Jun 132018
 
 June 13, 2018  Posted by at 8:49 am Finance Tagged with: , , , , , , , , , , ,  


John French Sloan South Beach Bathers 1908

 

Capital Flight to Germany in Full Swing (Mish)
The Big Italy Short Was Hiding In Plain Sight (R.)
G7 Summit Highlights Western Leaders Hypocrisy (Lacalle)
Donald Trump Was Right. The Rest Of The G7 Were Wrong (Monbiot)
Centrists Very Concerned That Donald Fucking Trump Isn’t Hawkish Enough (CJ)
May Heads Off Major Defeat After Last-Minute Climbdown To Rebels (Ind.)
Tesla To Cut 9% Of Staff In Profitability Drive (G.)
Americans Just Paid Off A Ton Of Credit-Card Debt—But Here’s The Bad News (MW)
India Farmers Sow Unapproved Monsanto Cotton Seeds, Risking Arrest (R.)
One in Three British Mammal Species Could Be Gone Within A Decade (Ind.)

 

 

“The only door left open is door number 3.”

Capital Flight to Germany in Full Swing (Mish)

I have commented on Target2 liabilities before. Perhaps a Mish-modified translation from the Welt article Imbalance in the Euro System Reaches a New Record will ring a bell. The central banks of Germany’s euro partners Italy, Spain and France owe the Bundesbank almost a trillion euros . This is a new high. – more than ever before. Tendency continues to rise. There is no security for this money. Read that last line again and again until it sinks in. Italy is €464.7 billion in the hole. Spain is €376.6 billion in the hole. Creditors owe Germany, the Netherlands, and Finland over €1.157 trillion. In May, Italian liabilities increased by almost 40 billion euros.

“Capital flight to Germany is in full swing,” says Hans-Werner Sinn, longtime head of the Ifo Institute and one of the most prominent economists in the Federal Republic. Originally, Target2 was designed to facilitate cross-border transactions within the eurozone. The system achieved this goal. From the point of view of critics, this means that the Deutsche Bundesbank provides long-term unsecured and non-interest-bearing loans to the central banks of other eurozone countries , especially the central banks of southern countries Italy, Spain and Portugal.

Target2 is a fundamental problem of the Eurozone. • The ECB guarantees these loans. • As long as they are guaranteed, then hells bells, why not make more loans? Germany will pay one way or another. Here are the possibilities. 1) Germany and the creditor nations forgive enough debt for Europe to grow. This is the transfer union solution. 2) Permanently high unemployment and slow growth in Spain, Greece, Italy, with stagnation elsewhere in Europe 3) Breakup of the eurozone. Those are the alternatives. Germany will not allow number 1. It is unreasonable to expect number 2 to last forever. The only door left open is door number 3.

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Nothing about this needs to be invented.

The Big Italy Short Was Hiding In Plain Sight (R.)

The marriage of politics and finance in Italy regularly produces strange offspring. But a suggestion, floated over the weekend in the country’s most-respected newspaper, of a James Bond-style plot by some big investors to sink Italian financial markets added a new twist. More curious was the theory’s abrupt disappearance by Monday. The episode highlights the degree to which Europe’s most chaos-resilient economy has entered a risky new paradigm with the arrival of the most populist government since the Italian Republic’s founding in 1946. On Saturday, Corriere della Sera, the Milanese voice of the establishment, published an article which speculated that some investors betting against Italian assets might have helped engineer a market crisis.

The trigger for the Italian panic was the May 15 publication by Huffington Post’s Italian website of a draft version of the new government’s “contract”, which included language pertaining to a possible exit from the single European currency. That document, HuffPo has said, arrived in an unmarked envelope. Markets went haywire over the prospect that the government cobbled together by the two parties who gained the most seats in the March election – the right-wing League and hard-to-label 5-Star Movement – would adopt an explicitly anti-euro platform. The difference between the yields on 10-year German and Italian government bonds surged to almost 320 basis points from just around 130 basis points before the draft appeared. Any bets against Italian sovereign credit would have produced a tidy profit.

Corriere has substantially revised the story. It no longer includes language that one hedge fund, Brevan Howard, considered defamatory. That firm’s AH Master Fund, run by Alan Howard, gained 37 percent in May, thanks in part to bets on the direction of Italian assets. On Tuesday, the newspaper appended an author’s note to the piece in which it said: “We never intended to accuse or suggest that there were any kind of offenses or improper conduct by Howard in trading or in his involvement in the case of documents filtered to the Huffington Post.” In a statement to Reuters Breakingviews, the author, Federico Fubini, defended the piece. “We have run a fact-based article whose substance remains.” The paper decided “to amend the text to avert a potentially time-consuming case in foreign courts.”

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EU, China protectionism.

G7 Summit Highlights Western Leaders Hypocrisy (Lacalle)

The G7 failure to come to terms on trade highlights the problem of governments trying to macromanage trade. And no, the failure to even agree to disagree cannot be blamed on President Trump and his new-found economic nationalism. The list of countries with the largest trade surplus with the United States is led by China, which exports $375 billion more than it imports. It is followed, very far away, by Mexico ($71 billion), Japan (69 billion), Germany (65 billion), Vietnam (38 billion), Ireland (38 billion) and Italy ($31 billion). Not surprisingly, the markets with most protectionist measures against the United States are China, the European Union, Japan, Mexico and India.

These facts explain much more about the failure of the G7 summit than any Manichean analysis on Trump, Trudeau, Macron, or any of the leaders gathered there. During the last twenty years, the world has carried out a widespread practice in governments’ disastrous idea of “sustaining” GDP with demand-side policies. Build excess capacity, subsidize it, and hope to export that excess to the United States. Especially China, Germany, and Japan have economies with high state interventionism and therefore very high excess capacity, in part due to a high personal savings rate. Steel and aluminum, like the automobile industry, are examples of building unnecessary capacity and subsidizing it, country by country, hoping it will be somebody else who closes its inefficient factories to be able to export more to that country.

In Germany, the influence of the automobile industry over the government is legendary. What isn’t are the relatively high tariffs American manufacturers face when exporting to Europe and the low tariffs America itself imposes on automobile imports. What is also ironic is that modern-day protectionism didn’t start with Trump. Barriers against global trade increased between 2009 and 2016. The World Trade Organization warned, year after year, since 2010, about the increase in protectionism. The Obama administration, faced with the exponential increase in its trade deficit, was the one that introduced the highest number of protectionist measures between 2009 and 2016. The only difference between Trump and Obama was that Obama didn’t publicize this much and the mainstream media didn’t complain.

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True, these deals need a sunset clause.

Donald Trump Was Right. The Rest Of The G7 Were Wrong (Monbiot)

He gets almost everything wrong. But last weekend Donald Trump got something right. To the horror of the other leaders of the rich world, he defended democracy against its detractors. Perhaps predictably, he has been universally condemned for it. His crime was to insist that the North American Free Trade Agreement (Nafta) should have a sunset clause. In other words, it should not remain valid indefinitely, but expire after five years, allowing its members either to renegotiate it or to walk away. To howls of execration from the world’s media, his insistence has torpedoed efforts to update the treaty.

In Rights of Man, published in 1791, Thomas Paine argued that: “Every age and generation must be as free to act for itself, in all cases, as the ages and generations which preceded it. The vanity and presumption of governing beyond the grave is the most ridiculous and insolent of all tyrannies.” This is widely accepted – in theory if not in practice – as a basic democratic principle. Even if the people of the US, Canada and Mexico had explicitly consented to Nafta in 1994, the idea that a decision made then should bind everyone in North America for all time is repulsive. So is the notion, championed by the Canadian and Mexican governments, that any slightly modified version of the deal agreed now should bind all future governments.

But the people of North America did not explicitly consent to Nafta. They were never asked to vote on the deal, and its bipartisan support ensured that there was little scope for dissent. The huge grassroots resistance in all three nations was ignored or maligned. The deal was fixed between political and commercial elites, and granted immortality. In seeking to update the treaty, governments in the three countries have candidly sought to thwart the will of the people. Their stated intention was to finish the job before Mexico’s presidential election in July. The leading candidate, Andrés Lopez Obrador, has expressed hostility to Nafta, so it had to be done before the people cast their vote. They might wonder why so many have lost faith in democracy.

[..] Trump was right to spike the Trans-Pacific Partnership. He is right to demand a sunset clause for Nafta. When this devious, hollow, self-interested man offers a better approximation of the people’s champion than any other leader, you know democracy is in trouble.

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Caitlin again.

Centrists Very Concerned That Donald Fucking Trump Isn’t Hawkish Enough (CJ)

[..] by far the most common concerns being expressed about the Singapore summit are based not on a fear of this administration making insufficiently aggressive demands of Pyongyang, but on pure ridiculous nonsense. “President Trump seems to have given away two or three of the major things that Kim Jong-Un wanted,” Schumer complained at the aforementioned press conference. “A meeting. The flags next to each other. Now a delay of exercises with South Korea, without getting anything in return.” Huh? A meeting? Flags next to each other? I can kinda-sorta-almost see into Schumer’s twisted reality tunnel when it comes to temporarily suspending military drills along the DPRK’s border as an act of good faith, but on what planet is having a meeting or putting two flags next to each other a win of any kind?

Well, going by the outcry I’m seeing from Twitter pundits, the concern appears to be that it “legitimizes” Kim Jong-Un. What exactly that means is hard to fathom in terms of actual, tangible reality, but for years that term has been passed around like it has as much relevance as war or starvation sanctions. This imaginary product of “legitimacy” is, according to influential mainstream political commentators, meant to be withheld from Kim until he gives up everything he has and grovels on his belly begging for it. This just shows you the power of narrative, where repeating some meaningless placeholder syllables over and over again can create the illusion that a purely mental construct is as relevant in peace negotiations as nuclear warheads.

It isn’t hard to see through for anyone who doesn’t have a vested interest in subscribing to that narrative, though, and Pyongyang certainly has no such interest. [..] There are many, many perfectly valid things to criticize the Trump administration for. Opening up peace talks with North Korea is not one of them, and anyone who says it is is not a friend of humanity. The fact that nobody on either side of the aisle seems to have their foot anywhere near the brake pedal when it comes to war should concern us all, and we need to do something about it.

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Might as well stop the whole process right now.

May Heads Off Major Defeat After Last-Minute Climbdown To Rebels (Ind.)

Rebel Conservatives have forced Theresa May into a climbdown, handing parliament greater control of Brexit if she fails to seal a deal. After the prime minister was threatened with what could have been a damaging commons defeat, she promised key concessions in dramatic last minute talks with pro-EU rebels. It is likely to mean her accepting a deadline by which she must secure a deal with Brussels, if she wants to stay in the driving seat for negotiations. Her ministers must now spell out the detail of her compromises within days, with Tory rebels warning a failure to do so would reignite the prospect of a major commons loss destabilising her leadership.

It followed a day which started with the resignation of a minister and passed into febrile commons debate that saw ministers bargaining openly with rebels in the chamber. Rebel MP Nicky Morgan told The Independent: “The whole point of what has come about is that we are going to have a process to this, something which does not simply allow us to drift into a hard Brexit.” The row was precipitated by the Lords last month passing a plan that would have given parliament the power to direct Ms May’s actions if she failed to seal a Brexit deal later this year. Ministers were demanding Tory MPs vote it out of existence in the Commons on Tuesday, but had also refused to consider a more palatable compromise proposed by the former Conservative attorney general Dominic Grieve.

It would have instead seen Ms May being tied into a strict timetable of having to set out her own proposals if she failed to seal a deal by November, and then gain parliamentary approval for them – the stronger powers for MPs to direct her action would only come into play if a deal had still not been reached by February.

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What, no new loans?

Tesla To Cut 9% Of Staff In Profitability Drive (G.)

Tesla is slashing thousands of jobs, its chief executive, Elon Musk, announced Tuesday, as the electronic car company attempts to hit production targets and reach profitability. Musk called the job cuts, which will affect about 9% of the company’s more than 40,000 employees, “difficult, but necessary” in a tweet that contained the email he had sent to employees announcing the layoffs. “What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable,” the billionaire entrepreneur wrote in the email.

The job cuts will be centered on salaried employees, not factory workers, Musk said, writing, “This will not affect our ability to reach Model 3 production targets in the coming months.” Tesla has been under intense pressure to prove that it can achieve mass production of the Model 3, its first mass market vehicle. The company has yet to reach Musk’s goal of producing 5,000 cars a week – originally promised for the end of 2017. At Tesla’s annual shareholder meeting on 5 June, Musk said he believed the company would hit the 5,000 cars-a-week goal by the end of June, and that he thought the company could be profitable later this year.

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They paid off so much because they owe so much.

Americans Just Paid Off A Ton Of Credit-Card Debt—But Here’s The Bad News (MW)

A lot of Americans paid big credit-card bills in the first quarter of 2018. And they still have a long way to go. Americans repaid $40.3 billion in credit card debt during the first quarter of 2018, according to a new analysis of data from the U.S. Census Bureau, Federal Reserve and credit agency TransUnion by the personal-finance website WalletHub. That’s the second-highest amount paid off in one quarter since the first quarter of 2009, when consumers paid off more than $44 billion. Now, the bad news: That doesn’t mean their debts are getting that much smaller. Americans ended 2017 with $91.6 billion in new credit-card debt, the largest annual amount since 2007 and 104% above the post-recession average.

Outstanding credit card debt is at the second-highest point since the end of 2008, the report said. In 2017, Americans hit a record high of $1.021 trillion in outstanding revolving debt (often categorized as credit-card debt). In April 2018, they still had more $1.030 trillion to pay off, according to the Federal Reserve. Consumers’ recent debt payoff “is not as dramatic as the dollar amount makes it seem,” said Nick Clements, the co-founder of personal finance company MagnifyMoney, who previously worked in the credit industry. The reason: The total amount of credit-card debt Americans have has also been growing.

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How Monsanto sneaks in illegal seeds.

India Farmers Sow Unapproved Monsanto Cotton Seeds, Risking Arrest (R.)

Many Indian farmers are openly sowing an unapproved variety of genetically modified (GM) cotton seeds developed by Monsanto, as the government sits on the sidelines for fear of antagonizing a big voting bloc ahead of an election next year. India approved the first GM cotton seed trait in 2002 and an upgraded variety in 2006, helping transform the country into the world’s top producer and second-largest exporter of the fiber. But newer traits are not available after Monsanto in 2016 withdrew an application seeking approval for the latest variety due to a royalty dispute with the government. The herbicide-tolerant variety, lab-altered to help farmers save costs on weed management, has, however, seeped into the country’s farms since then. Authorities say they are still investigating how that happened.

“I will only use these seeds or nothing at all,” said Rambhau Shinde, a farmer who has been cultivating cotton for nearly four decades in the western state of Maharashtra. The federal environment ministry said last year planting the seeds violated the Environment Protection Act, and farmers who did so were risking potential jail terms. But many farmers are desperate to boost their incomes after poor yields over the past few years and are willing to ignore the warnings. A government official in New Delhi, who deals with matters related to GM crops, said it was difficult to keep farmers away from something that they saw benefit in. “If you don’t allow them to plant legally, illegal planting will happen,” the official said, requesting anonymity, adding that Monsanto had yet to reapply for an approval to sell its latest variety of GM cotton in India.

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Bats and cats and rats.

One in Three British Mammal Species Could Be Gone Within A Decade (Ind.)

Populations of much-loved British mammals including hedgehogs and water voles have dropped by up to two-thirds over the past 20 years, and many more are threatened with imminent extinction. Even some apparently common creatures such as rabbits have been driven into decline by human pressures such as harmful farming activities and climate change. These findings come from a review carried out by the Mammal Society and Natural England, the first of its kind to be conducted in more than two decades. The country has undergone significant changes since the last analysis in 1995, and some of the species at risk then – including badgers and otters – have since made considerable recoveries.

However, pesticide use, invasive species and road deaths have all taken their toll, and the scientists behind the study have warned Britain is on “a precipice” and must take urgent action to save its mammals. “This is happening on our own doorstep so it falls upon all of us to try and do what we can to ensure that our threatened species do not go the way of the lynx, wolf and elk and disappear from our shores forever,” said Professor Fiona Mathews, chair of the Mammal Society. The review, which made use of data collected by members of the public as well as scientists over the course of decades, covered all 58 of the country’s land mammal species.

The scientists constructed the first ever “red list” for British mammals, and found 12 are threatened with extinction. This means animals like the wildcat, greater mouse-eared bat and even the black rat are likely to be gone forever from Britain’s shores within the next 10 years. However, they noted this is likely to be an underestimate, and the real number could be as high as one in three.

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May 302018
 
 May 30, 2018  Posted by at 9:07 am Finance Tagged with: , , , , , , , , , , , ,  


Wassily Kandinsky Moscow II 1916

 

Italy: No Easy Fixes For The European Central Bank (G.)
Investors Ask If ECB Has Will And Means To Save Euro From Italian Turmoil (R.)
Blanchard: Europe Should Be OK – But ‘I’m Very Worried About Italy’ (CNBC)
NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades (WS)
Italy Could Be The Next Greece – Only Much Worse (CNBC)
“Everything Has Gone Wrong”: Soros Warns “Major” Financial Crisis Is Coming (ZH)
Soros-Backed Campaign To Push For New Brexit Vote Within A Year (G.)
Pace Of Greek Credit Contraction Increases In April (K.)
EU Plans To Boost Spending In South, Cut Funds For Eastern Europe (RT)
It’s Hard To Be An Empire (Jim Kunstler)
China Slams Surprise US Trade Announcement, Says Ready To Fight (R.)
High Number Of Workers With No Pay Raise Says Inflation Worries Overblown (MW)
industrial-Scale Beef Farming Comes To The UK (G.)
Meat And Fish Multinationals ‘Jeopardising Paris Climate Goals’ (G.)

 

 

“Under the Target2 system, which is the way eurozone central banks keep account of liabilities to each other, Italy already owes £442bn.”

Italy: No Easy Fixes For The European Central Bank (G.)

The last eurozone crisis was solved – or deferred – when the president of the European Central Bank, Mario Draghi, declared in July 2012 that the institution was ready to do “whatever it takes” to save the euro. Bond markets calmed down, weak banks got access to funding again and an economic recovery of sorts materialised. In terms of central bank rescue acts, it was a textbook operation. Unfortunately, there are no easy ECB fixes for the new Italian crisis. The ECB’s first problem is its own powers. Even if it were minded to try to reverse the dramatic sell-off in Italian bonds, the rules say it is only supposed to respond to emergency calls from countries that have agreed to budget conditions.

With new elections now likely in Italy in the autumn, it’s hard to see how a deal could be done. Even if a technical fudge could be found, the second problem is that the eurozone’s big powers might prefer the ECB to do nothing. Günther Oettinger, the EU’s budget commissioner, seems to believe a bout of market turmoil “might become a signal to [Italian] voters after all to not vote for populists on the right and left”. In practice, the experience might provoke a bigger vote for anti-euro parties, but the strategy seems set.

The third problem for the ECB will come if capital drains from Italian banks. In that case the ECB could in theory claim a clear need to intervene to prevent damage to eurozone banks outside Italy. But, again, there could be pressure to stay on the sidelines. Under the Target2 system, which is the way eurozone central banks keep account of liabilities to each other, Italy already owes £442bn. Any ECB-backed support for its banks would see that figure rise further, provoking fears over repayment. Note that Target2 imbalances are already a hot topic in Germany, where the Bundesbank is the single biggest creditor.

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I’m sure it has the will. Draghi’s Plunge Protection Team is working hard today, euro’s up 0.5%. The problem is that everyone knows whatever the ECB does is only a temp stopgap.

Investors Ask If ECB Has Will And Means To Save Euro From Italian Turmoil (R.)

Investors are again speculating what the ECB could do to solve the problem of a surge in Italy’s debt yields that is causing stress for Italian banks and reviving questions about a euro break up. The stakes will be huge if a repeat election in the euro zone’s third-largest economy become a de facto referendum on Italy’s membership of the euro and its role in the European Union. Italy’s economy is at least 10 times bigger than that of Greece, which needed 250 billion euros ($289 billion) of euro zone and IMF money to bail it out. If Italy needed a similar level of support, the numbers involved would be eyewatering.

Total IMF firepower would only add up to around 500 billion euros and even with the 400 billion euros that the European Stability Mechanism could conceivably get together, it still wouldn’t completely cover Italy. Perhaps it’s no wonder then that Italy’s bond markets saw their worst sell-off in 26 years on Tuesday and investors are starting to look inquisitively at the ECB. “If this continues for another couple of sessions, I think you will have to see some official (European) response,” said Saxo Bank’s head of foreign exchange strategy John Hardy. “It becomes a ‘whatever it takes’ kind of moment,” he added, recalling the promise made in 2012 by ECB President Mario Draghi to keep the euro intact.

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Inflexibility killed the cat.

Blanchard: Europe Should Be OK – But ‘I’m Very Worried About Italy’ (CNBC)

Political chaos in the euro zone’s third-biggest economy won’t be going away anytime soon, according to IMF former chief economist Olivier Blanchard, who on Tuesday issued an ominous assessment of the country. Panic roiled markets Tuesday as a political fight in Italy prompted one of its worst market sell-offs in years. Underlying investor fear was the prospect of Italy leaving the euro and others following suit, which Blanchard, now an economics professor at the Massachusetts Institute of Technology, described as more of a psychological fear than a realistic threat.

The potential concern, rather, involves Italy’s creditors, who would have to “move carefully,” the economist told CNBC’s Joumanna Bercetche in Paris. The rest of Europe may avoid a domino effect, but Italy looks to remain mired in a quagmire. “I suspect in this case the EU will do whatever is needed to prevent contagion, so I’m not terribly worried about contagion,” Blanchard said. “I’m very worried about Italy. Not worried about the rest of Europe. It will be tough, but the rest of Europe, the rest of (the) euro will be OK.” [..] “The writing was on the wall,” Blanchard said. “When you have capital mobility, and you give signals that you might not stay in the euro … then you expect investors to move, and I think that’s what we are seeing.”

Markets were already nervous about M5S and Lega’s economic plans for Italy. Though the parties did not in fact pledge to leave the euro, they signaled a disregard for the EU’s fiscal rules, such as those limiting states’ deficit levels. [..] Asked if there may be positives to the standoff in the form of EU concessions for Italy in order to prevent a pull-out, Blanchard responded, “No. I am not optimistic.” Unsurprisingly, he described himself as very bearish on the country. The best-case scenario, the economist said, would be for the winners of the next elections to provide a program that satisfies the voter base — victory is predicted for the populist parties again — but remains fiscally responsible.

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Wolf Richter is dead on: “..Italian bonds – no matter what maturity – should never ever have traded with a negative yield..”

NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades (WS)

On Tuesday, Italian bonds had their worst day in Eurozone existence, even worse than any day during the worst periods of the 2011 debt crisis. And this comes after they’d already gotten crushed on Monday, and after they’d gotten crushed last week. And this happened even as the ECB is carrying on its QE program, including the purchase of Italian government bonds; and even as it pursues its negative-interest-rate policy (NIRP). As bond prices plunge, yields spike by definition, and the spike in the two-year yield was spectacular, going from 0.3% on Monday morning to 2.73% on Tuesday end of day:

But note that until May 26, the two-year yield was still negative as part of the ECB’s interest rate repression. On that fateful day, the two-year yield finally crossed the red line into positive territory. To this day, it remains inexplicable why the ECB decided that Italian yields with maturities of two years or less should be negative – that investors, or rather pension beneficiaries, etc., who own these misbegotten bonds, would need to pay the Italian government, one of the most indebted in the world, for the privilege of lending it money. But that scheme came totally unhinged just now. The 10-year Italian government bond yield preformed a similar if not quite as spectacular a feat. Over Monday and Tuesday, it went from 2.37% to 3.18%:

But here’s the thing: Italian bonds – no matter what maturity – should never ever have traded with a negative yield. Their yields should always have been higher than US yields, given that the Italian government is in even worse financial shape than the US government. Italy’s debt-to-GDP ratio is 131%, and more importantly, it doesn’t even control its own currency and cannot on its own slough off a debt crisis by converting it into a classic currency crisis, which is how Argentina is dealing with its government spending. The central bank of Argentina recently jacked up its 30-day policy rate to 40% to keep the peso from collapsing further. That’s the neighborhood where Italy would be if it had its own currency. But the ECB’s QE shenanigans and NIRP drove even Italian yields below zero, and so now here is NIRP’s revenge.

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Oettinger takes the prize for the biggest fool so far.

Italy Could Be The Next Greece – Only Much Worse (CNBC)

Nearly a decade after a protracted Greek debt crisis spooked global markets, a fresh round of political turmoil in Italy has revived fears about the fate of the European financial system and its common currency. This time, the numbers are a lot bigger. “Italy’s economy is 10 times larger than that of Greece, whose debt crisis shook the euro area’s foundations,” wrote Desmond Lachman, a resident fellow at the American Enterprise Institute, in a recent blog post. “The single currency is unlikely to survive in its present form if Italy were forced to exit that monetary arrangement.”

Italy’s economy has been struggling since the Great Recession years with a debt load that rivals the heavy Greek borrowing that forced massive cuts in public services there and drove Greece into a deep recession. That Italian debt crisis has become central to the ongoing political instability, as multiple governments have failed to resolve it. [..] Even if the populist parties stop short of a clear call for exiting the euro, their strength has widened the political gap with EU officials in Brussels. In an echo of the Greek debt crisis, the latest turmoil has reopened a political rift between Germany and the “peripheral” economies of Greece, Italy and Spain. That political divide will further complicate ongoing efforts to resolve Italy’s crushing debt burden.

On Tuesday, EU officials promised to respect Italian voters’ right to choose their own government, after Germany’s European commissioner said Italians should not vote for the populists. “My worry, my expectation, is that the coming weeks will show that the markets, government bonds, Italy’s economy, could be so badly hit that these could send a signal to voters not to elect populists from the left or right,” Guenther Oettinger, a German commissioner who oversees the EU budget committee, said in a German television interview.

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“..a relationship that was neither voluntary nor equal – the very opposite of the credo on which the EU was based.”

“Everything Has Gone Wrong”: Soros Warns “Major” Financial Crisis Is Coming (ZH)

Until recently, it could have been argued that austerity is working: the European economy is slowly improving, and Europe must simply persevere. But, looking ahead, Europe now faces the collapse of the Iran nuclear deal and the destruction of the transatlantic alliance, which is bound to have a negative effect on its economy and cause other dislocations. The strength of the dollar is already precipitating a flight from emerging-market currencies. We may be heading for another major financial crisis. The economic stimulus of a Marshall Plan for Africa and other parts of the developing world should kick in just at the right time. That is what has led me to put forward an out-of-the-box proposal for financing it.

“The EU is in an existential crisis. Everything that could go wrong has gone wrong,” he said. To escape the crisis, “it needs to reinvent itself.” “The United States, for its part, has exacerbated the EU’s problems. By unilaterally withdrawing from the 2015 Iran nuclear deal, President Donald Trump has effectively destroyed the transatlantic alliance. This has put additional pressure on an already beleaguered Europe. It is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality.” “We may be heading for another major financial crisis,” Soros said explicitly.

“I personally regarded the EU as the embodiment of the idea of the open society. It was a voluntary association of equal states that banded together and sacrificed part of their sovereignty for the common good. The idea of Europe as an open society continues to inspire me. But since the financial crisis of 2008, the EU seems to have lost its way. It adopted a program of fiscal retrenchment, which led to the euro crisis and transformed the eurozone into a relationship between creditors and debtors. The creditors set the conditions that the debtors had to meet, yet could not meet. This created a relationship that was neither voluntary nor equal – the very opposite of the credo on which the EU was based.”

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Interference in a country’s politics. Hmm.

Soros-Backed Campaign To Push For New Brexit Vote Within A Year (G.)

A campaign to secure a second Brexit referendum within a year and save the UK from “immense damage” is to be launched in days, the philanthropist and financier George Soros has announced. The billionaire founder of the Open Society Foundation said the prospect of the UK’s prolonged divorce from Brussels could help persuade the British public by a “convincing margin” that EU membership was in their interests. In a speech on Tuesday ahead of the launch of the Best for Britain campaign – said to have already attracted millions of pounds in donations – Soros suggested to an audience in Paris that changing the minds of Britons would be in keeping with “revolutionary times”.

Best for Britain had already helped to convince parliamentarians to extract from Theresa May a meaningful vote on the final withdrawal deal, he said, and it was time to engage with voters, and Brussels, to pave the way for the UK to stay in the bloc. It is expected to publish its campaign manifesto on 8 June. Soros, 87, said: “Brexit is an immensely damaging process, harmful to both sides … Divorce will be a long process, probably taking more than five years. Five years is an eternity in politics, especially in revolutionary times like the present. “Ultimately, it’s up to the British people to decide what they want to do. It would be better however if they came to a decision sooner rather than later. That’s the goal of an initiative called the Best for Britain, which I support.

“Best for Britain fought for, and helped to win, a meaningful parliamentary vote which includes the option of not leaving at all. This would be good for Britain but would also render Europe a great service by rescinding Brexit and not creating a hard-to-fill hole in the European budget. “But the British public must express its support by a convincing margin in order to be taken seriously by Europe. That’s what Best for Britain is aiming for by engaging the electorate. It will publish its manifesto in the next few days.”

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Recovery.

Pace Of Greek Credit Contraction Increases In April (K.)

The funding deficit is growing in the Greek economy, as there was a sharper credit contraction in April, data from the Bank of Greece showed on Tuesday. The pace of financing Greek households and enterprises stood at -1.9% last month, from -1% in March and -0.9% in February. The flow of credit turned negative by 1.2 billion euros in April from the positive amount of 217 million euros in March. The negative flow means that loans repaid outweighed those issued, after factoring in loan write-offs and sales of nonperforming loans by banks.

In practice the fresh credit issued is offset by the burden of the increased write-offs and payments mostly by enterprises. Data analysis showed that the funding flow to the economy’s basic domains last month was negative by 2.4% for industry and by 1.7% for construction. At the same time the financing rate for tourism was marginally positive at 1%, while in commerce the rate was zero, against a positive 1% in March. The sector with the lowest funding rate in comparison with last year was electricity and water, which declined 12.6%.

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Who blinked first?

EU Plans To Boost Spending In South, Cut Funds For Eastern Europe (RT)

The European Commission proposed on Tuesday increased spending of EU money on Italy and other southern member states hit by the economic and migrant crises, while reducing funds for regions in the former communist eastern countries, Reuters reports. The proposal on the 2021-2027 budget comes as Italy is facing the prospect of snap elections after the summer. The commission proposed a new methodology to distribute funds that takes into account unemployment levels and the reception of migrants, and not just economic output as previously done. This will result in a reduction of regional funds for eastern countries because they have grown faster in recent years. The budget would increase to €1.1 trillion ($1.2 trillion) from €1 trillion in the current seven-year period. A third of spending would be allocated to help reduce the gap between rich and poor regions of the bloc.

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Jim on Memorial Day.

It’s Hard To Be An Empire (Jim Kunstler)

I suppose that military prowess is all we’ve got left in the national pride bag in these times of foundering empire. Few are fooled these days by the “land of opportunity” trope when so many young people are lucky to get a part-time gig on the WalMart loading dock along with three nights a week of slinging Seaside Shrimp Trios for the local Red Lobster. Of course, there are a few choice perches in venture capital out in Silicon Valley, or concocting collateralized loan obligations in the aeries of Wall Street — but nobody is playing Aaron Copeland’s Fanfare for the Common Man to celebrate these endeavors.

There’s a macabre equivalency between our various overseas war operations and the school shootings that are now a routine feature of American daily life. The purposes are equally obscure and the damage is just as impressive — many lives ruined for no good reason. But consider more lives are lost every year in highway crashes than in the Mexican War of the 1840s and more Americans are dying each year lately of opioid overdoses than the entire death toll of the Vietnam War. America’s soul is at war with its vaunted way-of-life.

It’s hard to be an empire, for sure, but it’s even harder, apparently, to be a truly virtuous society. First, I suppose, you have to be not insane. It’s hard to think of one facet of American life that’s not insane now. Our politics are insane. Our ideologies are insane. The universities are insane. Medicine is insane. Show biz is insane. Sexual relations are insane. The arts are insane. The news media is utterly insane. And what passes for business enterprise in the USA these days is something beyond insane, like unto the swarms of serpents and bats issuing from some mouth of hell in the medieval triptychs. How do you memorialize all that?

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“..the trade renege could leave Washington dancing with itself..”

China Slams Surprise US Trade Announcement, Says Ready To Fight (R.)

China on Wednesday lashed out at Washington’s unexpected statement that it will press ahead with tariffs and restrictions on investments by Chinese companies, saying Beijing was ready to fight back if Washington was looking to ignite a trade war. The United States said on Tuesday that it still held the threat of imposing tariffs on $50 billion of imports from China and would use it unless Beijing addressed the issue of theft of American intellectual property. The declaration came after the two sides had agreed earlier this month to look at steps to narrow China’s $375 billion trade surplus with America, and days ahead of a visit to Beijing by U.S. Commerce Secretary Wilbur Ross for further negotiations.

William Zarit, chairman of the American Chamber of Commerce in China, said Washington’s threat of tariffs appeared to have been “somewhat effective” thus far. “I don’t think it is only a tactic, personally,” he told reporters on Wednesday, adding that the group does not view tariffs as the best way to address the trade frictions. “The thinking became that if the U.S. doesn’t have any leverage and there is no pressure on our Chinese friends, then we will not have serious negotiations.” [..] The Global Times said the United States was suffering from a “delusion” and warned that the “trade renege could leave Washington dancing with itself”.

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What you get with bogus claims of full employment.

High Number Of Workers With No Pay Raise Says Inflation Worries Overblown (MW)

An unusually high percentage of American workers still aren’t getting pay raises nine years after the end of the Great Recession — and that suggests the threat of inflation is still quite low. Some senior Federal Reserve officials, including Kansas City Fed President Esther George, want to raise U.S. interest rates more rapidly to head off the potential for higher wages to stoke inflation. The specter of higher rates has pushed up interest rates and acted as a drag on stocks. Yet a new report by researchers at the regional central bank George leads to suggest there’s little cause for alarm.

The Kansas City Fed researchers found that an abnormally high share of employees still in the same jobs haven’t received a pay raise in the last 12 months despite a 3.9% unemployment rate that is the lowest in almost two decades. Economists refer to the phenomenon as “wage rigidity.” [..] The rate of future wage growth in the U.S. also tends to rise more slowly than usual when a high number of people aren’t getting any raises at all, the research suggests. In the most recent 12-month period ended in April, hourly U.S. wages increased at a 2.6% rate. Normally when the unemployment rate is as low as it is now, wages tend to rise 3.5% to 4.5% year.

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What they claimed would never happen.

industrial-Scale Beef Farming Comes To The UK (G.)

Thousands of British cattle reared for supermarket beef are being fattened in industrial-scale units where livestock have little or no access to pasture. Research by the Guardian and the Bureau of Investigative Journalism has established that the UK is now home to a number of industrial-scale fattening units with herds of up to 3,000 cattle at a time being held in grassless pens for extended periods rather than being grazed or barn-reared. Intensive beef farms, known as Concentrated Animal Feeding Operations (CAFOs) are commonplace in the US. But the practice of intensive beef farming in the UK has not previously been widely acknowledged – and the findings have sparked the latest clash over the future of British farming.

The beef industry says that the scale of operations involved enables farmers to rear cattle efficiently and profitably, and ensure high welfare standards. But critics say there are welfare and environmental concerns around this style of farming, and believe that the farms are evidence of a wider intensification of the UK’s livestock sector which is not being sufficiently debated, and which may have an impact on small farmers. In contrast to large intensive pig and poultry farms, industrial beef units do not require a government permit, and there are no official records held by DEFRA on how many intensive beef units are in operation. But the Guardian and the Bureau has identified nearly a dozen operating across England. [..] The largest farms fatten up to 6,000 cattle a year.

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Stop the madness!

Meat And Fish Multinationals ‘Jeopardising Paris Climate Goals’ (G.)

Meat and fish companies may be “putting the implementation of the Paris agreement in jeopardy” by failing to properly report their climate emissions, according to a groundbreaking index launched today. Three out of four (72%) of the world’s biggest meat and fish companies provided little or no evidence to show that they were measuring or reporting their emissions, despite the fact that, as the report points out, livestock production represents 14.5% of all greenhouse gas emissions. “It is clear that the meat and dairy industries have remained out of public scrutiny in terms of their significant climate impact.

For this to change, these companies must be held accountable for the emissions and they must have credible, independently verifiable emissions reductions strategy,” said Shefali Sharma, director of the Institute for Agriculture and Trade Policy European office. The new Coller FAIRR Protein Producers Index has examined the environmental and social commitments of 60 of the world’s largest meat and fish producers and found that more than half are failing to properly document their impact, despite their central role in our lives and societies.

Many of the names in the index will be unfamiliar, but their consolidated revenues of $300bn cover around one-fifth of the global livestock and aquaculture market – roughly one in every five burgers, steaks or fish. The companies looked at by the index include giants like the Australian Agricultural Company, which has the biggest cattle herd in the world; the Chinese WH Group, the largest global pork company; or the US’s Sandersons, which processes more than 10 million chickens a week.

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Oct 042016
 
 October 4, 2016  Posted by at 9:36 am Finance Tagged with: , , , , , , , , ,  


Howard Hollem Assembly and Repairs Department Naval Air Base, Corpus Christi 1942

‘I Defy Any Analyst To Tell Me What Deutsche’s Derivatives Are Worth’ (Price)
IMF and ECB Don’t Even See Their Destruction of Greece as a Failure (M. Hudson)
The New Confessions of an Economic Hit Man (Yes!)
Median S&P 500 Stock Is More Overvalued Than At Any Point In History (Hussman)
TARGET2 Shows Europe’s Banking Crisis Is Escalating Again – Fast (Gerifa)
US Stock Buyback Plans Drop To 5 Year Low (ZH)
Subprime Auto-Loan Backed Securities Turn Toxic (WS)
Putin Suspends Plutonium Cleanup Accord With US Citing ‘Unfriendly’ Acts (R.)
Predictable Presidential Temperament (Scott Adams)
When It Comes to Tax Avoidance, Donald Trump’s Just a Small Fry (NYT)
ING Announces 7,000 Job Cuts As Unions Condemn ‘Horror Show’ (G.)
Why Biologists Don’t Believe In Race (BBG)
Bid For Strongest Protection For All African Elephants Defeated At Summit (G.)
EU Signs Deal To Deport Unlimited Numbers Of Afghan Asylum Seekers (G.)
Over 6,000 Migrants Rescued From Mediterranean In A Single Day, 22 Dead (R.)

 

 

Mark-to-Myth.

‘I Defy Any Analyst To Tell Me What Deutsche’s Derivatives Are Worth’ (Price)

This is getting to be a habit. Previous late summer holidays by this correspondent coincided with the run on Northern Rock, and subsequently with the failure of Lehman Brothers. So the final crawl towards the probable nationalisation of Deutsche Bank came as no particular surprise this year, but it is tiresome to relate nevertheless. The 2015 annual report for Deutsche Bank runs to some 448 pages, so one rather doubts if even its CEO, John Cryan, has read it all, or has a complete grasp of, for example, its €42 trillion in total notional derivatives exposure.

Is Deutsche Bank technically insolvent? We’d suggest that it probably is, but we have no dog in the fight, having never either owned banks, or shorted them. And like everybody else we assume that some kind of fix will soon be in – probably one that will further vindicate exposure to gold, both as money substitute and currency substitute. Professor Kevin Dowd, asking whether Deutsche Bank ist kaputt, suggests that the bank’s derivatives exposure is difficult to assess rationally; the value of its derivatives book:

“is unreliable because many of its derivatives are valued using unreliable methods. Like many banks, Deutsche uses a three-level hierarchy to report the fair values of its assets. The most reliable, Level 1, applies to traded assets and fair-values them at their market prices. Level 2 assets (such as mortgage-backed securities) are not traded on open markets and are fair-valued using models calibrated to observable inputs such as other market prices. The murkiest, Level 3, applies to the most esoteric instruments (such as the more complex/illiquid Credit Default Swaps and Collateralized Debt Obligations) that are fair-valued using models not calibrated to market data – in practice, mark-to-myth. The scope for error and abuse is too obvious to need spelling out.”

[As Compass Point’s Charles Peabody exclaims “I defy any analyst to tell me what that {derivative} portfolio is worth.”]

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Michael Hudson reviews Galbraith’s latest book. Europe’s Economic Hit Men.

IMF and ECB Don’t Even See Their Destruction of Greece as a Failure (M. Hudson)

[..] instead of an emerging “European superstate” run by elected representatives empowered to promote economic recovery and growth by writing down debts in order to revive employment, the Eurozone is being run by the troika on behalf of bondholders and banks. ECB and EU technocrats are serving these creditor interests, not those of the increasingly indebted population, business and governments. The only real integration has been financial, empowering the ECB to override national sovereignty to dictate public spending and tax policy. And what they dictate is austerity and economic shrinkage. In addition to a writeoff of bad debts, an expansionary fiscal policy is needed to save the eurozone from becoming a dead zone.

But the EU has no unified tax policy, and money creation to finance deficit spending is blocked by lack of a central bank to monetize government deficits under control of elected officials. Europe’s central bank does not finance deficit spending to revive employment and economic growth. “Europe has devoted enormous effort to create a ‘single market’ without enlarging any state, and while pretending that the Central Bank cannot provide new money to the system.” Without monetizing deficits, budgets must be cut and the public domain sold off, with banks and bondholders in charge of resource allocation. As long as “the market” means keeping the high debt overhead in place, the economy will be sacrificed to creditors. Their debt claims will dominate the market and, under EU and ECB rules, will also dominate the state instead of the state controlling the financial system or even tax policy.

Galbraith calls this financial warfare totalitarian, and writes that while its philosophical father is Frederick Hayek, the political forbear of this market Bolshevism is Stalin. The result is a crisis that “will continue, until Europe changes its mind. It will continue until the forces that built the welfare state in the first place rise up to defend it.” To prevent such a progressive policy revival, the troika promotes regime change in recalcitrant economies, such as it deemed Syriza to be for trying to resist creditor commitments to austerity. Crushing Greece’s Syriza coalition was openly discussed throughout Europe as a dress rehearsal for blocking the Left from supporting its arguments. “Governments from the Left, no matter how free from corruption, no matter how pro-European,” Galbraith concludes, “are not acceptable to the community of creditors and institutions that make up the European system.”

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“..it is not an American empire, it’s not helping Americans. It’s exploiting us in the same way that we used to exploit all these other countries around the world.”

The New Confessions of an Economic Hit Man (Yes!)

Sarah van Gelder : What’s changed in our world since you wrote the first Confessions of an Economic Hit Man?

John Perkins : Things have just gotten so much worse in the last 12 years since the first Confessions was written. Economic hit men and jackals have expanded tremendously, including the United States and Europe. Back in my day we were pretty much limited to what we called the third world, or economically developing countries, but now it’s everywhere. And in fact, the cancer of the corporate empire has metastasized into what I would call a failed global death economy. This is an economy that’s based on destroying the very resources upon which it depends, and upon the military. It’s become totally global, and it’s a failure.

van Gelder : So how has this switched from us being the beneficiaries of this hit-man economy, perhaps in the past, to us now being more of the victims of it?

Perkins : It’s been interesting because, in the past, the economic hit man economy was being propagated in order to make America wealthier and presumably to make people here better off, but as this whole process has expanded in the U.S. and Europe, what we’ve seen is a tremendous growth in the very wealthy at the expense of everybody else. On a global basis we now know that 62 individuals have as many assets as half the world’s population. We of course in the U.S. have seen how our government is frozen, it’s just not working. It’s controlled by the big corporations and they’ve really taken over. They’ve understood that the new market, the new resource, is the U.S. and Europe, and the incredibly awful things that have happened to Greece and Ireland and Iceland, are now happening here in the U.S. We’re seeing this situation where we can have what statistically shows economic growth, and at the same time increased foreclosures on homes and unemployment.

van Gelder : Is this the same kind of dynamic about debt that leads to emergency managers who then turn over the reins of the economy to private enterprises? The same thing that you are seeing in third-world countries?

Perkins : Yes, when I was an economic hit man, one of the things that we did, we raised these huge loans for these countries, but the money never actually went to the countries, it went to our own corporations to build infrastructure in those countries. And when the countries could not pay off their debt, we insisted that they privatize their water systems, their sewage systems, their electric systems. Now we’re seeing that same thing happen in the United States. Flint, Michigan, is a very good example of that. This is not a U.S. empire, it’s a corporate empire protected and supported by the U.S. military and the CIA. But it is not an American empire, it’s not helping Americans. It’s exploiting us in the same way that we used to exploit all these other countries around the world.

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“..easily exceeding the overvaluation observed at the 2000 and 2007 pre-crash extremes.”

Median S&P 500 Stock Is More Overvalued Than At Any Point In History (Hussman)

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit.” – Chicago Tribune, April 1890

[..] I’ve noted before that while the bubble peak in 2000 was the most extreme level of valuation in history on a capitalization-weighted basis, the recent speculative episode has actually exceeded that bubble from the standpoint of speculation in individual stocks. The most reliable measures of individual stock valuation we’ve found are based on formal discounted cash flow considerations, but among publicly-available measures we’ve evaluated, price/revenue ratios are better correlated with actual subsequent returns than price/earnings ratios (though normalized profit margins and other factors are obviously necessary to make cross-sectional comparisons).

The chart below shows the median price/revenue ratio across all S&P 500 components, in data since 1986. I should note that from a long-term perspective, the valuation levels we observed in 1986 are actually close to very long-term historical norms over the past century, as the pre-bubble norm for the market price/revenue ratio is just 0.8 in data since 1940. With the exception of 1986, and the 1987, 1990 and 2009 lows, which were moderately but not severely below longer-term historical norms, every point in this chart is “above average” from the standpoint the longer historical record. Presently, the median stock in the S&P 500 is more overvalued than at any point in U.S. history, easily exceeding the overvaluation observed at the 2000 and 2007 pre-crash extremes.

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Unstoppable. There’s not enough fingers for al the holes in the dikes.

TARGET2 Shows Europe’s Banking Crisis Is Escalating Again – Fast (Gerifa)

Problems of Deutsche Bank, Commerzbank, Monte dei Paschi and other German, Italian and Spanish banks are not the only concern of the European Banking System. Trouble is much deeper than it is thought because there is a systemic imbalance that has been increasing for almost ten years. Politicians do not want to tell us the truth, but soon we will experience the same crisis in the Monetary Union as we did in 2012. The extent of the problems in the European Banking System is TARGET2 and its balances of the National Central Banks of the Eurosystem. These balances, or rather imbalances, reflect the direction of the capital flight. And there is only one way: from Southern Europe into Germany. After Draghi’s famous words “I do whatever it takes to save the euro”, things seemed to improve; however, since January 2015 problems have been escalating again.


TARGET2, (i.e. Trans-European Automated Real-Time Gross Settlement Express Transfer System), is a clearing system which allows commercial banks in Europe to conduct payment transactions in the euro through National Central Banks (NCB) and the European Central Bank (ECB).

The excess money flow from banks in one country to banks in another country has to be compensated for. It can be done with loans or so called interbank lending. If there is no compensation from the interbank market (because banks do not trust each other any more) then country A has a liability and country B has a claim and compensation comes from the ECB. Therefore TARGET2 balances are net claims and liabilities of the euro area NCBs vis-a-vis the ECB. As long as the interbank money market in Europe functioned correctly, balances were relatively stable. Excess money that flows from Greece to Germany was compensated for with the purchase of Greek bonds or by interbank lending. However, after the crisis in the Euro Area, banks have stopped lending each other money and the compensation has to be provided by the central bank.

As the Euro Crisis Monitor shows, on the basis of the ECB data, the money is going now to Germany and also to Luxembourg, the Netherlands and Finland, while all other national banks have increasing liabilities! The worst situation is in Spain and Italy who are now close to the 2012 negative records. The current imbalance, or the excessive flow of money from Southern Europe to Northern Europe is not related to the trade balance deficit. Spain and Italy have managed to reduce their trade balance deficits. We hope clients from Banca Monte dei Paschi di Siena have not moved their money to Deutsche Bank. The Greek balance seems to be improving, but it is due to capital control: banks in Greece are limited in using the system.

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The only game is leaving town.

US Stock Buyback Plans Drop To 5 Year Low (ZH)

The value of stock buyback announcements from U.S. companies slowed to its lowest level in nearly five years, dropping to a fresh nine quarter low, TrimTabs Investment Research said on Monday, potentially jeopardizing one of the main drivers of the rising stock market. TrimTabs calculated that buybacks rebounded to $59.9 billion in September from a 3.5 year low of $21.5 billion in August, but two-thirds of last month’s volume was due to a single buyback by Microsoft. The 39 buybacks rolled out last month was the lowest number in a month since January 2011. “Buybacks have been trending lower for the past two years, which is a cautionary longer-term signal for U.S. equities,” said Winston Chua, analyst at TrimTabs. “Along with central bank asset purchases, buybacks have been a key pillar of support for the bull market.”

Somewhat surprisingly, the decline in buybacks takes place even as corporations issue record amounts of debt which in previous years was largely put toward stock repurchases but is increasingly going to fund maturing debt due to a rising rollover cliff in the coming year. “The U.S. stock market isn’t likely to get as much of a boost from buybacks as it did in recent years,” noted Chua. “Apart from big tech firms and the too-big-to-fails, fewer companies seem willing to use lots of cash to support share prices. One month ago, David Santschi, CEO of TrimTabs, warned that “buyback activity has been disappointing in earnings season”, a trend that has persisted in the coming weeks. “The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead.”

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As car sales are already under threat.

Subprime Auto-Loan Backed Securities Turn Toxic (WS)

In the subprime auto loan market, things are turning ugly as delinquencies and losses have begun soaring. Specialized lenders – a couple of big ones, and a whole slew of small ones that service the lower end of the subprime market – slice and dice these loans, repackage them into auto-loan backed securities (auto ABS), and sell them to investors, such as yield-hungry pension funds. Delinquencies of 60 days and higher among subprime auto ABS increased by 22% year-over-year in August, Fitch Ratings reported on Friday – now amounting to 4.9% of the outstanding balances that Fitch tracks and rates. And subprime annualized losses increased by 27% year-over-year, reaching 8.9% of the outstanding balances of auto ABS.

Even delinquencies among prime borrowers are rising, with delinquencies of 60 days or more increasing by 17% from a year ago, and annualized losses by 11%, though they’re still relatively tame at 0.4% and 0.6% respectively of the balances outstanding. And according to Fitch, the toxicity level in the subprime auto ABS space isgoing to rise, with “subprime auto losses to pierce 10% by year-end.” Total auto loan balances, both subprime and prime – given the soaring prices of cars, the stretched terms of the loans, and the ballooning loan-to-value ratios – have been skyrocketing, up 46% from the first quarter in 2011 through the second quarter in 2016, when they hit $1.07 trillion:

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“..taking into account this tension (in relations) in general … the Russian side considers it impossible for the current state of things to last any longer.”

Putin Suspends Plutonium Cleanup Accord With US Citing ‘Unfriendly’ Acts (R.)

Russian President Vladimir Putin on Monday suspended an agreement with the United States for disposal of weapons-grade plutonium because of “unfriendly” acts by Washington, the Kremlin said. A Kremlin spokesman said Putin had signed a decree suspending the 2010 agreement under which each side committed to destroy tonnes of weapons-grade material because Washington had not been implementing it and because of current tensions in relations. The two former Cold War adversaries are at loggerheads over a raft of issues including Ukraine, where Russia annexed Crimea in 2014 and supports pro-Moscow separatists, and the conflict in Syria.

The deal, signed in 2000 but which did not come into force until 2010, was being suspended due to “the emergence of a threat to strategic stability and as a result of unfriendly actions by the United States of America towards the Russian Federation”, the preamble to the decree said. It also said that Washington had failed “to ensure the implementation of its obligations to utilize surplus weapons-grade plutonium”. The 2010 agreement, signed by Russian Foreign Minister Sergei Lavrov and then-U.S. Secretary of State Hillary Clinton, called on each side to dispose of 34 tonnes of plutonium by burning in nuclear reactors. Clinton said at the time that that was enough material to make almost 17,000 nuclear weapons.

Both sides then viewed the deal as a sign of increased cooperation between the two former adversaries toward a joint goal of nuclear non-proliferation. “For quite a long time, Russia had been implementing it (the agreement) unilaterally,” Kremlin spokesman Dmitry Peskov told a conference call with journalists on Monday. “Now, taking into account this tension (in relations) in general … the Russian side considers it impossible for the current state of things to last any longer.”

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Dilbert creator Scott Adams was apparently “shadowbanned” by Twitter in the aftermath of this post for asking his followers for examples of Clinton supporters being violent against peaceful Trump supports in public.

Predictable Presidential Temperament (Scott Adams)

Do you remember the time someone insulted Donald Trump and then Trump punched him in the nose? Neither do I. Because nothing like that has ever happened. Instead, people attack Donald Trump with words (often) and he attacks them back with words. See if the following pattern looks familiar: 1. Person A insults Trump with words. Trump insults back with words. 2. Person B mentions some sort of scandal about Trump. Trump mentions some sort of scandal about Person B. 3. Person C endorses Trump (even if they publicly feuded before) and Trump immediately says something nice about Person C. The feud is instantly over. See the pattern? Consider how many times you have seen the pattern repeat with Trump. It seems endless. And consistent.

Trump replies to critics with proportional force. His reaction is as predictable as night following day. The exceptions are his jokey comments about roughing up protesters at his rallies. The rally-goers recognize it as entertainment. I won’t defend his jokes at rallies except to say that it isn’t a temperament problem when you say something as a joke and people recognize it as such. (We see his rally joke-comments out of context on news coverage so they look worse.) What we have in Trump is the world’s most consistent pattern of behavior. For starters, he only responds to the professional critics, such as the media and other politicians. When Trump responded to the Khan family and to Miss Universe’s attacks, they had entered the political arena.

As far as I know, private citizens – even those critical of Trump – have never experienced a personal counter-attack. Trump limits his attacks to the folks in the cage fight with him. And when Trump counter-attacks, he always responds with equal measure. Words are met with words and scandal mentions are met with scandal mentions. (And maybe a few words.) But always proportionate and immediate. Does any of that sound dangerous? What if Trump acted this way to our allies and our adversaries? What then? Answer: Nothing Our allies won’t insult Trump, and they won’t publicly mention any his alleged scandals. They will respect the office of the President of the United States no matter what they think of Trump.

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“Avoidance” is already a leading, and therefore unfortunate, term.

When It Comes to Tax Avoidance, Donald Trump’s Just a Small Fry (NYT)

Not paying taxes “makes me smart,” Donald J. Trump said last week. His surrogates called him “a genius” for his recently revealed tax avoidance strategies. Well, if they are right, the executives running corporate America are absolute virtuosos. An exhaustive study being released on Tuesday by a group of researchers shows in detail how Fortune 500 companies have managed to shelter trillions of dollars in profits offshore from being taxed. Mr. Trump’s efforts pale by comparison. Worse, the companies have managed to hide many of their tax havens completely, in many cases reporting different numbers to different government agencies to obfuscate exactly how they’ve avoided Uncle Sam. And, yes, it is all legal.

The immediate response from many readers may be ire for the companies avoiding taxes — or for Mr. Trump. But that’s not the goal of this particular column. In this case, that kind of thinking may even be counterproductive. Instead, the study — which notes that 58 Fortune 500 companies would owe $212 billion in additional federal taxes, “equal to the entire state budgets of California, Virginia and Indiana combined,” if they were taxed properly — should be a five-alarm call to voters and lawmakers to finally fix the tax system. If all the attention on Mr. Trump’s tax bill (or lack of one) isn’t enough to inspire a complete rewrite of the tax code, this study may be. The authors of the report, which include the U.S. PIRG Education Fund and Citizens for Tax Justice, combed through the filings of the Fortune 500 for 2015 and found an astonishing 73% “maintained subsidiaries in offshore tax havens.”

Maybe it is to be expected. Companies and individuals complain bitterly that taxes are too high and the rules too complicated, but many corporations and the wealthiest members of our society have found ways to make the tax code work for them. If all the Fortune 500 companies paid taxes on their sheltered profits, the researchers tallied, the government would receive a whopping $717.8 billion windfall. To put that number in context, the 2015 federal budget deficit was $438 billion. However, fixing our corporate tax system alone isn’t the answer to reducing our red ink; it might only be a drop in the bucket given that our total federal debt is nearing $20 trillion.

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Government bails out bank with taxpayers money, which then goes and fires taxpayers. What’s wrong with this picture?

ING Announces 7,000 Job Cuts As Unions Condemn ‘Horror Show’ (G.)

ING’s plans to shed 7,000 jobs and invest in its digital platforms to make annual savings of €900m by 2021 has drawn swift criticism of the Netherlands’ largest financial services company from unions. The layoffs represent slightly less than 12% of ING’s 52,000 workforce, because nearly 1,000 are expected to come at suppliers rather than at the bank itself. But they are the heaviest since 2009, when ING was forced to restructure and spin off its insurance activities after receiving a state bailout during the financial crisis. Unions were highly critical.

“I don’t think this was the intention of the [government] when it kept ING afloat with bailout money,” Ike Wiersinga of the Dutch union CNV said. In Belgium, where the number of jobs lost will be highest, labour leader Herman Vanderhaegen called the decision a “horror show” and said workers would strike on Friday 7 October. Although other large banks have announced mass layoffs at branch offices in the past year to boost profitability, ING said the job cuts were partly to combine technology platforms and risk-control centres, as well to help it to contend with regulatory burdens and low interest rates.

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Race is an invention to justify terrorizing groups of people.

Why Biologists Don’t Believe In Race (BBG)

Race is perhaps the worst idea ever to come out of science. Scientists were responsible for officially dividing human beings into Europeans, Africans, Asians and Native Americans and promoting these groups as sub-species or separate species altogether. That happened back in the 18th century, but the division lends the feel of scientific legitimacy to the prejudice that haunts the 21st. Racial tension proved a major point of contention in the first 2016 presidential debate, and yet just days before, scientists announced they’d used wide-ranging samples of DNA to add new detail to the consensus story that we all share a relatively recent common origin in Africa.

While many human species and sub-species once roamed the planet, there’s abundant evidence that beyond a small genetic contribution from Neanderthals and a couple of other sub-species, only one branch of humanity survived to the present day. Up for grabs was whether modern non-Africans stemmed from one or more migrations out of Africa. The newest data suggests there was a single journey – that sometime between 50,000 and 80,000 years ago, a single population of humans left Africa and went on to settle in Asia, Europe, the Americas, the South Pacific, and everywhere else. But this finding amounts to just dotting the i’s and crossing the t’s on a scientific view that long ago rendered notion of human races obsolete.

“We never use the term ‘race,’ ” said Harvard geneticist Swapan Mallick, an author on one of the papers revealing the latest DNA-based human story. “We’re all part of the tapestry of humanity, and it’s interesting to see how we got where we are.” That’s not to deny that people vary in skin color and other visible traits. Whether you’re dark or light, lanky or stocky depends in part on the sunlight intensity and climate in the regions where your ancestors lived. Nor is it to deny that racism exists – but in large part, it reflects a misinterpretation of those superficial characteristics. “There is a profound misunderstanding of what race really is,” Harvard anthropology professor Daniel Lieberman said at an event the night after the presidential debate. “Race is a scientifically indefensible concept with no biological basis as applied to humans.”

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Titanic and the Deckchairs. Nice name for a band. But with this I’m more convinced than ever that we will need to put the death penalty on killing elephants and lions and many other species. And we have to put our armies to good use, ours, not that of the military-industrial complex. Mankind will not survive with the natural world that gave birth to it, thoroughly decimated. And if you doubt that, ask yourself why on earth we should take the chance. And have our children know the most iconic animals on earth only from photos from the past.

Bid For Strongest Protection For All African Elephants Defeated At Summit (G.)

A bid to give the highest level of international legal protection to all African elephants was defeated on Monday at a global wildlife summit. The EU played a pivotal role in blocking the proposal, which was fought over by rival groups of African nations. But the Convention on the International Trade in Endangered Species (Cites), meeting this week in Johannesburg, passed other new measures for elephants that conservationists say will add vital protection. All 182 nations agreed for the first time that legal ivory markets within nations must be closed. Separately, a process that could allow one-off sales of ivory stockpiles was killed and tougher measures to deal with nations failing to control poached ivory were agreed.

More than 140,000 of Africa’s savannah elephants were killed for their ivory between 2007 and 2014, wiping out almost a third of their population, and one elephant is still being killed by poachers every 15 minutes on average. The price of ivory has soared threefold since 2009, leading conservationists to fear the survival of the species is at risk. The acrimonious debate over elephant poaching has split African countries. Namibia, South Africa and Zimbabwe, which host about a third of all remaining elephants, have stable or increasing populations. They argue passionately that elephant numbers are also suffering from loss of habitat and killings by farmers and that they can only be protected by making money from ivory sales and trophy hunting.

[..] Kelvin Alie, at the International Fund for Animal Welfare, said the failure to put all elephants on appendix one was a disaster: “This is a tragedy for elephants. At a time when we are seeing such a dramatic increase in the slaughter of elephants for ivory, now was the time for the global community to step up and say no more.”

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FIghting rages across Afghanistan as we speak. It has ever since ‘western interests’ invaded.

EU Signs Deal To Deport Unlimited Numbers Of Afghan Asylum Seekers (G.)

The EU has signed an agreement with the Afghan government allowing its member states to deport an unlimited number of the country’s asylum seekers, and obliging the Afghan government to receive them. The deal has been in the pipeline for months, leading up to a large EU-hosted donor conference in Brussels this week. According to a previously leaked memo, the EU suggested stripping Afghanistan of aid if its government did not cooperate. The deal, signed on Sunday, has not been made public but a copy seen by the Guardian states that Afghanistan commits to readmitting any Afghan citizen who has not been granted asylum in Europe, and who refuses to return to Afghanistan voluntarily. It is the latest EU measure to alleviate the weight of the many asylum seekers who have arrived since early 2015. Afghans constituted the second-largest group of asylum seekers in Europe, with 196,170 applying last year.

While the text stipulates a maximum of 50 non-voluntary deportees per chartered flight in the first six months after the agreement, there is no limit to the number of daily deportation flights European governments can charter to Kabul. With tens of thousands set to be deported, both sides will also consider building a terminal dedicated to deportation flights at Kabul international airport. The agreement, Joint Way Forward, also opens up the deportation of women and children, which at the moment almost exclusively happens from Norway: “Special measures will ensure that such vulnerable groups receive adequate protection, assistance and care throughout the whole process.” If family members in Afghanistan cannot be located, unaccompanied children can be returned only with “adequate reception and care-taking arrangement having been put in place in Afghanistan”, the text says.

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On and on and on and on.

Over 6,000 Migrants Rescued From Mediterranean In A Single Day, 22 Dead (R.)

About 6,055 migrants were rescued and 22 found dead on the perilous sea route to Europe on Monday, one of the highest numbers in a single day, Italian and Libyan officials said. Italy’s coastguard said at least nine migrants had died and a pregnant woman and a child had been taken by helicopter to a hospital on the Italian island of Lampedusa, halfway between Sicily and the Libyan coast. Libyan officials said 11 migrant bodies had washed up on a beach east of the capital, Tripoli, and another two migrants had died when a boat sank off the western city of Sabratha. One Italian coast guard ship rescued about 725 migrants on a single rubber boat, one of some 20 rescue operations during the day.

About 10 ships from the coast guard, the navy and humanitarian organisations were involved in the rescues, most of which took place some 30 miles off the coast of Libya. Libyan naval and coastguard patrols intercepted three separate boats carrying more than 450 migrants, officials said. Monday was the third anniversary of the sinking of a migrant boat off the Italian island of Lampedusa in which 386 people died. According to the International Organisation for Migration, around 132,000 migrants have arrived in Italy since the start of the year and 3,054 have died.

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May 292015
 
 May 29, 2015  Posted by at 2:32 pm Finance Tagged with: , , , , , , ,  


Walker Evans Saint Charles Street. Liberty Theatre, New Orleans 1935

With the 3rd US Q1 GDP print coming in at -0.7% (-3% if not for inventories), perhaps the media spotlights – and lively imagination – can move away from Greece for a few weeks. The US has enough problems of its own, it would seem. For one thing, its Q1 GDP is now worse than Greece’s. Of course its debt is also much higher, just not to the IMF and ECB. But let’s leave that one be for the moment. Though a bit of perspective works miracles at times.

Of course it’s not a technical recession yet for the US, which only recently presented a +4% quarter with a straight face, and there’s always the ‘multiple seasonal adjustment’ tool. But still. It’s ugly.

The IMF confirmed on Thursday that Athens has the right to ask for “bundled” repayments in June. “Countries do have the option of bundling when they have a series of payments in a given month … making a single payment at the end of that month,” as per an IMF spokesman. Who added that the last country to do so was Zambia three decades ago.

That leaves Athens, in theory, with a 30-day window, not a 7-day one. This of course takes the pressure cooker away from Athens, and the media attention as well. There is no immediate risk of a default, or a Grexit, or anything like that. The negotiations with the creditors will continue, but the conversation will change with time less of an issue.

One thing that’s changing is that the pressure on the other eurozone countries is rising fast. They might yet get to regret the way ‘their side’ conducts the debt talks with Syriza, in which they are a party through the eurogroup of finance ministers. Because it makes ever more deposits disappear from Greek banks, some €300 million in the past few days alone. That triggers a eurozone ‘program’ entitled Target2. For those who don’t know what it is, I’ll use an explanation by Mish from 2012:

If a Greek depositor sends money to a foreign bank (say a German bank), that bank now has additional deposits. To the extent it doesn’t want to recycle them (in the past, it may have used them to buy Greek government bonds), it deposits them with a national central bank – in this case the Bundesbank. Target claims are created because the Greek bank that loses deposits gets funding via the ECB’s ELA (Emergency Liquidity Assistance) program.

Simply put, the ECB sends money to the Bank of Greece in a kind of open credit line to make up for the cash that left the Greek bank. There are some restrictions, but not many. This is not a major problem unless Greece changes currencies, or defaults. If it does, Greece will repay the credit line with Drachmas, not euros.

There are quite a few other ways in which the rest to the eurozone is on the hook for Greek debts, but this is a major one. RIght now, so-called ‘Intra-Eurosystem Liabilities’ from the Greek national bank, the Bank of Greece, have risen to €115 billion and counting -fast-. Germany’s on the hook for 27% of that, or €31 billion. While that is not life threatening for Germany, other countries will not feel that comfortable.

Countries like Spain and Portugal may by now scratch their heads about taking a hard line on the Greek issue. They may not have fully realized to what extent the eurozone is indeed a shared commitment. All eurozone nations now have at least another 30 days to think that over. The main risk in that period is that Greece may decide to leave on its own.

The 30-day grace period will probably dampen the deposit outflows for a bit, depending on what both parties have to offer in the way of statements going forward. And the incumbent ‘leaders’ in various countries can use the time to try and tell the troika that they don’t want to explain the potential losses to their voters. There are elections coming up all over, starting with Italy this weekend.

There is another possibility: that the ECB makes good on its long running threat of limiting Greek banks’ access to the ELA program. But, given the 30-day ‘grace’, and given that it would be seen as a political move by at least some parties, that seems unlikely. And it’s not like the entire thing has now become predictable, just that there’s breathing space. In which clearer -and smarter- heads can prevail.

As for the US, it’s spring, the season to adjust. But -0.7% still stings, and things ain’t going well at all no matter what anybody tells you.