Feb 222018
 
 February 22, 2018  Posted by at 10:55 am Finance Tagged with: , , , , , , , , ,  


Arthur Rothstein Wasatch Mountains. Summit County, Utah 1940

 

Bond Yields Moving From ‘Sweet Spot’ To Riskier Area (CNBC)
Who Will Buy All Those Trillions of US Treasury’s? (Hamilton)
A Major Misconception About The Market Exposed In One Chart (CNBC)
Spiking Mortgage Rates, High Home Prices, New Tax Law, the Housing Market (WS)
Existing US Home Sales In January See Biggest Drop In 3 Years (R.)
Homeownership Is Increasingly For The Wealthy (CNBC)
Dallas Fed President Kaplan Sounds Panic Over Level Of US Debt (ZH)
Trump Gov’t May Make It Easier To Wipe Out Student Debt In Bankruptcy (CNBC)
Top US Treasury Official Slams China’s ‘Non-Market Behavior’ (R.)
Extending Brexit Transition Period Would Cost UK Billions More (Ind.)
Give Antidepressants To A Million More Britons, Doctors Urged (Ind.)
Are Driving Bans Coming for German Cities? (Spiegel)
Three Months On And Still No Action From Government On Plastic Pollution (Ind.)

 

 

It’s the investors and reporters that live in sweet spots.

Bond Yields Moving From ‘Sweet Spot’ To Riskier Area (CNBC)

The 10-year Treasury yield is getting dangerously close to 3%, a level that some say will set off serious alarm bells for some stock investors. While the entire Treasury market is moving, the 10-year is the benchmark, the rate most widely watched by investors and the one tied to a whole range of business and consumer loans, including mortgages. On Wednesday, it rose to a fresh four-year high of 2.957%, and that helped turn a strong stock market rally after the Fed minutes into a bloodbath. The Dow closed down 166 points at 24,797. That puts the focus again on the bond market Thursday and the events that could impact trading. That would include an appearance by New York Fed President William Dudley on Thursday morning and a 7-year bond auction Thursday afternoon.

The 3% level does not necessarily have to stop the stock market’s bull run, but it is a level where the probability for losses in the S&P 500 increases, according to a new report from Bank of America Merrill Lynch. “You’re on the cusp of leaving the sweet spot, but that being said, the rising rates are not necessarily bad for the stock market. Yes, from your finance courses, a higher discount rate means you’re going to see lower valuations, all else being equal. But the ‘all else being equal’ missing ingredient is a high growth rate,” said Marc Pouey, equity and quant strategist at BofAML. Pouey said the “sweet spot” for stocks is a 10-year yield between 2 and 3%, but the fact that not only U.S. growth but global economic growth is strong makes it more likely that stocks will be able to positively navigate a zone where the 10-year is above 3%.

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These buyers don’t exist.

Who Will Buy All Those Trillions of US Treasury’s? (Hamilton)

As of the latest Treasury update showing federal debt as of Wednesday, February 15…federal debt (red line below) jumped by an additional $50 billion from the previous day to $20.76 trillion. This is an increase of $266 billion essentially since the most recent debt ceiling passage. Of course, this isn’t helping the debt to GDP ratio (blue line below) at 105%.

But here’s the problem. In order for the American economy to register growth, as measured by GDP (the annual change in total value of all goods produced and services provided in the US), that growth is now based solely upon the growth in federal debt. Without the federal deficit spending, the economy would be shrinking. The chart below shows the annual change in GDP minus the annual federal deficit incurred. Since 2008, the annual deficit spending has been far greater than the economic activity that deficit spending has produced. The net difference is shown below from 1950 through 2017…plus estimated through 2025 based on 2.5% average annual GDP growth and $1.2 trillion annual deficits. It is not a pretty picture and it isn’t getting better.

Even if we assume an average of 3.5% GDP growth (that the US will not have a recession(s) over a 15 year period) and “only” $1 trillion annual deficits from 2018 through 2025, the US still continues to move backward indefinitely.

The cumulative impact of all those deficits is shown in the chart below. Federal debt (red line) is at $20.8 trillion and the annual interest expense on that debt (blue line) is jumping, now over a half trillion. Also shown in the chart is the likely debt creation through 2025 and interest expense assuming a very modest 4% blended rate on all that debt. So, for America to appear as if it is moving forward, it has to go backward into greater debt?!? If you weren’t troubled so far, here is where the stuff starts to hit the fan.

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These guys can make themselves believe anything.

A Major Misconception About The Market Exposed In One Chart (CNBC)

There’s one chart that could cast doubt on an age-old market adage. As Treasury yields hover around multiyear highs with the 10-year inching toward the 3% mark, Oppenheimer technician Ari Wald says that history shows that rising rates are actually bullish for the market. A more common belief is that a rising rate environment bodes ill for stocks, but Wald says the technicals point to the opposite. “The key point for us is that the direction of interest rates is equally, if not more important, than the level of interest rates,” he said Tuesday on CNBC’s “Trading Nation.” “So in general, we’re of the view that low and rising tends to be bullish for stocks and high and [falling rates] is what’s bearish.”

On a chart of the 10-year yield and the S&P 500 going back to 2000, Wald points out that since then falling interest rates have actually coincided with a drop in the market. “If you look back through history, you’ll see that it was a downturn in interest rates that coincided with market tops in 2000 and 2007, as well as what we’ve been calling the top in risk in that 2014 to 2015 period,” he said. “So we see rising rates as growth coming back into the market.” As a result, Wald believes that if investors are looking to put money to work, cyclical sectors like financials look to be a good bet right now. He cautions against bond proxies like utilities, telecom and real estate investment trusts as he believes they are going to “get hammered” in the current environment.

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US housing approaches a bottleneck.

Spiking Mortgage Rates, High Home Prices, New Tax Law, the Housing Market (WS)

The average interest rate for 30-year fixed-rate mortgages with a 20% down-payment and with conforming loan balances ($453,100 or less) that qualify for backing by Fannie Mae and Freddie Mac rose to 4.64%, the highest since January 2014, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, released this morning. This chart shows the recent spike in mortgage rates, as reported by the MBA. There are two spikes actually: The spike off near-historic lows in the summer of 2016 (the absolute low was in late 2012) when the Fed stopped flip-flopping about rate hikes; and the spike when the subsequent rate hikes started belatedly driving up the 10-year Treasury yield late last year. It’s the 10-year yield that impacts mortgage rates. Note that, except for the brief mini-peak in 2013, the average mortgage rate would be the highest since April 2011:

The average interest rate for 30-year fixed-rate mortgages backed by the FHA with 20% down rose to 4.58%, the highest since April 2011, according to the MBA. And the average interest rate for 15-year fixed-rate mortgages with 20% down rose to 4.02%, also the highest since April 2011. This may be far from over: “What worries investors is that if inflation increases faster than expected, the Fed may be obliged to ‘slam on the brakes’ to keep the economy from overheating by raising interest rates faster than expected,” the MBA mused separately. Home prices have skyrocketed in many markets since those years of higher mortgage rates, such as 2011 and before. The S&P CoreLogic Case-Shiller National Home Price Index has surged 40% since April 2011:

That’s the national index, which papers over the big differences in individual markets, with prices lagging behind in some markets and soaring in others. For example, in the five-county San Francisco Bay Area, according to the CaseShiller Index, home prices have surged 80% since April 2011:

So with home prices surging for years and with mortgage rates now spiking, what gives? Today the National Association of Realtors reported that sales of existing homes fell 4.8% year-over-year in January – the “largest annual decline since August 2014,” it said – even as the median price rose 5.8% year-over-year to $240,000. I’m not sure if the new tax law, which removes some or all of the tax benefits of homeownership, has had an impact yet since it just went into effect. But the lean inventories and falling sales combined with rising prices tell a story of potential sellers not wanting to sell, and this could be exacerbated by the new tax law.

And they have a number of financial and tax reasons for not wanting to sell, including: • They’d lose some or all of the tax benefits that they still enjoy with their existing mortgages that have been grandfathered into the new law. • Given the higher mortgage rates that they would have to deal with on a new mortgage (which might exceed their existing rate by a good margin after repeated refinancing on the way down), and given the high prices of homes on the market, they might not be able to afford to move to an equivalent home, and thus cannot afford to sell.

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Now try and square this with that recovery story.

Existing US Home Sales In January See Biggest Drop In 3 Years (R.)

U.S. home sales unexpectedly fell in January, leading to the biggest year-on-year decline in more than three years, as a chronic shortage of houses lifted prices and kept first-time buyers out of the market. The supply squeeze and rising mortgage interest rates are stoking fears of a lackluster spring selling season. The second straight monthly drop in home sales reported by National Association of Realtors on Wednesday added to weak retail sales and industrial production in January in suggesting slower economic growth in the first quarter. “There may be some headwinds ahead for home resales with rising mortgage costs affecting how much the buyer can afford and this could put a damper on existing home sales and take some of the wind out of the economy’s sails,” said Chris Rupkey, chief economist at MUFG in New York.

Existing home sales dropped 3.2% to a seasonally adjusted annual rate of 5.38 million units last month, with purchases declining in all four regions. Economists polled by Reuters had forecast home sales rising 0.9% to a rate of 5.60 million units in January. Existing home sales, which account for about 90% of U.S. home sales, declined 4.8% on a year-on-year basis in January. That was the biggest year-on-year drop since August 2014. The weakness in home sales is largely a function of supply constraints rather than a lack of demand, which is being driven by a robust labor market. The shortage of properties is concentrated at the lower end of the market. While the number of previously-owned homes on the market rose 4.1% to 1.52 million units in January, housing inventory was down 9.5% from a year ago.

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Everything is.

Homeownership Is Increasingly For The Wealthy (CNBC)

The sharp drop in January home sales was not due to a shortage of homes for sale. It was due to a shortage of affordable homes for sale. While real estate economists continue to blame the pitiful 3.4-month supply of total listings (a six-month supply is considered a balanced market), a better indicator is a chart on the second-to-last page of the National Association of Realtors’ monthly sales report. It breaks down sales by price point. Sales of homes priced below $100,000 fell 13% in January year over year. Sales of homes priced between $100,000 and $250,000 dropped just more than 2%. The share of first-time buyers also declined to 29%, compared with 33% a year ago.

“Affordable inventory has been more depleted than expected and the upcoming spring homebuying season will likely be filled with bidding wars and multiple offers,” said Joe Kirchner, senior economist at Realtor.com. The biggest sales gains were in homes priced between $500,000 and $750,000, up nearly 12% annually. Apparently there are more of those homes for sale. That’s a problem, because higher price points are not where the bulk of buyers exist and especially not where most first-time buyers exist. If you look at sales distribution, about 55% of buyers are in the below $250,000 category. Just 13% are above $750,000. Unfortunately, the entry-level price point is not where most new-home builders exist either today, given the significantly higher costs of construction.

The median home price of a newly built home is around $335,000, according to the U.S. Census. The lower-price tier is, however, where investors exist. During the recession, when the supply of homes for sale was about four times what it is today, investors bought millions of properties, saving the housing market overall by putting a floor on tumbling home prices. Realtors say now is the time for those same investors to sell.

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“..when US debt doubled in the past decade the Fed had no problems, and in fact enabled it. And now, it’s time to panic…”

Dallas Fed President Kaplan Sounds Panic Over Level Of US Debt (ZH)

Nearly a decade after the US unleashed its biggest debt-issuance binge in history, doubling the US debt from $10 trillion to $20 trillion under president Obama, which was only made possible thanks to the Fed’s monetization of $4 trillion in deficits (and debt issuance), the Fed is starting to get nervous about the (un)sustainability of the US debt. The Federal Reserve should continue to raise U.S. interest rates this year in response to faster economic growth fueled by recent tax cuts as well as a stronger global economy, Dallas Federal Reserve Bank President Robert Kaplan said on Wednesday. “I believe the Federal Reserve should be gradually and patiently raising the federal funds rate during 2018,” Kaplan said in an essay updating his views on the economic and policy outlook.

“History suggests that if the Fed waits too long to remove accommodation at this stage in the economic cycle, excesses and imbalances begin to build, and the Fed ultimately has to play catch-up.” The Fed is widely expected to raise rates three times this year, starting next month. Kaplan, who does not vote on Fed policy this year but does participate in its regular rate-setting meetings, did not specify his preferred number of rate hikes for this year. But he warned Wednesday that falling behind the curve on rate hikes could make a recession more likely. [..] The most ironic warning, however, came when Kaplan predicted the US fiscal future beyond 2 years: he said that while the corporate tax cuts and other reforms may boost productivity and lift economic potential, most of the stimulative effects will fade in 2019 and 2020, leaving behind an economy with a higher debt burden than before.

“This projected increase in government debt to GDP comes at a point in the economic cycle when it would be preferable to be moderating the rate of debt growth at the government level,” Kaplan said. A higher debt burden will make it less likely the federal government will be able to deliver fiscal stimulus to offset any future economic downturn, he said, and unwinding it could slow economic growth. “While addressing this issue involves difficult political considerations and policy choices, the U.S. may need to more actively consider policy actions that would moderate the path of projected U.S. government debt growth,” he said. So to summarize: when US debt doubled in the past decade the Fed had no problems, and in fact enabled it. And now, it’s time to panic…

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Something’s in the air.

Trump Gov’t May Make It Easier To Wipe Out Student Debt In Bankruptcy (CNBC)

Student loan borrowers may finally have their day in court. The Education Department said Tuesday it would review when borrowers can discharge student loans, an indication it could become easier to expunge those loans in bankruptcy. The department said it is seeking public comment on how to evaluate undue hardship claims asserted by student loan borrowers to determine whether there is any need to modify how those claims in bankruptcy are evaluated. As of now, “it’s almost impossible to discharge student loans in bankruptcy,” said Mark Kantrowitz, a student loan expert. “The problem was undue hardship was never defined and the case law has never led to a standardized definition.”

Meanwhile, college-loan balances in the United States have jumped to an all-time high of $1.4 trillion, according to Experian. The average outstanding balance is $34,144, up 62% over the last 10 years. Roughly 4.6 million borrowers were in default as of Sept. 30, 2017, also up significantly from previous years. The national student loan default rate is now over 11%, according to Department of Education data. Student loans are considered in default if you fail to make a monthly payment for 270 days. Your loan becomes delinquent the first day after you miss a payment. “I’m encouraged that they are asking the question,” Kantrowitz said of the Department of Education’s request for comment, although “this doesn’t necessarily mean there will be any policy changes.” And even still, bankruptcy should only be considered as a very last resort, he added.

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“..what they’re doing is perpetuating a system that worked for their benefit but ended up costing jobs in most of the rest of the world..”

Top US Treasury Official Slams China’s ‘Non-Market Behavior’ (R.)

The U.S. Treasury’s top diplomat ramped up his criticisms of China’s economic policies on Wednesday, accusing Beijing of “patently non-market behavior” and saying that the United States needed stronger responses to counter it. David Malpass, Treasury’s undersecretary for international affairs, said at a forum in Washington that China should no longer be “congratulated” by the world for its progress and policies. “They went to Davos a year ago and said ‘We’re into trade,’ when in reality what they’re doing is perpetuating a system that worked for their benefit but ended up costing jobs in most of the rest of the world,” Malpass said, at the event hosted by the Jack Kemp Foundation.

He said market-oriented, democratic governments were awakening to the challenges posed by China’s economic system, including from its state-owned banks and export credit agencies. He reiterated his view that China had stopped liberalizing its economy and was actually reversing these trends. “One of the challenges for the world is that as China has grown and not moved toward market orientation, that means that the misallocation of capital actually increases,” Malpass said. “They’re choosing investments in non-market ways. That is suppressing world growth,” he added. China said that its state-owned enterprises operate on free-market principles and is battling within the WTO’s dispute settlement system to be recognized as a “market economy” — a designation that would weaken U.S. and EU trade defenses.

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Tightening the noose…

Extending Brexit Transition Period Would Cost UK Billions More (Ind.)

Britain’s Brexit divorce bill will soar by billions of pounds if it tries to extend the transition period beyond the date suggested by Brussels, EU officials have told The Independent. Sources near the EU’s negotiating team said the UK would inevitably have to pay more – with the bill agreed by Theresa May already as high as £39bn – if it wants more time to prepare for its final break from the bloc. It came after a British Government document opened the way for a transition that could go on longer than the EU’s proposed end-date of 31 December 2020, though Downing Street was adamant the period will still be around “two years”. The prospect of a higher divorce bill, charged at millions of pounds a day, is likely to anger Tory Brexiteers as Ms May’s Cabinet gathers at Chequers today to try and hammer out a joint negotiating position for a trade deal with the EU.

Many hardline Eurosceptics are already uncomfortable with the idea of following EU rules with no say in making them – which some MPs have compared to making the UK a “vassal state”. One EU official close to talks told The Independent the financial settlement would “of course” have to be renegotiated if the transition extended into the next budget period, while another added: “Britain will have to pay for any transition beyond 2020, probably annual payments with no rebate.” In a statement published yesterday the Government said that the “period’s duration should be determined simply by how long it will take to prepare and implement the new processes and new systems that will underpin the future partnership” and that while “the UK agrees this points to a period of around two years” it “wishes to discuss with the EU the assessment that supports its proposed end date”.

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Wonder who paid for the study.

Give Antidepressants To A Million More Britons, Doctors Urged (Ind.)

More people should be offered drugs when suffering from mental health problems, according to a new study which calls into question recent concerns about over prescription. Research from Oxford University, which was published in The Lancet, found that more than one million extra people would benefit from being prescribed drugs and criticised “ideological” reasons doctors use to avoid doing so. Data from 522 trials, involving 116,000 patients, found that every one of the 21 antidepressants used were better than a placebo. In general, newer antidepressants tended to be better tolerated due to fewer side effects, while the most effective drug in terms of reducing depressive symptoms was amitriptyline – a drug first discovered in the 1950s.

“Antidepressants are routinely used worldwide yet there remains considerable debate about their effectiveness and tolerability,” said John Ioannidis of Stanford University, who worked with a team of researchers led by Andrea Cipriani. Mr Cipriani said the findings offered “the best available evidence to inform and guide doctors and patients” and should reassure people with depression that drugs can help. “Antidepressants can be an effective tool to treat major depression, but this does not necessarily mean antidepressants should always be the first line of treatment,” he told a briefing in London. The study looks at average effects and therefore should not be interpreted as showing how drugs work for every patient.

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It’s clear where Der Spiegel stands: “Preparing for Chaos”, “Normal city life would be rendered impossible.”

Ironically, the bans may get support from the car industry, since many people and firms would need to buy new vehicles.

Are Driving Bans Coming for German Cities? (Spiegel)

Emissions standards passed by the European Union in 2010 are regularly exceeded, essentially robbing residents of clean air to breathe. They have not, however, stayed quiet. Three years ago, 30 local residents launched a crusade against the city, demanding that traffic-calming measures be implemented and, ultimately, suing the city for inaction. In response, all they got were assurances that the city was looking into it or excuses that they didn’t have enough staff to deal with the problem. “Nothing has happened,” Lill says. That could change on Thursday. The Federal Administrative Court in Leipzig is set to consider whether vague plans to maintain clean air go far enough or whether problematic cities like Hamburg must ensure clean air as rapidly as possible, even if that means implementing driving bans. And there is plenty to indicate that the judges will prioritize health, just as lower courts in Düsseldorf and Stuttgart have done.

The landmark decision could very well send out shock waves affecting more than 60 municipalities in which, like Hamburg, limits on poisonous nitrogen oxide emissions are consistently exceeded. Germany’s major carmakers would also be put on notice, as would the German Chancellery and the ministries responsible. All have ignored the problem for years and are hardly prepared should the court prove stubborn. Things threaten to get even worse after that: Just a few weeks after the Leipzig ruling, the European Commission is also set to decide whether to initiate legal proceedings against Germany at the European Court of Justice for its failure to do anything about high levels of harmful emissions in its cities. Should Brussels decide to do so, it would clearly expose Berlin’s cozy relationship with the automobile industry at the expense of public health. “That would be a real disgrace for the German government,” says a state secretary in Berlin.

[..] The German government is now facing the consequences of its inactivity — or at least it will if the court rejects the appeals from Stuttgart and Düsseldorf against driving bans. Depending on the grace period the court decides on, the cities could be forced to close down their streets within three to six months. A verdict of that nature would destroy billions in value because drivers would suddenly be unable to drive into the city for work or to go shopping. Cars that already have to be marked down significantly in many places could then only be sold in foreign countries. Millions of cars would be affected by the ban and there is a possibility that even delivery vehicles and trucks belonging to craftsmen would not be permitted. Normal city life would be rendered impossible.

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Did anyone actually believe they’d do something?

Three Months On And Still No Action From Government On Plastic Pollution (Ind.)

MPs have attacked a three-month delay since the Chancellor pledged to tackle the huge environmental damage from plastic pollution – protesting that no action has followed. In his November Budget, Philip Hammond vowed to investigate new charges to make the UK a “world leader in tackling the scourge of plastic littering our planet and our oceans”. “We cannot keep our promise to the next generation to build an economy fit for the future unless we ensure our planet has a future,” he told the Commons. But, three months later, the Treasury has failed to start a consultation on what action to take, or even explain which Government department will run it. The protest comes from the Commons Environmental Audit Committee, which has – in the meantime – recommended a 25p charge is levied on all drinks sold in disposable cups, which are lined with polyethylene.

Mary Creagh, the committee’s chairwoman, said: “Pollution from single use plastic packaging is choking our oceans and devastating marine wildlife. “Three months ago, ministers promised to look at using the tax system reduce the use of throwaway plastics, but still have not published a call for evidence. “The Government has talked the talk on plastics pollution, but it has been too slow to walk the walk.” In a stinging letter, sent to Mr Hammond and Michael Gove, the Environment Secretary, the committee demands to know when ministers will set out action to curb the “700,000 plastic bottles that are littered every day”. “These are just one example of single-use plastics that can end up in our seas and oceans, killing wildlife and breaking down into harmful microplastics,” Ms Creagh added.

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Jan 152018
 
 January 15, 2018  Posted by at 10:48 am Finance Tagged with: , , , , , , , , , , , ,  


Elliott Erwitt Jack Kerouac 1953

 

Nearly 40% May Default On Their Student Loans By 2023 (Brookings)
3 Years After Currency Shock, Swiss Central Bank Can’t Get Back To Normal (R.)
China Vows to Toughen Rules on $38 Trillion Banking Industry
Bitcoin Not Even In Top 10 Of Crypto World’s Best Performers (AFP)
UK’s Carillion Files for Liquidation After Failing to Get Bailout (BBG)
London Housing Woe Endures as Prices Drop to 2 1/2-Year Low (BBG)
Let’s Wrench Power Back From The Billionaires (Bernie Sanders)
Trust in News Media Takes a Hit During Trump Presidency (AP)
Outgoing EWG Chief Says Greece May Get Debt Relief With Conditions Attached (K.)
Berlin Worried EU Reform Will Boost Immigration Influx (DS)
A New Refugee Flow To Europe: Turkish Refugees (AM)
Why We’re Losing the War on Plastic (BBG)

 

 

The reality of -personal- debt.

Nearly 40% May Default On Their Student Loans By 2023 (Brookings)

The best prior estimates of overall default rates come from Looney and Yannelis (2015), who examine defaults up to five years after entering repayment, and Miller (2017), who uses the new BPS-04 data to examine default rates within 12 years of college entry. These two sources provide similar estimates: about 28 to 29% of all borrowers ultimately default. But even 12 years may not be long enough to get a complete picture of defaults. The new data also allow loan outcomes to be tracked for a full 20 years after initial college entry, though only for the 1996 entry cohort. Still, examining patterns of default over a longer period for the 1996 cohort can help us estimate what to expect in the coming years for the more recent cohort.

If we assume that the cumulative defaults grow at the same rate (in percentage terms) for the 2004 cohort as for the earlier cohort, we can project how defaults are likely to increase beyond year 12 for the 2004 cohort. To compute these projections, I first use the 1996 cohort to calculate the cumulative default rates in years 13-20 as a percentage of year 12 cumulative default rates. I then take this percentage for years 13-20 and apply it to the 12-year rate observed for the 2004 cohort. So, for example, since the 20-year rate was 41% higher than the 12-year rate for the 1996 cohort, I project the Year 20 cumulative default rate for the 2004 cohort is projected to be 41% higher than its 12-year rate.

Figure 1 plots the resulting cumulative rates of default relative to initial entry for borrowers in both cohorts, with the data points after year 12 for the 2003-04 cohort representing projections. Defaults increase by about 40% for the 1995-96 cohort between years 12 and 20 (rising from 18 to 26% of all borrowers). Even by year 20, the curve does not appear to have leveled off; it seems likely that if we could track outcomes even longer, the default rate would continue to rise. For the more recent cohort, default rates had already reached 27% of all borrowers by year 12. But based on the patterns observed for the earlier cohort, a simple projection indicates that about 38% of all borrowers from the 2003-04 cohort will have experienced a default by 2023.

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The reality of central banking.

3 Years After Currency Shock, Swiss Central Bank Can’t Get Back To Normal (R.)

Three years after the Swiss National Bank shocked currency markets by scrapping the franc’s peg to the euro, it faces the toughest task of any major central bank in normalising ultra-loose monetary policy. If it raises rates, the Swiss franc strengthens. If it sells off its massive balance sheet, the Swiss franc strengthens. If a global crisis hits, the Swiss franc strengthens. And the abrupt decision to scrap the currency peg on Jan. 15, 2015, means it still has credibility issues with financial markets. “The SNB will most probably be one of the last central banks to change course, and it will take years or even decades for monetary policy to return to ‘normal’,” said Daniel Rempfler, head of fixed income Switzerland at Swiss Life Asset Managers.

The Bank of Japan illustrated the problem of reducing expansive policy when a small cut to its regular bond purchases sent the yen and bond yields higher. The scrapping of the cap – which sought to keep the franc at 1.20 to the euro to protect exporters and ward off deflationary pressure – sent it soaring. On the day of the announcement it went to 0.86 francs buying a euro before easing in later days. Although it weakened last year, SNB Chairman Thomas Jordan said in December it was too early to talk about normalising policy. The SNB has to wait for the European Central Bank to start raising interest rates before it can start hiking its own policy rate from minus 0.75%.

If the SNB acted first, the spread between Swiss and European market rates would narrow, making Swiss investments more attractive and boosting the franc. The ECB has already scaled back its asset purchasing programme, which is expected to end this year, but more action may be someway off. Meanwhile, any attempt by the SNB to cut its balance sheet – which has ballooned to 837 billion francs ($861 billion) – will be hard because 94% of its investments are in foreign currencies, held via bonds and shares in companies such as Apple and Starbucks.

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The reality of Chinese borrowing.

China Vows to Toughen Rules on $38 Trillion Banking Industry

China’s banking regulator pledged to continue its crackdown on malpractice in the $38 trillion industry in 2018, vowing to tackle everything from poor corporate governance and violation of lending policies to cross-holdings of risky financial products. The China Banking Regulatory Commission unveiled its regulatory priorities for the year in a statement on Saturday. They include: • Inspecting the funding source of banks’ shareholders and ensuring they have obtained their stakes in a regular manner • Examining banks’ compliance with rules restricting loans to real estate developers, local governments, industries burdened by overcapacity, and some home buyers • Looking into banks’ interbank activities and wealth management businesses.

The statement comes after China’s financial regulators started 2018 with a flurry of rules to plug loopholes uncovered in last year’s deleveraging campaign, showcasing their determination to limit broader risks to the financial system. Still, analysts have warned that the moves will make it more difficult for companies to obtain financing from loans, equities and bonds and could undermine economic growth. The “CBRC’s regulatory storm continues” with the weekend announcement covering almost all aspects of banks’ daily operations, Bocom International analysts Jaclyn Wang and Hannah Han wrote in a note. “We believe challenges for smaller banks in the current regulatory environment remain high,” they wrote, noting that curbs on off-balance-sheet lending and interbank activities may drag on profitability.

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There’s no such thing as the reality of crypto.

Bitcoin Not Even In Top 10 Of Crypto World’s Best Performers (AFP)

Bitcoin may be the most famous cryptocurrency but, despite a dizzying rise, it’s not the most lucrative one and far from alone in a universe that counts 1,400 rivals, and counting. Dozens of crypto units see the light of day every week, as baffled financial experts look on, and while none can match Bitcoin’s €200 billion ($242 bilion) market capitalisation, several have left the media darling’s profitability in the dust. In fact, bitcoin is not even in the top 10 of the crypto world’s best performers. Top of the heap is Ripple which posted a jaw-dropping 36,000% rise in 2017 and early this year broke through the €100 billion capitalisation mark, matching the value of blue-chip companies such as, say, global cosmetics giant L’Oreal.

“Its value shot up when a newspaper said that around 100 financial institutions were going to adopt their system,” said Alexandre Stachtchenko, co-founder of specialist consulting group Blockchain Partners. Using Ripple’s technology framework, however, is not the same as adopting the currency itself, and so the Ripple’s rise should be considered as “purely speculative”, according to Alexandre David, founder of sector specialist Eureka Certification. Others point out that Ripple’s market penetration is paper-thin as only 15 people hold between 60 and 80% of existing Ripples, among them co-founder Chris Larsen. But it still got him a moment of fame when, according to Forbes magazine, Larsen briefly stole Facebook founder Mark Zuckerberg’s spot as the fifth-wealthiest person in the US at the start of the year.

Ether is another rising star, based on the Ethereum protocol created in 2009 by a 19-year old programmer and seen by some specialists as a promising approach. Around 40 virtual currencies have now gone past the billion-euro mark in terms of capitalisation, up from seven just six months ago. The Cardano cryptocurrency’s combined value even hit €15 billion only three months after its creation. In efforts to stand out from the crowd, virtual currency founders often concentrate on the security of their systems, such as Cardano, which has made a major selling point of its system’s safety features.

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After having been given numerous gov’t contracts just to stay alive. Biy, that country is sick.

UK’s Carillion Files for Liquidation After Failing to Get Bailout (BBG)

Carillion, a U.K. government contractor involved in everything from hospitals to the HS2 high-speed rail project, has filed for compulsory liquidation after a last-ditch effort to shore up finances and get a government bailout failed. The company, which employs 43,000 people worldwide – 20,000 of them in the U.K. – had held talks with the government Sunday to ask for the 300 million pounds ($412 million) it needed by the end of the month to stay afloat, the Mail on Sunday reported. On Monday morning, the board of Carillion said in a statement it had “concluded that it had no choice but to take steps to enter into compulsory liquidation with immediate effect,” adding that it has obtained court approval for the move.

The challenge for liquidators and the government is now to ensure that the company’s break-up is orderly, with contracts and staff moved to rivals. For Prime Minister Theresa May, the collapse comes as opposition Labour Party leader Jeremy Corbyn questions the longstanding British policy of getting private sector contractors to deliver public sector projects. “This is very worrying for a lot of groups,” Labour’s business spokeswoman Rebecca Long-Bailey told the BBC. “We expect the government to step up now and take these contracts back into government control. Where it’s possible to take those back in-house it should do.” She also questioned why the company had been awarded further government contracts despite issuing profit warnings.

[..] Carillion’s struggles posed a conundrum for May over the political cost of using public money to assist a private company, or allowing it to fail, putting public services and infrastructure projects nationwide in danger. The company has contracts with many wings of government, including building roads, managing housing for the armed services, and running facilities for schools and hospitals.

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Timber!

London Housing Woe Endures as Prices Drop to 2 1/2-Year Low (BBG)

The new year brought little cheer for London’s housing market with asking prices dropping to the lowest since August 2015. New sellers cut prices 1.4% in January to an average of 600,926 pounds ($821,500), according to a report by Rightmove on Monday. In a further concerning sign for the market, the average number of days required to sell a house jumped to the longest since January 2012, reaching 78 from 71 a month earlier. The report suggests 2018 won’t be any brighter for the capital’s housing market, which was the worst performing in the U.K. in 2017. Asking prices are down 3.5% from a year ago, according to the report, with the slowdown due to factors including an inflation squeeze, Brexit uncertainty and tax changes affecting landlords and owners of second homes.

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Now find the language that the people respond to.

Let’s Wrench Power Back From The Billionaires (Bernie Sanders)

[..] all over the world corrupt elites, oligarchs and anachronistic monarchies spend billions on the most absurd extravagances. The Sultan of Brunei owns some 500 Rolls-Royces and lives in one of the world’s largest palaces, a building with 1,788 rooms once valued at $350m. In the Middle East, which boasts five of the world’s 10 richest monarchs, young royals jet-set around the globe while the region suffers from the highest youth unemployment rate in the world, and at least 29 million children are living in poverty without access to decent housing, safe water or nutritious food. Moreover, while hundreds of millions of people live in abysmal conditions, the arms merchants of the world grow increasingly rich as governments spend trillions of dollars on weapons.

In the United States, Jeff Bezos – founder of Amazon, and currently the world’s wealthiest person – has a net worth of more than $100bn. He owns at least four mansions, together worth many tens of millions of dollars. As if that weren’t enough, he is spending $42m on the construction of a clock inside a mountain in Texas that will supposedly run for 10,000 years. But, in Amazon warehouses across the country, his employees often work long, gruelling hours and earn wages so low they rely on Medicaid, food stamps and public housing paid for by US taxpayers. Not only that, but at a time of massive wealth and income inequality, people all over the world are losing their faith in democracy – government by the people, for the people and of the people.

They increasingly recognise that the global economy has been rigged to reward those at the top at the expense of everyone else, and they are angry. Millions of people are working longer hours for lower wages than they did 40 years ago, in both the United States and many other countries. They look on, feeling helpless in the face of a powerful few who buy elections, and a political and economic elite that grows wealthier, even as their own children’s future grows dimmer. In the midst of all of this economic disparity, the world is witnessing an alarming rise in authoritarianism and rightwing extremism – which feeds off, exploits and amplifies the resentments of those left behind, and fans the flames of ethnic and racial hatred.

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Typical? Sign of the times? Laurie Kellman and Jonathan Drew for AP prove their own point by pretending to write about Americans from all stripes losing faith in news media, but then turn it into a one-sided Trump hit piece anyway.

Trust in News Media Takes a Hit During Trump Presidency (AP)

When truck driver Chris Gromek wants to know what’s really going on in Washington, he scans the internet and satellite radio. He no longer flips TV channels because networks such as Fox News and MSNBC deliver conflicting accounts tainted by politics, he says. “Where is the truth?” asks the 47-year-old North Carolina resident. Answering that question accurately is a cornerstone of any functioning democracy, according to none other than Thomas Jefferson. But a year into Donald Trump’s fact-bending, media-bashing presidency, Americans are increasingly confused about who can be trusted to tell them reliably what their government and their commander in chief are doing. Interviews across the polarized country as well as polling from Trump’s first year suggest people seek out various outlets of information, including Trump’s Twitter account, and trust none in particular.

Many say that practice is a new, Trump-era phenomenon in their lives as the president and the media he denigrates as “fake news” fight to be seen as the more credible source. “It has made me take every story with a large grain, a block of salt,” said Lori Viars, a Christian conservative activist in Lebanon, Ohio, who gets her news from Fox and CNN. “Not just from liberal sources. I’ve seen conservative ‘fake news.'” Democrat Kathy Tibbits of Tahlequah, Oklahoma, reads lots of news sources as she tries to assess the accuracy of what Trump is reported to have said. “I kind of think the whole frontier has changed,” said the 60-year-old lawyer and artist. “My degree is in political science, and they never gave us a class on such fiasco politics.”

Though Trump’s habit of warping facts has had an impact, it’s not just him. Widely shared falsehoods have snagged the attention of world leaders such as Pope Francis and former President Barack Obama. Last year, false conspiracy theories led a North Carolina man to bring a gun into a pizza parlor in the nation’s capital, convinced that the restaurant was concealing a child prostitution ring. Just last week, after the publication of an unflattering book about Trump’s presidency, a tweet claiming that he is addicted to a TV show about gorillas went viral and prompted its apparent author to clarify that it was a joke. Trump has done his part to blur the lines between real and not. During the campaign, he made a practice of singling out for ridicule reporters covering his raucous rallies.

As president, he regularly complains about his news coverage and has attacked news outlets and journalists as “failing” and “fake news.” He’s repeatedly called reporters “the enemy of the people” and recently renewed calls to make it easier to sue for defamation. About 2 in 3 American adults say fabricated news stories cause a great deal of confusion about the basic facts of current affairs, according to a Pew Research Center report last month. The survey found that Republicans and Democrats are about equally likely to say that “fake news” leaves Americans deeply confused about current events. Despite the concern, more than 8 in 10 feel very or somewhat confident that they can recognize news that is fabricated, the survey found.

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Greece will be monitored till 2060. I’m going to bet that’s not going to happen.

Outgoing EWG Chief Says Greece May Get Debt Relief With Conditions Attached (K.)

Greece could receive debt relief but with terms attached when its bailout program is concluded in August, according to the outgoing chief of the Eurogroup Working Group (EWG), Thomas Wieser. In an interview in Sunday’s Greek edition of Kathimerini, Wieser said that despite there being no discussion about post-bailout arrangements, he expects that debt relief would be granted conditionally. “If there should be further debt relief after the end of the program then it’s only logical there will be some kind of additional agreements.” His comments imply there will be no clean exit from the bailout program as envisioned in the government’s narrative. Greece’s post-bailout status was raised at last week’s EWG meeting in Brussels where, according to sources, the taboo issue of Greece debt relief was raised.

It was noted in the meeting that if there is to be debt relief, then questions regarding Greece’s post-bailout framework have to be addressed. According to EU regulations, bailout countries including Ireland, Spain, Portugal, Cyprus – as well as Greece in the near future – will be monitored until 75% of their loans have been repaid. This means in Greece’s case that it will be monitored until 2060. Wieser added that one of Greece’s biggest problems, which remains unresolved despite eight years of fiscal adjustment programs, is that it doesn’t lure foreign investments like other countries. “I still have the feeling that foreign direct investment is not welcomed in Greece as it is in many other countries,” Wieser said.

While adding that he has the feeling that many domestic rules and regulations over the last eight years have indeed changed, he bemoaned the fact that investments have not picked up. “I think it’s only very recently that international and national investors trust that Greece is finally approaching the time where it can stand on its own feet again financially and that it is not a huge risk to invest in its economy,” he said, adding that one of the main reasons that investors have been reluctant to do business in Greece is its justice system.

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Unlimited?

Berlin Worried EU Reform Will Boost Immigration Influx (DS)

The European Parliament is planning to amend the Dublin Regulation, which requires asylum seekers to register in the first European Union member state they set foot on. That state would also be responsible for processing these requests. The proposed amendment, however, could possible shift that responsibility to wherever any asylum seeker claims to have family in the EU. Under such a change, “Germany would have to accommodate significantly more asylum seekers,” said an Interior Ministry memo, quoted by Der Spiegel. Furthermore, any and all caps on refugees and immigrant intakes would be nullified. This would effectively render Germany’s decision to cap immigrations influxes at around 180,000 to 220,000 as agreed upon by the working groups aiming to form a new German government.

Germany has been struggling to form a new government since the Sept. 24th elections; however, Chancellor Angela Merkel’s Christian Democrats (CDU), their sister party the CSU and Social Democrat Party leader Martin Schultz have agreed to go into official coalition talks, now made harder by the proposed EU bill. The proposed reform of the Dublin Agreement was put forth last November and now has to be approved by the European Council, which is composed of every single member states’ government leaders. Despite Germany’s worries, given the circumstances, the proposal is not expected to have much support. Between the nations of Eastern Europe, who never wanted any immigration at all, and the ever-more skeptical western nations, as well as the ones in Southern Europe, such as Greece, Italy and Spain that became the frontlines of the crisis, the proposed reform is not guaranteed to pass.

While the exact number of people that have entered Europe since 2015 is unknown, it is estimated that it is about 2 to 3 million, with the United Nations Human Rights Commission reporting that tens of millions more are on the move, mainly from sub-Saharan Africa. While Germany was probably Europe’s biggest supporter of asylum seekers and chain-migration, it now worries that it in particular will be negatively affected by what it sees as immigration on “an entirely different scale.” The German Interior Ministry noted that it was particularly worried by a section of the proposal that stated: “The mere assertion of a family connection was enough.” “As a result, a member state hosting many so-called ‘anchor persons’ will take over responsibility for far-reaching family associations.”

“If every one of the more than 1.4 million people who have applied for asylum in Germany since 2015 becomes an anchor for newcomers arriving in the EU, then we’re dealing with [numbers] on an entirely different scale compared to family reunifications,” said Ole Schröder, a parliamentary state secretary in Germany’s Interior Ministry.

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It only gets messier.

A New Refugee Flow To Europe: Turkish Refugees (AM)

This past November, three bodies were found washed ashore the Greek island of Lesbos. They were later identified as a Turkish husband and wife, Huseyin and Nur Maden, and one of their three children. The Madens were teachers in Turkey, but they were among the 150,000 civil servants dismissed from their jobs after the failed coup in July 2016. Some of those dismissed tried to flee to Greece to avoid arrest or find work. More than 12,000 Turks applied for asylum in Europe for the first time in 2017, according to Eurostat. This figure is triple what it was the year preceding the failed coup and is the highest it has been in the past decade. Since July 2016, Turkish authorities have arrested over 50,000 people, including journalists and intellectuals.

Around 150,000 Turks have both had their passports revoked and lost their jobs as police officers, soldiers, teachers and public servants. For some, the solution was to leave Turkey and find work in another country, where they could have a better life and avoid prosecution. With their passports revoked by the Turkish government, Turks prefer to go to Greece as opposed to other European countries since they can arrange transport by boat via smugglers. The journey from the Turkish coast to certain Greek islands can be short, distance-wise. “Turkish refugees [in Athens] are the most educated and intellectual segment of Turkish society,” said Murat, who fled Turkey for Greece after July 2016. “We can learn a new language or adapt to the culture in Europe really fast.”

Murat has been a member of the Gulen movement since 1994. He worked alongside his wife as a teacher in the Gulen schools in southeastern Turkey, but they were both dismissed from their jobs after the 2016 coup attempt, which the government claims was planned by the Gulen movement. Their children’s school was shut down after the coup attempt, and they were denied registration at a new school in their hometown due to their parent’s affiliation with the Gulen movement. “We tried to start over, but we were already marginalized in the community as ‘putschists,’” said Murat. “Our children were not accepted to schools, and finally, when 50 police arrived at our parent’s village to detain my wife, by chance we were not there. I sold my car within a week and with that money, we came to Greece.”

The Gulenists are not the only ones who have had to leave Turkey following the coup attempt. There are others, like Merve, 21, and her uncle Hasan. Merve was only 19 when she was arrested after the coup attempt and put in jail for a year. “I was studying philosophy in Tunceli and was part of a left-wing student organization at my university,” she said. “Now there are only two possibilities left for us Kurds in Turkey. If you don’t want to be jailed, you should either join the PKK [Kurdistan Workers Party] fighters or flee into exile.”

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Nope, there is no war on plastic. So we can’t be losing it either.

Why We’re Losing the War on Plastic (BBG)

T.V. naturalist Sir David Attenborough made his viewers weep last month with an exposé on how plastics are polluting the oceans, harming marine animals and fish. Last week, British prime minister Theresa May announced a slew of new measures to discourage plastics use, including plastic-free supermarket aisles and an expanded levy on plastic bags. A ban on microbeads in cosmetics came into force this year. Not to be outdone, the EU is mulling plastics taxes to cut pollution and packaging waste. Is this industry the new tobacco?It’s no wonder politicians feel compelled to act. About 60% of all the plastics produced either went to landfill or have been dumped in the natural environment. At current rates there will be more plastic than fish in the ocean by 2050 by weight, much of it in the form of small particles, ingestible by wildlife and very difficult to remove.

Public awareness has increased in recent years, yet that hasn’t led to falling consumption. More than half of the total plastics production has occurred since the turn of the millennium. Producers such as DowDuPont, Exxon Mobil, LyondellBasell and Ineos, as well as packaging manufacturers like Amcor, Berry Global and RPC have been happy to meet that demand. They don’t plan on it ending suddenly. Plastic packaging is an almost $290 billion-a-year business and sales are forecast to expand by almost 4 percent a year until 2022, according to research firm Smithers Pira. Demand for polyethylene, the most used plastic, is set to rise at a similar rate, meaning total consumption will rise to 118 million metric tons in 2022, according to IHS Markit. In the U.S., the shale gas boom has encouraged the construction of new ethylene plants. Oil companies are counting too on rising plastics consumption to offset the spread of electric vehicles, as my colleague Julian Lee has explained.

The reasons for the bullishness are obvious. Growing populations, rising living standards and the march of e-commerce mean more demand. In developed countries, per capita polyethylene use is as much as 40 kg per person, whereas in poorer countries like India the figure is just one tenth of that, according to IHS Markit. Plastics are displacing materials like glass and paper because they tend to be cheap, lightweight and sturdy. That plastics don’t easily decompose is an asset – it prevents food going bad – as well as a liability for the natural environment. Cutting consumption will be difficult. While bioplastics are an alternative, they make up only about 1 percent of global plastics demand. Quality and cost issues have prevented wider adoption. “A lot of these materials aren’t really competitive in a world of low to mid oil prices,” says Sebastian Bray, analyst at Berenberg.

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


Hieronymus Bosch Ascent of the Blessed c1510

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fears Mount Over a New US Subprime Boom – Cars

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

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

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

 

 

 

 

Jul 182017
 
 July 18, 2017  Posted by at 9:01 am Finance Tagged with: , , , , , , ,  


Piet Mondriaan The Flowering Apple Tree 1912

 

US Senate Will Vote To Repeal Obamacare Without Replacement (G.)
There Has Been Just One Buyer Of Stocks Since The Financial Crisis (ZH)
People Buy Payments – Not Houses (Roberts)
Student Debt Is a Major Reason Millennials Aren’t Buying Homes (BBG)
US Student Loans Worth Billions Are Getting Erased On A Technicality (ZH)
UK Students Should Not Try To Pay Off Loans Early (G.)
Fears Mount Over a New US Subprime Boom – Cars (BBG)
When A “Black Swan” Will No Longer Do: China Warns Beware The “Gray Rhino” (ZH)
Half of China’s Rich Plan To Move Overseas (CNBC)
Household Debt: A Tale of Three Countries (Hail)
Boomerangski (Jim Kunstler)
Staving Off the Coming Global Overshoot Collapse (Rees)

 

 

If they would stick their heads together, they could hammer out a single payer plan for less than what this competition in incompetence costs. But they won’t.

US Senate Will Vote To Repeal Obamacare Without Replacement (G.)

Senate majority leader Mitch McConnell has announced that the Senate will vote on a clean repeal of Obamacare without any replacement, after two Republican senators broke ranks to torpedo the current Senate healthcare bill. Senators Mike Lee of Utah and Jerry Moran of Kansas came out on Monday night in opposition to McConnell’s Better Care Reconciliation Act (BCRA), the Senate version of the controversial healthcare reform bill that passed the House in May. Senate Republicans hold a bare 52-48 majority in the Senate and two members of the GOP caucus, the moderate Susan Collins of Maine and the libertarian Rand Paul of Kentucky, already opposed the bill, along with all 48 Democrats. The announcement from Moran and Lee made it impossible for Republicans to muster the 50 votes needed to bring the BCRA bill to the floor.

Instead, McConnell announced late on Monday night that the Senate would vote on a bill to simply repeal Obamacare without any replacement in the coming days. The Kentucky Republican said in a statement: “Regretfully, it is now apparent that the effort to repeal and immediately replace the failure of Obamacare will not be successful.” He added that “in the coming days” the Senate would vote on repealing the Affordable Care Act with a two-year-delay. The Senate passed a similar bill in 2015, which was promptly vetoed by Barack Obama. McConnell’s plan echoes a statement made by Donald Trump in a tweet on Monday night, in which the president urged a repeal of Obamacare with any replacement to come in the future. “Republicans should just REPEAL failing ObamaCare now & work on a new Healthcare Plan that will start from a clean slate. Dems will join in!” Trump wrote.

In January, an analysis by the nonpartisan Congressional Budget Office (CBO) estimated that repealing Obamacare without a replacement would result in 32 million people losing insurance by 2026, including 19 million who would lose Medicaid coverage. It would also cause premiums to rise by as much as 50% in the year following the elimination of key planks of the healthcare law, including the repeal of Medicaid expansion and cost-sharing subsidies. Premiums would nearly double over a decade.

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This is your entire economy. Companies refusing to invest in themselves. Why do anything useful if you can simply borrow your share price higher?

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

When discussing Blackrock’s latest quarterly earnings (in which the company missed on both the top and bottom line, reporting Adj. EPS of $5.24, below the $5.40 exp), CEO Larry Fink made an interesting observation: “While significant cash remains on the sidelines, investors have begun to put more of their assets to work. The strength and breadth of BlackRock’s platform generated a record $94 billion of long-term net inflows in the quarter, positive across all client and product types, and investment styles. The organic growth that BlackRock is experiencing is a direct result of the investments we’ve made over time to build our platform.”

While the intention behind the statement was obvious: to pitch Blackrock’s juggernaut ETF product platform which continues to steamroll over the active management community, leading to billions in fund flow from active to passive management every week, if not day, he made an interesting point: cash remains on the sidelines even with the S&P at record highs. In fact, according to a chart from Credit Suisse, Fink may be more correct than he even knows. As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.” What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

Why this rush by companies to buyback their own stock, and in the process artificially boost their Eearning per Share? There is one very simple reason: as Reuters explained some time ago, “Stock buybacks enrich the bosses even when business sags.” And since bond investor are rushing over themselves to fund these buyback plans with “yielding” paper at a time when central banks have eliminated risk, who is to fault them. More concerning than the unprecedented coordinated buybacks, however, is not only the relentless selling by institutions, but the persistent unwillingness by “households” to put any new money into the market which suggests that the financial crisis has left an entire generation of investors scarred with “crash” PTSD, and no matter what the market does, they will simply not put any further capital at risk.

As to Fink’s conclusion that “investors have begun to put more of their assets to work”, we will wait until such time as central banks, who have pumped nearly $2 trillion into capital markets in 2017 alone, finally stop doing so before passing judgment.

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Real estate across the globe is on the edge of a cliff. Entire economies will follow it down.

People Buy Payments – Not Houses (Roberts)

When the average American family sits down to discuss buying a home they do not discuss buying a $125,000 house. What they do discuss is what type of house they “need” such as a three bedroom house with two baths, a two car garage, and a yard. That is the dream part. The reality of it smacks them in the face, however, when they start reconciling their monthly budget. Here is a statement I have not heard discussed by the media. People do not buy houses – they buy a payment. The payment is ultimately what drives how much house they buy. Why is this important? Because it is all about interest rates. Over the last 30-years, a big driver of home prices has been the unabated decline of interest rates. When declining interest rates were combined with lax lending standards – home prices soared off the chart. No money down, ultra low interest rates and easy qualification gave individuals the ability to buy much more home for their money.

[..] With this in mind let’s review how home buyers are affected. If we assume a stagnant purchase price of $125,000, as interest rates rise from 4% to 8% by 2027 (no particular reason for the date – in 2034 the effect is the same), the cost of the monthly payment for that same priced house rises from $600 a month to more than $900 a month – more than a 50% increase. However, this is not just a solitary effect. ALL home prices are affected at the margin by those willing and able to buy and those that have “For Sale” signs in their front yard. Therefore, if the average American family living on $55,000 a year sees their monthly mortgage payment rise by 50% it is a VERY big issue.

Assume an average American family of four (Ward, June, Wally and The Beaver) are looking for the traditional home with the white picket fence. Since they are the average American family their median family income is approximately $55,000. After taxes, expenses, etc. they realize they can afford roughly a $600 monthly mortgage payment. They contact their realtor and begin shopping for their slice of the “American Dream.” At a 4% interest rate, they can afford to purchase a $125,000 home. However, as rates rise that purchasing power quickly diminishes. At 5% they are looking for $111,000 home. As rates rise to 6% it is a $100,000 property and at 7%, just back to 2006 levels mind you, their $600 monthly payment will only purchase a $90,000 shack. See what I mean about interest rates?

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Home prices will have to come down enormously to cover this issue. And therefore they will. The losses will be crippling.

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

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

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

There’s a good chance the number of millennials kept from buying homes because of their student loans has only grown since the period the economists studied. As tuition has risen, total student debt has increased 13%, and every new class graduates with more student debt than the preceding one. The consequences could reverberate for decades as more young Americans are locked out of purchasing property, the primary way that U.S. households build wealth. With less wealth, millennials could cut their spending as they attempt to build up their net worth. The U.S. economy has historically depended on household spending for roughly 70% of its growth.

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Who gets stuck with the empty bag here? The piper must be paid.

US Student Loans Worth Billions Are Getting Erased On A Technicality (ZH)

National Collegiate Funding (NCF) is an umbrella name for 15 trusts that collectively hold 800,000 private student loans, totaling some $12 billion in outstanding obligations. The only problem is that roughly $5 billion worth of those loans, or over 40%, are currently in default (and you thought auto delinquencies were bad). Now, ordinarily when a student defaults on their loan, NCF simply files a lawsuit in local or state court as a means for negotiating a settlement or payment plan with the borrower. Often times, NCF wins these cases automatically as the borrowers don’t even bother to show up for their court date. In cases like that, NCF can use their court victory to garnish wages and/or federal benefits from entitlement programs like Social Security which can haunt borrowers for decades.

That said, NCF is increasingly finding that, much like the subprime mortgage debacle from 10 years ago, student lending institutions apparently had a really hard time keeping tracking of paperwork over the years and/or processed deeply flawed contracts with incomplete ownership records and mass-produced documentation (who can forget that whole robo-signing catastrophe). As the New York Times points out today, student loans, much like mortgages, are often originated at large commercial banks before being sold to numerous other financial institutions and ultimately ending up in a securitization owned by some unsuspecting European pension funds. And while pooling these student loans in such a complicated way into securitizations apparently magically eradicates all default risk associated with the underlying loans (just ask any 22 year old on the JPM securitization desk and he/she will confirm the same), it also makes it extremely difficult to prove ownership.

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Shouldn’t try to pay them off at all. But a millstone around your neck for 30 years is no fun.

UK Students Should Not Try To Pay Off Loans Early (G.)

Students should not try to pay off their loans early despite the controversial interest rate rise to 6.1% in September, according to research by money expert Martin Lewis. Lewis says his moneysavingexpert.com website has been “swamped” by graduates terrified by new statements that show their debt spiralling in size after interest is added. He believes most graduates will never repay their debt. Lewis said: “Many graduates are starting to panic. First they look in shock at their student loan statements after noticing interest totalling thousands has been added. Then they read the headline interest rate for the 2017-18 academic year will increase from 4.6% to 6.1%. It’s no surprise I’ve been swamped with people asking if they should be trying to overpay the loans to reduce the interest.”

But after crunching the numbers, Lewis estimates that “overpaying is just throwing money away” unless the graduate is likely to be in very high-paid employment all their lives. Only if the student lands a job earning £40,000 a year on graduation, and then enjoys big pay rises after, should they consider repaying their loan early, said Lewis. A graduate earning £36,000 a year will repay £40,500 of a £55,000 total student loan over 30 years, said Lewis, at the current repayment rates. The remaining debt will be wiped clean after 30 years. If the same graduate cuts the total £55,000 balance to £45,000 with an overpayment of £10,000, they will still have to repay the same amount of student loan over 30 years, making the overpayment entirely pointless.

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A Spanish bank doing US subprime liar car loans. What a world.

Fears Mount Over a New US Subprime Boom – Cars (BBG)

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo. Few things capture this phenomenon like the partnership between Fiat Chrysler and Banco Santander.

Since 2013, as U.S. car sales soared, the two have built one of the industry’s most powerful subprime machines. Details of that relationship, pieced together from court documents, regulatory filings and interviews with industry insiders, lay bare some of the excesses of today’s subprime auto boom. Wall Street has rewarded lax lending standards that let people get loans without anyone verifying incomes or job histories. For instance, Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s. The largest portion were for Chrysler vehicles.

Some of their dealers, meantime, gamed the loan application process so low-income borrowers could drive off in new cars, state prosecutors said in court documents. Through it all, Wall Street’s appetite for high-yield investments has kept the loans – and the bonds – coming. Santander says it has cut ties with hundreds of dealerships that were pushing unsound loans, some of which defaulted as soon as the first payment. At the same time, Santander plans to increase control over its U.S. subprime auto unit, Santander Consumer USA Holdings, people familiar with the matter said.

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Xi is toying with his credibility.

When A “Black Swan” Will No Longer Do: China Warns Beware The “Gray Rhino” (ZH)

Perhaps the biggest outcome from the weekend Conference was the creation of a financial “super-regultor” meant to tackle the growing threat of a financial crisis, and among its broad conclusions were i) To make finance better serve the real economy; ii) To contain financial risks; and iii) To deepen financial reforms. The proposed reforms are the result of the unprecedented increase in overall Chinese debt, which while promoting growth – in this case China’s latest 6.9% GDP print – is also leading to a relentless buildup of risks. And while until now Chinese regulators had homed in on financial-sector excesses, the latest probe – Bloomberg notes – is now widening to debt in the broader economy, “a shift that prompted a sell-off in domestic stocks.”

There was another reason for the market’s swoon. Earlier on Monday China People’s Daily newspaper warned of potential “gray rhinos” which it defined as “highly probable, high-impact threats that people should see coming, but often don’t.” So in a surprising case of forward-looking prudence, the Chinese government is doing what numerous Fed members have also done in recent weeks, by setting a surprisingly wary tone about risk, demonstrated best by the front page commentary in the People’s Daily, which said China should not only be alert to “black swan” risks that catch people off guard but also more obvious threats, citing cited a term popularized by author Michele Wucker’s book “The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore.”

Noting that with the economy still on a slowing-growth trend, the People’s Daily commentary said that China should “strictly prevent risks from liquidity, credit, shadow banking and abnormal capital market fluctuations, as well as insurance market and property bubbles.” And, as Bloomberg adds, the new focus on “deleveraging in the economy” suggests that local-government and state-owned enterprise debt is now very much in the spotlight. In other words, this time Beijing’s crackdown on excess debt may actually be real. Of course, by now it is widely understood that China’s strong (credit-driven) momentum has fueled global economic expansion and boosted sentiment in international markets, and served as the springboard for the global economic rebound in the depths of the financial crisis (when China’s debt load was roughly half the current one).

[..] In a separate commentary by China Daily, the official English-language newspaper added that fending off risks is one of the country’s top priorities, with corporate debt running high, the property market being overheated and excess capacity in some sectors lingering, adding that “only through guarding against financial risks can a sound and stable financial sector better fulfill its duty and purpose of serving the real economy.” While it is admirable that China continues to push for deleveraging, it faces an uphill battle, not least of all because as the IIF recently calculated, China’s debt is not only the biggest contributor to global debt growth, currently at a record $217 trillion, but as of 2017 is at just over 300% debt/GDP. Meanwhile, the marginal benefit of all this debt continues to shrink, with the Chinese economy growing at levels just shy of all time lows.

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Cash in your monopoly money before they find out what it’s worth.

Half of China’s Rich Plan To Move Overseas (CNBC)

Half of Chinese millionaires are considering moving overseas, and the U.S. remains their favorite destination, according to a new survey. Among Chinese millionaires with a net worth of more than $1.5 million, half either plan to or are considering moving abroad, according to a survey from Hurun Report in association with Visas Consulting Group. The survey suggests that the flow of wealthy Chinese and Chinese fortunes into U.S. homes and buildings is likely to continue, helping demand and prices in certain real estate markets — especially in the U.S. The U.S. remains the most popular destination for wealthy Chinese moving their families and fortunes abroad, according to the report. Canada ranks second, overtaking the U.K., which had ranked second but now ranks third. Australia comes in at fourth.

The favorite city for wealthy Chinese moving to the U.S. is Los Angeles, while Seattle ranks second followed by San Francisco. New York ranked fourth. When asked for their main reasons for moving abroad, education was the top reason, followed by the “living environment.” “Education and pollution are driving China’s rich to emigrate,” said Rupert Hoogewerf, chairman and chief researcher of Hurun Report. “If China can solve these issues, then the primary incentive to emigrate will have been taken away.” Yet the fear of a falling Chinese currency is also driving many rich Chinese — and their money — abroad. Fully 84% of Chinese millionaires are concerned about the devaluation of the yuan, up from 50% last year. Half are worried about the exchange rate of the dollar, foreign exchange controls and property bubbles in China.

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Australia almost makes America look good. But let’s not make it look like Japan has no problems.

Household Debt: A Tale of Three Countries (Hail)

In the year 2000, Japan, the USA and Australia all had about the same ratio of household debt to GDP – in each country, this figure was about 70%. In Japan, the ratio fell gradually from 70% to the low 60%, and has remained at about 62% for a while. In the US, household debt surged as financial fragility grew, with the ratio peaking at 98% in the first quarter of 2008. Households deleveraged post GFC, and the ratio fell back to about 80%. Till way too high for another surge in private debt to be allowed to persist, but at least well below its level at the peak of the bubble. What about Australia? Like Japan and the US, our household debt to GDP stood at about 70% at the millennium – well above the levels of previous years. It then grew and grew, mainly due to increasing mortgage debt, standing at 108% in mid-2008.

Well above the level in the US when the crash happened there. As we know, Australia missed the worst of the GFC, and propped up its housing market, and household debt just kept growing. By the end of last year it was above 123%, placing Australia very near the top of the global league table. Bound to lead to a crash? Many would say so – Steve Keen and Philip Soos amongst them, and who am I to disagree? Unwise? On that we should all agree. And done at the urging of successive governments which have failed to run appropriate fiscal policies; with the approval, for most of this period, of the RBA; and with the acquiescence of what until quite recently was a very relaxed APRA. Who has the debt problem? Not Japan. Since around 2013, The Bank of Japan began buying up government debt, to become a monopoly supplier of bank reserves, denominated in Yen.

In September 2016 it took the decision to buy unlimited amounts of Japanese government bonds at a fixed-yield, meaning it could control yields across bond maturities from a two-to-40-year output and sets them at whatever level they choose. It also implemented $80 trillion worth of quantitative and qualitative easing while introducing a negative interest rate of minus 0.1% to current accounts held by financial institutions at the bank, driving the bond yield rate down. Bond market dealers queued up to get their hands on as much Japanese government debt as they could, with the promise it would mature within 40 years. To quote Economist Bill Mitchell: “The bond markets do not have the power to set yields unless the government allows them that flexibility. The government rules, not the markets.” Moreover, Japan’s government doesn’t need to issue debt in primary markets in order to spend. Because monetary sovereign government debt is not the problem. Household debt is the problem.

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“..any contact between Russians and Americans is ipso facto nefarious vectors into the very beating heart of the “Resistance” itself..”

Boomerangski (Jim Kunstler)

[..] this blog might be described as anti-Trump, too, in the sense that I did not vote for him and regularly inveigh against his antics as President — but neither is Clusterfuck Nation a friend of the Hillary-haunted Dem-Prog “Resistance,” in case there’s any confusion about where we stand. If anything, we oppose the entirety of the current political regime in our nation’s capital, the matrix of rackets that is driving the aforementioned Limousine-of-State off the cliff of economic collapse. Just sayin’. “Resistance” law professors, such as Lawrence Tribe at Harvard, were quick to holler “treason” over Junior’s meet-up with Russian lawyer Natalia Veselnitskaya and Russian-American lobbyist Rinat Akhmetshin. Well, first of all, and not to put too fine a point on it, don’t you have to be at war with another nation to regard any kind of consort as “treason?”

Last time I checked, we were not at war with Russia — though it sure seems like persons and parties inside the Beltway would dearly like to make that happen. You can’t call it espionage either, of course, because that would purport the giving of secret information, not the receiving of political gossip. Remember, the “Resistance” is not going for impeachment, but rather Section 4 of the 25th Amendment. That legal nicety makes for a very neat-and-clean surgical removal of a whack-job president, without all the cumbrous evidentiary baggage and pain-in-ass due process required by impeachment. All it requires is a consensus among a very small number of high officials, who then send a note to the leaders in both houses of congress stating that said whack-job president is a menace to the polity — and out he goes, snippety-snip like a colorectal polyp, into the hazardous waste bag of history.

And you’re left with a nice clean asshole, namely Vice President Mike Pence. Insofar as Pence appears to be a kind of booby-prize for the “Resistance,” that fateful reach for the 25th Amendment hasn’t happened quite yet. It is hoped, I’m sure, that the incessant piling on of new allegations about “collusion” with the Russians will get the 25thers over the finish line and into the longed-for end zone dance. More interestingly, though, the meme that has led people to believe that any contact between Russians and Americans is ipso facto nefarious vectors into the very beating heart of the “Resistance” itself: the Clintons.

How come the Clintons have not been asked to explain why — as reported on The Hill blog — Bill Clinton was paid half a million dollars to give speech in Russia (surely he offered them something of value in exchange, pending the sure thing Hillary inaugural), or what about the $2.35 million “contribution” that the Clinton Foundation received after Secretary of State Hillary allowed the Russians to buy a controlling stake in the Uranium One company, which owns 20% of US uranium supplies, with mines and refineries in Wyoming, Utah, and other states, as well as assets in Kazakhstan, the world’s largest uranium producer? Incidentally, the Clinton Foundation did not “shut down,” as erroneously reported early this year. It was only its Global Initiative program that got shuttered. The $2.35 million is probably still rattling around in the Clinton Foundation’s bank account. Don’t you kind of wonder what they did with it? I hope Special Prosecutor Robert Mueller wants to know.

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“..techno-industrial society consumed more energy and resources during the most recent doubling (the past 35 years or so) than in all previous history..”

Staving Off the Coming Global Overshoot Collapse (Rees)

Humans have a virtually unlimited capacity for self-delusion, even when self-preservation is at stake. The scariest example is the simplistic, growth-oriented, market-based economic thinking that is all but running the world today. Prevailing neoliberal economic models make no useful reference to the dynamics of the ecosystems or social systems with which the economy interacts in the real world. What truly intelligent species would attempt to fly spaceship Earth, with all its mind-boggling complexity, using the conceptual equivalent of a 1955 Volkswagen Beetle driver’s manual? Consider economists’ (and therefore society’s) near-universal obsession with continuous economic growth on a finite planet.

A recent ringing example is Kaushik Basu’s glowing prediction that “in 50 years, the world economy is likely (though not guaranteed) to be thriving, with global GDP growing by as much as 20% per year, and income and consumption doubling every four years or so.” Basu is the former chief economist of the World Bank, senior fellow at the Brookings Institution and professor of economics at Cornell University, so he is no flake in the economics department. But this does not prevent a display of alarming ignorance of both the power of exponential growth and the state of the ecosphere. Income and consumption doubling every four years? After just 20 years and five doublings, the economy would be larger by a factor of 32; in 50 years it will have multiplied more than 5000-fold! Basu must inhabit some infinite parallel universe.

In fairness, he does recognize that if the number of cars, airplane journeys and the like double every four years with overall consumption, “we will quickly exceed the planet’s limits.” But here’s the thing — it’s 50 years before Basu’s prediction even takes hold and we’ve already shot past several important planetary boundaries. Little wonder. Propelled by neoliberal economic thinking and fossil fuels, techno-industrial society consumed more energy and resources during the most recent doubling (the past 35 years or so) than in all previous history. Humanity is now in dangerous ecological overshoot, using even renewable and replenishable resources faster than ecosystems can regenerate and filling waste sinks beyond capacity. (Even climate change is a waste management problem — carbon dioxide is the single greatest waste by weight in all industrial economies.)

Meanwhile, wild nature is in desperate retreat. One example: from less than one% at the dawn of agriculture, humans and their domestic animals had ballooned to comprise 97% of the total weight of terrestrial mammals by the year 2000. That number is closer to 98.5% today, with wild mammals barely clinging to the margins. The “competitive displacement” of other species is an inevitable byproduct of continuous growth on a finite planet. The expansion of humans and their artefacts necessarily means the contraction of everything else. [..] Ignoring overshoot is dangerously stupid — we are financing growth, in part, by irreversibly liquidating natural resources essential to our own long-term survival.

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Mar 312015
 
 March 31, 2015  Posted by at 9:57 am Finance Tagged with: , , , , , , , , , , ,  


Dorothea Lange Butter bean vines across the porch, Negro quarter, Memphis, Tennessee 1938

The US Economy Is Showing Cracks (CNN)
Greek Construction Sector Crumbles By 80% In Just Five Years (Kathimerini)
Bernanke: I Didn’t Throw Seniors Under The Bus (MarketWatch)
The Fed’s Startling Numbers on Student Debt (Simon Black)
The Fed’s ‘Repression’ Has Cost Savers $470 Billion (MarketWatch)
Low US Consumer Spending Points To Slow First Quarter (MarketWatch)
Jumping On Junk: Investors Crazy For High Yield (CNBC)
19 Economists Call On The ECB To Make ‘QE For The People’ (BasicIncome.org)
Foreign Investors Are Cashing Out of China (Bloomberg)
Bank Of England Stress Tests To Include Feared Global Crash (Guardian)
Germany Says Greece Must Flesh Out Reforms To Unlock Aid (Reuters)
Yanis Varoufakis Calls For End To ‘Toxic Blame Game’ (BBC)
Greek Plans To Unlock Aid ‘Lack Technocratic Input’ (Bloomberg)
Tsipras Presses Allies for Support as Greek Cash Crunch Deepens (Bloomberg)
Repeal, Don’t Reform the IMF! (Ron Paul)
Americans See Putin As Only Slightly More Imminent Threat Than Obama (Reuters)
Fracking’s New Legal Threat: Earthquake Suits (WSJ)
Iran Deal Unlikely Before March 31 as Russia Leaves Talks (Bloomberg)
Sierra Leone Ebola Lockdown Exposes Hundreds Of Suspected Cases (Reuters)

Many. But we knew that. CNN, though? Really?: “The consumer really hasn’t kicked in at full speed ahead..”

The US Economy Is Showing Cracks (CNN)

The U.S. job market had its best year of gains last year since 1999, and economic activity hit a whopping 5% in the third quarter – the best quarter since 2003. Three months later, the U.S. economy is looking a little tired. It’s losing momentum in puzzling ways. Hiring is still strong, but experts are starting to scale back their growth forecasts. Federal Reserve chair Janet Yellen summed it up well in a speech Friday: “If underlying conditions had truly returned to normal, the economy should be booming.” Economists say there are two main problems: Workers’ wages aren’t growing much, if at all. As a result, Americans aren’t going out and spending much. On top of that, many foreign economies are slowing down, which puts pressure on the U.S. The question going forward is whether we’re just in a blip or a bigger shift is taking place.

“The consumer really hasn’t kicked in at full speed ahead,” says Peter Cardillo, chief market economist at Rockwell Global Capital. “We’re going through a soft patch.” With March’s jobs report out on Friday, this economic head-scratcher will be in full focus this week. The U.S. added over half a millions jobs in the first two months of this year alone. That’s a 50% increase from the same two-month stretch a year ago when the Polar Vortex had much of America in a funk. Job gains have come across the board: health care, construction, the service sector and retail businesses have all seen strong pick up. The unemployment rate is down to 5.5%, its lowest mark in seven years. It would be a full-steam story on jobs except for one thing: wage growth. Hourly wages only grew 2% in February. That’s a marginal bump up, but it’s too little for most Americans to notice the recovery’s progress. It’s also well below the Federal Reserve’s roughly 3.5% goal. [..]

People don’t go out and spend unless they feel confident about the future. There was hope that cheap gas would spur people to feel better about the economy and their pocketbooks. A gallon of gas was $3.53 a year ago. Now it’s $2.42, according to AAA. But a lot of people are still holding onto that savings. Retail sales and construction on new homes both fell in February, missing estimates. The latest numbers on manufacturing are also weaker than hoped for. All this could just be a winter slowdown, but it’s raising red flags. “Most of it was due to the inclement weather we had…I think that kept a lot of shoppers at home,” says Bernard Baumohl at the Economic Outlook Group.

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That’s one big number.

Greek Construction Crumbles By 80% In Just Five Years (Kathimerini)

Construction in Greece has suffered one of the biggest declines to have been recorded by any professional sector within just a few years, as business activity in the domain has dropped as much as 80% since 2008, a study by the Foundation for Economic and Industrial Research (IOBE) showed on Monday. It added that more than a third of the economic contraction recorded from 2008 to 2013 in Greece is associated with the drop in investment in construction. Employment in the sector more than halved within five years, from 589,000 people in 2008 to 287,000 in 2013, the study revealed.

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The stupidest thing in a long while: “There is “absolutely nothing artificial” about setting the Fed rate at the equilibrium rate.”

Bernanke: I Didn’t Throw Seniors Under The Bus (MarketWatch)

Former Fed Chairman Ben Bernanke unveiled a new blog on Monday and used his first post to defend his record from criticism that he kept rates artificially low and hurt savers. Bernanke said he was worried that his post was “very textbook-y” and with some reason. His blog is built around the concept of an “equilibrium real interest rate” which is the ideal level of rates minus inflation that would allow the economy to use all of its labor and capital resources. Fed Chair Janet Yellen discussed this concept in her policy speech last week. Underneath all the wonkiness in the post is a real passion to convince people that Bernanke was not “throwing seniors under the bus” as at least one of his legislative critics alleged.

During and after the financial crisis, Bernanke said, the equilibrium rate was low and even negative. If the U.S. central bank had pushed rates up to help savers, it would have likely led to an economic slowdown, Bernanke said. The best policy for the Fed is to set rates at the equilibrium rate, he added. So critics who argue that the he kept interest rates “artificially low” are also confused, Bernanke said. There is “absolutely nothing artificial” about setting the Fed rate at the equilibrium rate, he said.

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“Only 37% of total students loan balances are currently in repayment and not delinquent.”

The Fed’s Startling Numbers on Student Debt (Simon Black)

What I’m about to tell you is not my own opinion or even analysis. It’s original data that comes from the United States Federal Reserve and national credit bureaus.
• 40 million Americans are now in debt because of their university education, and on average borrowers have four loans with a total balance of $29,000.
• According to the Fed, “Student loans have the highest delinquency rate of any form of household credit, having surpassed credit cards in 2012.”
• Since 2010, student debt has been the second largest category of personal debt, just after a home mortgage.
• The delinquency rate for student loans is now hovering near an all-time high since they started collecting data 12 years ago.
• Only 37% of total students loan balances are currently in repayment and not delinquent.

The rest—nearly 2 out of 3—are either behind on payments, in all-out default, or have entered some sort of deferral program to delay making payments, with a small percentage still in school. It’s pretty obvious that this is a giant, unsustainable bubble (more on this below). But even more important are the personal implications. University graduates now matriculate with tens of thousands of dollars worth of debt. Debt is another form of servitude. Like medieval serfs, debt keeps people tied to jobs they dislike in places they don’t want to be working for bosses they hate doing things that make them feel unfulfilled. Debt makes it very difficult to walk away and start fresh. In fact, ‘starting fresh’ is almost legally impossible when it comes to student debt. Even in US bankruptcy court, student debt cannot be discharged in almost all cases.

It is an albatross that hangs over you for a decade or more if you do make the payments, and it follows you around for the rest of your life if you do not. (I’m not suggesting anyone default on what they owed—simply pointing out that nearly every other form of debt can be discharged EXCEPT for student debt.) This kind of debt has a huge impact on people’s lives. Again, according to the Federal Reserve, “[G]rowing student debt has contributed to the recent decline in the homeownership rate and to the sharp increase in parental co-residence among millennials.” So the Fed’s own analysis shows that student debt is a cause for people in their 20s and 30s to live at home with their parents. Amazing.

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How to destroy an economy in five easy lessons.

The Fed’s ‘Repression’ Has Cost Savers $470 Billion (MarketWatch)

Artificially low interest rates have cost U.S. savers $470 billion, according to a report released Thursday. The report, from reinsurer Swiss Re, argues against current high levels of so-called financial repression. Swiss Re came up with the $470 billion number by looking at rates from 2008 to 2013. The insurer argues that if the Fed had followed a policy based on the Taylor Rule — a mechanistic way of determining interest rates that some congressional Republicans advocate — the Fed funds target would have been 1.7%age points higher on average. That in turn would have boosted interest income by an average of $14,000 for the wealthiest 1%, and $160 for the bottom 90%. The report concedes that there are obvious beneficiaries of lower rates too, through lower mortgage rates, higher house prices and a rising stock market.

The boost to household wealth from house prices was an estimated $1 trillion and from the stock market was an estimated $9 trillion — dwarfing, then, the $470 billion hit on savings. The report points out, however, that since the rich are more likely to own stocks, and have pricier homes, this has aggravated inequality. Moreover, the report says it’s questionable whether there’s been a boost on actual consumption, since neither equity nor real estate gains are immediately translatable into cash. “As a result, the increase in financial and housing wealth has – at best – only marginally benefited the real economy,” the report says.

Swiss Re also has a natural, vested interest in higher interest rates. The report says U.S. and European insurers have lost around $400 billion in yield income due to financial repression. The financial repression index, shown in the chart above, is based on real government bond yields, the difference between actual yields and fair value, central bank asset purchases, the difference in policy rate vs. the Taylor rule, regulatory risk, asset encumbrance, the available of high-quality liquid assets and domestic debts holdings and capital flow. Most of the components represent an average for both the European Union and the U.S.

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It’s called deflation.

Low US Consumer Spending Points To Slow First Quarter (MarketWatch)

Forget about a strong start for the U.S. economy in 2015: Consumer spending barely rose in February after a decline in January, pointing to much slower growth in the first quarter. Consumer spending rose a scant 0.1% last month, the Commerce Department said Monday. Economists polled by MarketWatch were looking for a seasonally adjusted 0.3% gain. The small increase in spending in February and outright decline in January suggest the economy failed in early 2015 to match the pace of growth at the end of last year. Gross domestic product is forecast to expand just 1.4% in the first quarter, down from 2.2% in the fourth quarter and 5% in the third quarter. Harsh winter weather that kept people indoors and steered them away from car dealers and other retailers likely contributed to small gain in spending in February. Lower gasoline prices also were a factor in keeping spending down January and December.

Yet with the weather turning warmer and companies hiring at the fastest pace in 15 years, most economists predict the economy will accelerate in the spring. More American working will boost consumer spending, they say. A similar pattern played itself out in 2014. GDP shrank 2.1% in the first quarter but bounced back with an increase of 4.6% in the second quarter. What could also help this year are the first hints that wages are starting to rise, at least for some workers whose skills are in short supply. Personal incomes in February rose a solid 0.4% for the fourth time in five months. “Households are still flush with the money saved from the big drop-off in gasoline prices and, with the labor market still on fire, incomes should continue to increase at a solid pace,” said Paul Ashworth, chief U.S. economist at Capital Economics. “That provides the scope for a big gain in consumption in the second quarter.”

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Everybody’s vulnerable to swings.

Jumping On Junk: Investors Crazy For High Yield (CNBC)

The supply of U.S. companies with junk-rated debt is rising just as investor demand for higher yields is climbing. Moody’s reports a two-year high in company debt rated B3 negative or worse—a.k.a. junk—as part of a trend that has seen the list of 184 companies grow by 26% over the period. The rise has been led by oil and gas firms, which accounted for 12 of the 28 additions to the junk list in February. What’s more, the roster would be even longer but for companies falling off the list due to reasons including filing for bankruptcy. Of the 18 issuers no longer rated, 39% filed either for bankruptcy protection or “distressed exchange, and 33% withdrew, with just 28% getting off the list due to upgrades.” “This is a reversal from the previous two quarters, when most companies left the list via ratings upgrades,” Moody’s said.

“If this reversal continues, it could signal tough times ahead for speculative-grade issuers.” Not so far, though. Fueled by low default rates and generally favorable credit conditions, investors in 2015 have been pouring money into funds that invest in high-yield debt. In fact, the previous six weeks before the most recent week had the highest level of flows to junk funds since the financial crisis in 2008 and 2009, according to Morningstar. Flows to junk-focused funds have taken in a net $12.2 billion so far in 2015 as part of a broader interest in fixed income amid a turbulent stock market, Bank of America Merrill Lynch reported. In addition to the big cash attraction to junk, high-grade bond funds have seen net inflows of $36.4 billion.

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Steve’s own debt jubilee is still a great idea. But it goes against every banker and politician’s desire.

19 Economists Call On The ECB To Make ‘QE For The People’ (BasicIncome.org)

A letter published [Mar 26] in the Financial Times signed by 19 economists calls on the European Central Bank to adopt an alternative quantitative easing policy. The letter includes a call to distribute cash directly to citizens of the eurozone. As a response to the ECB plan to inject €60 bn a month for the next 18 months into the financial system, 19 economists have signed a letter to the Financial Times calling on the ECB to adopt a different approach which they consider a more efficient way to boost the eurozone economy. “The evidence suggests that conventional QE is an unreliable tool for boosting GDP or employment. Bank of England research shows that it benefits the well-off, who gain from increasing asset prices, much more than the poorest,” the letter reads. The signatories offer an alternative:

Rather than being injected into the financial markets, the new money created by eurozone central banks could be used to finance government spending (such as investing in much needed infrastructure projects); alternatively each eurozone citizen could be given €175 per month, for 19 months, which they could use to pay down existing debts or spend as they please. By directly boosting spending and employment, either approach would be far more effective than the ECB’s plans for conventional QE.

The idea of having central banks to distribute cash to citizens has often been called “quantitative easing for the people” – a term coined by Steve Keen, an Australian economist. Prof. Steve Keen signed the letter, along with 18 other economists, including several advocates for basic income such as BIEN’s cofounder Guy Standing, David Graeber, Frances Coppola and Lord Robert Skidelsky. Guy Standing recently wrote an article outlining a proposal for having the ECB to finance basic income pilot studies in Europe:

“Monthly payments could be provided to every man, woman and child in, say, four areas on a pilot basis, with the sole condition that they would only continue to receive them if they were residing in those areas. People would still be free to move. However, it would help them to be able to stay. Such payments could be made for a period of 12 or 24 months.”

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First the bust of the housing bubble, now the stock bubble bursts. What’s next for China’s savings?

Foreign Investors Are Cashing Out of China (Bloomberg)

International investors are cashing out of China’s world-beating equity rally Foreigners sold a net 1.7 billion yuan ($274 million) of Chinese shares via the Shanghai-Hong Kong exchange link in the week through Monday, while outflows from the two biggest Hong Kong exchange-traded funds tracking mainland shares totaled $622 million. Money flowed out of the link again on Tuesday as the Shanghai Composite Index touched a seven-year high on government plans to bolster the housing market. Global investors are losing faith in the rally even as mainland traders open stock accounts at the fastest pace on record and authorities endorse gains in equities that have doubled China’s market value over the past year to a record $6.5 trillion.

While locals are focused on the prospects for further stimulus, UBS says foreigners are concerned it hasn’t done enough to revive growth after a gauge of manufacturing contracted in March and measures of industrial output and investment trailed estimates in the first two months of 2015. “The A-share market is in a bubble stage,” said Wenjie Lu, a strategist at UBS in Shanghai. “It makes sense for foreign investors to take profits.”

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The BoE’s already preparing for the BIG China bust.

Bank Of England Stress Tests To Include Feared Global Crash (Guardian)

The Bank of England is to impose a series of tests on large UK banks to establish whether they are able to withstand a dramatic slowdown in China, a contraction in the eurozone, the worst deflation since the 1930s or a fall in UK interest rates to zero. The Co-operative bank – which failed last year’s tests – is no longer included in the annual assessments of the industry’s financial strength as it is too small, leaving six banks and the Nationwide building society to be tested. The banks are Barclays, HSBC, Santander UK, Standard Chartered and the two bailed-out banks, Lloyds Banking Group and Royal Bank of Scotland. The Bank will give more weight to international scenarios, devised after talks with the IMF, than it did in the 2014 tests, which had a domestic emphasis.

Last year’s tests were designed to meet those imposed by the European Banking Authority, which is not conducting tests this year. The City is expecting this year’s tests to focus on the strength of HSBC and Standard Chartered, although a scenario for the UK is included, under which inflation is negative for seven consecutive quarters – the largest fall in prices for 80 years – and the bank rate cut to zero from the 0.5% level at which it has been stuck since the banking crisis. Banks are being asked to test their ability to withstand shocks over a five-year period to the end of 2019 and be expected to maintain a minimum amount of capital and meet a leverage ratio – a tougher measure of financial strength – while ensuring lending to the real economy grows 10% over the five-year period.

Mark Carney, governor of the Bank, said last year’s results showed the UK banking system was stronger than it had been before the 2008 crisis. “This year’s test will have a different focus and is equally important. By assessing the resilience of the UK banking system against a major shock, we will improve further our ability to identify vulnerabilities and we will ensure that banks have plans in place to address a wider range of problems,” Carney said. The severity of the test’s imagined downturn in China – with growth falling to about 1.6% growth – is likened to the scale of the fall in house prices in the UK used last year, when house prices were assumed to collapse by 35%. Chinese economic growth is about 7%.

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“..audits of bank transfers abroad, TV license and e-gaming tenders, a value-added-tax lottery scheme, a crackdown on smuggling and the settlement of arrears owed to the state.”

Germany Says Greece Must Flesh Out Reforms To Unlock Aid (Reuters)

– Greece’s biggest creditor Germany said on Monday that the euro zone would give Athens no further financial aid until it has a more detailed list of reforms and some are enacted into law, adding to scepticism over plans presented last week. A senior official in Brussels on Sunday had dismissed the list as “ideas” rather than a plan that Greece could submit to EU and IMF lenders to avoid running out of cash next month. Euro zone states are still waiting for Greece to send a more comprehensive list, a German finance ministry spokesman said. Chancellor Angela Merkel said Athens had a certain degree of flexibility on which reforms to implement but that they must “add up” to the satisfaction of European partners. “The question is can and will Greece fulfill the expectations that we all have,” she said during a visit to Helsinki.

“There can be variation as far as which measures a government opts for but in the end the overall framework must add up.” There was no immediate reaction from Athens on whether the list would be amended further. Lenders have said it could take several more days before a proper list was ready. Greek and other euro zone officials from the Euro Working Group are due to discuss the reforms on April 1. A Greek finance ministry official said the list included a lowered target of €1.5 billion in proceeds from asset sales this year and a proposal to set up a bad bank with bailout funds returned to the euro zone in February. Among the slated asset sales is a stake in the country’s biggest port, Piraeus, in which China has expressed interest. The list also estimates Greece can raise €3.7 billion this year through audits of bank transfers abroad, TV license and e-gaming tenders, a value-added-tax lottery scheme, a crackdown on smuggling and the settlement of arrears owed to the state.

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“..but no “recessionary measures” such as wage and pension cuts.”

Yanis Varoufakis Calls For End To ‘Toxic Blame Game’ (BBC)

Greek finance minister Yanis Varoufakis has called for an end to the “toxic blame game” between Greece and Germany. He made the call as Greece prepares to finalise its list of economic reforms to present to its international creditors. The reforms are needed to unlock a new tranche of bailout cash for Greece, which could run out of money in weeks. Mr Varoufakis said that finger-pointing between Germany and Greece would only aid Europe’s enemies. Athens and Berlin have been engaged in a bitter war of words as the Greek government seeks to renegotiate the terms of its bailout. German finance minister Wolfgang Schaeuble has publicly expressed his anger, claiming last week that Greece “has destroyed all trust”. He also acknowledged that Greece could “accidentally leave the eurozone”.

Writing in the German business newspaper Handelsblatt, Mr Varoufakis said that tensions between the two countries “must stop”, adding: “Only then can Greece, with support of its partners, focus on implementing effective reforms and growth-orientated policy strategies.” Greece submitted preliminary plans to the EU, IMF and the ECB on Friday night that it says will raise some €3bn in state revenues. They include measures to combat tax evasion, more privatisations and higher taxes on alcohol and cigarettes, but no “recessionary measures” such as wage and pension cuts. However, the reforms as initially proposed do not appear to have been specific enough to win the approval of the lenders, formerly known as the “troika”.

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That definition says it all, doesn’t it?!

Greek Plans To Unlock Aid ‘Lack Technocratic Input’ (Bloomberg)

Greece’s proposed plans to bolster its finances in exchange for unlocking bailout funds still need lots of work, three European officials said. The 15-page draft, which was discussed Sunday in Brussels, requires more information and details and was a long way from serving as the basis of a deal, said one of the aides, who asked not to be named because the talks were private. Seeking a strategy that passes muster with European officials now withholding loans as the country’s cash crunch deepens, Greece’s government foresees a net increase of €3.7 billion in receipts this year. The biggest chunk would be as much as €875 million from the “intensification of audits on lists of bank transfers and offshore entities,” according to the draft.

“The implication from early on has been that the Greek side doesn’t have enough flesh on bones of some of the new proposals,” said Michael Michaelides at RBS. “The surprising thing about even current proposals given leaks is the seeming lack of technocratic input, which would have helped the Greek case.” Prime Minister Alexis Tsipras was elected Jan. 25 on a platform of easing budget cuts and restructuring debt. While he backed away from those positions to win a Feb. 20 agreement to extend the nation’s bailout until the end of June, his diplomatic maneuvering and the delays in providing a detailed economic plan are frustrating the rest of the currency bloc. They have also roiled financial markets and spurred Greeks to pull their savings from banks, derailing the economic recovery.

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Eh, yes, you can: “When the deputy prime minister is in China and making certain statements, you can’t contradict it here before he’s even returned to Greece.”

Tsipras Presses Allies for Support as Greek Cash Crunch Deepens (Bloomberg)

Greek Prime Minister Alexis Tsipras, facing euro-area demands for a credible economic plan, is fending off allies at home who are spoiling for a fight. With the 40-year-old premier due to address parliament in Athens Monday evening amid a deepening cash crunch, a pair of his ministers warned against retreating from election promises to end austerity. Underscoring the cacophony, the energy minister contradicted Tsipiras’s deputy on the sale of the country’s biggest port to China. “This speaking with two tongues has an expiration date,” said Aristidis Hatzis, associate professor of law and economics at the University of Athens. “When the deputy prime minister is in China and making certain statements, you can’t contradict it here before he’s even returned to Greece.” [..]

Greece has red lines and won’t agree to any “recessionary measures” such as cutting wages or pensions or allowing mass dismissals, Tsipras told Real News newspaper in an interview published Sunday. The only way for Greece to end its crisis is through confrontation, if not conflict, with a “Germanized Europe,” Energy Minister Panagiotis Lafazanis said in an interview with the Athens-based Kefalaio newspaper. Privatizations, especially in strategic areas, “can’t and won’t happen,” he said. [..] Adding to the confusion, Euclid Tsakalotos, international economic-affairs minister, said Greece won’t abandon its anti-austerity philosophy in return for aid. He spoke in the U.K.’s Guardian newspaper as talks were taking place in Brussels over the reform measures. Greece wants a deal but will go its own way “in the event of a bad scenario,” he said.

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I’m with Ron on this. As I said before, all supra-national organizations should be folded, because they will all over time drift towards attracting sociopaths attracted by the lack of transparency and democracy inherent in them.

Repeal, Don’t Reform the IMF! (Ron Paul)

A responsible financial institution would not extend a new loan of between $17 and $40 billion to a borrower already struggling to pay back an existing multi-billion dollar loan. Yet that is just what the International Monetary Fund (IMF) did last month when it extended a new loan to the government of Ukraine. This new loan may not make much economic sense, but propping up the existing Ukrainian government serves the foreign policy agenda of the US government. Since the IMF receives most of its funding from the United States, it is hardly surprising that it would tailor its actions to advance the US government’s foreign policy goals.

The IMF also has a history of using the funds provided to it by the American taxpayer to prop up dictatorial regimes and support unsound economic policies. Some may claim the IMF does promote free markets by requiring that countries receiving IMF loans implement some positive economic reforms, such as reducing government spending. However, other conditions imposed by the IMF, such as that the country receiving the loan deflate its currency and implement an industrial policy promoting exports, do not seem designed to promote a true free market, much less improve the people’s living standards by giving them greater economic opportunities.

The problem with the IMF cannot be fixed by changing the conditions attached to IMF loans. The fundamental problem with the IMF is that it is funded by resources taken forcibly from the private sector. By taking resources out of private hands and giving them to IMF bureaucrats, government distorts the marketplace, harming both American taxpayers and the citizens of the countries receiving the IMF loans. The idea that the IMF is somehow better able to allocate capital than are private investors is just as flawed as every other form of central planning. The IMF must be repealed, not reformed.

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“Syria’s Assad used to rank high. Only 17% see him as a threat now, but a year and half ago, John Kerry put him on a list he apparently keeps that also includes Adolf Hitler and Saddam Hussein. ”

Americans See Putin As Only Slightly More Imminent Threat Than Obama (Reuters)

People in the United States feel under threat, both from beyond our borders and within them. In fact, when asked about both U.S. President Barack Obama and Russian President Vladimir Putin, it was a pretty darn close call — 20 percent saw Putin as an imminent threat compared to 18 percent who said the same about Obama. A recent Reuters/Ipsos poll asked more than 3,000 Americans what they see as some of the biggest threats to themselves and the country. You can slice and dice the information in literally hundreds of different ways here. People were shown a range of potential threats and then asked to rate how dangerous they were with one being no threat and five meaning the threat is imminent.

I think it’s safe to say that a national security expert might not agree with the public’s choices. More people fear Boko Haram, a scary but ragged Islamic radical group in Nigeria that might have trouble paying for plane tickets to the United States, than Russia, which recently invaded a major European country. And a whopping 34 percent consider Kim Jong-un, the leader of impoverished North Korea, an imminent threat. Kim may have a couple of nukes, but otherwise his nation is a basket case, so poor that it relies on international aid to feed itself. Though considering how fast Sony Pictures pulled “The Interview” from theaters, I guess the public’s not alone in being afraid of the young man with the unique hairstyle.

Perhaps the most disturbing part, however, is how Americans view each other, simply because of the political party they favor. Thirteen percent of us see the Republican and Democratic parties as an imminent threat. That’s the same number who think the Chinese might be. Quick reality check: neither political party is the largest foreign holder of U.S. debt, nor could they cripple us economically in an afternoon. Nor has either party independently building an army that may soon be able to rival that of the United States — that we know of, anyway.

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Do Google Holland Earthquakes.

Energy’s New Legal Threat: Earthquake Suits (WSJ)

After an earthquake toppled her chimney, sending rocks crashing through the roof and onto her legs, Sandra Ladra didn’t blame an act of God. She sued two energy companies, alleging they triggered the 2011 quake by injecting wastewater from drilling deep into the ground. Ms. Ladra’s lawsuit, now before the Oklahoma Supreme Court, highlights an emerging liability question for energy companies: Can they be forced to pay for damages from earthquakes if the tremors can be linked to oil-and-gas activity? Oklahoma, with a history of mild-to-moderate seismic activity, experienced 585 earthquakes of 3.0 or greater magnitude last year—big enough to be felt indoors—according to the Oklahoma Geological Survey.

That’s more than the state had in the previous 30 years combined and the most of any state in the contiguous U.S. So far, most of the tremors under investigation in Oklahoma and other oil-producing states, including Arkansas, Kansas, Ohio and Texas, have been too small to cause major damage. But the prospect of facing juries over quake-related claims is reverberating throughout the energy industry, which fears lawsuits and tighter regulations could increase costs and stall drilling. “It’s definitely something that has risen to a level of fairly high concern,” Steve Everley at industry advocate Energy In Depth said of earthquake-related risks. “Companies recognize that there’s a problem here,” he said, adding that they are contributing data to help regulators determine what’s causing the quakes.

Most of the focus isn’t on hydraulic fracturing, which involves shooting a slurry of water, sand and chemicals into wells to let oil and gas flow out—and which helped touch off the recent U.S. energy boom. Instead, researchers say the most serious seismic risk comes from a separate process: disposal of toxic fluids left over from fracking and drilling by putting it in wells deep underground. Geologists concluded decades ago that injecting fluid into a geologic fault can lubricate giant slabs of rock, causing them to slip. Scientists say disposal wells are sometimes bored into unmapped faults. The practice isn’t new, but has proliferated with the U.S. drilling boom.

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If the US hadn’t antagonized Russia three ways to Sunday before, this would have been a whole different (storm in a) cup of tea.

Iran Deal Unlikely Before March 31 as Russia Leaves Talks (Bloomberg)

Russian Foreign Minister Sergei Lavrov left talks on Iran’s nuclear program and will only return if an accord is in sight, suggesting that negotiations will continue into the final hours before a March 31 deadline. Diplomats said obstacles remain after foreign ministers from the six powers jointly met Iranian envoys for the first time in the latest round of talks in Lausanne, Switzerland. Lavrov will return if there’s a “realistic understanding of a deal,” Russian Foreign Ministry spokeswoman Maria Zakharova said. “The main thing that gives us optimism is the determination of all the ministers to reach a result without taking a pause,” said Lavrov’s deputy, Sergei Rybakov. Russia sees positive signals at the talks, Dmitry Peskov, Putin’s spokesman, said in Moscow.

After a 12-year standoff, negotiators are divided over the pace of easing sanctions on Iran and the limits to be imposed on its nuclear program. A framework accord by March 31 would be a step toward ending Iran’s economic isolation, though another three months are envisaged to reach a detailed final agreement. Talks are stuck on how to roll back sanctions and how to reimpose them should Iran violate the agreement, a European diplomat said after Monday’s plenary meeting. No decision has been made on how to dispose of Iran’s enriched uranium, which is essential to ensuring that its nuclear program is exclusively peaceful, a U.S. official said. While the countries in talks with Iran would prefer that the uranium be transferred to a guarantor nation, other options are being discussed, the European diplomat said.

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Yikes.

Sierra Leone Ebola Lockdown Exposes Hundreds Of Suspected Cases (Reuters)

A three-day lockdown in Sierra Leone has exposed hundreds of potential new cases of Ebola, aiding efforts to bring to an end an epidemic that has already killed 3,000 people in the country. Officials ordered the country’s 6 million residents to stay indoors or face arrest during the period that ended late on Sunday as hundreds of health officials went door-to-door looking for hidden patients and educating residents about the virus. Reports to authorities of sick people increased by 191% in Western Area, which includes the capital, during the lockdown compared with the previous weekend, said Obi Sesay of the National Ebola Response Center. “Tests are being carried out on their blood samples, and the results will be in by Wednesday,” Sesay said, adding that 173 of the patients in Freetown met an initial case definition for Ebola.

In the rest of the country, there was a 50% increase in sick people reported in the lockdown’s first two days, Sesay said. Sierra Leone has reported nearly 12,000 cases since the worst Ebola epidemic in history was detected in neighboring Guinea a year ago. In all, more than 10,000 people have died in the two countries plus Liberia. New cases have fallen since a peak of more than 500 a week in December, but the government said the lockdown, its second, would help identify the last cases and reduce complacency. A source who declined to be identified said there were 961 death alerts nationwide during the lockdown’s first two days and 495 reports of illness of which 235 were suspected Ebola.

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