low interest rates before the financial crisis. “QE has flooded the system with cash and you’re really competing with an entity with an unlimited balance sheet,” says Manish Kapoor of West Wheelock Capital. “This has enhanced the search for yield and caused risk appetites to increase.”

Read more …

That’s the goal.

Draghi QE May Help Europe’s Rich Get Richer (Bloomberg)

European Central Bank President Mario Draghi, fighting a deflation threat in the euro region, may need to confront a concern more familiar to Americans: income inequality. With interest rates almost at zero, Draghi is moving into asset purchases to lift inflation to the ECB’s target. The more he nears the kind of tools deployed by the Federal Reserve, the Bank of England and the Bank of Japan, the more he risks making the rich richer, said economists including Nobel laureate Joseph Stiglitz. In the U.S., the gap is rising between the incomes of the wealthy, whose financial holdings become more valuable via central bank purchases, and the poor. While monetary authorities’ foray into bond-buying is intended to stabilize economic conditions and underpin a real recovery, policy makers and economists are increasingly asking whether one cost may be wider income gaps – in Europe as well as the U.S.

“The more you use these unusual, even unprecedented monetary tools, the greater is the possibility of unintended consequences, of which contributing to inequality is one,” said William White, former head of the Bank for International Settlements’ monetary and economic department. “If you have all these underlying problems of too much debt and a broken banking system, to say that we can use monetary policy to deal with underlying real structural problems is a dangerous illusion.” The divide between rich and poor became part of a widespread public debate following the publication in English this year of Thomas Piketty’s “Capital in the Twenty-First Century.” He posited that capitalism may permit the wealthy to pull ahead of the rest of society at ever-faster rates.

Read more …

“As James Grant recently observed, it’s quite remarkable how, thus far, savers in particular have largely suffered in silence.”

Quantitative Easing Is Like “Treating Cancer With Aspirin” (Tim Price)

Shortly before leaving the Fed this year, Ben Bernanke rather pompously declared that Quantitative Easing “works in practice, but it doesn’t work in theory.” There is, of course, no counter-factual. We’ll never know what might have happened if the world’s central banks had not thrown trillions of dollars at the banking system, and instead let the free market work its magic on an overleveraged financial system. But to suggest credibly that QE has worked, we first have to agree on a definition of what “work” means, and on what problem QE was meant to solve. If the objective of QE was to drive down longer term interest rates, given that short term rates were already at zero, then we would have to concede that in this somewhat narrow context, QE has “worked”. But we doubt whether that objective was front and centre for those people – we could variously call them “savers”, “investors”, or “honest workers”. As James Grant recently observed, it’s quite remarkable how, thus far, savers in particular have largely suffered in silence.

So while QE has “succeeded” in driving down interest rates, the problem isn’t that interest rates were / are too high. Quite the reverse: interest rates are clearly too low – at least for savers. All the way out to 3-year maturities, investors in German government bonds, for example, are now faced with negative interest rates. And still they’re buying. This isn’t monetary policy success; this is madness. We think the QE debate should be reframed: has QE done anything to reform an economic and monetary system urgently in need of restructuring? We think the answer, self-evidently, is “No”. The answer is also “No” to the question: “Can you solve a crisis of too much indebtedness by increasing debt and suppressing interest rates?” The toxic combination of more credit creation and global financial repression will merely make the ultimate endgame that much more spectacular.

Read more …

Good summary of – part of – the reasons the tests are such a joke. “… the 39 largest European banks would alone need up to €450bn in fresh capital”. That’s so close to the Swiss estimates I quoted on Sunday, it sounds quite credible. And so different from the €9.5 billion cited by the test results, it’s ridiculous. Off by a factor of 50…

ECB Stress Tests Vastly Understate Risk Of Deflation And Leverage (AEP)

The eurozone’s long-awaited stress test for banks has been overtaken by powerful deflationary forces and greatly understates the risk of high debt leverage in a crisis, a chorus of financial experts has warned. George Magnus, senior advisor to UBS, said it was a “huge omission” for the European Central Bank to ignore the risk of deflation, given the profoundly corrosive effects that it can have on bank solvency. “Most of the eurozone periphery is already in deflation. They can’t just leave this out of their health check. It is a matter of basic due diligence,” he said. The ECB’s most extreme “adverse scenario” included a drop in inflation to 1pc this year, but the rate has already fallen far below this to 0.3pc, or almost zero once tax effects are stripped out. Prices have fallen over the past six months in roughly half of the currency bloc, and the proportion of goods in the EMU price basket in deflation has jumped to 31pc. “The scenario of deflation is not there, because indeed we don’t consider that deflation is going to happen,” said the ECB’s vice-president, Vitor Constancio.

The ECB had vowed to be tough in its first real test as Europe’s new super-regulator, promising to restore credibility after the fiasco of earlier efforts by the European Banking Authority in 2010 and 2011. The aim is to clean up the financial system once and for all, hoping that this will create more traction for the ECB’s mix of stimulus measures. Yet the bank has to walk a fine line since tough love would risk a further contraction of lending, and possibly a fresh crisis. The results released over the weekend suggest the ECB has opted for safety. Just 13 banks must raise fresh capital, mostly minor lenders in Italy and peripheral countries. They have nine months to find €9.5bn, a trivial sum set against the €22 trillion balance sheet of the lending system. Europe’s banks will have set aside an extra €48bn in provisions. Non-performing loans have jumped by €136bn.

Independent experts say the ECB has greatly under-played the threat of a serious shock. A study by Sachsa Steffen, from the European School of Management (ESMT) in Berlin, and Viral Acharya, at the Stern School of Business in New York, calculated that the 39 largest European banks would alone need up to €450bn in fresh capital. “The major flaw in the ECB test is that they don’t allow for systemic risk where there are forced sales and feedback effects, which is what happened in the Lehman crisis,” said Professor Steffen. Their study looked at levels of leverage rather than risk-weighted assets, which are subject to the discretion of national regulators and can easily be fudged. Most Club Med banks can defer tax assets, for example.

Read more …

That’s just Basel, you could add a whole lot more criteria.

Under Full Capital Rules, 36 EU Banks Would Have Failed Test (Reuters)

Europe’s banking health check has shown countries and lenders are implementing global capital rules at vastly different speeds, and 36 companies would have failed if new capital rules were fully applied. The euro zone is lagging behind countries outside the bloc in implementing the Basel III capital rules that are due to come into full force in 2019, potentially adding another challenge for the European Central Bank when it takes over supervision of euro zone lenders next month. “On a fully loaded basis, many banks have only passed the stress test by very thin margins or could be challenged in meeting the requirements, so they will be expected to do more,” said Carola Schuler, managing director for banking at ratings agency Moody’s. Some 25 European banks failed a health check of whether they could withstand a recession, and another 11 would have failed if the full Basel III rules had been applied, according to data from the European Banking Authority released on Sunday.

Europe had gained credibility, said Karen Petrou, co-founder of Federal Financial Analytics in Washington. But a similar exercise by the U.S. Federal Reserve was still tougher, among others because it requires banks to fully load Basel. “It’s still an easier and different one than the Fed stress test in many, many respects,” she said. “The Fed’s test is very qualitative. You can get all the numbers right and still fail.” The wider capital gap with fully implemented Basel rules could put pressure on more banks to improve the amount and quality of their capital, potentially impacting their profitability, growth plans and dividend payouts. Banks failed if they had common equity of 5.5% or less under a 2014/16 recession scenario. The EBA’s “stress test” was based on transitional capital rules, which vary by country, depending on how quickly they are phasing in rules. But for the first time, so-called ‘fully loaded’ Basel III ratios – applying all the new global rules – were released across Europe’s top 130 banks for analysts and investors to compare their capital strength.

Read more …

30% seems low.

3 Reasons Why You Should Expect A 30% Market Meltdown (MarketWatch)

In a commentary for MarketWatch just over two months ago, I predicted that the U.S. stock faced at least a 20% correction. The signals now point to a 30% downturn. This recent market volatility is just the beginning. The declines that corrected prices more than 10% in both the Russell 2000 Index and the Nasdaq Composite Index encompassed the majority of the market, and these stocks have begun their descent. Meanwhile, both the Dow Jones Industrial Average, containing 30 stocks, and the S&P 500 have yet to correct 10%, but historically they are the last to fall. My proprietary indicator called the CCT gave an ominous sell signal in the summer. Since then, the sell signal has increased in intensity and entered a 30% correction zone. The CCT measures several internal market components. It is a leading indicator that actually can be quantified.

The strongest component is the duration of buying versus the duration of selling. A healthy bull market sees mostly buying, indicated by the NYSE tick. The longer the buying persists with NYSE Tick readings in the plus column, the stronger the share price advances. But what happens when prices increase and the duration of the plus-column NYSE tick is less than the duration of the minus tick? This is a divergence, indicating lessening volume dedicated to the buying of a wide array of stock sectors. This duration buying has been lessening since July. Every rally shows less broad participation in all sectors of NYSE stocks. This is what happens in bear markets. A second component of the CCT focuses on the NYSE “big block” buying and selling in isolated segments of time. This is different than the duration component, as it measures isolated situations of what fund managers are doing.

A strong bullish market has numerous big blocks of buying. A print on the NYSE tick in excess of +1000 signifies fund buying by numerous entities, which accompanies a healthy bull market. But what happens when prices are climbing but no +1000 NYSE ticks are printed? This is a divergence indicating lack of interest by fund managers to commit large amounts of cash. Prices are getting ahead of buying interest, and that divergence cannot persist. We saw this phenomenon frequently in September as the S&P 500 recorded all-time highs. This also occurs in bear markets. A third and final component is the cumulative number of the NYSE tick. Each day I record the amount of total plus tick, less the amount of minus tick, on the NYSE. A bull market has a tight correlation of a up day for stock prices corresponding to a plus day in the cumulative NYSE tick.

Read more …

Why interest rates must and will rise.

US Banks See Worst Outflow of Money in ETF Since 2009 (Bloomberg)

The Financial Select Sector SPDR (XLF), an exchange-traded fund targeting banks and investment firms, had the biggest withdrawal last week since 2009 amid concern that low interest rates and market swings will hurt profits. Investors pulled $913.4 million from the $17.5 billion ETF, whose top holdings include Berkshire Hathaway, Wells Fargo and JPMorgan Chase, a shift that turned its flow of funds negative for the year. About 143 million shares of the ETF have been borrowed and sold to speculate on declines, the most since June 2012, according to exchange data compiled by Bloomberg. Banks have waited for years for higher rates and more robust trading to boost revenue from lending and market-making.

Weaker-than-expected global growth could prompt the U.S. central bank to slow the pace of eventual interest-rate increases, Federal Reserve Vice Chairman Stanley Fischer said Oct. 11. The severity of market swings this month also boosts the risk that banks will incur losses while facilitating client bets, and it may slow mergers and acquisitions. “Investors should have less exposure to financials than the broader market because we don’t think the prospects are that strong,” said Todd Rosenbluth, director of mutual-fund and ETF research at S&P Capital IQ in New York, referring to interest rates. If the Fed keeps rates low, “the upside in these financials is taken away,” said Charles Peabody, an analyst at Portales Partners LLC in New York.

Read more …

Is that even a question?

The Great Recession Put Us in a Hole. Are We Out Yet? (Bloomberg)

In October 2007, U.S. stocks were hitting an all-time high, jobs were plentiful and homes were expensive. Two months later, the Great Recession began to eviscerate the economy, ultimately sucking $10 trillion out of U.S. stocks, collapsing a housing bubble and pushing the unemployment rate to 10%. A lot of talk of financial irresponsibility – people living beyond their means – followed. Seven years later, most Americans have put their finances in order, reducing all kinds of consumer debt. So it’s no small insult, after the injury of the recession, that many aren’t being rewarded for smarter spending. Americans are making a lot less money and own fewer assets, the Federal Reserve said last month, even as stocks reach new highs. Housing prices recovered, though they’re still 13% below 2007 levels. Fewer Americans own houses they can’t afford – sending rents up 16%, to an average of $1,100 per apartment in metro areas.

On the bright side, housing’s collapse taught consumers about the dangers of debt. Americans have shed $1.5 trillion in mortgage debt and $139.4 billion in credit card and other revolving debt over the last six years. They were pushed by tighter credit rules and enticed by the chance to refinance at lower rates. But they also saved more diligently. The U.S. savings rate has doubled since 2007, to 5.4% in September. Educational loans are up, by $2,500 for the median family paying off student loans. But that’s prompted by tuition increases and a surge of people going back to school. Post-secondary enrollment jumped 15%, or 2.8 million, from 2007 to 2010, according to the U.S. Department of Education. Jobs may be coming back, but good jobs are still scarce. More than 7 million people are working part-time jobs when they’d prefer a full-time gig, 57% more than in 2007. And more than 3% of adults have left the workforce entirely since 2007, according to the U.S. labor force participation rate.

Read more …

What else are they faking?

China Fake Invoice Evidence Serve To Inflate Trade Data (Bloomberg)

The gap between China’s reported exports to Hong Kong and the territory’s imports from the mainland widened in September to the most this year, suggesting fake export-invoicing is again skewing China’s trade data. China recorded $1.56 of exports to Hong Kong last month for every $1 in imports Hong Kong registered, leading to a $13.5 billion difference, according to government data compiled by Bloomberg. Hong Kong’s imports from China climbed 5.5% from a year earlier to $24.1 billion, figures showed yesterday; China’s exports to Hong Kong surged 34% to $37.6 billion, according to mainland data on Oct. 13.

While China’s government has strict rules on importing capital, those seeking to exploit yuan appreciation can evade the limit by disguising money inflows as payment for goods exported to foreign countries or territories, especially Hong Kong. The latest trade mismatch coincided with renewed appreciation of China’s currency, leading analysts at banks and brokerages including Everbright Securities Co. and Australia & New Zealand Banking Group Ltd. to question the export surge. “This is definitely another important piece of evidence of over-invoicing exports to Hong Kong to facilitate money inflow into China,” said Shen Jianguang, chief Asia economist at Mizuho Securities. in Hong Kong. “So we shouldn’t be too optimistic about recent export data from China.” Doubts over the data raise broader concerns, as a surge in exports was believed to have underpinned economic growth in the third quarter. Shen said the economic outlook is “challenging” and more easing is “necessary.”

Read more …

Krugman wins again.

Riksbank Cuts Key Rate to Zero as Deflation Fight Deepens (Bloomberg)

Sweden’s central bank ventured into uncharted territory as it cut its main interest rate to a record low and delayed tightening plans into 2016 in a bid to jolt the largest Nordic economy out of a deflationary spiral. “The Swedish economy is relatively strong and economic activity is continuing to improve,” the Stockholm-based bank said in a statement. “But inflation is too low.” The benchmark repo rate was lowered to zero from 0.25%, the third reduction in less than a year. The bank was seen cutting to 0.1% in a Bloomberg survey of 17 economists. Only two economists had predicted a cut to zero. The Riksbank said it won’t raise rates until mid-2016 compared with a September forecast for the end of 2015. The “assessment is that the repo rate needs to remain at this level until inflation clearly picks up,” the Riksbank said in a statement. “It is assessed as appropriate to slowly begin raising the repo rate in the middle of 2016.” The move follows calls from former board members, politicians and economists to do more to prevent deflation from taking hold.

Consumer prices have dropped in seven of the past nine months and inflation has stayed below the bank’s 2% target for almost three years. Governor Stefan Ingves, who’s also chairman of the Basel Committee on Banking Supervision, has been reluctant to lower rates out of fear of stoking a build-up in consumer debt. Ingves raised the benchmark rate quickly after the financial crisis showed signs of easing in 2010. His reluctance since then to cut rates prompted Nobel Laureate Paul Krugman in April to accuse the Riksbank of a “sadomonetarist” approach to policy he said risked creating a Japan-like deflation trap. Now, Ingves is shaping Swedish policy to reflect moves elsewhere and bringing rates in line with those at the European Central Bank, whose benchmark is 0.05 percent, and the U.S. Federal Reserve, which has held its key rate close to zero since 2008. The ECB and Fed have also expanded their balance sheets through asset purchases to further stimulate growth.

Read more …

Don’t think they need the IMF to tell them they need to keep their young people satisfied or else.

IMF Warns Gulf Countries Of Spending Squeeze (CNBC)

Oil exporters in the crude-rich Gulf need to rationalize spending amid a deteriorating global economic outlook, the International Monetary Fund has warned. “In the GCC (Gulf Co-operation Council), years of fast growth since the global financial crisis, rising asset prices, rapid credit growth in some countries, and accommodative global monetary conditions call for a return to fiscal consolidation,” the IMF said in its biannual economic outlook for the Middle East and Central Asia. But the fund also cautioned against immediate policy responses, especially given that GCC exporters were were well-placed to handle the current volatility in global energy markets. “It is not likely to have an effect on economic activity this year or the next. We don’t think that it would make sense to have a knee-jerk reaction,” Masood Ahmed, Director, Middle East and Central Asia Department at the IMF, told CNBC. “It’s important to gradually moderate the base of fiscal spending”. The fund expected the GCC oil exporters’ economies to grow by 4.4% in 2014, accelerating to 4.5% in 2015.

A sharp decline in oil prices over the past month has prompted fierce debate about potential policy responses from Gulf governments. Over the weekend, Kuwaiti Finance Minister Anas Al-Saleh Gulf Arab joined those calling for cuts in spending to cover the shortfall in income. Global prices fell to four-year lows earlier this month, putting at risk abundant fiscal surpluses and savings generated in recent years. OPEC members are due to meet on November 27 in Vienna. According to Mohamed Lahouel, Chief Economist at the Department of Economic Development in Dubai, current or lower oil prices for a period of around four months would elicit spark fiscal decisions on the part of regional government as they scramble to safeguard capital gains. Not all industry experts agree that low oil prices are here to stay. Mohamed Al-Mady, CEO of Saudi Basic Industries (SABIC), one of the world’s largest petrochemical companies, told reporters on Sunday in Riyadh the recent declines would prove to be temporary, and that demand growth was firmly underpinned.

Read more …

Make sure to make them pay a sh*tload of money for the extension, see if they still want it.

Shell Seeks 5 More Years for Arctic Oil Drilling Drive (Bloomberg)

Royal Dutch Shell is asking the Obama administration for five more years to explore for oil off Alaska’s coast, saying set backs and legal delays may push the start of drilling past the 2017 expiration of some leases. Shell, which has spent eight years and $6 billion to search for oil in the Arctic’s Beaufort and Chukchi seas, said in letter to the Interior Department that “prudent” exploration before leases expire is now “severely challenged.” “Despite Shell’s best efforts and demonstrated diligence, circumstances beyond Shell’s control have prevented, and are continuing to prevent, Shell from completing even the first exploration well in either area,” Peter Slaiby, vice president of Shell Alaska, wrote to the regional office of the Bureau of Safety and Environmental Enforcement. Shell’s plans to produce oil in the Arctic were set back in late 2012 by mishaps involving a drilling rig and spill containment system, and the company has been sued by environmental groups seeking to block the Arctic exploration.

The Hague-based company halted operations in 2012 to repair equipment and hasn’t resumed its maritime operations off Alaska’s northern coast. The July 10 letter from the company, released yesterday by the environmental group Oceana that got it after a public records request, seeks to pause Shell’s leases for five years. That would, in effect, extend the deadline to drill on its Beaufort and Chukchi leases. Leases issued by the government for the right to drill for oil in the Arctic expire in 10 years unless the holder can show significant progress toward development. Shell has left open the possibility of returning to Arctic drilling as soon as next year. Spokesman Curtis Smith said that timeline remains on the table. “We’re taking a methodical approach to a potential 2015 program,” Smith said in an e-mail. The U.S. has ordered that any drilling in the Arctic end each year before Oct. 1, when ice starts forming.

Read more …

Not in centralized grid systems.

Wind Farms Can ‘Never’ Be Relied Upon To Deliver UK Energy Security (Telegraph)

Wind farms can never be relied upon to keep the lights on in Britain because there are long periods each winter in which they produce barely any power, according to a new report by the Adam Smith Institute. The huge variation in wind farms’ power output means they cannot be counted on to produce energy when needed, and an equivalent amount of generation from traditional fossil fuel plants will be needed as back-up, the study finds. Wind farm proponents often claim that the intermittent technology can be relied upon because the wind is always blowing somewhere in the UK. But the report finds that a 10GW fleet of wind farms across the UK could “guarantee” to provide less than two per cent of its maximum output, because “long gaps in significant wind production occur in all seasons”. Modelling the likely output from the 10GW fleet found that for 20 weeks in a typical year the wind farms would generate less than a fifth (2GW) of their maximum power, and for nine weeks it would be less than a tenth (1GW).

Output would exceed 9GW, or 90% of the potential, for just 17 hours. Britain currently has more than 4,500 onshore wind turbines with a maximum power-generating capacity of 7.5GW, and is expected to easily surpass 10 GW by 2020 as part of Government efforts to tackle climate change. It is widely recognised that variable wind speeds result in actual power output significantly below the maximum level – on average between 25 and 30 per cent, according to Government data. However, the report from the Adam Smith Institute found that such average figures were “extremely misleading about the amount of power wind farms can be relied up to provide”, because their output was actually “extremely volatile”. “Each winter has periods where wind generation is negligible for several days,” the report’s author, Capell Aris, said. Periods of calm in winter would require either significant energy storage to be developed – an option not readily available – or an equivalent amount of conventional fossil fuel plants to be built.

Read more …

No, really, the World Economic Forum pays people generous salaries to look into their crystal ball and tell us what the world will look like in 80 years time.

Equal Footing For Women At Work? Not Till 2095 (CNBC)

Women may not achieve equal footing in the workplace until 2095, according to the World Economic Forum’s (WEF) new ‘Global Gender Gap’ report. The economic participation and opportunity gap between the sexes stands at 60% worldwide, an improvement of only 4 percentage points since WEF measurements began in 2006. The economic sub-index reflects three measurements: the difference between genders in labor force participation rates; wage equality; and the female-to-male ratio across a range of professions. The organization estimates it will take 81 years for the world to close this gap completely.

Two sub-Saharan African nations took top spots on the economic sub index: Burundi and Malawi ranked first and third respectively. Burundi is one of the few countries in the world to adopt a gender quota for its legislature – an attempt to promote the participation of women in politics. “Much of the progress on gender equality over the last ten years has come from more women entering politics and the workforce. In the case of politics, globally, there are now 26% more female parliamentarians and 50% more female ministers than nine years ago,” said Saadia Zahidi, head of the gender parity program at the World Economic Forum and lead author of the report.

Read more …

Recovery.

Lloyds Bank Confirms 9,000 Job Losses And Branch Closures As Profit Rises (BBC)

Lloyds Banking Group has confirmed 9,000 job losses and the closure of 150 branches over the next three years. The group, which operates the Lloyds Bank, Halifax and Bank of Scotland brands, reported pre-tax profits of £1.61bn for the nine months to 30 September. The group is setting aside another £900m to cover possible payouts for the PPI mis-selling scandal. The scandal has cost Lloyds, in total, about £11bn. Fines for the Libor rate-rigging scandal have topped £200m. The government still holds a 25% stake in the bank, but has reduced its holding from about 39% through two separate share sales since September last year.

Earlier this year, Lloyds spun off the TSB bank as a separate business to appease European Union competition authorities. The group also said it would invest £1bn in digital technology as more customers switch to mobile banking. But the banking group has returned to profitability under chief executive Antonio Horta-Osorio. On Monday, shares in Lloyds Banking Group fell 1.8% after the European Banking Authority’s results revealed that the bank only narrowly passed the test.

Read more …

Not what the Founding Fathers had in mind for the land of the free.

IRS Seizes 100s Of Perfectly Legal Bank Accounts, Refuses To Return Money (RT)

The Internal Revenue Service has been seizing bank accounts belonging to small businesses and individuals who regularly made deposits of less than $10,000, but broke no laws. And the government is refusing to return all the money taken. The practice, called civil asset forfeiture, allows IRS agents to seize property they suspect of being tied to a crime, even if no charges are filed, and their agency is allowed to keep a share of whatever is forfeited, the New York Times reported. It’s designed to catch drug traffickers, racketeers and terrorists by tracking cash deposits under $10,000, which is the threshold for when banks are federally required to report activity to the IRS under the Bank Secrecy Act. It is not illegal to deposit less than $10,000 in cash, unless it is specifically done to avoid triggering the federal reporting requirement, known as structuring.

Thus, banks are required to report any suspicious transactions to authorities, including patterns of deposits below that threshold.“Of course, these patterns are also exhibited by small businesses like bodegas and family restaurants whose cash-on-hand is only insured up to $10,000, and whose owners are wary of what would be lost in the case of a robbery or a fire,” the Examiner noted. Carole Hinders, a victim of civil asset forfeiture, owns a cash-only Mexican restaurant in Iowa. Last year, the IRS seized her checking account and the nearly $33,000 in it. She told the Times she did not know of the federal reporting requirement for suspicious transactions, and that she thought she was doing everyone a favor by reducing their paperwork.

“My mom had told me if you keep your deposits under $10,000, the bank avoids paperwork,” she said.“I didn’t actually think it had anything to do with the I.R.S.” And her bank wasn’t allowed to tell her that her habits could be reported to the government. If customers ask about structuring their deposits, banks are allowed to give them a federal pamphlet.“We’re not allowed to tell them anything,” JoLynn Van Steenwyk, the fraud and security manager for Hinders’ bank, told the Times. Last year, banks filed more than 700,000 suspicious activity reports, according to the Times. The median amount seized by the IRS. was $34,000, according to an analysis by the Institute for Justice, while legal costs can easily mount to $20,000 or more, meaning most account owners can’t afford to fight the government for their money.

Read more …

Is it any wonder? This may be the only way to get rid of the IRS.

Bulk Of Americans Abroad Want To Give Up Citizenship (CNBC)

A staggering number of Americans residing abroad are tempted to give up their U.S. passports in the wake of tougher asset-disclosure rules under the Foreign Account Tax Compliance Act (FATCA), according to a new survey. The survey by financial consultancy deVere Group asked expatriate Americans around the world “Would you consider voluntarily relinquishing your U.S. citizenship due to the impact of FATCA?” 73% of respondents answered that they had “actively considered it”, “are thinking about it” or “have explored the options of it.” On the other hand, 16% said they would not consider relinquishing their U.S. citizenship, and 11% did not know. The survey carried out in September 2014 polled almost 420 Americans living in Hong Kong, China, Indonesia, Thailand, Philippines, Japan, India, UK, UAE and South Africa. FATCA, which came into effect on July 1, requires foreign banks, investment funds and insurers to hand over information to the IRS about accounts with more than $50,000 held by Americans.

The controversial tax law is intended to detect tax evasion by U.S. citizens via assets and accounts held offshore. “For long-term retired U.S. expats, of which I am one, who are paying significant U.S. taxes, the value of U.S. citizenship often comes to mind,” a U.S. citizen residing in Bangkok told CNBC. “What do we get in return for our U.S. passport? Only three things in my opinion,” said the 69-year-old, who requested to remain anonymous. “First of all, a passport that is extremely convenient for worldwide travel, second we can vote in U.S state and national elections and third we can pay taxes on both our U.S. and foreign income. That’s it. When you add the new FATCA policies, it obviously adds more thought to the question: Is it worth keeping?” It’s alarming that nearly three quarters of Americans abroad said that they are going to or have thought about giving up their U.S. citizenship, said Nigel Green, founder and chief executive of deVere Group.

Read more …

” … what happens now to the regularly issued treasury bonds and bills? Do they just sit in an accordian file on Jack Lew’s desk next to his Barack Obama bobblehead?”

Tapering, Exiting, or Just Punting? (Jim Kunstler)

Oh, that sound you hear this morning is the distant roar of European equity markets puking after the latest round of phony bank “stress tests” — another exercise in pretend by financial authorities who understand, at least, the bottomless credulity of the news media and the complete mystification of the general public in monetary matters. I rather expect that roar to grow Niagara-like as US markets catch the urge to upchuck violently. Problem is, unlike Ebola victims, they can’t be quarantined. The end of the “taper” is upon us like the night of the hunter, conveniently just a week before the US election. If the Federal Reserve is politicized, the indoctrination must have been conducted by the Three Stooges. America’s central bank never did explain the difference between tapering and exiting their purchases of US treasury paper. I guess that’s because it has other interventionary tricks up its sleeves.

Three-card Monte with reverse repos… ventures into direct stock purchases… the setting up of new Maiden Lane type companies for scarfing up securities with that piquant dead carp aroma. Who knows what’s next? It’s amazing what you can do with money in a desperate polity with a few dozen lawyers. Of course, there is the solemn matter as to what happens now to the regularly issued treasury bonds and bills? Do they just sit in an accordian file on Jack Lew’s desk next to his Barack Obama bobblehead? The Russians don’t want them. The Chinese are already stuck with trillions they would like to unload for more gold. Frightened European one-percenters may want to park some cash in American paper to avoid bail-ins and other confiscations already rehearsed over there — but could that amount to more than a paltry few billion a month at the most?

What do the stock markets do without up to $85 billion a month (peak QE) sloshing around looking for dark pools to settle in? Can US companies keep the markets levitated by buying back their own shares like snakes eating their tails? Isn’t that basically over and done? And exactly how do interest rates stay suppressed when only a few French tax refugees want to buy American debt? I don’t think anybody knows the answer to these questions and the scenarios are too abstruse for the people who get paid for supposedly writing learned commentary in the sclerotic remnants of the press.

Read more …

The chief investogator can’t get his hands on the evidence?!

MH17 Might Have Been Shot Down From Air – Chief Dutch Investigator (RT)

The chief Dutch prosecutor investigating the MH17 downing in eastern Ukraine does not exclude the possibility that the aircraft might have been shot down from air, Der Spiegel reported. Intelligence to support this was presented by Moscow in July. The chief investigator with the Dutch National Prosecutors’ Office Fred Westerbeke said in an interview with the German magazine Der Spiegel published on Monday that his team is open to the theory that another plane shot down the Malaysian airliner. Following the downing of the Malaysian Airlines MH17 flight in July that killed almost 300 people, Russia’s Defense Ministry released military monitoring data, which showed a Kiev military jet tracking the MH17 plane shortly before the crash. No explanation was given by Kiev as to why the military plane was flying so close to a passenger aircraft. Neither Ukraine, nor Western states have officially accepted such a possibility.

Westerbeke said that the Dutch investigators are preparing an official request for Moscow’s assistance since Russia is not part of the international investigation team. Westerbeke added that the investigators will specifically ask for the radar data suggesting that a Kiev military jet was flying near the passenger plane right before the catastrophe. “Going by the intelligence available, it is my opinion that a shooting down by a surface to air missile remains the most likely scenario. But we are not closing our eyes to the possibility that things might have happened differently,” he elaborated. In his interview to the German media, Westerbeke also called on the US to release proof that supports its claims.

“We remain in contact with the United States in order to receive satellite photos,” he said. German’s foreign intelligence agency reportedly also believes that local militia shot down Malaysia Airlines flight MH17, according to Der Spiegel. The media report claimed the Bundesnachrichtendienst (BND) president Gerhard Schindler provided “ample evidence to back up his case, including satellite images and diverse photo evidence,” to the Bundestag in early October. However, the Dutch prosecutor stated that he is “not aware of the specific images in question”. “The problem is that there are many different satellite images. Some can be found on the Internet, whereas others originate from foreign intelligence services.”

Read more …

MH17 Chief Investigator: No Actionable Evidence Yet In Probe (Spiegel)

SPIEGEL: Germany’s foreign intelligence agency, the Bundesnachrichtendienst (BND), believes that pro-Russian separatists shot down the aircraft with surface-to-air missiles. A short time ago, several members of the German parliament were presented with relevant satellite images. Are you familiar with these photos?

Westerbeke: Unfortunately we are not aware of the specific images in question. The problem is that there are many different satellite images. Some can be found on the Internet, whereas others originate from foreign intelligence services.

SPIEGEL: High-resolution images – those from US spy satellites, for example – could play a decisive role in the investigation. Have the Americans provided you with those images?

Westerbeke: We are not certain whether we already have everything or if there are more — information that is possibly even more specific. In any case, what we do have is insufficient for drawing any conclusions. We remain in contact with the United States in order to receive satellite photos.

SPIEGEL: So you’re saying there hasn’t been any watertight evidence so far?

Westerbeke: No. If you read the newspapers, though, they suggest it has always been obvious what happened to the airplane and who is responsible. But if we in fact do want to try the perpetrators in court, then we will need evidence and more than a recorded phone call from the Internet or photos from the crash site. That’s why we are considering several scenarios and not just one.

SPIEGEL: Moscow has been spreading its own version for some time now, namely that the passenger jet was shot down by a Ukrainian fighter jet. Do you believe such a scenario is possible?

Westerbeke: Going by the intelligence available, it is my opinion that a shooting down by a surface to air missile remains the most likely scenario. But we are not closing our eyes to the possibility that things might have happened differently.

Read more …

It gets serious: “20% of men and 12% of women who want to have children cannot”.

Having Babies New Sex Ed Goal as Danes Face Infertility Epidemic (Bloomberg)

Sex education in Denmark is about to shift focus after fertility rates dropped to the lowest in almost three decades. After years of teaching kids how to use contraceptives, Sex and Society, the Nordic country’s biggest provider of sex education materials for schools, has changed its curriculum to encourage having babies under the rubric: “This is how you have children!” Infertility is considered “an epidemic” in Denmark, said Bjarne Christensen, secretary general of the Copenhagen-based organization. “We see more and more couples needing to get assisted fertility treatment. We see a lot of people who don’t succeed in having children.” Denmark’s fertility rate is at its lowest in more than a quarter of a century, with one in 10 children conceived only after treatment. Health professionals are urging the government to do more to address the declining birth rate and prevent it becoming a bigger demographic problem. Declining fertility is affecting demographics across Europe, where the birthrate has hardly grown for two decades.

The trend has profound effects not only on individuals but also on the economy and the outlook for standards of life, with fewer young people supporting older, retired populations. The European Commission says it considers the growing gap between the number of young and old citizens one of the region’s biggest challenges. According to Christensen at Sex and Society, the issue needs to be addressed at the school level if there is to be change. “We hope to raise a discussion in society about how to advise young people,” said Christensen, whose group helps organize an annual Sex Week to focus schools’ attention on the subject. “It’s a problem that fertility in Denmark is reduced.” Sex and Society’s new focus, unveiled on Sunday, includes information for school children explaining what fertility is, when the best times to have children may be, and what the effects of aging are. [..] 20% of men and 12% of women who want to have children cannot, according to Dansk Fertilitetsselskab, a professional organization for health providers and researchers.

Read more …

Stunning. You’d think there are contingency plans, but they seem to make it all up one step at a time.

Medical Journal To Governors: You’re Wrong About Ebola Quarantine (NPR)

The usually staid New England Journal of Medicine is blasting the decision of some states to quarantine returning Ebola health care workers. In an editorial the NEJM describes the quarantines as unfair, unwise and “more destructive than beneficial.” In their words, “We think the governors have it wrong.” The editors say the policy could undermine efforts to contain the international outbreak by discouraging American medical professionals from volunteering in West Africa. “The way we are going to control this epidemic is with source control and that’s going to happen in West Africa, we hope. In order to do that we need people on the ground in West Africa,” says Dr. Jeffrey Drazen, editor-in-chief of the journal. Speaking to Goats and Soda, he says it doesn’t make any sense to “imprison” healthcare workers for three weeks after they’ve been treating Ebola patients. The editorial explains his rationale, arguing that healthcare workers who monitor their own temperatures daily would be able to detect the onset of Ebola before they become contagious and thus before they pose any public health threat to their home communities:

“The sensitive blood polymerase-chain-reaction (PCR) test for Ebola is often negative on the day when fever or other symptoms begin and only becomes reliably positive 2 to 3 days after symptom onset. This point is supported by the fact that of the nurses caring for Thomas Eric Duncan, the man who died from Ebola virus disease in Texas in October, only those who cared for him at the end of his life, when the number of virions he was shedding was likely to be very high, became infected. Notably, Duncan’s family members who were living in the same household for days as he was at the start of his illness did not become infected.”

Read more …