Aug 112017
 
 August 11, 2017  Posted by at 8:36 am Finance Tagged with: , , , , , , , ,  7 Responses »
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Jackson Pollock Reflection of the Big Dipper 1947

 

It’s Hard to Price an ‘Extinction Event’ Like a North Korea War (BBG)
In Debt We Trust for US Consumers With $12.7 Trillion Burden (BBG)
Tesla Cars Aren’t As Carbon (And Taxpayer) Friendly As You Think (FMS)
Uber Gets Run Over by its Own Subprime Auto Leases (WS)
Amazon Online Grocery Boom? Not So Fast… (WS)
Amazon Paid Just £15 Million In Tax On European Revenues Of £19.5 Billion (G.)
Airbnb Faces EU Clampdown For Not Paying ‘Fair Share’ Of Tax (G.)
Trump Will Soon Declare State Of Emergency Over Opioid Crisis (G.)
Why Saudi Arabia And Israel Have United Against Al-Jazeera (FIsk)
‘Subprime Is Contained’ -They Really Don’t Know What They Are Doing (Snider)
What Went Wrong With the 21st Century? (Bonner)
Black Swan At Bavarian Palace Seeks Partner (DW)

 

 

There are many voices saying crazy things in this North Korea thing, and I’m not even watching CNN. But this is the craziest thing of all: how to make money off a nuclear attack. These people are mentally blind.

It’s Hard to Price an ‘Extinction Event’ Like a North Korea War (BBG)

Financial markets haven’t really reacted much to the escalation in tensions between the U.S. and North Korea, and some observers explain that it’s largely because in the worst-case scenario it’s impossible to guess the appropriate price for things like stocks and bonds. “It’s hard to price a potentially extinction event (at least for much of the Korean peninsula),” is how Timothy Ash, a senior strategist at Bluebay Asset Management in London, puts it. It’s a point also made by Mark Mobius, the Templeton Emerging Markets Group executive chairman and apostle for emerging-market investing. He said in a May interview about the prospect of a North Korean nuclear conflict: “there’s nothing you can do about it – if something breaks out, we’re all finished anyway.” Maybe that’s why the worst day this year for the Kospi index of South Korean stocks was July 28, which was all about a global tech-stock retreat and nothing to do with geopolitics.

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“This increase in leverage has sapped our ability to spend,” Roberts said. “I think we’re stuck.”

In Debt We Trust for US Consumers With $12.7 Trillion Burden (BBG)

After deleveraging in the aftermath of the last U.S. recession, Americans have once again taken on record debt loads that risk holding back the world’s largest economy. Household debt outstanding – everything from mortgages to credit cards to car loans – reached $12.7 trillion in the first quarter, surpassing the previous peak in 2008 before the effects of the housing market collapse took its toll, Federal Reserve Bank of New York data show. To put the borrowing in perspective, it’s more than the size of China’s economy or almost four times that of Germany’s. People are borrowing more not necessarily because they’re confident about their financial prospects. They’re doing it for necessities like education or transportation and, in many cases, just to get by.

On the surface, liabilities at an all-time high aren’t alarming when the assets side of ledger is taken into account. Household net worth stands at a record $94.8 trillion, thanks to rebounding home values and soaring stock portfolios. But that increase has primarily benefited the nation’s wealthiest, said Lance Roberts, chief investment strategist at Clarity Financial in Houston and editor of the Real Investment Advice newsletter. “When you look at net worth, it’s heavily skewed by the top 10%,” Roberts said. “The average family of four is living paycheck to paycheck.” For most Americans, whose median household income, adjusted for inflation, is lower than it was at its peak in 1999, borrowing has been the answer to maintaining their standard of living. The increase in debt helps explain why the economy’s main source of fuel is providing less of boost than in the past.

Personal spending growth has averaged 2.4% since the recession ended in 2009, less than the 3% of the previous expansion and 4.3% from 1982-90. A look at worker pay presents a more dire backdrop for discretionary spending for those without a lot of assets. While the difference between income from wages and household debt has improved since the last recession, it’s been leveling off and remains at a depressed level. The improvement also reflects less mortgage debt because of increased home foreclosures, rather than a pickup in earnings. “This increase in leverage has sapped our ability to spend,” Roberts said. “I think we’re stuck.”

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A series of articles on today’s new marvels, Tesla, Uber, Amazon, Airbnb. They all fall to bits, one by one.

Tesla is a highly destructive company. All it takes is a basic understanding of thermodynamics. Strip-mining, cutting down forests, throwing the Congo into even deeper misery, just so you can fool yourself into thinking you’re clean.

Tesla Cars Aren’t As Carbon (And Taxpayer) Friendly As You Think (FMS)

Tesla proponents love to remind people how their vehicles are “carbon free” (in spite of Tesla CEO Elon Musk’s own carbon profligate lifestyle): Fact: the Tesla Model S is an environmentally friendly, zero emissions electric vehicle that won’t pollute the air like gas-powered cars. Carbon emissions from a gas car’s tailpipe has a dangerous impact on global warming…. In addition, Tesla CEO Elon Musk explains that, “combustion cars emit toxic gases. According to an MIT study, there are 53,000 deaths per year in the U.S. alone from auto emissions.” But in reminding people about how they don’t burn fossil fuels, they make sure to omit and/or obfuscate all the other emissions-laden factors that go into production of Tesla automobiles, including the oft-unspoken costs of the vehicles to the taxpayer and to other auto manufacturers.

Start with the power source for the Tesla; their electric power plant uses lithium-ion batteries to store the electricity required to run the car. And while a good amount of lithium is produced at salt lake brines that use chemical processes to extract the requisite lithium… …a large (and growing) amount of lithium is sourced from hard-rock mining, which is also referred to as strip mining: This type of mining involves not just all the carbon used to extract the lithium from mines, it “strips” the land of its forests, which is far more environmentally (and carbon) detrimental. And while it is likely impossible to know exactly where Tesla sources its materials from, a closer examination on Tesla’s impact on the mining industry should paint a crystal clear picture:

Should the concept capture the imagination of Americans who are increasingly conscious of reducing their carbon footprint demand for these crucial elements could skyrocket in addition to the already robust global demand for lithium, nickel and copper. Major mining companies are already “future proofing” their businesses for climate change by focusing more investment into commodities that will be required by the renewable energy industry. You can’t make this stuff up – Tesla and other renewable energy industries are going to save the world by mining its natural resources to excess, without regard for the environmental impact and carbon emissions generated in the process. You shouldn’t be surprised to seldom hear this mentioned by Elon Musk, or the liberal crowd that champions electric vehicles.

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This is too insane to be labelled a ‘business model’.

Uber Gets Run Over by its Own Subprime Auto Leases (WS)

Uber, which has lost $3 billion last year and has gotten itself into a thicket of intractable issues and scandals that cost founder and CEO Travis Kalanick his job, is now facing a subprime auto-leasing crisis. Two years ago when these folks launched the subprime auto leasing program to put their badly paid drivers into new vehicles they couldn’t otherwise afford, they apparently didn’t do the math. In July 2015, when the “Xchange Leasing” program was announced, the company gushed: “We’re excited about how these new solutions meet drivers’ unique needs, and offer more and better choices and greater flexibility than ever before.” The leasing program would be “administered by an Uber subsidiary and designed to fit with the flexibility that drivers value most,” it said. This is how it would work:

Unlike most multi-year leases that have high fees for early termination, drivers who participate in Xchange for at least 30 days will be able to return the car with only two weeks notice, and limited additional costs. The program allows for unlimited mileage and the option to lease a used car, with routine maintenance also included. It wasn’t supposed to be a money maker – nothing at Uber is. But hey. And the company invested $600 million in the business, “people familiar with the matter” told the Wall Street Journal. This type of lease was offered to drivers with subprime credit ratings or no credit ratings who barely earned enough money to get by and make the payments, if they stuck around long enough. It allowed drivers to drive new cars. When it didn’t work out for them, they could return the cars after 30 days with two weeks’ notice.

The only penalty for the early return is that Uber keeps the $250 deposit. And these leases came with “unlimited miles.” No one in the car business would ever conceive of such a thing. But Uber is different. It defies the laws of economics. Or so it thought at the time. Now, the 14-member executive committee that is running the show looked at the math and was horrified. “According to people familiar with the matter,” cited by The Journal, executives had briefed the committee in July: “The Xchange Leasing division had been estimating modest losses of around $500 per auto on average, these people said. But managers recently informed Uber executives that the losses were actually about $9,000 per car — about half the sticker price of a typical leased vehicle.”

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So your ass can shoot roots into your couch. Yeah, that’s a valid business model.

Amazon Online Grocery Boom? Not So Fast… (WS)

Maybe Amazon has figured out that you’re not the only one who isn’t buying groceries online. Maybe it has figured out, despite all the money it has thrown at it, that selling groceries online is a very tough nut to crack. And no one has cracked it yet. Numerous companies have been trying. Safeway started an online store and delivery service during the dotcom bubble and has made practically no headway. A plethora of startups, brick-and-mortar retailers, and online retailers have tried it, including the biggest gorillas of all — Walmart, Amazon, and Google. Google is trying it in conjunction with Costco and others. It just isn’t catching on. And this has baffled many smart minds. Online sales in other products are skyrocketing and wiping out the businesses of brick-and-mortar retailers along the way. But groceries?

That’s one of the reasons Amazon is eager to shell out $14.7 billion to buy Whole Foods, its biggest acquisition ever, dwarfing its prior biggest acquisition, Zappos, an online shoe seller, for $850 million. Amazon cannot figure out either how to sell groceries online though it has tried for years. Now it’s looking for a new model — namely the old model in revised form? This is why everyone who’s online wants to get a piece of the grocery pie: The pie is big. Monthly sales at grocery stores in June seasonally adjusted were $53 billion. For the year 2016, sales amounted to $625 billion: But it’s going to be very tough for online retailers to muscle into this brick-and-mortar space, according to Gallup, based on its annual Consumption Habits survey, conducted in July. Consumers just aren’t doing it:

Only 9% of US households say they order groceries online at least once a month, either for pickup or delivery. Only 4% do so at least once a week. By contrast, someone in nearly all households (98%) goes to brick-and-mortar grocery stores at least once a month, and 83% go at least once a week. Gallup summarizes the quandary: At this point, online grocery shopping appears to be an adjunct to retail shopping rather than a replacement, as most shoppers whose families purchase groceries online once or twice a month or more say they still visit a store to buy groceries at least once a week. But there are some differences by age group – and maybe that’s where Amazon sees some distant hope: Of the 18-29 year olds, 15% shop for groceries on line at least once a month. For 30-49 year olds, this drops to 12%. For 50-64 year olds, it drops to 10%. For those 65 and older, it essentially fades out (2%).

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No profit, just working on a monopoly. Cut it down.

Amazon Paid Just £15 Million In Tax On European Revenues Of £19.5 Billion (G.)

Amazon paid just €16.5m (£15m) in tax on European revenues of €21.6bn (£19.5bn) reported through Luxembourg in 2016. The figures, published in Amazon’s latest annual accounts for its European online retail business, are likely to reignite the debate about US tech companies using complex crossborder arrangements to minimise the tax they pay across the continent. Separately, Amazon UK Services – the company’s warehouse and logistics operation that employs almost two-thirds of its 24,000 UK staff – more than halved its declared UK corporation tax bill from £15.8m to £7.4m year-on-year in 2016. The cut came despite turnover at the UK business, which handles the packing and delivery of parcels and functions such as customer service, rising from £946m to £1.46bn.

Ana Arendar, Oxfam’s head of inequality, said: “Despite some action by ministers and companies, widespread corporate tax avoidance continues to cost both rich and poor countries billions every year that could pay for schools and lifesaving healthcare. “We urgently need comprehensive public country-by-country reporting for multinationals to ensure they pay their fair share of tax – the UK government should implement this by the end of 2019 – unilaterally if necessary.” Amazon Europe, which is based in Luxembourg and aggregates the billions of pounds of sales the retailer makes from individual countries across the continent, reported a pre-tax profit of €59.6m last year. As a result the company, which clocked up €21.6bn in sales across Europe last year, had a tax bill of just €16.5m.

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This seems the easiest thing to contain. 90% of it is advertized online. Take average occupancy in a city, at average prices, and tax them on it.

Airbnb Faces EU Clampdown For Not Paying ‘Fair Share’ Of Tax (G.)

EU finance ministers will discuss how to force home-sharing platforms such as Airbnb to pay their fair share of taxes and in the right tax domains next month after the French minister for the economy described the current situation as “unacceptable”. The European commission announced on Thursday that a joint proposal from France and Germany would be discussed at a meeting in Tallinn, Estonia, on 16 September. Brussels will also advise on how best to deal with the so-called sharing economy, in which Airbnb is a major player. It was revealed this week that Airbnb paid less than €100,000 (£90,336) in French taxes last year, despite the country being the room-booking firm’s second-biggest market after the US.

In response, the French economy minister, Bruno Le Maire, informed the national assembly that the EU’s Franco-German axis would be proposing a pan-European clampdown. “These digital platforms make tens of millions of sales and the French treasury gets a few tens of thousands,” the minister said, adding that the current setup was “unacceptable”. Le Maire further claimed in parliament that an ongoing consultation being led by the commission and the OECD to address the tax question were “taking too much time, it’s all too complicated”. Many digital platforms operating in the EU have a base in Ireland, including Airbnb, where they can exploit a low corporation tax regime. Le Maire said: “Everybody has to pay a fair contribution.”

I[..] Paris city council has already voted to make it mandatory from 1 December to obtain a registration number from the town hall before posting an advertisement for a short-term rental on its website. The ruling potentially makes it harder for property owners using Airbnb to exceed the 120 days a year legal rental limit for a main residence, and easier for the authorities to collect local taxes. In Barcelona, where tensions have been rising for years over the surge in visitors, the impact of sites such as Airbnb on the local housing market has led to anti-tourist protests. In Mallorca and San Sebastián, an anti-tourism march is being planned for 17 August to coincide with Semana Grande, a major festival of Basque culture.

In Ibiza, the authorities are placing a cap on the number of beds for tourists. Owners will also be banned from renting their homes, or rooms within them, via websites such as Airbnb and Homeaway unless they obtain a licence. Owners face fines of up to €400,000 if they break the law. The websites face the same fine for letting people advertise without a valid licence number.

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Cut out the stupid pharma ads and you’re halfway there.

Trump Will Soon Declare State Of Emergency Over Opioid Crisis (G.)

Donald Trump signaled he could soon declare a state of emergency in an attempt to deal with America’s opioid overdose crisis. A commission reporting to the president said recently that declaring a state of emergency was its “first and most urgent recommendation”. But Trump, in his first remarks on the subject, appeared to set his face against treating the epidemic as a health emergency – calling instead for tougher prison sentences and “strong, strong law enforcement”. However, returning to the issue on Thursday, Trump seemed to have changed his tone. “We’re going to draw it up and we’re going to make it a national emergency,” he said, adding the administration is “drawing documents now to so attest”. “It is a serious problem the likes of which we have never had,” Trump said at his Bedminster, New Jersey, golf resort, where he is on a “working vacation”.

The president can declare a state of emergency two legal ways: he could use the Stafford Act, or the Public Health Service Act, which is specific to health emergencies and can be declared by the health secretary. “When I was growing up they had the LSD, and they had certain generations of drugs,” Trump said. “There’s never been anything like what’s happened to this country over the last four or five years. And I have to say this in all fairness, this is a worldwide problem, not just a United States problem. This is happening worldwide.” In fact, while drug overdoses happen all over the world, the US leads by a significant margin. Though the nation has just 4% of the world’s population, the US also has 27% of the world’s drug overdose deaths, according to the UN’s 2017 World Drug Report. For example, for every million Americans between 15 and 64 years old, 245 people per year die of drug overdoses. In Mexico, 4 people per million die of drug overdoses.

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Best friends.

Why Saudi Arabia And Israel Have United Against Al-Jazeera (FIsk)

Being an irrational optimist, there’s an innocent side of my scratched journalistic hide that still believes in education and wisdom and compassion. There are still honourable Israelis who demand a state for the Palestinians; there are well-educated Saudis who object to the crazed Wahhabism upon which their kingdom is founded; there are millions of Americans, from sea to shining sea, who do not believe that Iran is their enemy nor Saudi Arabia their friend. But the problem today in both East and West is that our governments are not our friends. They are our oppressors or masters, suppressors of the truth and allies of the unjust.

Netanyahu wants to close down Al Jazeera’s office in Jerusalem. Crown Prince Mohammad wants to close down Al Jazeera’s office in Qatar. Bush actually did bomb Al Jazeera’s offices in Kabul and Baghdad. Theresa May decided to hide a government report on funding “terrorism”, lest it upset the Saudis – which is precisely the same reason Blair closed down a UK police enquiry into alleged BAE-Saudi bribery 10 years earlier. And we wonder why we go to war in the Middle East. And we wonder why Sunni Isis exists, un-bombed by Israel, funded by Sunni Gulf Arabs, its fellow Sunni Salafists cosseted by our wretched presidents and prime ministers. I guess we better keep an eye on Al Jazeera – while it’s still around.

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And these guys are still seen as authorities. They may be dumb, but they’re not the dumbest.

‘Subprime Is Contained’ -They Really Don’t Know What They Are Doing (Snider)

Ben Bernanke, then Chairman of the Federal Reserve, told Congress in March 2007 that subprime was contained. He will rightfully be remembered in infamy for that, but that wasn’t the most egregious example of being wrong. Even putting it in those terms risks understating the problem and why it stubbornly lingers. Being really wrong is claiming that IOER will establish a floor for money market rates, and then finding out it actually doesn’t. No, what policymakers did especially in the early crisis period was altogether worse; they demonstrated conclusively that though they shared this world with the rest of us, they inhabited and continue to inhabit a totally different planet. Given the anniversary date and our human affinity for round numbers (ten years or a lost decade), there is a desire to revisit some of the worst of the list which happened just before August 9, 2007. My favorite has always been Bill Dudley, as I recounted last at the ninth anniversary of nothing being done:

As far as the issue of material nonpublic information that shows worse problems than are in the newspapers, I’m not sure exactly how to characterize that because I guess I wouldn’t know how to characterize how bad the newspapers think these problems are. [Laughter] We’ve done quite a bit of work trying to identify some of the funding questions surrounding Bear Stearns, Countrywide, and some of the commercial paper programs. There is some strain, but so far it looks as though nothing is really imminent in those areas.” [emphasis added]

He spoke those words, recorded for posterity, on August 7, 2007, at the regular FOMC policy meeting. As noted earlier today, both Countrywide and the whole commercial paper market would be decimated really within hours from his “inspiring” confidence. What really stands out is for Dudley to have been the one who said them, because as head of the Open Market Desk he had to be technically proficient in a way that the others could avoid (and why so often in its history policy discussions especially about these great things would often flow through whomever was the Open Market Desk chief at that moment in time). He proved still to be an empty suit like the rest, but he was always that much less of one. So if the best the Fed had to offer was so thoroughly unaware, is it any wonder what happened then and continues to happen now?

One day after Dudley’s private embarrassment, one Bank of England governor and future chief perhaps joined his level in the Hall of Fame of Famous Last Words. Meryn King remarked on August 8, 2007: “So far what we have seen is not a threat to the financial system. It’s not an international financial crisis.” He said these words at the behest of the ECB in front of the assembled press ostensibly to impart calm. Also noted earlier today, it was the European Central Bank that made the first crisis move the very next day in a record liquidity injection.

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“There’s nothing like it. Get on the wrong side of time, and you are out of luck.”

What Went Wrong With the 21st Century? (Bonner)

And it’s Time Time Time
And it’s Time Time Time
And it’s Time Time Time
That you love
And it’s Time Time Time

To bring readers fully up to speed, the 21st century has been a flaming dud. In practically every way. Despite more new technology than ever… more PhDs… more researchers… more patents… more earnest strivers than ever before sweating to move things ahead… and despite more “stimulus” from the Fed ($3.6 trillion) than ever in history…U.S. GDP growth rates are only half of those of the last century. And household incomes, after you factor in inflation, are flat. In fact, by some calculations – using non-fiddled measures of inflation – growth has been negative for the whole 21st century. Meanwhile, there are more people tending bar or waiting tables… and fewer people with full-time breadwinner jobs. And productivity and personal savings rates have collapsed.

And those are only the measurable trends. Political and social developments have been similarly dud-ish – including the longest, losingest war in U.S. history… the biggest government deficits… the most vulgar public life… the least personal freedom… and, in our hometown, Baltimore, a record murder rate. What went wrong? Herewith, a hypothesis. It suggests three “causes,” all three linked by a single shared element: time.

[..] Fake money causes people to waste time and money. And central bank policies discourage savings by lowering interest rates… even pushing them into negative territory. Instead of saving them for the future… resources are consumed today. These mistakes accumulate as debt… which then forces people to spend more time servicing the mistakes of the past. Meanwhile, the internet gives people a new way to waste time. At home. At work. On the high plains. Or in the lowlife back alleys. People spend their precious time on idle distractions and entertainments. That leaves fewer people doing the real work that progress requires – saving, investing, and working for the future. Time is always the ultimate constraint. You can substitute one resource for another. You can switch from oil to solar… or copper to aluminum. But there’s no swapping out time. There’s nothing like it. Get on the wrong side of time, and you are out of luck.

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Oh please, can I include this? Just so Nassim Taleb knows black swans get lonely?! Like they’re unqiue but they do come in pairs… Philosophical intrigue galore.

Black Swan At Bavarian Palace Seeks Partner (DW)

The Rosenau Palace in southern Germany has published a lonely hearts ad on behalf of its resident black swan. Ground keepers believe the bird’s former companion was eaten by a fox. The department that oversees state-owned palaces, gardens and lakes in the southern state of Bavaria sent out its rather unusual appeal to the public on Thursday. “The sex of the animal isn’t important,” a message on the department’s website read. “Ideally it should be more than three years old, but this isn’t an absolute must.” The department has been on the lookout for a match since May, when one of the two black swans that lived in the palace grounds disappeared. Palace gardeners later found bones and feathers in one of the park’s bushes. “He was probably eaten by a fox,” the department concluded.

Rosenau garden department head Steffen Schubert has been sending out enquiries every day to try and locate a candidate – without success. Finding a replacement isn’t just about sparing the surviving swan from loneliness, he says. “Swans have a special significance in the history of Rosenau Palace and park,” he said. Black swans were reportedly first introduced to the palace grounds by Britain’s Queen Victoria as a symbol of mourning following the premature death of her husband Prince Albert, who was born at Rosenau Palace in 1819. The royals visited the palace together in 1845, five years after they were married. In her memoirs, the queen wrote: “If I were not who I am, this would be my real home.” The palace, near the town of Coburg in northern Bavaria, is home to Swan Lake and Prince’s Pond.

In its statement, the department said the new swan would have a good life, with a 2-hectare lake and a newly built “swan house” at its disposal. In the chillier months, the birds also have winter quarters with water access and are fed every day. The department said it would go itself to pick up the bird if a member of the public was willing to donate a swan to the grounds. “We hope our swan does not have to be alone for too long,” a spokeswoman for the palace management told German news agency DPA.

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Jul 162017
 
 July 16, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Piet Mondriaan The Grey Tree 1912

 

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)
Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)
How Brexit Is Set To Hurt Europe’s Financial Systems (R.)
Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)
Is Russiagate Really Hillarygate? (Forbes)
The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)
France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)
France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)
Is California Bailing Out Tesla through the Backdoor? (WS)
Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

 

 

No markets. No investors.

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)

Thanks, it seems, to a few short words from Janet Yellen, the world’s stock markets added over $1.5 trillion to wealthy people’s net worth this week, sending global market cap to record highs. The value of global equity markets reached a record high $76.28 trillion yesterday, up a shocking 18.6% since President Trump was elected. This is the same surge in global stocks that was seen as the market front-ran QE2 and QE3. This was the biggest spike in global equity markets since 2016.

For the first time since Dec 2007, the market value of global equity markets is greater than the world’s GDP…

Of course – the big question is – how long can ‘they’ keep this dream alive?

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“Actually, the longer it takes to hit, the better it is for us…”

Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)

The global dollar-based monetary system is in serious jeopardy, according to former Texas Congressman Ron Paul. And contrary to Fed Chairwoman Janet Yellen’s assurances that there won’t be another major crisis in our lifetime, the next economy-cratering fiat-currency crash could happen as soon as next month, Paul said during an interview with Josh Sigurdson of World Alternative media. Paul and Sigurdson also discussed false flag attacks, the dawn of a cashless society and the dangers of monetizing national debt. Paul started by saying Yellen’s attitude scares him because “central bankers are always wrong – especially before a bust.”

“There is a subjective element to when people lose confidence, and when is the day going to come when people realize we’re dealing with money that has no intrinsic value to it, we’re dealing with too much debt, too much bad investment and it will come to an end. Something that’s too good to believe usually is and it usually ends. One thing’s for sure, we’re getting closer every day and the crash might come this year, but it might come in a year or two.” “The real test is can it sustain unbelievable deficit financing and the accumulation of debt and it can’t. You can’t run a world like this, if that were the case Americans could just sit back and say “hey, everybody wants our money and will take our money.” Paul advised that, for those who are already girding for the crash by buying gold and silver and stocking their basements with provisions like canned food and bottled water, the rewards for their foresight will only grow with the passage of time.

“Actually, the longer it takes to hit, the better it is for us. The more we can get prepared personally, as well as warn other people, about what’s coming.” “It’s a sign that the authoritarians are clinging to power so they can collect the revenues collect the taxes and make sure you’re not getting around the system. That’s what the cashless society is all about. But it won’t work in fact it might be the precipitating factor that people will eventually lose confidence when the crisis hits. They say the crisis hasn’t come – welI in 2008 and 2009 we had a pretty major crisis and what we learned there is that the middle class got wiped out and the poor people got poorer and now there’s a lot of wealth going on but it’s still accumulating to the wealthy individual.” “People say it might not come for another ten years – well we don’t know whether that’s necessary but one thing that’s for sure when a government embarks on deficit financing and then monetizing the debt the value of commodities like gold and silver generally goes up.

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Anyone think the concentration of finance in the City is maybe not such a great idea? As, you know, for the people?

How Brexit Is Set To Hurt Europe’s Financial Systems (R.)

Interviews with scores of senior executives from big British and international banks, lawyers, academics, rating agencies and lobbyists outline some of the dangers for companies and consumers from potentially losing access to London’s markets. The EU needs London’s money, says Mark Carney, governor of the Bank of England. He calls Britain “Europe’s investment banker” and says half of all the debt and equity issued by the EU involves financial institutions in Britain. Rewiring businesses will be expensive, though estimates vary widely. Investment banks that set up new European outposts to retain access to the EU’s single market may see their EU costs rise by between 8 and 22%, according to one study by Boston Consulting Group.

A separate study by JP Morgan estimates that eight big U.S. and European banks face a combined bill of $7.5 billion over the next five years if they have to move capital markets operations out of London as a result of Brexit. Such costs would equate to an average 2% of the banks’ global annual expenses, JP Morgan said. Banks say most of those extra costs will end up being paid by customers. “If the cost of production goes up, ultimately a lot of our costs will get passed on to the client base,” said Richard Gnodde, chief executive of the European arm of Goldman Sachs. “As soon as you start to fragment pools of liquidity or fragment capital bases, it becomes less efficient, the costs can go up.”

UK-based financial firms are trying to shift some of their operations to Europe to ensure they can still work for EU clients, but warn such a rearrangement of the region’s financial architecture could threaten economic stability not only in Britain but also in Europe because so much European money flows through London. European countries, particularly France and Germany, don’t share these concerns, viewing Brexit as an opportunity to steal large swathes of business away from Britain and build up their own financial centres. Britain alone accounts for 5.4% of global stock markets by value, according to Reuters data. Valdis Dombrovskis, the EU financial services chief, said the EU will still account for 15% of global stock markets by value without Britain, and that measures were being taken to strengthen its capital markets. But he added: “Fragmentation is preventing our financial services sector from realising its full potential.”

Industry figures have similar concerns. Jean-Louis Laurens, a former senior Rothschild banker and now ambassador for the French asset management lobby, told Reuters: “If London is broken into pieces then it is not going to be as efficient. Both Europe and Britain are going to lose from this.” London is currently home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($6.8 trillion), or 37%, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris. And London dominates Europe’s 5.2 trillion euro investment banking industry.

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Familiar patteren: first blow a bubble, then warn about it.

Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)

British families are signing up for a lifetime of debt with almost one in seven borrowers now taking out mortgages of 35 years or more, official figures show. Rapid house price growth has encouraged borrowers to sign longer mortgage deals as a way of reducing monthly payments and easing affordability pressures. Bank of England data shows 15.75pc of all new mortgages taken out in the first quarter of 2017 were for terms of 35 years or more. While this is slightly down from the record high of 16.36pc at the end of 2016, it has climbed from just 2.7pc when records began in 2005. The steady rise has triggered alarm bells at the Bank, prompting regulators to warn that the trend risks storing up problem[s] for the future if lenders ignore the growing share of households prepared to borrow into retirement. Several lenders including Halifax, the UK’s biggest mortgage provider, and Nationwide have raised their borrowing age limits to 80 and 85 over the past year.

Bank figures show one in five mortgages are taken out for terms of between 30 and 35 years, from below 8pc in 2005, as the traditional 25-year mortgage becomes less popular. David Hollingworth, a director at mortgage broker London & Country, said the trend showed that an increasing share of borrowers were struggling with affordability pressures, and deciding that lengthening the term will offer leeway as house price growth continues to outpace pay rises. However, he said most borrowers were unlikely to stick with the same deal, with most having a desire to review that later and potentially peg [the extra interest costs] back . Mr Hollingworth added that longer mortgage terms were also better than interest-only deals that were prevalent before the credit crunch. The Bank noted in its latest financial stability report that there was little evidence that borrowers were signing up for longer mortgage deals to circumvent tougher borrowing tests for homeowners introduced in 2014.

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Fusion GPS.

Is Russiagate Really Hillarygate? (Forbes)

The most under covered story of Russia Gate is the interconnection between the Clinton campaign, an unregistered foreign agent of Russia headquartered in DC (Fusion GPS), and the Christopher Steele Orbis dossier. This connection has raised the question of whether Kremlin prepared the dossier as part of a disinformation campaign to sow chaos in the US political system. If ordered and paid for by Hillary Clinton associates, Russia Gate is turned on its head as collusion between Clinton operatives (not Trump’s) and Russian intelligence. Russia Gate becomes Hillary Gate. Neither the New York Times, Washington Post, nor CNN has covered this explosive story. Two op-eds have appeared in the Wall Street Journal. The possible Russian-intelligence origins of the Steele dossier have been raised only in conservative publications, such as in The Federalist and National Review.

The Fusion story has been known since Senator Chuck Grassley (R-Iowa) sent a heavily-footnoted letter to the Justice Department on March 31, 2017 demanding for his Judiciary Committee all relevant documents on Fusion GPS, the company that managed the Steele dossier against then-candidate Donald Trump. Grassley writes to justify his demand for documents that: “The issue is of particular concern to the Committee given that when Fusion GPS reportedly was acting as an unregistered agent of Russian interests, it appears to have been simultaneously overseeing the creation of the unsubstantiated dossier of allegations of a conspiracy between the Trump campaign and the Russians.”

Former FBI director, James Comey, refused to answer questions about Fusion and the Steele dossier in his May 3 testimony before the Senate Intelligence Committee. Comey responded to Lindsey Graham’s questions about Fusion GPS’s involvement “in preparing a dossier against Donald Trump that would be interfering in our election by the Russians?” with “I don’t want to say.” Perhaps he will be called on to answer in a forum where he cannot refuse to answer.

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And don’t think it’s over. The pension chips are yet to fall.

The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)

Those who wish to understand how things work in Chicago need read a single article that ties everything together:

“Teamsters Boss Indicted On Charges Of Extorting $100,000 From A Local Business. A politically connected Teamsters union boss was indicted Wednesday on federal charges alleging he extorted $100,000 in cash from a local business. John Coli Sr., considered one the union’s most powerful figures nationally, was charged with threatening work stoppages and other labor unrest unless he was given cash payoffs of $25,000 every three months by the undisclosed business. The alleged extortion occurred when Coli was president of Teamsters Joint Council 25, a labor organization that represents more than 100,000 workers in the Chicago area and northwest Indiana. Coli, 57, an early backer of Mayor Rahm Emanuel, was charged with one count of attempted extortion and five counts of demanding and accepting prohibited payment as a union official.”

[..] Former governor Rod Blagojevich is now in prison for a 14-year sentence. He was found guilty of 18 counts of corruption, including attempting to sell or trade an appointment to a vacant seat in the U.S. Senate. He faces another eight years in prison after an appeals court upheld the sentence in April of this year. No other state can match this claim: 4 OUT OF PREVIOUS 7 ILLINOIS GOVERNORS WENT TO PRISON The way Chicago “works” is the same way Illinois “works”. Corrupt politicians get in bed with corrupt union leaders and screw the taxpayers and businesses as much as they can. Sometimes they get caught. Teamster boss Coli just got caught after all these years of extortion. His deals with Mayor Emanuel screwed Chicago taxpayers. Emanuel promised reforms and transparency but reforms and transparency stop once campaign donations are sufficient enough.

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Macron plays Napoleon.

France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)

French President Emmanuel Macron said his defense chief has no choice but to agree with what he says, a weekly newspaper reported on Sunday, after his top general criticized spending cuts to this year’s budget. “If something opposes the military chief of staff and the president, the military chief of staff goes,” Macron, who as president is also the commander-in-chief of the armed forces, told Le Journal du Dimanche (JDD). Macron said on Thursday that he would not tolerate public dissent from the military after General Pierre de Villiers reportedly told a parliament committee he would not let the government “fuck with” him on spending cuts.

De Villiers still has Macron’s “full trust,” the president told JDD, provided the top general “knows the chain of command and how it works.” “No one deserves to be blindly followed,” De Villiers wrote in a message posted on his Facebook page on Friday. De Villiers’ last Facebook post is an open letter addressed to new military recruits that makes no mention of Macron. But it was perceived by French media as targeting the president’s earlier comments.

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Macron wants to be a global force too. While he has nothing to say in Europe.

France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)

France called on Saturday for a swift lifting of sanctions that target Qatari nationals in an effort to ease a month-long rift between the Gulf country and several of its neighbors. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt imposed sanctions on Qatar on June 5, accusing it of financing extremist groups and allying with the Gulf Arab states’ arch-foe Iran. Doha denies the accusations. “France calls for the lifting, as soon as possible, of the measures that affect the populations in particular, bi-national families that have been separated or students,” French Foreign Minister Jean-Yves Le Drian told reporters in Doha, after he met his counterpart Sheikh Mohammed bin Abdulrahman al-Thani. Le Drian was speaking alongside Sheikh Mohammed, hours after his arrival in Doha. He is the latest Western official to visit the area since the crisis began.

Later in the day he flew to Jeddah, where he repeated his concerns about the effects of the standoff in a televised press appearance with Saudi Foreign Minister Adel al-Jubeir. Jubeir said any resolution of the worst Gulf crisis in years should come from within the six-nation Gulf Cooperation Council. “We hope to resolve this crisis within the Gulf house, and we hope that wisdom prevails for our brothers in Qatar in order to respond to the demands of the international community – not just of the four countries,” he said. [..] Le Drian, who will visit the UAE and Gulf mediator Kuwait on Sunday, follows in the steps of other world powers in the region, including the United States, whose Secretary of State Rex Tillerson sought to find a solution to the impasse this week.

Officials from Britain and Germany also visited the region with the aim of easing the conflict, for which Kuwait has acted as mediator between the fending Gulf countries. In a joint statement issued after Tillerson and Sheikh Mohammed signed an agreement on Tuesday aimed at combating the financing of terrorism, the four Arab states leading the boycott on Qatar said the sanctions would remain in place.

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The Tesla tulip.

Is California Bailing Out Tesla through the Backdoor? (WS)

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout. Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero. Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins.

A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t. This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled. That’s what Tesla is facing next year in the US. In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market.

Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it. To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out. It would be a rebate handled at the dealer, not a tax credit on the tax return. And it could reach “up to $30,000 to $40,000” per EV, state Senator Andy Vidak, a Republican from Hanford, explained in an emailed statement. This is how the taxpayer-funded rebates in the “California Electric Vehicle Initiative” (AB1184) would work, according to the Mercury News:

“The [California Air Resources Board] would determine the size of a rebate based on equalizing the cost of an EV and a comparable gas-powered car. For example, a new, $40,000 electric vehicle might have the same features as a $25,000 gas-powered car. The EV buyer would receive a $7,500 federal rebate, and the state would kick in an additional $7,500 to even out the bottom line.” And for instance, a $100,000 Tesla might be deemed to have the same features as a $65,000 gas-powered car. The rebate would cover the difference, minus the federal rebate (so $27,500). Because rebates for Teslas will soon be gone, the program would cover the entire difference – $35,000. This is where Senator Vidak got his “$30,000 to $40,000.”

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Money changes everything.

Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

The Brazilian environment ministry is proposing the release of 860,000 acres in the National Forest of Jamanxim for agricultural use, mining and logging. The government’s order was a compromise measure after protests from local residents and ecologists who claim that the bill could lead to further deforestation in the Pará area. If approved, the legislation will create a new protection area (APA) close to Novo Progresso. Around 27% of the national forest would be converted into an APA, the ministry said. Carlos Xavier, president of a lobbying group in Pará to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. According to the ministry, the bill includes stipulations to reduce conflicts over land, prevent deforestation and create jobs. The measures were criticised by environmental groups.

“The bill is seen as an amnesty for illegal occupation of the conservancy unit,” said Observatório do Clima on its website, claiming that the government “yielded to pressure” from the rural lobby. Carlos Xavier, president of a lobbying group in Para to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. In 2016, deforestation of the Amazon rose by 29% over the previous year, according to the government’s satellite monitoring, the biggest jump since 2008. Mongabay, an environmental science and conservation website, reports that experts using satellite images have identified illegal logging activities to the east of the BR-163 highway, in Pará state. The BR-163 protests involved stopping trucks from unloading grains at the riverside location of Miritituba, where barges carrying crops are transported en route to the export markets. ATP, the Brazilian private ports association, calculated that the highway protests would result in losses of $47m.

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Jun 112017
 
 June 11, 2017  Posted by at 9:30 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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Mondriaan Amaryllis 1910

 

US Weeks Away From A Recession According To Latest Loan Data (ZH)
This Super Bubble Is About to Pop (IM)
Another Spanish Bank about to Bite the Dust (DQ)
“Macron Is Shaping Up As Hyper-Presidency” (BBG)
George Osborne Says Theresa May Is A ‘Dead Woman Walking’ (G.)
Theresa May’s Premiership In Peril As Loose Alliance Agreed With DUP (G.)
UK’s May Isolated Ahead Of Brexit Talks As Key Aides Quit (R.)
The Inconvenient Truth of Consumer Debt (DDMB)
Tesla’s Market Value Zooms Past Another Car Maker (MW)
The Actual Lizard People (Connelly)
Refugee Rescue Ships Not ‘Colluding With People Smugglers’ (Ind.)
Fractal Planting Patterns Yield Optimal Harvests, No Central Control (PhysOrg)

 

 

A huge difference from the overarching narrative.

US Weeks Away From A Recession According To Latest Loan Data (ZH)

While many “conventional” indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed’s target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or declining demand, a recession was already either in progress or would start soon. This can be seen on both the linked chart, and the one zoomed in below, which shows the uncanny correlation between loan growth and economic recession.

And while we have repeatedly documented the sharp decline in US Commercial and Industrial loan growth over the past few months (most recently in “We Now Know “Who Hit The Brakes” As Loan Creation Crashes To Six Year Low“) as US loans have failed to post any material increase in over 30 consecutive weeks, suddenly the US finds itself on the verge of an ominous inflection point. After growing at a 7% Y/Y pace at the start of the year, which declined to 3% at the end of March and 2.6% at the end of April, the latest bank loan update from the Fed showed that the annual rate of increase in C&A loans is now down to just 1.6%, – the lowest since 2011 – after slowing to 2.3% and 1.8% in the previous two weeks.

Should the current rate of loan growth deceleration persist – and there is nothing to suggest otherwise – the US will post its first negative loan growth, or rather loan contraction since the financial crisis, in roughly 4 to 6 weeks. An interesting point on loan dynamics here from Wolf Richter, who recently wrote that a while after the 1990/1991 recession was over, the NBER determined that the recession began in July 1990, eight month after C&I loans began to stall. “As such, the current seven-month stall is a big red flag. These stalling C&I loans don’t fit at all into the rosy credit scenario. Something is seriously wrong.”

However, it wasn’t until loan growth actually contracted, that the 1990 recession was validated.  Well, the US economy is almost there again. And this time it’s not just C&I loan growth, or lack thereof, there is troubling. As the chart below shows, after peaking in late 2016, real-estate loan growth has also decelerated by nearly half, to 4.6%.

More troubling still, after flatlining at nearly double digit growth for much of 2016, starting last September there has been a sharp slowdown in commercial auto loans, whose growth is now down to just a third, or 3%, of what it was a year ago.

While it remains to be seen if C&I loans have preserved their uncanny “recession predictiveness” for yet another turn of the business cycle, the charts above confirm that the US economy is rapidly slowing, and validating the poor Q1 GDP print. Furthermore, one thing is clear: absent a substantial rebound in loan growth, whether for commercial, residential or auto loans, there is no reason to expect an imminent uptick in the US economy. We only note this, because next week the Fed plans to hike rates again. If it does so just as US loan growth contracts, it may be doing so smack in the middle of a recession.

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It’s more of a series of bubbles. But yes, Germany’s needs and demands are set to prevail over everyone else’s yet again. The EU’s inherent flaws will do it in.

This Super Bubble Is About to Pop (IM)

Right now, Italy is Europe’s weakest link. Italy has one of the most indebted governments in the world. It’s borrowed over $2.4 trillion. Its debt-to-GDP ratio is north of 130%. (For comparison, the US debt-to-GDP ratio is 104%.) But the situation is actually much worse. GDP measures a country’s economic output. However, it’s highly misleading. Mainstream economists count government spending as a positive when calculating GDP. A more honest approach would count it as a big negative. In Italy, government spending accounts for a whopping 50%-plus of GDP. Remove that from the calculation, and I suspect we’d see how hopelessly insolvent the Italian government truly is. In other words, Italy is flat broke. I don’t see how the Italian government could possibly extract enough in taxes from the productive part of the economy to ever pay back what it’s borrowed.

Meanwhile, Italian government bonds are in a super bubble. They’re currently trading near record-low yields. (When bond prices go up, bond yields do down.) Over $1 trillion worth of Italian bonds actually have negative yields. It’s a bizarre and perverse situation. Lending money to the bankrupt Italian government carries huge risks. So the yields on Italian government bonds should be near record highs, not record lows. Negative yields could not exist in a free market. They’re only possible in the current “Alice in Wonderland” economy created by central bankers. You see, the ECBhas been printing money to buy Italian government bonds hand over fist. Since 2008, the ECB and Italian banks have bought over 88% of Italian government debt, according to a recent study. This is stunning.

It means that Italy’s financial system depends completely on ECB money printing. Italian government bonds are, without a doubt, in super-bubble territory. It won’t be long before a pin pricks this bubble and… pop. That could happen soon. Earlier this month, the credit rating agency Fitch downgraded Italy’s credit rating from BBB+ to BBB. And Mario Draghi, the head of the ECB, recently announced that after five years of manic money printing, he’s finally achieved his wrongheaded goal of 2% inflation. [..] Now that the ECB has reached its 2% inflation target, Germany and other EU countries are pushing the central bank to stop printing so much money. This is the last thing the Italian government wants. Remember, the ECB buys a lot of Italian government bonds with those freshly printed euros.

If the ECB stops buying Italian government bonds, who will step up? The answer is nobody. Italian banks are already completely saturated with government bonds. Germany wants the money printing to stop. Italy wants it to continue. But, since the ECB has reached its stated inflation target and Germany has crucial elections later this year, I think Germany will get its way. This is very bad news for Italy’s government and banking system. Once the ECB—the only large buyer—steps away, Italian government bonds will crash and rates will soar. Soon it will be impossible for the Italian government to finance itself. Italian banks—which are already insolvent—will be decimated. They hold an estimated €235 billion worth of Italian government bonds. So the coming bond crash will pummel their balance sheets.

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Multiple banks. Zombies and dominoes.

Another Spanish Bank about to Bite the Dust (DQ)

After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out. Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them.

The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria. This creature’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain. But by April 2015, shares started sinking. By May 2017, they were trading at around €1.20. But since the bail-in of Popular, Liberbank’s shares have seriously crashed as panicked investors fled. Scenting fresh blood, short sellers were piling in. On Friday alone, shares plunged another 17%. At one point, they were down 38% before bouncing at the close of trading, much of it driven by the bank’s own share buybacks:

In the last three weeks a whole year’s worth of steadily rising gains on the stock market have been completely wiped out. The main causes of concern are the bank’s high risk profile and low coverage rate. By the close of the first quarter of 2017, Liberbank’s default rate had reached 13%, over three%age points higher than the national average (9.8%), while its unproductive asset coverage rate was just 42.1%, compared to 47% for Banco Sabadell, 48% for Bankia, 50% for CaixaBank and 55% for Unicaja. Worse still, the vast bulk of the bank’s unproductive assets are real estate investments. After Popular, it is the Spanish entity with most exposure to toxic real estate assets, according to the financial daily El Confidencial — a remarkable feat given the bank already had the lion’s share of its impaired real estate assets transferred onto the balance sheets of Spain’s “bad bank,” Sareb.

[..] Banco Popular’s demise is a stark reminder that Europe’s banking woes are far from resolved, despite the trillions of euros thrown at them. “The message the market is sending is that you have to buy solvent banks and stay away from those that pose high risks,” said Rafael Alonso, an analyst at Bankinter, one of Spain’s more solvent banks. Another Spanish bank that could be considered to pose high risks is Unicaja, the product of another merger of failed cajas that is (or at least was) scheduled to launch its IPO some time in June or July. As things currently stand, the timing could not be worse. The greater the uncertainty over Liberbank’s future, the lower the projected valuation of Unicaja’s IPO falls. Before Popular’s forced bail-in and acquisition, the Unicaja was valued at around €2.3 billion; now, just days later, it’s valued at less than €1.9 billion. If the trend continues, the IPO will almost certainly be shelved.

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From literally zero to a comfortable majority in just weeks. Maybe someday we’ll learn how it was done. We may not like it. Follow the money.

“Macron Is Shaping Up As Hyper-Presidency” (BBG)

Polling stations opened across France on Sunday as voters begin electing a parliament that will determine how much power recently elected President Emmanuel Macron will actually have. If polls are to be believed, it will be a lot. The latest surveys suggest Macron’s Republic on the Move movement, or REM, will win a comfortable majority in the 577-seat National Assembly, allowing him to push through his plans to loosen French labor laws and simplify its tax system. The 39-year-old Macron was elected in May after creating a centrist political movement that took millions of votes away from the two parties that have dominated French politics for decades. During one month in office, he’s further weakened the Socialist Party and the center-right Republicans by poaching some of their leading members for cabinet positions.

“Macron is shaping up as hyper-presidency, with a very strong central authority,” said Dominique Reynie, a politics professor at Sciences Po institute in Paris. “He’s got a party that he founded and fully controls. He’s got opposition parties that risk fragmenting.” Sunday’s ballot is for 539 seats in France. Voting has already closed in 27 constituencies for France’s overseas territories and another 11 to represent French expats. Voting started at 8 a.m. Paris time and most polling booths will close at 6 p.m., though local prefects can allow voting to continue until 8 p.m. The interior ministry will release turnout figures at noon and at again at 5 p.m. In 2012, about 59% of registered voters went to the polls. Little will be settled Sunday night. Under France’s two-round system for the parliamentary elections, any candidate with more than 12.5% of the registered voters goes through to runoffs on June 18, so long as no one gets 50% on Sunday. In the previous election five years ago, only 36, or about 6%, of the constituencies were settled in the first round.

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And he’s right. I wrote that even before the election. But Osborne and Cameron have been as disastrous for the UK as May now is.

A new poll shows that elections today would see Labour at 45% and Tories at 39%.

When will people fully appreciate that Jeremy Corbyn is the one person around who does not smear and gossip and play personal petty politics?

George Osborne Says Theresa May Is A ‘Dead Woman Walking’ (G.)

George Osborne has called Theresa May “a dead woman walking” and suggested the prime minister would be forced to resign imminently. The former chancellor said the campaign had undone the work of himself and former prime minister David Cameron in winning socially liberal seats such as a Bath, Brighton Kemptown and Oxford East, now lost to Labour and the Lib Dems. “She is a dead woman walking and the only question is how long she remains on death row,” the editor of the Evening Standard said, defending his paper’s attacks on May as speaking from a “socially liberal, pro-business, economically liberal position” that he said had been consistent as editor and chancellor. Speaking on the BBC’s Andrew Marr show, Osborne said he and Cameron had spent “years getting back to office, winning in seats like Bath and Brighton and Oxford and I am angry when we go backwards and I am not afraid to say that”.

Political strategist Lynton Crosby, blamed by May’s advisers for an overly negative, presidential-style campaign with robotic slogans, had been undermined by the prime minister’s own flaws, Osborne said. “They are professionals,” he said, blaming May’s “failure to communicate and a disastrous manifesto”. Osborne said blame should be on the shoulders of May, though her advisers Nick Timothy and Fiona Hill resigned on Saturday. “You can’t just blame the advisers. The only person who decides to have an election is the prime minister, the person who decides what’s in the manifesto is the prime minister.” He said the party had been furious with May on her return to Downing Street when she gave a speech that failed to acknowledge party colleagues who had lost their seats, including ministers. “The Tory party was absolutely furious that Theresa May failed to acknowledge the loss and suffering of many MPs,” he said.

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The DUP is a fatally flawed option. May has signed her own political death warrant. Bloomberg: “Theresa May could reportedly face a leadership challenge as soon as Tuesday”

Theresa May’s Premiership In Peril As Loose Alliance Agreed With DUP (G.)

Theresa May’s plan for a loose alliance with the Democratic Unionists to prop up her government was thrown into confusion last night after the Northern Ireland party contradicted a No 10 announcement that a deal had been reached. A Downing Street statement on Saturday said a “confidence and supply” agreement had been reached with the DUP and would be put to the cabinet on Monday. But the DUP last night put the brakes on that announcement, saying talks were continuing, not finalised. The DUP leader, Arlene Foster, said “discussions will continue next week to work on the details and to reach agreement on arrangements for the new parliament”. Following talks between May and the DUP last night, a second statement from No 10 clarified that no final deal had been reached.

[..] The Observer has learned that the DUP was planning to dodge a row when negotiations began by avoiding the inclusion of any controversial social policies, such as opposition to gay marriage or abortion, in its so-called “shopping list” of demands to the Tories. Party sources said it would be seeking commitments from May that there would be no Irish unity referendum and no hard border imposed on the island of Ireland. However, some Tories remained concerned that a pact would damage a brand they have spent years trying to detoxify. “More and more colleagues are becoming distinctly uneasy about the idea of a formal pact with the DUP,” said one senior Conservative. “It is up to the DUP if they want to support a Conservative government and vote for various measures that we put through, but there is a feeling that we are damaged if we are seen to be entering into a formal agreement with a party whose views on a number of things we just don’t share.

“Why should we damage what we painstakingly built up through David Cameron’s work on personal issues, and indeed what the prime minister’s own instincts are, with any form of formal linkage with people who plainly have some views that the vast majority of Conservative MPs would not share?” Nicky Morgan, an education secretary under David Cameron, said: “As a former minister for women and equalities, any notion that the price for a deal with the DUP is to water down our equalities policies is a non-starter.” An online petition calling for May to resign rather than form a coalition with the DUP had attracted more than 500,000 signatures Saturday night. The DUP is opposed to abortion and same-sex marriage. It has also appointed climate change sceptics to senior posts within the party.

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The Tories need internal cleansing even more than Labour.

UK’s May Isolated Ahead Of Brexit Talks As Key Aides Quit (R.)

British Prime Minister Theresa May secured a deal on Saturday to prop up her minority government but looked increasingly isolated after a botched election gamble plunged Britain into crisis days before the start of talks on leaving the EU. Her Conservatives struck an outline deal with Northern Ireland’s Democratic Unionist Party (DUP) for support on key legislation. It was a humiliating outcome after an election that May had intended to strengthen her ahead of the Brexit push. Instead, voters stripped the Conservatives of their parliamentary majority. As May struggled to contain the fallout, her two closest aides resigned. Newspapers said foreign minister Boris Johnson and other leading party members were weighing leadership challenges. But Johnson said he backed May.

May called the early election in April, when opinion polls suggested she was set for a sweeping win. May’s aides, Nick Timothy and Fiona Hill quit on Saturday following sustained criticism within the party of the campaign. Gavin Barwell was named new chief of staff. The Conservative lawmaker who lost his seat on Thursday and has experience working as a party enforcer in parliament. The change was unlikely to significantly quell unrest within the party. Most of May’s cabinet members have kept quiet on the issue of her future, adding to speculation that her days as prime minister are numbered. A YouGov poll for the Sunday Times newspaper found 48% of people felt May should quit while 38% thought she should stay. [..] Britain’s largely pro-Conservative press questioned whether May could remain in power.

The Sun newspaper said senior members of the party had vowed to get rid of May, but would wait at least six months because they feared a leadership contest could propel the Labour party into power under Jeremy Corbyn, who supports renationalization of key industries and higher taxes for business and top earners. Survation, the opinion polling firm that came closest to predicting correctly the election’s outcome, said a new poll it conducted for the Mail on Sunday newspaper showed support for Labour now 6%age points ahead of the Conservatives. “She’s staying, for now,” one Conservative Party source told Reuters. Former Conservative cabinet minister Owen Paterson, asked about her future, said: “Let’s see how it pans out.”

Read more …

“Sometime between now and Armageddon, interest rates will go up..”

The Inconvenient Truth of Consumer Debt (DDMB)

Oh, but for the days the hawks had a hero in Sydney. Against the backdrop of a de facto currency war, the Reserve Bank of Australia stood as a steady pillar of strength. The RBA held the line on interest rates, maintaining a floor of 2.5%, even as its global central bank peers drove rates to the zero bound and beyond into negative territory. The abrupt end to the commodities supercycle drove the RBA to join the global currency war. The mining-dependent nation’s economy was so debilitated that policy makers felt they had no choice but to ease financial conditions. In February 2015, after an 18-month honeymoon, the RBA reduced its official rate to 2.25%, marking the start of a cycle that ended last August with the fourth cut to a record low of 1.5%. The Bank of Canada has taken a similar journey in recent years.

It embarked upon a mild tightening campaign in 2010 that raised the overnight loan rate from a record low of 0.25% to 1% in September 2010. The bank maintained that level until early 2015. Two weeks before the RBA’s first cut, the Bank of Canada lowered rates to 0.75%. The January move, which shocked the markets, was followed in July 2015 with an additional ease to 0.5%, where it remains today. Bank of Canada Governor Stephen Poloz, who replaced Mark Carney after he departed to head the Bank of England, explained the moves as necessary to counter the downside risks to inflation emanating from the oil price shock to the country’s economy. Two resource-rich economies reacting similarly to body blows is intuitive enough. They eased the pressure on their given economies. How they’ve landed in their current predicaments is less easy to explain.

Propelled by soaring home prices from Sydney to Toronto to Melbourne to Vancouver, Australia’s household debt-to-income has hit a record 190%, the highest among developed nations; it is trailed closely by Canada, which has a 167% ratio. To put this in perspective, at the peak of the housing bubble, debt-to-income in the U.S. peaked at 130%. Then, economists took perverse pleasure in squelching the alarm these frightening figures elicited. “It’s not the level of debt that matters, it’s the cost to service that debt.” Is it a surprise that economists today are equally dismissive of households’ heavy debt burdens? Mortgages take a lifetime to expunge; incomes flow in every year. That myopic mindset best captures the shackles that bind today’s global economy. Of course it’s acceptable to build infinitely high levels of debt – as long as rates never rise.

But then there’s the inconvenient truth that when the price of the collateral backing those millions of subprime mortgages cratered, those irrelevant debt loads became relevant overnight. The same can be said of today’s delicate dynamic. Australia and Canada will be just fine so long as they don’t suffer a shock in any form to their respective economies. Some policy makers have begun to push back against the conventional stupidity. “Sometime between now and Armageddon, interest rates will go up,” warned Australia’s Treasury Secretary John Fraser on May 30. “That’s something people need to be mindful of.” Bear in mind that household debt has been growing at multiples of income, a disconnect that can only exist in a wonderland of permanently low interest rates.

Read more …

Tesla sold less than 84,000 cars in 2016. VW sold 10 million. Guess which is worth more? Time to get free money out of the way, because it only serves to distort valuation, economies and societies.

Tesla’s Market Value Zooms Past Another Car Maker (MW)

Tesla on Friday became the world’s No. 3 car maker by market capitalization, surpassing Germany’s BMW and getting further ahead of U.S. competitors General Motors and Ford. Tesla’s market value now stands at $59.7 billion. The two car makers it has yet to surpass are Toyota, which is still a ways off at $172 billion, and Daimler at $78 billion. Tesla stock has hit a string of records in the past two months, and was slated to hit another closing all-time high on Friday. It reached a closing record of $370 on Thursday, and traded as high as $376.87 on Friday.

The meteoric stock rise pushed Tesla’s market cap to surpass Ford’s and GM’s in April. Tesla sold nearly 84,000 cars in 2016, up 64% from the previous year. The company has set a goal to be able to make cars at an annual rate of 500,000 a year by the end of 2018. The top auto makers by vehicles produced are Volkswagen and Toyota, each of which make about 10 million of the 90 million vehicles produced world-wide, according to the International Organization of Motor Vehicles Manufacturers. Tesla shares are up more than 73% so far this year. That compares with gains of approximately 9% for the S&P 500. The stock has gained more than 62% over the past 12 months, more than four times the gains for the benchmark.

Read more …

This is a history lesson that’s part of a longer piece on neo-liberalism and the Shock Doctrine.

The Actual Lizard People (Connelly)

The Mont Pelerin Society was created on 10 April 1947 at a conference organised by the economist Friedrich von Hayek and Swiss businessman Albert Hunold. (By the end of the conference, Hunold would be appointed secretary. He also became editor-in-chief of The Mont Pelerin Quarterly magazine). The Society was basically a union for the rich and powerful, which boasted Prime Ministers and Presidents, journalists, European and American aristocracy, economists, business people, authors and academics. It was backed and funded by The (New York) Foundation for Economic Education, and the William Volker Fund based in Kansas City which provided subsidies. Credit Suisse, then known as The Schweizerische Kreditanstalt, paid for almost all the conference costs.

As the cigar-smoke, whiskey and heady self-righteousness swilled around the ballroom lights, Hayek joined with Milton Friedman and their luminaries, including Austrian-American economist, Ludvig von Mises and noted Austrian-British philosopher, Karl Popper to form a small, exclusive club of free-marketeers, devoted to remaking the world in its image. That night began the systematic deconstruction of Roosevelt’s New Deal which, ironically, was responsible for the greatest expansion of the American middle class up until that point, according to historian Jason A Schwarz which in turn helped bolster middle-class wealth in allied nations. The wealth created during the New Deal endowed three generations with financial and social mobility, the riches that were still being spent and created in the 60s, 70s and 80s, at the cost of a fraction of the wealth of the world’s millionaires and billionaires.

The infrastructure built during the New Deal, cracking and creaking, is in use to this day. The Mont Pelerin group would draft a ten-point statement of aims which claimed “independent freedom can be preserved only in a society in which an effective competitive market is the main agency for the direction of economic activity.” The 10 point statement of aims concludes with: “Complete intellectual freedom is so essential to the fulfillment of our aims that no consideration of social expediency must ever be allowed to impair it”. The decisions made in that Swiss Hotel in 1947 was the formalisation of a long running class war that is still being fought today. Initially their progress was slow. They were in such a defensive mode, they achieved little that was tangible during the 50s and 60s, beyond an attack on the then dominant Neo-Keynesian economic management.

Their first opportunity to take back real power, and shift the world towards the capitalism of the 1920s and earlier decades, came with the US-inspired overthrow of the Allende Government in Chile on September 11th, 1973 which saw hundreds killed, 200,000 people exiled, and many more tortured, kidnapped and disappeared. It is often referred to as the first 9/11. It is estimated more than 10,000 people were killed under Pinochet’s regime. Mass Chilean unemployment persisted for years after Pinochet cut government spending by 27%, with education and health hit hardest, while adopting a “pro-business package” and a move towards “complete free trade” which removed “as many obstacles as possible that now hinder the private market”.

Read more …

Another crazy narrative that must be halted. The blame lies in Brussels, not with people trying to prevent other people from drowning.

Refugee Rescue Ships Not ‘Colluding With People Smugglers’ (Ind.)

Humanitarian ships rescuing refugees in the Mediterranean Sea are not acting as a “pull factor” driving increasing refugee boat crossings or “colluding” with smugglers, research has found. A report by the Forensic Oceanography department at Goldsmiths, University of London, rejected a “toxic narrative” seeking to blame NGOs for the worsening crisis. Experts dismantled allegations made by agencies such as Frontex and leading European politicians, who claimed charities were encouraging smugglers to use more dangerous tactics on the treacherous passage between Libya and Italy. The Blaming the Rescuers report’s author, Lorenzo Pezzani, said: “The evidence simply does not support the idea that rescues by NGOs are to blame for an increase in migrants crossing.

“The argument against NGOs deliberately ignores the worsening economic and political crisis across several regions in Africa that has driven up the numbers of crossings in 2016. “The violence against migrants in Libya is so extreme that they attempt the sea crossing with or without search and rescue being available.” The United Nations has documented “slave auctions” where African migrants are openly bought and sold in the war-torn country, as well as endemic rates of rape, abuse, torture and forced labour. Despite the dire situation, the EU has been giving funding, training and equipment to the Libyan coastguard in efforts to turn back migrant boats and prevent the crossings. Humanitarian groups, which have documented the coastguard abusing migrants and attacking their ships, say forcing refugees from international waters back into Libya is a violation of international law.

[..] The Goldsmiths report also placed partial blame on the EU’s Operation Sophia mission, which had a “major impact on smugglers’ tactics” by intercepting and destroying larger and safer wooden boats. “The Libyan coastguard’s use of violence when intercepting vessels also affected smugglers’ tactics and at times led to boats capsizing, endangering everyone on board,” it added. It concluded that those blaming NGOs are choosing to ignore the role other actors, including EU agencies and national governments, have played in making migrant crossings more dangerous. “We believe that the toxic narrative falsely claiming that NGO search and rescue is to blame for the migrant crossing situation is part of a worrying tendency to criminalise solidarity initiatives towards migrants,” Mr Pezzani said.

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Wonderful. I think, however, that saying it contradicts the Tragedy of the Commons is a bridge too far. Because these people do choose what’s best for themselves.

Fractal Planting Patterns Yield Optimal Harvests, No Central Control (PhysOrg)

Bali’s famous rice terraces, when seen from above, look like colorful mosaics because some farmers plant synchronously, while others plant at different times. The resulting fractal patterns are rare for man-made systems and lead to optimal harvests without global planning. To understand how Balinese rice farmers make their decisions for planting, a team of scientists led by Stephen Lansing (Nanyang Technological University) and Stefan Thurner (Medical University of Vienna, Complexity Science Hub Vienna, IIASA, SFI), both external faculty at the Santa Fe Institute, modeled two variables: water availability and pest damage. Farmers that live upstream have the advantage of always having water; while those downstream have to adapt their planning on the schedules of the upstream farmers.

Here, pests enter the scene. When farmers are planting at different times, pests can move from one field to another, but when farmers plant in synchrony, pests drown and the pest load is reduced. So upstream farmers have an incentive to share water so that synchronous planting can happen. However, water resources are limited and there is not enough water for everybody to plant at the same time. As a result of this constraint, fractal planting patterns emerge, which yield close to maximal harvests. “The remarkable finding is that this optimal situation arises without central planners or coordination. Farmers interact locally and take local individual free decisions, which they believe will optimize their own harvest. And yet the global system works optimally,” says Lansing.

“What is exciting scientifically is that this is in contrast to the tragedy of the commons, where the global optimum is not reached because everyone is maximizing his individual profit. This is what we are experiencing typically when egoistic people are using a limited resource on the planet, everyone optimizes the individual payoff and never reach an optimum for all,” he says. The scientists find that under these assumptions, the planting patterns become fractal, which is indeed the case as they confirm with satellite imagery. “Fractal patterns are abundant in natural systems but are relatively rare in man-made systems,” explains Thurner. These fractal patterns make the system more resilient than it would otherwise be. “The system becomes remarkably stable, again without any planning—stability is the outcome of a remarkably simple but efficient self-organized process. And it happens extremely fast. In reality, it does not even take ten years for the system to reach this state,” Thurner says.

Read more …

Apr 212017
 
 April 21, 2017  Posted by at 6:35 pm Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Giotto Legend of St Francis, Exorcism of the Demons at Arezzo c.1297-1299

 

You are not an investor. One can only be an investor in functioning markets. There have been no functioning markets since at least 2008, and probably much longer. That’s when central banks started purchasing financial assets, for real, which means that is also the point when price discovery died. And without price discovery no market can function.

You are therefore not an investor. Perhaps you are a cheat, perhaps you are a chump, but you are not an investor. If we continue to use terms like ‘investor’ and ‘markets’ for what we see today, we would need to invent new terms for what these words once meant. Because they surely are not the same thing. Even as there are plenty people who would like you to believe they are, because it serves their purposes.

Central banks have become bubble machines, and that is the only function they have left. You could perhaps get away with saying that the dot-com bubble, maybe even the US housing bubble, were not created by central banks, but you can’t do that for the everything bubble of today.

The central banks blow their bubbles in order to allow banks and other financial institutions to first of all not crumble, and second of all even make sizeable profits. They have two instruments to blow their bubbles with, which are used in tandem.

The first one is asset purchases, which props up the prices for these assets, through artificial demand. The second is (ultra-) low interest rates, which allows for more parties -that is, you and mom and pop- to buy more assets, another form of artificial demand.

The most important central bank-created bubble is in housing, if only because it facilitates bubbles in stocks and bonds. Home prices in many places in the world have grown much higher than either economic growth or homebuyers’ wages justify.

In many instances they have even caused a feeding frenzy, where people are so desperate to either have a place to live or not miss out on profits that they’ll pay any price, provided rates are low enough for them to get a loan approved.

As I said a few weeks ago in Our Economies Run on Housing Bubbles, the housing bubbles created in this way are essential in keeping our economies going, because it is through mortgages -loans in general- that money is created in these economies.

If this money creation machine would stop, so would the economies. Home prices would come down to more realistic levels, but there still wouldn’t be anyone to buy them, so they would sink further. That, too, is called price discovery. For which there is a bitter and urgent need.

The Fed is an outlier in the central bank system, in that it no longer buys up too many assets. But other central banks have duly taken over. Indeed, Tyler Durden observes today via Bank of America that BoJ and ECB have bought more assets so far in 2017 than central banks ever have before. One may wonder at what point the term ‘asset’ will lose its rightful meaning to the same extent that ‘investor’ and ‘markets’ have:

A quick, if familiar, observation to start the day courtesy of Bank of America which in the latest overnight note from Michael Hartnett notes that central banks (ECB & BoJ) have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, “the largest CB buying on record.” As Hartnett notes, the “Liquidity Supernova is the best explanation why global stocks & bonds both annualizing double-digit gains YTD despite Trump, Le Pen, China, macro…”

A recent graph from Citi and Haver illustrated it this way:

 

 

Note the rise in central bank balance sheets before 2008. There’s nothing innocent about it.

As an aside, I like this variation from the Twitter account of “Rudy Havenstein”, which came with the comment:

Here is a chart of the well being of the American middle-class and poor over the same period.

 

 

The Fed tries to become even more of an outlier among central banks, or at least it seems to discuss ways of doing this. Now, I don’t know what is more stunning, the fact that they go about it the way they do, or the lack of anger and bewilderment that emanates from the press and other voices -nobody has a clue what a central bank should be doing-, but the following certainly is ‘something’:

Fed Intensifies Balance-Sheet Discussions With Market Players

Federal Reserve staff, widening their outreach to investors in anticipation of a critical turning point in monetary policy, are seeking bond fund manager feedback on how the central bank should tailor and communicate its exit from record holdings of Treasuries and mortgage-backed securities. Fed officials are intent on shrinking their crisis-era $4.48 trillion balance sheet in a way that isn’t disruptive and doesn’t usurp the federal funds rate as the main policy tool. To do that, they need to find the right communication and assess market expectations on the size of shrinkage, which is why conversations with fund managers have picked up recently. “All indications suggest that conversations around the balance sheet have accelerated,” said Carl Tannenbaum at Northern Trust Company. “The consideration of everything from design of the program to communication seems to have intensified.”

Most U.S. central bankers agreed that they would begin phasing out their reinvestment of maturing Treasury and MBS securities in their portfolio “later this year,” according to minutes of the March meeting. They also agreed the strategy should be “gradual and predictable,” according to the minutes. Fed staff routinely seek feedback from investors and bond dealers to get a fix on sentiment and expectations. The New York Fed confirmed the discussions and said it is part of regular market monitoring. The Fed is getting closer to disclosing its plan, and conversations have become more intense. “They are gauging what’s the extent of weak hands in the market that will dump these assets,” said Ed Al-Hussainy, a senior analyst on the Columbia Threadneedle Investment’s global rates and currency team. “They are calling all the asset managers. It is not part of the regular survey.

The Fed-created bubbles in stocks, bonds, housing, what have you, have propped up these ‘market players’, which wouldn’t even be ‘market players’ anymore if they hadn’t. That would have made for a much saner world. These people are not ‘investors’ any more either, by the way, and they’re not the chumps either; they are the cheats, the profiteers. At your expense.

Now, with the new capital they have, courtesy of the Fed and other central banks only, certainly not their own intelligence or timing or knowledge, they get calls from Yellen and other Fed people about what the Fed can do for them this time. Yellen et al are afraid that if the Fed starts selling, the so-called ‘market players’ will too. Of course they will.

The bubble created by artificial demand cannot be allowed to burst all at once, it has to be done “gradual and predictable.” As if that is possible, as if the Fed controls the bursting of bubbles it has itself created. And Yellen is not going to call you or me, she could not care less; she’s going the call the pigs she fattened up most. The Fed is more than anything a bunch of academics, seduced exclusively by textbook theories that are shaky at best, to transfer wealth to the most sociopathic and hence seductive financial predators, at everyone else’s expense.

And that expense is humongous. At the same time that the Fed and the rest of the world’s central banks fattened their balance sheets as seen in the graph above, this is what happened to US debt vs GDP:

 

 

The Fed bubbles, intended to keep market players whole, are blown at the expense of the real economy. Imagine if all those $20 trillion and counting in central banks’ bubble blowing would have been used to prop up Main Street instead of Wall Street; everybody would have been better off except for the ‘investors’ who are not even real investors.

The problem is, the Fed has no control over its own bubbles. It may or may not devise ways to ‘deflate’ its balance sheet, but the bubbles that balance sheet gave birth to cannot be deflated in the same way. If the Fed did have ‘bubble control’, it would have chosen to keep both the stock markets (S&P) and housing prices at a much lower level, with only a gradual increase. That would have given the impression that things were still doing sort of fine, without adding the risk -make that certainty- that the while shebang would blow up. But once’s the genie’s out of the bubble…

The academics must have missed that part. In the end the Fed works for banks and affiliated ‘industries’, not for people. Even -or especially- those people that like to think of themselves as ‘investors’. Today, in the process, America’s central bank is actively destroying American people. And while the Fed’s operatives may know this or not, the people certainly don’t. They think they’re making fat profits in either stocks or housing. And they are the lucky ones; most Americans are simply drowning.

A great representation of all that’s wrong in this comes courtesy of this Lance Roberts graph. A chilling illustration of the price you pay for setting S&P records.

 

 

These days, every rising asset price, every single bubble, comes at the expense of enormous increases in debt. And there are still people who wish to claim that this is not a bubble. That it is OK to get into deep debt to purchase a home, or stocks, with leverage: can’t miss out on those rates! And sure, that is still true in theory; all you have to do is get out in time. If only the Fed can get out in time, if only you can get out in time.

‘Getting out in time’ is bubble territory by definition. It’s not investing. Investing is buying an interest in something that you expect to do well, something that you think may be successful in benefiting society in such a way that people will want to own part of it. As I write down these words, I can’t help thinking of ‘It’s A Wonderful Life’, simply because it is so obvious but already feels so outdated.

I’m thinking also of Uber and Airbnb and Tesla and so many other ‘innovative’ ideas. All seemingly thriving but only because there’s so much excess cash sloshing around courtesy of Bernanke and Yellen and Draghi, looking for a next bubble to ‘invest’ in. Ideas that apparently have no trouble raising another $1 billion or $10 billion ‘investment’, in the same way that the Tulip Bubble had no such trouble, or the South Sea or Dot.Com ones.

Good luck with all that, but you’ve been warned, you’re hereby on notice. The odds that you’ll be able to ‘get out in time’ are vanishingly small. And even if you do, most others just like you won’t. And neither will the Fed academics. They have the most so-called ‘money’ at their disposal, and the least sense of what to do with it. But they have their advisers in the private banking industry to tell them all about where to put it: in one bubble or another; anywhere but the real economy.

Have I mentioned yet that all these start-ups and other bubbles are being launched into a rapidly shinking economy? Or you don’t think it is shrinking? Look, there would be no need for the Fed to blow bubbles if the economy were doing fine. And if so, they wouldn’t. Even academics have an innate sense for risk overdose.

C’mon, you’re not an investor. And perhaps you won’t even end up a loser, though the odds on that are slim, but one thing’s for sure. You are a character in an epic poem about losers.

 

 

Apr 172017
 
 April 17, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , ,  1 Response »
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Rembrandt The Descent from the Cross 1634

 

Mother of All Debt : Trump Reflation Fantasy Ends on Day 100 (Stockman)
Trump Gives Generals More Freedom In ISIS Fight (WSJ)
Who Are the Debt Slaves in this Rich Nation? (WS)
Time Has Come For Banks To Prepare For Interest Rate Rises – Bundesbank (CNBC)
World’s Biggest Aluminum Producer Faces Default (ZH)
China Home Sales Surge 18% In March Ahead Of Stepped-Up Curbs (BBG)
Tesla: Is There More To Elon Musk Than Cars? (WSJ)
Uber Confirms Horrendous Loss in 2016 (WS)
India ATMs Run Out Of Cash (ToI)
Erdogan Follows Slim Referendum Win by Warning Opponents (BBG)

 

 

April 28. There won’t be one big halt, it’ll come in incremental steps.

Mother of All Debt : Trump Reflation Fantasy Ends on Day 100 (Stockman)

In honor of the Donald’s “Mother of All Bomb” (MOAB) attack on the Hindu Kush mountains Thursday, let me introduce MOAD. I’m referring to the “Mother of All Debt” crises, of course. The opening round is coming when Washington goes into shutdown mode on April 28, which happens to be Day 100 of the Donald’s reign. In theory, this should be just a routine extension of the fiscal year (FY) 2017 continuing resolution (CR) by which Congress is funding the $1.1 trillion compartment of government which is appropriated annually. The remaining $3 trillion per year of entitlements and debt service is on automatic pilot, but the truth is Washington can’t agree on what to do about either component — except to keeping on borrowing to pay the bills. There is a problem with this long-running game of fiscal kick-the-can, however.

Namely, a 100 year-old statute requires Congress to raise the ceiling for treasury borrowing periodically, but the Imperial City has now reached the point in which there is absolutely no way forward to accomplish this. Moreover, that critical fact is ill-understood by Wall Street because it does not remotely recognize that all the debt ceiling increases since the public debt exploded after the 2008-09 crisis were an accident of the Obama presidency. That is, surrounded by Keynesian economic advisers and big spending Democratic politicians, he had no fear of the national debt at all and obviously even believed the more debt the better. And Obama was also able to bamboozle the establishment GOP leadership led by former Speaker Boehner into steering enough GOP votes to the “responsible” course of action.

Needless to say, Obama is gone, Boehner is gone and the 17-month debt ceiling “holiday” that they confected in October 2015 to ride Washington through the election is gone, too. What’s arrived is vicious partisan warfare, a new President who is clueless about the urgency of the debt crisis and a bloc of 50 or so Freedom Caucus Republicans who now rule Washington. And good for them! They genuinely fear and loathe the banana republic financial profligacy that prevails in the Imperial City, and would rip the flesh from Speaker Ryan’s face were he to go the Boehner route and try to assemble a “bipartisan” consensus for a condition-free increase in the debt ceiling.

What that means is a completely new ball game in the Imperial City that will absolutely dominate the agenda as far as the eye can see. That’s because the Freedom Caucus will insist that sweeping entitlement reforms and spending cuts accompany any debt ceiling increase. Even “moderate” Senator Rob Portman (Ohio) has legislation requiring that dollar for dollar deficit cuts accompany any increase in the debt ceiling. But if you think the GOP fractures and fissures generated by Obamacare replace and repeal were difficult, you haven’t seen nothin’ yet. There is absolutely no basis for GOP consensus on meaningful deficit cuts, meaning that MOAD will bring endless starts, stops, showdowns and shutdowns, as the U.S. Treasury recurringly exhausts its cash and short-term extensions of its borrowing authority.

In the meanwhile, everything else — health care reform, tax cuts, infrastructure — will become backed-up in an endless queue of legislative impossibilities. Accordingly, there will be no big tax cut in 2017 or even next year. For all practical purposes Uncle Sam is broke and his elected managers are paralyzed. The Treasury will be out of cash and up against a hard stop debt limit of $19.8 trillion in a matter of months. But long before that there will be a taste of the Shutdown Syndrome on April 28 owing to the accumulating number of “poison pill” “riders” to the CR.

Read more …

This is not good: “A senior administration official said Mr. Trump didn’t know about the weapon’s use until it had been dropped.”

Trump Gives Generals More Freedom In ISIS Fight (WSJ)

U.S. military commanders are stepping up their fight against Islamist extremism as President Donald Trump’s administration urges them to make more battlefield decisions on their own. As the White House works on a broad strategy, America’s top military commanders are implementing the vision articulated by Defense Secretary Jim Mattis: Decimate Islamic State’s Middle East strongholds and ensure that the militants don’t establish new beachheads in places such as Afghanistan. “There’s nothing formal, but it is beginning to take shape,” a senior U.S. defense official said Friday. “There is a sense among these commanders that they are able to do a bit more—and so they are.” While military commanders complained about White House micromanagement under former President Barack Obama, they are now being told they have more freedom to make decisions without consulting Mr. Trump.

Military commanders around the world are being encouraged to stretch the limits of their existing authorities when needed, but to think seriously about the consequences of their decisions. The more muscular military approach is expanding as the Trump administration debates a comprehensive new strategy to defeat Islamic State. Mr. Mattis has sketched out such a global plan, but the administration has yet to agree on it. While the political debate continues, the military is being encouraged to take more aggressive steps against Islamic extremists around the world. The firmer military stance has fueled growing concerns among State Department officials working on Middle East policy that the Trump administration is giving short shrift to the diplomatic tools the Obama administration favored.

Removing the carrot from the traditional carrot-and-stick approach, some State Department officials warn, could hamper the pursuit of long-term strategies needed to prevent volatile conflicts from reigniting once the shooting stops. The new approach was on display this week in Afghanistan, where Gen. John Nicholson, head of the U.S.-led coalition there, decided to use one of the military’s biggest nonnuclear bombs—a Massive Ordnance Air Blast bomb, or MOAB—to hit a remote Islamic State underground network of tunnels and caves. A senior administration official said Mr. Trump didn’t know about the weapon’s use until it had been dropped. Mr. Mattis “is telling them, ‘It’s not the same as it was, you don’t have to ask us before you drop a MOAB,’” the senior defense official said. “Technically there’s no piece of paper that says you have to ask the president to drop a MOAB. But last year this time, the way [things were] meant, ‘I’m going to drop a MOAB, better let the White House know.’”

Read more …

We are all of us in the gutter (but some of us are looking at the stars).

Who Are the Debt Slaves in this Rich Nation? (WS)

We constantly hear the factoids about “American households” that paint a picture of immense wealth – and therefore a lack of risk for consumer lenders during the next downturn. We hear: “This – the thing that happened in 2008 and 2009 – won’t happen again.” For example, total net worth (assets minus debt) of US households and non-profit organization (they’re lumped together) rose to an astronomical $92.8 trillion at the end of 2016, according to the Federal Reserve. This is up by nearly 70% in early 2009 when the Fed started its QE and zero-interest-rate programs. Inflating household wealth was one of the big priorities of the Fed during the Financial Crisis. It would crank up the economy. In an editorial in 2010, Fed Chair Ben Bernanke himself called this the “wealth effect.”

So with this colossal wealth of US households, what could go wrong during the next downturn? Here’s what could go wrong: About half of Americans do not have enough savings to pay for even a minor emergency expense. The Federal Reserve found that 46% of adults could not cover an emergency expense of $400, such as a broken windshield. They would either have to borrow the money or try to sell the couch or something. So nearly half of the adults in the US live from paycheck to paycheck. About 15% of American households have either zero or negative net wealth, according to the New York Fed. Negative net worth means they have more debt than in assets. And nearly 47 million Americans, or nearly 15% of the population, live below the poverty line, according to the Census Bureau.

So who benefited from the “wealth effect”? Those who had the most assets. At the very tippy-top: Warren Buffet. At the other end of the spectrum, in 2016, only 52% of households owned stocks directly or indirectly. The phenomenal stock market boom left 48% – usually those below the poverty line, those who cannot cover emergency expenses, those with zero or negative net worth, etc. etc. – in the dust.

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Germany is one of the precious few who might benefit from higher rates. But Germany seems to forget it is not an island.

Time Has Come For Banks To Prepare For Interest Rate Rises – Bundesbank (CNBC)

The time has come for financial institutions to prepare for an environment with rising interest rates, a Bundesbank board member told CNBC on Thursday. Many risk managers have focused on credit and liquidity risks, but they need to insert interest rate risks into the equation too, Andreas Dombret, an executive board member of the German Bundesbank, said. “Let’s face it, there are quite a number of risk managers who have never seen interest rates rise and who have never seen the interest rate risk and even thought about (it) and have concentrated on credit risk and have concentrated on liquidity risk, so it’s about time to prepare for a potential change,” Dombret said.

The former vice-chairman of Bank of America’s European global investment unit explained that the German central bank is taking interest rate rises “very seriously” and is “actively” working with German banks to ensure that changes to monetary policy will not disrupt them in any way. “Should there be sharp rises in interest rates that of course would be a challenge for any bank,” Dombret said. Members of the German central bank have been critical of the low interest rate environment in the euro zone, arguing this is hurting banks’ balance sheets. Earlier this month, Bundesbank President Jens Weidmann, called on the ECB to start tightening its monetary policy.

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Simple fraud.

World’s Biggest Aluminum Producer Faces Default (ZH)

While China Hongqiao Group may be best known for being the world’s largest aluminum producer, it has in recent months featured just as prominently among short-seller reports who have accused the company of being a fraud. As the WSJ’s Scott Patterson writes, questions about China Hongqiao’s finances first emerged in November, when an anonymous short seller wrote on a website called Hongqiao Exposed that the company’s profits are “too good to be true.” China Hongqiao in the March 31 statement called the report “untrue and unfounded.” A subsequent 46-page report on Feb. 28 by Emerson Analytics, a trading firm focused on Chinese stock-market fraud, disclosed more allegations of fraud involving the Chinese commodity giant.

Emerson accused China Hongqiao of “abnormally high” profits generated by underreporting production costs and disclosing electricity expenses—one of the biggest costs for aluminum producers—as much as 40% below their true cost. Emerson said it investigated Chinese electricity costs, spoke to former China Hongqiao employees and compared the company’s costs and profits with other comparable companies.

Additionally, China Hongqiao has been more profitable than some Chinese competitors. For instance, China Hongqiao earned an average operating profit margin of 27% in the past five years, compared with minus-1.7% for state-owned Aluminum Corp. of China , known as Chalco, and 5.9% for Alcoa, according to FactSet. “People were always skeptical about how they managed to be more profitable than their peers,” said Sandra Chow, a credit analyst at CreditSights. And while China Hongqiao denied the Emerson report’s allegations and said it hired an investigative agency to look into the firm and people behind the claims, things are starting to unravel rapidly for the Chinese megacap.

As Patterson reports, China Hongqiao – the world’s biggest aluminum producer – is in trouble, locked in a feud with its accountant over fraud allegations that have forced it to suspend trading of its shares and seek help from the central government in Beijing. Just like in the case of its cow dairy peer, the problems emerged to the surface following the bearish 3rd party reports. Just days after the Emerson Analytics note, on March 4 China Hongqiao sought assistance from a trade group, the Chinese Non-Ferrous Metals Industry Association, or CNIA, saying the short sellers’ claims of inflated profits were forcing the company’s accountant, Ernst & Young, “to adopt an extremely conservative and careful attitude.” One wonders just whose books E&Y had been reviewing until that point if it took an outside party to bring attention to potential fraud at one of its biggest Chinese clients.

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It’s really not that long ago when Chinese were reluctant to go into debt. But look now.

China Home Sales Surge 18% In March Ahead Of Stepped-Up Curbs (BBG)

The value of China’s home sales remained buoyant in March, though volume figures indicated that curbs in a number of cities may be slowing the recent buying frenzy. New home sales by value rose 18% to 1 trillion yuan ($145 billion) last month from a year earlier, according to Bloomberg calculations based on data released Monday by the National Bureau of Statistics. The increase compares with a 23% surge in the first two months of the year. But the value of sales partly reflected surging home prices. By volume, home sales grew only 11% in March to 130 million square meters, according to Bloomberg calculations, below the 24% growth in the first two months of 2017. “The curbs are showing their effects,” said Liu Feifan at Guotai Junan Securities in Shenzhen, who predicted that sales growth will continue to slow.

Policy makers are seeking to clear a glut of unsold homes in smaller urban centers, while pledging to enforce strict curbs in most first- and second-tier cities to prevent a housing bubble. In a month when at least 64 cities announced new or stricter property-buying restrictions, some of the growth in home sales reflected buyers flocking into the market fearing they’d be ruled ineligible for future purchases. Investment in real estate development gained 9.4% in March from a year earlier, up from 8.9% in the first two months, according to Bloomberg calculations. Strong property investment helped China’s fixed-asset investment excluding rural areas expand 9.2% in the first quarter, accelerating from 8.1% growth last year.

Some of the growth represented a “delayed effect” from an earlier property boom, and the rate is likely to decelerate soon, Zhou Hao at Commerzbank wrote in a note after the data release. Liu at Guotai Junan said the increasingly high leverage that Chinese households have taken on for home purchase is “not sustainable.” New medium and long-term loans to households, made up mostly of mortgages, picked up again last month to 450.3 billion yuan, according to official data last Friday.

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Tesla, Uber, same bubble. Giant losses with no future profits in sight. “Uber customers knew they were in a driverless car, by the way, because it had two drivers instead of one.”

Tesla: Is There More To Elon Musk Than Cars? (WSJ)

You probably have figured it out by now, but let me state it anyway. Ten years from now, if you’re reading this paper in a driverless car, it will be on a limited-access highway or a closed-off, experimental city circuit. You will not be thumbing through your text messages in a driverless car capable of carrying you anywhere, at all hours, in all weather conditions, over all kinds of roads. And even so, you will be expected to take over driving at a moment s notice. Ditto electric cars. If you own an electric car, you will be a member of a still-small minority. Electric-car owners will be people who own multiple cars or otherwise are willing to settle for a car with limited utility, suited for a daily commute but not a family trip or a long weekend. Even so, a new phenomenon will become apparent. After unexpected tie-ups on the interstate, tow trucks will routinely have to come and remove three or four Teslas that risked a long-distance trip and ran out of juice.

All this we offer as a discordant note amid the hype for electric cars and autonomous driving. Last week the market value of Tesla surpassed that of Ford and General Motors. Tesla is now the most valuable homegrown American car company, worth almost $US52 billion.Yet in the same week a reputable consultancy, Navigant Research, showed that Ford and GM lead all others, including Tesla and Google, in the autonomous car race. Shocking? Not really. These companies are making and selling cars, while the Silicon Valleyites have been mostly engaged in brand-building exercises based on public fascination with jazzy, futuristic auto technology. Google, the pioneer of self-driving hype, recently admitted it won’t build and sell a car after all. Google, though, still finds it pays to trundle its handful of robot cars on the exquisitely mapped streets of a few locales in perfect weather as obstacles to other motorists.

Apple reaped untold millions in free publicity based mainly on rumours and job postings for automotive engineers. Uber briefly suspended its own self-driving taxi experiment in three cities after an accident last month. Uber customers knew they were in a driverless car, by the way, because it had two drivers instead of one. The Wall Street Journal reported this week that Tesla’s triumph in the market-cap sweepstakes underscores the profound change occurring in the global automotive industry as Silicon Valley pursues a vision for transportation … that could up-end century-old competitors. Except that the stock prices of traditional car makers haven’t exactly been tanking. GM’s remains within yelling distance of its postbankruptcy high. Look at BMW, whose market cap Tesla nearly equals. Even if Tesla succeeds in its high-risk plan to ramp up annual production to 500,000 from 80,000 in a scant two years, it will sell a quarter as many luxury cars as BMW does, and has yet to show it can do so profitably.

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Case in point.

Uber Confirms Horrendous Loss in 2016 (WS)

On Good Friday, when markets were closed and when the entire financial world was tuned out, and when certainly no one was supposed to pay attention, Uber, the most highly valued – at $62.5 billion – and the most scandal plagued tech startup in the world, took the until now unprecedented step of disclosing its audited revenues and losses for the fourth quarter and for the full year of 2016. Rumors of ballooning losses for 2016 had been swirling since last summer. Bloomberg reported in August that Uber had lost “at least $1.2 billion” in the first half. In December, Uber’s loss in Q3 was said to “exceed $800 million,” according to Bloomberg, and its annual loss “may hit $3 billion.”

Others chimed in as some of Uber’s dozens of investors who’re getting its financial statements share them in dribs and drabs with the media. But on Friday, Uber itself disclosed that it lost $2.8 billion before interest, tax, depreciation, and employee stock options – the latter likely being a big chunk, as the earnings of publicly traded companies that award stock-based compensation, such as Twitter, regularly show. Translated into a net loss, including the expense for stock-based compensation? Dizzying. But Uber wisely didn’t disclose it. The Financial Times, which reported this disclosure, mused that Uber is “cementing its place as the most heavily-lossmaking private company in the history of Silicon Valley.”

In Q4 alone, it lost $991 million before interest, tax, depreciation, and stock-based compensation, up 5% from the losses in Q3 and nearly double its loss in Q1. However, as Uber has expanded at break-neck speed into more than 70 countries, stirring up numerous hornets’ nests of local and national laws and regulations, revenue soared over 200% from Q1 to reach $2.9 billion in Q4. For the whole year, revenue reached $6.5 billion. This is the image of its skyrocketing 2016 quarterly revenues and ballooning losses before interest, tax, depreciation, and stock-based compensation:

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In a country of over 1 billion people, failures look big.

India ATMs Run Out Of Cash (ToI)

Five months have passed since the demonetisation drive, but the people of Srikakulam, Vizianagaram and Visakhapatnam continue to face shortage of cash in banks and ATMs. Sources said more than 90% of the ATMs in the region do not have cash while in the plains and Agency areas running dry. “The last date for paying my daughter’s tuition fees at Visakha Valley School was April 10, but I could not pay due to unavailability of cash. Moreover, the school does not have any online payment system,” said a worried P Srinivasa Rao. Speaking to TOI, State Bank of India (SBI) deputy general manager Ajoy Kumar Pandit said the customers are losing confidence in them due to the crisis.

“Nearly 70% of our 648 ATMs in the three districts are out of cash. The rest will also become dry in the next few days as we do not have cash to refill the machines. We are helpless from our side,” he said. A banking source said the RBI has diverted most of the cash to north India due to the recent elections. This has affected the southern parts of the country. “The government’s intention is to encourage smart payment systems, but the infrastructure is not up to the mark,” the source said. Many ATMs have not been upgraded with the new software required for handling the new Rs 500 and Rs 2,000 denominations, the source added.

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The referendum has revealed the opposite of what Erdogan claims it has; namely, a dramatically divided Turkey. A powder keg. Recounts first? Is the judicial system still strong enough to order them? Changing a constitution with a 50% + 1 majority is questionable enough, since a constitution is supposed to be the result of many years of deliberation; in most places it would require 67% or even 75%. On top of that, this referendum was executed with many opposition politicians and many journalists behind bars. And even then only a very slim margin?!

Erdogan Follows Slim Referendum Win by Warning Opponents (BBG)

An emboldened Recep Tayyip Erdogan followed his win in a referendum that ratified the supremacy of his rule by taking aim at political opponents at home and abroad. At his victory speech late on Sunday, supporters chanted that he should bring back the death penalty – a move that would finish off Turkey’s bid to join the EU – and Erdogan warned opponents not to bother challenging the legitimacy of his win. He told them to prepare for the biggest overhaul of Turkey’s system of governance ever, one that will result in him having even fewer checks on his already considerable power. “Today, Turkey has made a historic decision,” he said. “We will change gears and continue along our course more quickly.” The lira surged as much as 2.5% against the dollar in early trading on Monday in Istanbul before gains moderated.

The success of a package of 18 changes to the constitution was narrow, with about 51.4% of Turks approving it. It came at the end of a divisive two-month campaign during which Erdogan accused opponents of the vote of supporting “terrorists” and denounced as Nazi-like the decision of some EU countries to bar his ministers from lobbying the diaspora. “The referendum campaign was dominated by strongly anti-Western rhetoric and repeated promises to bring back the death penalty,” said Inan Demir at Nomura in London. “One hopes that this rhetoric will be tempered now that the vote is over,” but recent steps by the Turkish government do “not bode well for the hoped-for moderation in international relations.”

“It looks like the best outcome for financial markets because it gives the mandate, but not a strong mandate,” said Ozgur Altug, the chief economist at BGC Partners in Istanbul, who predicts stocks in Istanbul will rally about 7%. While markets looked favorably on the result as a sign political turmoil in the majority Muslim nation of 80 million people may settle down and help jumpstart the economy, Turkey’s biggest political party alleged fraud, demanding a recount after election officials accepted ballots without official stamps.

The EU’s rapporteur on Turkey, Kati Piri, said given the “unfair election environment,” EU accession talks will be suspended if the constitution is passed in its current form. The European Commission, in a statement, said the constitutional amendments, and their implementation “will be assessed in light of Turkey’s obligations” as an accession candidate and as a member of the Council of Europe. “You saw how the West attacked. But despite this, the nation stood tall, didn’t get divided,” Erdogan told his supporters, while calling on Turks who opposed him to “stop tiring themselves out” and accept the course the country is headed on.

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Apr 132017
 
 April 13, 2017  Posted by at 8:44 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Eruption of Mount Vesuvius 1944

 

Former GM Vice Chair: I Think Tesla Is Doomed (CNBC)
It’s Time for Bank Hardball (Tan)
America In the Age of Hypocrisy, Hubris, and Greed (Frank)
Trump Flips On Five Core Campaign Promises In Under 24 Hours (ZH)
Trump Lays Groundwork for Federal Government Reorganization (BBG)
The Politics of the IMF (WF)
If An Electorate Falls In The Forest, Is Their Voice Heard? (DDMB)
NY Fed Boss May Have Blabbed During Blackout (Crudele)
The Potential For The Disastrous Rise Of Misplaced Power Persists (Assange)
No Greek Pensions Expected To Avoid Cuts (K.)
IMF Chief Lagarde Says ‘Halfway’ There On Greek Talks (R.)
Stop Pretending on Greek Debt (BBG)
Detention Of Child Refugees Should Be Last Resort, Brussels Says (G.)
Crucified Man Had Prior Run-In With Authorities (Petri)

 

 

More on the Ponzi.

Former GM Vice Chair: I Think Tesla Is Doomed (CNBC)

GM’s former Vice Chairman Bob Lutz dropped a whole lot of reality on some unsuspecting Tesla cheerleaders on CNBC this morning. “I am a well known Tesla skeptic. Somehow it’s levitating and I think it’s Elon Musk is the greatest salesman in the world. He paints this vision of an unlimited future, aided and abetted by some analysts. It’s like Elon Musk has been beamed down from another planet to show us mortals how to run a company.” “The fact is it’s a constant cash drain. They’re highly dependent on federal government and state incentives for money which constantly flows in. They have capital raises all the time.” “Even the high-end cars that they build now cost more to build than they’re able to sell them for.” “Mercedes, BWM, Volkswagen, GM, Audi and Porsche are all coming out with 300-mile [range] electric luxury sedans…I think they’re doomed.”

“Their upside on pricing is limited because everybody else sells electric vehicles at a loss to get the credits to be able to sell the sport utility vehicles and the pickup trucks. So that puts a ceiling on your possible pricing.” “And if he can’t make money on the high-end Model S and Model X’s which sell up to $100,000, how in the world is he going to make money on a $35,000 small car? Because I have news for you, 42 years of experience, the cost of a car doesn’t come down proportional to it’s price.” “If you have a situation where the cost of producing a car, labor and materials, is higher than your sell price, your business model is flawed. And it’s doomed and it’s going to fail.”

“The battery plant, in my estimation, is a joke. There are no cost savings from making a lithium ion plant bigger than other people lithium ion plants, because making lithium ion cells is a fully automated process anyway. So, whether you got full automative in a small building or 10x full automation in a big building, you’re not saving any money.”

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Break up the banks!

It’s Time for Bank Hardball (Tan)

Wall Street’s top executives should be pressed for substantive answers to harder-hitting questions about long-term performance. That’s a notion being trumpeted by well-known bank analyst Mike Mayo, who has never been one to shy away from criticizing the companies he covers. And boy, does he have a point. On Wednesday, Mayo published some questions he plans to ask Citigroup’s Chairman Michael O’Neill and CEO Michael Corbat at its annual general meeting later this month. They haven’t truly been held accountable for the lender’s mediocre returns, which includes its inability to meet a targeted return on tangible common equity of 10% by 2015, a goal that has since been pushed to 2019. Mayo’s solutions include another round of restructuring, or, if something is structurally wrong, perhaps the bank should break up.

Another valid question is why Citi feels the need measure its financial and share price performance against European lenders Barclays, Deutsche Bank and HSBC? (The question is somewhat rhetorical: It’s so the bank doesn’t place dead last, which it would on most metrics if compared with U.S. rivals). And oddly enough, it removes its weaker European counterparts for compensation comparison purposes. The same can’t be said for Bank of America, which in addition to reviewing its closest five U.S. competitors, evaluates the performance at worse-off European banks such as Credit Suisse and Royal Bank of Scotland as well as similarly-sized U.S.-based companies such as Coca-Cola and General Electric. This seems unnecessary and almost like an easy way to justify Chairman and CEO Brian Moynihan’s potentially outsized $20 million in annual pay.

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“For Americans who work for a living however, nothing ever seems to improve.”

America In the Age of Hypocrisy, Hubris, and Greed (Frank)

“The whole world wants to know about what the hell is happening with us. So let’s talk about it. I live in Washington now, and the people I live among have no idea how people live here in the Midwest, not the faintest idea… The last couple of years here in America have been a time of brisk prosperity according to official measurements, with unemployment down and the stock market up. For Americans who work for a living however, nothing ever seems to improve. Wages do not grow, median household income is still well below where it was in 2007. Economists have a way of measuring this, they call it the ‘labor share of the Gross National Product’ as opposed to the share taken by stockholders. The labor share of Gross National Product’ hit its lowest point since records were started in 2011, and then it stayed there right for the next couple of years.

In the fall of 2014, with the stock market hitting an all time high, a poll showed that nearly 3/4 of the American public believed that the economy was still in recession, because for them it was. There was time when average Americans could be counted upon to know correctly whether the country was going up or down, because in those days when America prospered, the American people prospered as well. These days things are different. Let’s look at it in a statistical sense. If you look at it from the middle of the 1930’s (the Depression) up until the year 1980, the lower 90% of the population of this country, what you might call the American people, that group took home 70% of the growth in the country’s income.

If you look at the same numbers from 1997 up until now, from the height of the great Dot Com bubble up to the present, you will find that this same group, the American people, pocketed none of this country’s income growth at all. Our share of these great good times was zero, folks. The upper 10% of the population, by which we mean our country’s financiers and managers and professionals, consumed the entire thing. To be a young person in America these days is to understand instinctively the downward slope that so many of us are on.”

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And gets away with it.

Trump Flips On Five Core Campaign Promises In Under 24 Hours (ZH)

Blink, and you missed Trump’s blistering, seamless transformation into a mainstream politician. In the span of just a few hours, President Trump flipped to new positions on several core policy issues, backing off on no less than five repeated campaign promises. In a WSJ interview and a subsequent press conference, Trump either shifted or completely reversed positions on a number of foreign and economic policy decisions, including the fate of the US Dollar, how to handle China and the future of the chair of the Federal Reserve.

Goodbye strong dollar and high interest rates In an announcement that rocked currency markets, Trump told the WSJ that the U.S. dollar “is getting too strong” and he would prefer the Federal Reserve keep interest rates low. “I do like a low-interest rate policy, I must be honest with you,” Mr. Trump said. “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately,” he added. “Look, there’s some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good.”

Labeling China a currency manipulator Trump also told the Wall Street Journal that China is not artificially deflating the value of its currency, a big change after he repeatedly pledged during his campaign to label the country a currency manipulator. “They’re not currency manipulators,” the president said, adding that China hasn’t been manipulating its currency for months, and that he feared derailing U.S.-China talks to crack down on North Korea. Trump routinely criticized President Obama for not labeling China a currency manipulator, and promised during the campaign to do so on day one of his administration.

Yellen’s future Trump also told the Journal he’d consider re-nominating Yellen to chair the Fed’s board of governors, after attacking her during his campaign.” I like her. I respect her,” Trump said, “It’s very early.” Trump called Yellen “obviously political” in September and accused her of keeping interest rates low to boost the stock market and make Obama look good. “As soon as [rates] go up, your stock market is going to go way down, most likely,” Trump said. “Or possibly.”

Export-Import Bank Trump also voiced support behind the Export-Import Bank, which helps subsidize some U.S. exports, after opposing it during the campaign. “It turns out that, first of all, lots of small companies are really helped, the vendor companies,” Trump told the Journal. “Instinctively, you would say, ‘Isn’t that a ridiculous thing,’ but actually, it’s a very good thing. And it actually makes money, it could make a lot of money.” Trump’s support will anger conservative opponents of the bank, who say it enables crony capitalism.

NATO Finally, Trump said NATO is “no longer obsolete” during a Wednesday press conference with NATO Secretary General Jens Stoltenberg, backtracking on his past criticism of the alliance. During the campaign, he frequently called the organization “obsolete,” saying did little to crack down on terrorism and that its other members don’t pay their “fair share.” “I said it was obsolete. It is no longer obsolete,” the president said Wednesday. Trump has gradually become more supportive of NATO after it ramped up efforts to increase U.S. and European intelligence sharing regarding terrorism.

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There could be some advantages to a clean-up, but guaranteed they’re going to screw this up by cutting at the wrong places.

Trump Lays Groundwork for Federal Government Reorganization (BBG)

President Donald Trump is issuing a presidential memorandum that will call for a rethinking of the entire structure of the federal government, a move that could eventually lead to a downsizing of the overall workforce and changes to the basic functions and responsibilities of many agencies. The order, which will go into effect Thursday, also will lift a blanket federal hiring freeze that has been in place since Trump’s first day in office almost three months ago and replace it with hiring targets in line with the spending priorities the administration laid out in March, said Mick Mulvaney, director of the Office of Management and Budget. The move is a part of Trump’s campaign pledge to “drain the swamp” and get rid of what the administration views as inefficiencies in the federal government, Mulvaney said.

It comes as the White House also is trying to curb the size of many government agencies through a proposed budget that calls for historically deep spending cuts to everything from medical research to clean-energy programs. The push to reshape the government as well as the budget cuts are almost certain to draw opposition from Congress. “We think at the end of the day this leads to a government that is dramatically more accountable, dramatically more efficient, and dramatically more effective, following through on the very promises the president made during the campaign and that he put into place on day one,” Mulvaney said. He said the administration is starting with a “blank sheet of paper” as to how the government should operate and has set up a website to solicit ideas.

One solution may be to organize it by function, like putting all areas that deal with trade under one department, or to break up large departments into a number of smaller agencies. As an example, Mulvaney said there are 43 different workforce-training programs across at least 13 agencies – without a single point person in charge of them – that could be brought under one roof. “We’re now transitioning into the smarter, more surgical plans of running the government,” Mulvaney said in an interview on MSNBC Wednesday morning.

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Useful background. “..the US also claimed the right to remain fully informed about the financial comings and goings of every single member state, thenceforth and permanently.”

The Politics of the IMF (WF)

At the historic New Hampshire-based Bretton Woods Conference of 1944, delegates from 44 nations across the globe came together to create the International Monetary Fund (IMF) and the World Bank. The former was officially founded on 27 December 1945 with 29 member countries; financial operations commenced on 1 March 1947. From that first meeting in New Hampshire, it was established that the thrust of the IMF’s mission would be to promote greater economic cooperation within the international arena. Though today the IMF maintains its mandate has remained as such, over the years the organisation has evolved alongside a changing global landscape, becoming an extraordinarily powerful organisation as a result.

[..] .. the US played an undeniably dominant role in establishing the IMF and dictating how it would operate. A crucial factor in its make up, and in the US’ ongoing influence within the organisation, was the distribution of voting power among member states. Rather than allocating votes in accordance with the size of a member’s population – which would be the most democratic approach to take – the US instead pushed for voting power to correspond with the volume of contributions made. Unsurprisingly, those contributions made by the US, the world’s biggest economy, were far greater than those of any other member state.

By contributing $2.9bn – double the amount made by the UK, the second biggest contributor at the time – the US was guaranteed twice the number of voting rights, together with veto privileges and a blocking minority. The manoeuvre enabled the superpower to secure near-absolute control of the IMF’s activities. In order to further consolidate its dominant role, the US also claimed the right to remain fully informed about the financial comings and goings of every single member state, thenceforth and permanently.

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“The longer the voices of the desperate go unheard, as just so many silently falling trees in the forest, the more piercing their cries will be in the end.”

If An Electorate Falls In The Forest, Is Their Voice Heard? (DDMB)

It was not until the June 1883 publication of the magazine The Chautauquan that the question was put as such: “If a tree were to fall on an island where there were no human beings would there be any sound?” Rather than pause to ponder, the answer followed that, “No. Sound is the sensation excited in the ear when the air or other medium is set in motion.” A vexatious debate has ensued ever since, one that eventually stumped the great Albert Einstein who finally declared “God does not play dice.” In recognizing this, Einstein also resolved himself to the quantum physics conclusion, that there is no way to precisely predict where individual electrons can be found – unless, that is, you’re Divine.

Odds are high that the establishment, which looks to ride away with upcoming European elections, is emboldened by quantum physics. The entrenched parties appear set to retain their power holds, in some cases by the thinnest of margins. What is it the French say about la plus ca change? Is it truly the case that the more things change the more they stay the same? Is this state of stasis sustainable, you might be asking? Clearly the cushy assumption is that the voices of those whose votes will not result in change will be as good as uncast, unheard and unremarkable. Except…and this is a big ‘except’ – time is on the side of the castigated and for one simple reason – they are young.

[..] And then there is the matter of the refugee crisis, the cost of which few in the United States fully appreciate. Faced with impossible living conditions and no access to work in Jordan, Turkey and Lebanon, hundreds of thousands have opted to risk the journey to Europe. In 2015, 1.3 million asylum seekers landed in Europe, half of whom traced their origins to Syria, Afghanistan and Iraq. That number plunged in 2016 to 364,000 owing mainly to a deal between the EU and Turkey which blocks the flow of migrants to Europe. The cost, not surprisingly, is enormous. Europeans spend at least $30,000 for every refugee who lands on her shores. By some estimates, the cost would have been one-tenth that, as in $3,000 per refugee, had the journey to Europe NOT been made in the first place.

[..] At some point demographics will start to matter. The situation in France is no doubt grave, with youth unemployment at nearly 24%. But that pales in comparison to Italy where 39% of its young workers don’t have jobs to go to, day in and day out. Older voters determined to keep the establishment intact will begin to die off. In their wake will be a growing majority of voters who are increasingly disenfranchised, disaffected and despondent. If there’s one lesson Europeans can glean from their allies across the Atlantic, it’s that bullets can be dodged, but not indefinitely. As we are learning the hard way, necessary reforms are challenging to enact. Avoidance, though, will only succeed in feeding anger and despair. The longer the voices of the desperate go unheard, as just so many silently falling trees in the forest, the more piercing their cries will be in the end.

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There’s a lot of that going on. Stanley Fisher does it too.

NY Fed Boss May Have Blabbed During Blackout (Crudele)

Back in 2011, I caught William Dudley, the president of the New York Federal Reserve Bank, having meetings he wasn’t supposed to have with some of Wall Street’s top players. And nobody cared. Nobody cared despite the fact that Dudley could have easily passed along all sorts of confidential information to these people, who would have immediately known how to profit enormously from what they were being told. I am mentioning this because the head of the Richmond, Va., Fed, Jeffrey Lacker, abruptly resigned last week for doing far less bad than Dudley might have done. Lacker says he took an October 2012 phone call from an analyst at an investment advisory firm and had a conversation about something the Fed was considering — the purchase of $40 billion worth of mortgage bonds — to try to help the economy.

[..]Lacker is a pipsqueak compared with Dudley, who has a permanent position on the Fed’s policymaking Open Market Committee — and whose bank controls the trading operations for the whole Fed. I looked it up, and Lacker’s conversation with the analyst didn’t occur during the Fed’s so-called blackout period, which starts a week before its policy meetings. As I wrote back in 2011, several of Dudley’s meetings did. During these blackout periods, Fed officials are supposed to clam up — and make no public pronouncements, which I assume would cover Dudley’s informal dinners. As I wrote back in January 2011, I have no way of knowing what Dudley discussed at his blackout-period meetings. But unless he and his guests sat mute and expressionless during their meetings, there’s a good likelihood that something could be gleaned from the New York Fed president’s remarks.

Just so those investigators in the “separate” investigation don’t have to go to any trouble, I’m going to repeat here some of what I wrote back then. At one of the questionable Dudley meetings, in March 2009, the Fed’s blackout period ran from March 10 to 18. On March 11, Dudley met with Jan Hatzius, chief economist of Goldman Sachs. Dudley had once worked at Goldman, so he and Hatzius were friends. Dudley’s calendar says it was an “informal meeting” that took place from 6 p.m. to 7 p.m. at the Pound and Pence restaurant near the New York Fed. That was on Dudley’s calendar, as was the notation “PRE-FOMC BLACKOUT PERIOD,” written in bold, all caps. So his assistant was clearly trying to warn him about restrictions. Let’s hope the separate investigation that Lacker mentioned is of the New York Fed. And, if they don’t already, investigators now know where to look.

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WikiLeaks wants the same thing as the WaPo? Are we sure?

The Potential For The Disastrous Rise Of Misplaced Power Persists (Assange)

The media has a long history of speaking truth to power with purloined or leaked material — Jack Anderson’s reporting on the CIA’s enlistment of the Mafia to kill Fidel Castro; the Providence Journal-Bulletin’s release of President Richard Nixon’s stolen tax returns; the New York Times’ publication of the stolen “Pentagon Papers”; and The Post’s tenacious reporting of Watergate leaks, to name a few. I hope historians place WikiLeaks’ publications in this pantheon. Yet there are widespread calls to prosecute me. President Thomas Jefferson had a modest proposal to improve the press: “Perhaps an editor might begin a reformation in some such way as this. Divide his paper into 4 chapters, heading the 1st, ‘Truths.’ 2nd, ‘Probabilities.’ 3rd, ‘Possibilities.’ 4th, ‘Lies.’

The first chapter would be very short, as it would contain little more than authentic papers, and information.” Jefferson’s concept of publishing “truths” using “authentic papers” presaged WikiLeaks. People who don’t like the tune often blame the piano player. Large public segments are agitated by the result of the U.S. presidential election, by public dissemination of the CIA’s dangerous incompetence or by evidence of dirty tricks undertaken by senior officials in a political party. But as Jefferson foresaw, “the agitation [a free press] produces must be submitted to. It is necessary, to keep the waters pure.” Vested interests deflect from the facts that WikiLeaks publishes by demonizing its brave staff and me. We are mischaracterized as America-hating servants to hostile foreign powers.

But in fact I harbor an overwhelming admiration for both America and the idea of America. WikiLeaks’ sole interest is expressing constitutionally protected truths, which I remain convinced is the cornerstone of the United States’ remarkable liberty, success and greatness. I have given up years of my own liberty for the risks we have taken at WikiLeaks to bring truth to the public. I take some solace in this: Joseph Pulitzer, namesake of journalism’s award for excellence, was indicted in 1909 for publishing allegedly libelous information about President Theodore Roosevelt and the financier J.P. Morgan in the Panama Canal corruption scandal. It was the truth that set him free.

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Madness.

No Greek Pensions Expected To Avoid Cuts (K.)

The Labor Ministry’s main plan to save 1% of GDP from 2019 pension expenditure provides for reductions even to very low pensions if the recalculation process shows a difference from the original calculation according to the previous method, the so-called “personal difference.” The ministry is trying to avoid having to impose very big cuts – the personal difference is estimated to range up to 40% – and sources say it is hoping to cap the reductions at 20 or 25%. The final decisions will be made when the creditors’ representatives return to Athens later this month.

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Lagarde wants Greece on its knees. She keeps insisting on more pension cuts, without any regard for the effects on Greek people. That will make the economy worse, not better. And she knows it.

IMF Chief Lagarde Says ‘Halfway’ There On Greek Talks (R.)

IMF chief Christine Lagarde on Wednesday said Greece was heading in the right direction on reforms but talks on its bailout and the IMF’s potential role in it were “only halfway through.” Greece and its international lenders are negotiating reforms the country needs to carry out to maintain a sustainable growth path in the years following the end of its bailout program, which ends in mid-2018. “What I have seen in the last couple of weeks is heading in the right direction. We are only halfway through in the discussions,” Lagarde told a conference in Brussels. Last week, eurozone finance ministers agreed the “overarching elements” of reforms needed in Greece in exchange for a new loan under its 86-billion-euro program, the third since 2010.

The new loan is needed to pay debt due in July. Talks are continuing and no date is fixed yet for the return of negotiators to Athens. The Greek government believes negotiators could go back to Greece after the IMF Spring Meetings on April 21-23. “We are still elaborating under what terms we could possibly give some lending to the country. We are not there yet,” Lagarde said, adding any IMF loan to Greece would have to abide by strict conditions. She said debt restructuring will be needed to guarantee the sustainability of Greek finances. The scope of the restructuring “will be decided at the end of the program,” but “the modalities have to be decided upfront,” Lagarde said.

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They have no interest in solving Greece’s problems.

Stop Pretending on Greek Debt (BBG)

Greece and its creditors say they’ve made progress in their endless negotiations over the country’s debts – enough to avoid a default on payments worth more than €7 billion in July. That’s good, but it was the easy part. The definitive settlement that Greece and the European Union both need still isn’t in sight. For the past seven years, the IMF and euro-zone institutions have supported Athens with loans in exchange for fiscal austerity and structural economic reform. This strategy has failed to break Greece’s vicious circle of a shrinking economy and higher debt. Europe needs to bring this spiral to an end without further delay – by putting Greece’s debts on a credibly downward path. The IMF has made it clear that it will only take part in a rescue program that includes a realistic assessment of debt sustainability.

This is a welcome break from the past: Time and again, creditors have deluded themselves that Greece can run implausibly high budget surpluses for years. Germany, especially, is keen to keep the IMF involved. With luck, Berlin might be willing to adjust the creditors’ proposals accordingly. Greece has gone through nearly a decade of punishing austerity. Its unemployment rate is still stuck near 25%. Last week’s deal includes further tax and pension reforms worth 2% of GDP. If consumers and companies are to spend and invest again, they must see an end to the tunnel. Economic necessity and political feasibility point to the same conclusion: Firm fiscal restraint is essential – but not so firm as to be self-defeating.

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It shouldn’t be a last resort, it should be no resort. This is the EU trying to deflect attention away from its own deplorable failings by pointing to Hungary. Don’t fall for it.

Detention Of Child Refugees Should Be Last Resort, Brussels Says (G.)

Detention of child refugees should be “a last resort”, the European commission has said, in remarks that will be seen as a rebuke to Hungary where asylum seekers, including minors, are being held in barbed-wire fenced camps. The statement from Brussels is part of a long awaited plan to protect child refugees in Europe. About 386,300 children made an asylum claim in the EU in 2016, a six-fold increase since 2010 that has left some countries struggling to cope. The EU plan comes one day after Germany announced it was halting refugee transfers to Hungary, until Budapest stops the systematic detention of all asylum seekers.

Under the EU’s Dublin regulation, asylum seekers are to be returned to the first country they registered in. Routine detention of refugees is banned. Hungary announced last month that all asylum seekers older than 14 would be kept in converted shipping containers on the border while their claims were assessed. About 110 people were living in the camps, including four unaccompanied children, and children with their families, when the UN refugee agency assessed the camps last week. The situation for asylum seekers had worsened since the new law came into effect, the UNHCR said, as the organisation also warned of “highly disturbing reports” of police violence meted out to refugees attempting to cross the border.

[..] Hungary already risks being taken to the European court of justice for failure to take in a mandatory quota of asylum seekers, a decision imposed on Budapest in September 2015. The clock is ticking towards a deadline to disperse 160,000 asylum seekers from Greece and Italy to other EU member states (excluding the UK) by September 2017. The EU’s most senior official on migration warned that Hungary risked being taken to the European court of justice if it failed to meet its target. “From September the relocation scheme is ending. This does not mean it is going to die. It will continue,” said Dimitris Avramopoulos, the European commissioner for home affairs, . “EU countries who do not want to be part of our policy, they will be confronted with measures we can take,” he said, in a coded reference to court action that could land governments with hefty fines.

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It’s that time of year.

Crucified Man Had Prior Run-In With Authorities (Petri)

The gentleman arrested Thursday and tried before Pontius Pilate had a troubled background. Born (possibly out of wedlock?) in a stable, this jobless thirty-something of Middle Eastern origin had had previous run-ins with local authorities for disturbing the peace, and had become increasingly associated with the members of a fringe religious group. He spent the majority of his time in the company of sex workers and criminals. He had had prior run-ins with local authorities — most notably, an incident of vandalism in a community center when he wrecked the tables of several licensed money-lenders and bird-sellers.

He had used violent language, too, claiming that he could destroy a gathering place and rebuild it. At the time of his arrest, he had not held a fixed residence for years. Instead, he led an itinerant lifestyle, staying at the homes of friends and advocating the redistribution of wealth. He had come to the attention of the authorities more than once for his unauthorized distribution of food, disruptive public behavior, and participation in farcical aquatic ceremonies. Some say that his brutal punishment at the hands of the state was out of proportion to and unrelated to any of these incidents in his record. But after all, he was no angel.

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Apr 122017
 
 April 12, 2017  Posted by at 9:09 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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Elliott Erwitt Trocadero, Paris 1950

 

The Tesla Ponzi Is Not ‘Inexplicable’ At All (WS)
Millennials Are Abandoning Postwar Engines of Growth: Suburbs and Autos (CHS)
Slowdown in US Borrowing Defies Easy Explanation (WSJ)
US Companies Now Have $1.6 Trillion Stashed In Tax Havens (Ind.)
Trump Declines To Endorse Bannon, Says US ‘Not Going Into Syria’ (MW)
Beware The Dogs Of War: Is The American Empire On The Verge Of Collapse? (JW)
A Breakthrough Alternative To Growth Economics – The Doughnut (G.)
The Commodification of Education (Steve Keen)
The Fed Could Use Less Book Learning and More Street Smarts (Ricketts)
Spectre Of Russian Influence Looms Large Over French Election (G.)
Moment Of Reckoning In Turkey As Alleged Coup Plotters Go On Trial (G.)
Greece: Cash and Apartments for Refugees with UNHCR Aid (GR)
Why The Human Race Is Heading For The Fire (G.)

 

 

People tend to forget that there are no functioning asset markets left. But there really aren’t.

The Tesla Ponzi Is Not ‘Inexplicable’ At All (WS)

Electric cars have been around for longer than internal combustion engines. When they first appeared in the 1800s, they competed with steam-powered cars and horses. What Tesla has done is put them on the map. That was a huge feat. Now every global automaker has electric cars. They all, including Teslas, still have the same problem they had in the 1800s: the battery. But those problems – costs, weight or range, and time it takes to charge – are getting smaller as the technology advances. And the competition from the giants, once batteries are ready for prime-time, will be huge, and global. So in March, Tesla sold 4,050 new vehicles in the US, according to Autodata. All automakers combined sold 1.56 million new vehicles in the US.

This gave Tesla a record high market share of an invisibly small 0.26%. Volume-wise, it’s in the same ballpark as Porsche. GM sold 256,007 new vehicles in March, for a market share of 16.5%. In other words, GM sold 63 times as many new vehicles as Tesla did. For percent-lovers, that’s 6,221% more. Even if Tesla quadruples its sales in the US, it still will not amount to a significant market share. Then there is Tesla’s financial performance. It lost money in every one of its 10 years of existence. Here are the “profits” – um, net losses – Tesla racked up, in total $2.9 billion:

We constantly hear the old saw that stock prices reflect future earnings and/or cash flows, and that looking back ten years has no meaning for the future. Alas, after 10 years of producing losses, Tesla shows no signs of making money in the future. It might instead continue burning through investor cash by the billions. Based on the logic that stock prices reflect future earnings, its shares should be at about zero. This chart compares Tesla’s net losses (red bars) and GM’s net income (green bars), in millions of dollars. Over those eight years going back to 2010, Tesla lost $2.7 billion; GM earned $47.1 billion:

[..] In comparison with GM, Tesla is ludicrously overvalued. But it’s not “inexplicable.” It’s perfectly explicable by the wondrously Fed-engineered stock market that has long ago abandoned any pretext of valuing companies on a rational basis. And it’s explicable by the hype – the “research” – issued by Wall Street investment banks that hope to get fat fees from Tesla’s next offerings of shares or convertible debt. The amounts are huge, going back ten years: Last month, Tesla raised another $1.2 billion, after having raised $1.5 billion in May 2016. There will be more. Tesla is burning a lot of cash. Investment banks get rich on these deals. The bonuses are huge. So it’s OK to hype Tesla’s stock and sell it to their clients. Everybody wins in this scenario – except for a few despised short sellers who’re hung up on their silly notion of reality.

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They simply can’t afford it.

Millennials Are Abandoning Postwar Engines of Growth: Suburbs and Autos (CHS)

If anything defined the postwar economy between 1946 and 1999, it was the exodus of the middle class from cities to suburbs and the glorification of what Jim Kunstler calls Happy Motoring: freeways, cars and trucks, ten lanes of private vehicles, the vast majority of which are transporting one person. The build-out of suburbia drove growth for decades: millions of new suburban homes, miles of new freeways, sprawling shopping malls, and tens of millions of new autos, trucks, and SUVs, transforming one-car households into three vehicle households. Then there was all the furnishings for those expansive new homes, and the credit necessary to fund the homes, vehicles, furnishings, etc. Now the Millennial generation is turning its back on both of these bedrock engines of growth.

As various metrics reveal, the Millennials are fine with taking Uber to work, buying their shoes from Zappos (return them if they don’t fit, no problem), and making whatever tradeoffs are necessary to live in urban cores. Simply put, the natural progression of this generation is away from suburban malls, suburban home ownership and the car-centric commuter lifestyle that goes with suburban homeownership. Saddled with insanely high student debt loads imposed by the rapaciously predatory higher education cartel, Millennials avoid additional debt like the plague. Millennials have relatively high savings rates. As for a lifetime of penury to service debt–hey, they already have that, thanks to their “I borrowed $100,000 and all I got was this worthless college degree” student loans.

Consider the secondary effects of these trend changes. If Millennials are earning less and already carrying heavy debt loads, who is going to buy the Baby Boom’s millions of pricey suburban McMansions? The answer might be “no one.” If vehicle sales decline, all the secondary auto-related sales decline, too. Auto insurance, for example. Furnishing a small expensive urban flat requires a lot less furnishings than a 3,000 square foot suburban house. What happens to sales of big dining sets and backyard furniture? As retail malls die, property taxes, sales taxes and payroll taxes decline, too. Many cheerlead the notion of repurposed commercial space, but uses such as community college classes pay a lot less per square foot than retail did, and generate little in the way of sales and payroll taxes. Financial losses will also mount. Valuations and property taxes will decline, and commercial real estate loans based on nose-bleed valuations and high retail lease rates will go south, triggering significant financial-sector losses.

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I’d think it couldn’t be easier.

Slowdown in US Borrowing Defies Easy Explanation (WSJ)

One of the great mysteries and biggest concerns in the economy right now is the slowing growth in bank lending. Economists are searching for answers but none are entirely satisfying. Total loans and leases extended by commercial banks in the U.S. this year were up just 3.8% from a year earlier as of March 29, according to the latest Federal Reserve data. That compares with 6.4% growth in all of last year, and a 7.6% pace as of late October. The slowdown is more surprising given the rise in business and consumer confidence since the election. And it is worrisome because the lack of business investment is considered an important reason why economic growth has remained weak. Loans to businesses have slowed most sharply, with the latest data showing commercial and industrial loans up just 2.8% from a year earlier, compared with 8.9% growth in late October.

Economists at Goldman Sachs estimate the slowdown in commercial and industrial lending alone equates to a $100 billion shortfall in loans. Investors may start to get more clarity on what is causing the slowdown when banks start reporting first-quarter earnings on Thursday. One explanation is that many companies have been tapping corporate bond markets to lock in low rates, and in some cases to pay down more expensive bank debt. In the first quarter of this year, corporate bond issuance rose by 18% from a year earlier, according to the Securities Industry and Financial Markets Association. But one reason for the increase is that the first quarter of 2016 was dismal because of market turmoil. The rise isn’t enough to explain the entire shortfall in lending.

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The Trump tax plan is way off schedule.

US Companies Now Have $1.6 Trillion Stashed In Tax Havens (Ind.)

The 50 biggest US companies stashed another $200bn of profits in offshore tax havens in 2015 alone, taking the total to approximately $1.6 trillion, according to new analysis. Donald Trump’s plans to slash taxes for corporations and wealthy individuals and impose a border tax will harm average consumers further, Oxfam said in a report published on Tuesday. The 50 largest companies disclosed use of 1,751 subsidiaries in countries classed as tax havens by the OECD and the US National Bureau of Economic Research, an increase of 143 on a year earlier, the charity found. The true number may be far higher as only “significant” subsidiaries have to be disclosed. Big multinationals such as Google, Amazon and Apple have come under fire for routing sales through countries such as Bermuda, Ireland and Luxembourg, which offer them low tax rates.

While this is legal, critics say it does not reflect where the firms actually do business. The top rate of US corporate tax is 35% – one of the highest rates in the world, incentivising many companies to hold billions offshore. Mr Trump has pledged to reduce this to 15% and a one-off rate of 10% for money currently held abroad. That will hand a $328bn tax break to the 50 biggest companies, with Apple, Pfizer and Microsoft the biggest gainers, accounting for 40% of the total, Oxfam estimated. While some have welcomed the move as a sensible way to bring profits of US companies back to the country, Oxfam warns that it risks accelerating a race to the bottom that will harm consumers in America as well as the world’s poor as global tax rates plummet.

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Scott Adams forecast three phases for opinion of Trump. First people would call him Hitler, then incompetent, then ‘competent but I don’t like it’. Is he on track?

Trump Declines To Endorse Bannon, Says US ‘Not Going Into Syria’ (MW)

President Donald Trump declined to give top adviser Steve Bannon a vote of confidence during a New York Post interview published Tuesday, in which he also said the U.S. was not headed toward a ground war in Syria. There have been reports of discord among Trump’s top White House advisers, and rumors that controversial chief strategist Bannon may be on the way out. Last week, Bannon and Trump’s son-in-law, Jared Kushner, were reportedly told to iron out their differences. When asked Monday by Post columnist Michael Goodwin if he still had confidence in Bannon, Trump didn’t exactly give a ringing endorsement: “I like Steve, but you have to remember he was not involved in my campaign until very late. I had already beaten all the senators and all the governors, and I didn’t know Steve.”

“I’m my own strategist and it wasn’t like I was going to change strategies because I was facing crooked Hillary.” “Steve is a good guy, but I told them to straighten it out or I will,” Trump said. In the same interview, Trump told Goodwin that, despite last week’s airstrike, U.S. policy toward Syria has not changed. “We’re not going into Syria,” Trump said. “Our policy is the same — it hasn’t changed. We’re not going into Syria.” Trump also acknowledged a growing rift with Russia — “We’re not exactly on the same wavelength with Russia, to put it mildly” — again called the nuclear deal with Iran “the single worst deal ever,” and said of the worsening nuclear situation with North Korea: “I knew I was left a mess, but it’s worse than I thought.”

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Cue Rome.

Beware The Dogs Of War: Is The American Empire On The Verge Of Collapse? (JW)

Waging endless wars abroad (in Iraq, Afghanistan, Pakistan and now Syria) isn’t making America—or the rest of the world—any safer, it’s certainly not making America great again, and it’s undeniably digging the U.S. deeper into debt. In fact, it’s a wonder the economy hasn’t collapsed yet. Indeed, even if we were to put an end to all of the government’s military meddling and bring all of the troops home today, it would take decades to pay down the price of these wars and get the government’s creditors off our backs. Even then, government spending would have to be slashed dramatically and taxes raised.

You do the math.
• The government is $19 trillion in debt.
• The Pentagon’s annual budget consumes almost 100% of individual income tax revenue.
• The government has spent $4.8 trillion on wars abroad since 9/11, with $7.9 trillion in interest. As the Atlantic points out, we’re fighting terrorism with a credit card.
• The government lost more than $160 billion to waste and fraud by the military and defense contractors.
• Taxpayers are being forced to pay $1.4 million per hour to provide U.S. weapons to countries that can’t afford them.
• The U.S. government spends more on wars (and military occupations) abroad every year than all 50 states combined spend on health, education, welfare, and safety.
• Now President Trump wants to increase military spending by $54 billion.
• Add in the cost of waging war in Syria, and the burden on taxpayers soars to more than $11.5 million a day. Ironically, while presidential candidate Trump was vehemently opposed to the U.S. use of force in Syria, and warned that fighting Syria would signal the start of World War III against a united Syria, Russia and Iran, he wasted no time launching air strikes against Syria.

Clearly, war has become a huge money-making venture, and the U.S. government, with its vast military empire, is one of its best buyers and sellers. Yet what most Americans—brainwashed into believing that patriotism means supporting the war machine—fail to recognize is that these ongoing wars have little to do with keeping the country safe and everything to do with enriching the military industrial complex at taxpayer expense. The rationale may keep changing for why American military forces are in Afghanistan, Iraq, Pakistan and now Syria. However, the one that remains constant is that those who run the government—including the current president—are feeding the appetite of the military industrial complex and fattening the bank accounts of its investors.

Case in point: President Trump plans to “beef up” military spending while slashing funding for the environment, civil rights protections, the arts, minority-owned businesses, public broadcasting, Amtrak, rural airports and interstates. In other words, in order to fund this burgeoning military empire that polices the globe, the U.S. government is prepared to bankrupt the nation, jeopardize our servicemen and women, increase the chances of terrorism and blowback domestically, and push the nation that much closer to eventual collapse. Obviously, our national priorities are in desperate need of an overhauling.

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Interesting but hardly a breakthrough. It’s not all that hard.

A Breakthrough Alternative To Growth Economics – The Doughnut (G.)

Raworth begins by redrawing the economy. She embeds it in the Earth’s systems and in society, showing how it depends on the flow of materials and energy, and reminding us that we are more than just workers, consumers and owners of capital. This recognition of inconvenient realities then leads to her breakthrough: a graphic representation of the world we want to create. Like all the best ideas, her doughnut model seems so simple and obvious that you wonder why you didn’t think of it yourself. But achieving this clarity and concision requires years of thought: a great decluttering of the myths and misrepresentations in which we have been schooled. The diagram consists of two rings. The inner ring of the doughnut represents a sufficiency of the resources we need to lead a good life: food, clean water, housing, sanitation, energy, education, healthcare, democracy.

Anyone living within that ring, in the hole in the middle of the doughnut, is in a state of deprivation. The outer ring of the doughnut consists of the Earth’s environmental limits, beyond which we inflict dangerous levels of climate change, ozone depletion, water pollution, loss of species and other assaults on the living world. The area between the two rings – the doughnut itself – is the “ecologically safe and socially just space” in which humanity should strive to live. The purpose of economics should be to help us enter that space and stay there. As well as describing a better world, this model allows us to see, in immediate and comprehensible terms, the state in which we now find ourselves. At the moment we transgress both lines. Billions of people still live in the hole in the middle. We have breached the outer boundary in several places.

An economics that helps us to live within the doughnut would seek to reduce inequalities in wealth and income. Wealth arising from the gifts of nature would be widely shared. Money, markets, taxation and public investment would be designed to conserve and regenerate resources rather than squander them. State-owned banks would invest in projects that transform our relationship with the living world, such as zero-carbon public transport and community energy schemes. New metrics would measure genuine prosperity, rather than the speed with which we degrade our long-term prospects.

Such proposals are familiar; but without a new framework of thought, piecemeal solutions are unlikely to succeed. By rethinking economics from first principles, Raworth allows us to integrate our specific propositions into a coherent programme, and then to measure the extent to which it is realised. I see her as the John Maynard Keynes of the 21st century: by reframing the economy, she allows us to change our view of who we are, where we stand, and what we want to be. Now we need to turn her ideas into policy. Read her book, then demand that those who wield power start working towards its objectives: human prosperity within a thriving living world.

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Hungry for knowledge, or hungry for a paycheck? Our education systems are a giant failure.

The Commodification of Education (Steve Keen)

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A real life consequence of Commodification of Education. Intellectual Yet Idiot.

The Fed Could Use Less Book Learning and More Street Smarts (Ricketts)

I’ll bet pundits and pollsters will forever ponder how Donald Trump got elected. For me, it’s straightforward: The American people—or at least enough of them to propel Mr. Trump into office—wanted to infuse practical business experience into the government. To borrow a phrase from my friend, the economist Larry Lindsey, voters rejected the political ruling class in favor of real-world experience. Which brings me to the Federal Reserve. In 2012 Jim Grant, the longtime financial journalist, delivered a speech at the Federal Reserve Bank of New York. “In the not quite 100 years since the founding of your institution,” he said, “America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard.” Central banking, in other words, is now dominated by academics. And while I don’t blame them for it, academics by their nature come to decision-making with a distinctly—you guessed it—academic perspective.

The shift described by Mr. Grant has had consequences. For one thing, simplicity based on age-old practice has been replaced by complexity based on econometric theory. Big Data has played an increasingly prominent role in how the Fed operates, even as the Fed’s role in the economy has deepened and widened. Rather than enlisting business leaders and bankers to fulfill the Fed’s increasingly complex mission, the nation’s political and monetary authorities turned primarily to the world’s most brilliant economists, who can be thought of more and more as monetary scientists. “Central bankers have invited politicians to abdicate leadership authority to an inbred society of PhD academics who are infected to their core with groupthink, or as I prefer to think of it: ‘groupstink,’” argues former Dallas Fed analyst Danielle DiMartino Booth in a new book.

Ten of the 17 current Fed governors and regional bank presidents have doctorates in economics. Few have much experience in the private economy. Most have spent the bulk of their careers at the classroom lectern or in Washington. This is a sea change. In past decades, Fed members and governors frequently had experience in banking, industry and agriculture. Do the results indicate that our pursuit of intellectual horsepower has produced a stronger economy? Today’s labor-force participation rate is lower than at any time since the late 1970s; an oven from Sears that cost $160 in 1975 would cost more than $400 today; and despite unprecedented intervention in the economy, America has experienced its worst recovery since the Great Depression.Given the cumulative genius of the leaders of the Federal Reserve System, and the highly sophisticated quantitative tools and policies the Fed has developed under their direction, why aren’t we doing better?

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Just one example of how deluded the UK, like the US, has fast become when it comes to Russia. ‘Putin Did It’ is very much alive. It’s getting mighty tiresome.

Spectre Of Russian Influence Looms Large Over French Election (G.)

The golden domes of one of Vladimir Putin’s foreign projects, the recently built Russian Holy Trinity cathedral in the heart of Paris, rise up not far from the Elysée palace, the seat of the French presidency. Dubbed “Putin’s cathedral” or “Saint-Vladimir”, it stands out as a symbol of the many connections the French elite has long nurtured with Russia, and which the Kremlin is actively seeking to capitalise on in the run-up to the French presidential election. France is an important target for Russia’s soft power and networks of influence. The country is a key pillar of the European Union, an important Nato member and home to Europe’s largest far-right party, the Front National, whose leader, Marine Le Pen, is expected to reach the 7 May run-off in the presidential vote and has benefited from Russian financing.

Le Pen took the extraordinary step of travelling to Moscow to meet Putin in March, just a month before the French vote, to boost her international profile and showcase her closeness to the Russian president’s worldview – including his virulent hostility towards the EU and his vision of a “civilisational” clash with radical Islam. Yet she is far from being the only presidential candidate to favour warmer relations with Russia, nor to reflect a certain French fascination with the Kremlin strongman. [..] Russian meddling in elections has become a hot political topic in the US, and there has been much speculation about Russia’s attempts to favour Brexit as well as anti-EU parties in the Netherlands and Germany. But France is now widely seen as the key country where Russia has a strategic interest in encouraging illiberal forces and seeking to drive wedges between western democracies.

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One shudders to imagine what happens if Erdogan loses the Sunday April 16 referendum. And also what happens if he wins.

Moment Of Reckoning In Turkey As Alleged Coup Plotters Go On Trial (G.)

Turkish prosecutors are laying the groundwork for large-scale trials of hundreds of people accused of participating in a coup attempt last July, an undertaking that is already transforming society and will be a reckoning of sorts for a nation that has endured much upheaval in recent years. Authorities say the trials will shed light on alleged links between the accused and Fethullah Gülen, an exiled US-based preacher with a vast grassroots network. The onset of the trials has refocused attention on the large-scale purges of Turkey’s government, media and academia after the coup attempt, in which tens of thousands of people – many with no known links to the Gülenists – were dismissed or jailed. Meanwhile, Turkey is preparing for a referendum on Sunday on greater presidential powers, which could prove the most significant political development in the history of the republic.

“What happened on 15 July [the day of the attempted coup] and what is now happening for months is completely transformative for Turkey,” said a journalist who worked for a Gülen-affiliated media outlet and requested anonymity for fear of reprisals. “One big part of society has been subjected to extreme demonisation in a process that cost them their jobs, reputation, freedom or ultimately their lives. Another part of the society has been filled with anger and radically politicised. “Nothing can be the same as before 15 July any longer – ever,” he added. Turkish courts have already begun several parallel trials over the coup attempt. Last month prosecutors demanded life sentences for 47 people accused of attempting to assassinate the president, Recep Tayyip Erdogan, on the night of the putsch, and the largest trial yet opened on 28 February in a specially built courtroom outside Ankara filled with more than 300 suspects accused of murder and attempting to overthrow the government.

About 270 suspects, including Gülen, went on trial in absentia in Izmir in January, and an indictment issued in late February alleges that Gülenists infiltrated the state and charges 31 members of the military with attempting to overthrow the constitutional order. The state intelligence agency, the National Intelligence Service (MIT), has sent prosecutors in Ankara a list of 122,000 individuals who allegedly used a secure messaging app, ByLock, which security officials say was widely used by the Gülen network for communications.

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Handing out money and housing to refugees while Greeks themselves are hungry and homeless. Great plan.

Greece: Cash and Apartments for Refugees with UNHCR Aid (GR)

Migration Deputy Minister Yiannis Mouzalas announced on Monday that refugees will be getting cash instead of free meals and will be staying in rented apartments in order to decongest migrant camps. In a joint press conference with the participation of Representative of the United Nations High Commissioner for Refugees (UNHCR) in Greece Philippe Leclerc, President of Union of Municipalities of Thesssaly Giorgos Kotsos and Larissa Mayor Apostolos Kaloyiannis, Mouzalas explained the project of decongestion of migrant camps and relocation of refugees in urban centers and smaller municipalities. Mouzalas said that refugees will be getting cash in hand for their meals instead of rations and will be staying in apartments under the UNHCR program, so that they will be getting primary care. The program applies for 10,000 asylum seekers in 2017 and another 10,000 in 2018.

The deputy minister clarified that the apartments will be rented by owners under free market conditions and the municipalities will assist the implementation of the program. This way, he said, local communities will benefit financially. The program will apply provided that the EU-Turkey agreement for refugee returns will continue to apply. This way, Mouzalas continued, the 40 camps across Greece that host 40,000 asylum seekers will be reduced to 17-20 with a maximum of 500 people each for 2017. In 2018, another 10,000 asylum seekers will be relocated under the program. The project will start with 500 refugees leaving the Koutsohera camp and moving to Larissa, a municipality that expressed interest in the program. As the program progresses, the camps in Thessaly (Koutsohera, Volos and Trikala) will eventually close and refugees will relocate in municipalities.

“The UN will help in the expansion of the hospitality program for refugees in apartments to improve their living conditions,” Leclerc said. The program has already been implemented in Athens, Thessaloniki and Livadia. The president of the Union of Municipalities of Thesssaly underlined that the program gives municipalities the opportunity to inject money to local communities through the leasing of the apartments and the cash the refugees would spend on food. The Larissa Mayor said that “The municipality of Larissa will work in this direction. Previously there was pressure to accommodate migrants in apartments, but it was too early. Today we are not afraid to do it.”

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The green movement condemns itself by offering only half solutions. Saving the planet would require drastic changes to everyone’s lifestyle and comfort. Instead we get CON21.

Why The Human Race Is Heading For The Fire (G.)

The future for humanity and many other life forms is grim. The crisis gathers force. Melting ice caps, rising seas, vanishing topsoil, felled rainforests, dwindling animal and plant species, a human population forever growing and gobbling and using everything up. What’s to be done? Paul Kingsnorth thinks nothing very much. We have to suck it up. He writes in a typical sentence: “This is bigger than anything there has ever been for as long as humans have existed, and we have done it, and now we are going to have to live through it, if we can.” Hope finds very little room in this enjoyable, sometimes annoying and mystical collection of essays. Kingsnorth despises the word’s false promise; it comforts us with a lie, when the truth is that we have created an “all-consuming global industrial system” which is “effectively unstoppable; it will run on until it runs out”.

To imagine otherwise – to believe that our actions can make the future less dire, even ever so slightly – means that we probably belong to the group of “highly politicised people, whose values and self-image are predicated on being activists”. According to Kingsnorth, such people find it hard to be honest with themselves. He was once one of them. “We might tell ourselves that The People are ignorant of The Facts and that if we enlighten them they will Act. We might believe that the right treaty has yet to be signed, or the right technology yet to be found, or that the problem is not too much growth and science and progress but too little of it. Or we might choose to believe that a Movement is needed to expose the lies being told to The People by the Bad Men in Power who are preventing The People from doing the rising up they will all want to do when they learn The Truth.”

He says this is where “the greens are today”. Environmentalism has become “a consolation prize for a gaggle of washed-up Trots”. As a characterisation of the green movement, this outbreak of adolescent satire seems unfair. To suggest that its followers become activists only because their “values and self-image” depend on it implies that there is no terror in their hearts, no love of the natural world, nothing real other than their need for a hobby.

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Sep 032016
 
 September 3, 2016  Posted by at 9:31 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Russell Lee Street scene. Spencer, Iowa 1936

This Labor Day, Let’s Acknowledge Why Our Job-Creation Machine Is Broken (MW)
US Factory Orders Tumble For Longest Streak In History (ZH)
Number Of Credit-Crimped US Companies Rises to 2009 Level, S&P Says (BBG)
US Exchanges Trade Fewest Stocks In 32 Years (ZH)
US Economy May Need Much Higher Interest Rates: Fed’s Lacker (R.)
US Economic Misery Finds Company, Just Not In a Rate Hike (BBG)
ECB Throws Twelfth Zero at Inflation (BBG)
Any ECB Move Into Stocks Unlikely To Be Plain Sailing (R.)
Retailers Seek US Government Help With Shipping Crisis (WSJ)
Tesla’s Cash Crunch Worse Than You Think (Fortune)
Apartment Correction To Cause Australia-Wide Recession (SMH)
Starbucks, Amazon Pay Less Tax Than A Sausage Stand, Austria Says (R.)
Antibacterial Soaps Banned In US Amid Claims They Do ‘More Harm Than Good’ (G.)

 

 

The inbuilt and inevitable downfall of our formerly ‘rich economies’ in a nutshell: “Companies do not exist to create jobs. You don’t get rewarded for creating jobs..”

This Labor Day, Let’s Acknowledge Why Our Job-Creation Machine Is Broken (MW)

It’s Labor Day weekend, and despite unemployment under 5% and nearly 15 million private-sector jobs created since February 2010, nobody’s celebrating. Workforce participation is stuck near historic lows, six million people are part-timers but want to work full time, and wage growth remains subdued. Both presidential candidates have talked a good game about jobs and the economy, but neither addresses the real problem. The U.S. job-creation machine—once the envy of the world—is broken, because American corporations cannot create steady, well-paying jobs here in the USA while also providing maximal returns to their investors, who are really in charge. So says Gerald Davis, a professor at the University of Michigan’s Ross School of Business, who has studied these issues for years.

A short piece he wrote late last year for Brookings and a new book, “The Vanishing American Corporation,” trace the big changes in American corporations from the job-rich giants of the post-World War II era to job killers now, because the mission of the corporation has changed radically. Corporations’ new, exclusive emphasis on shareholder value—enforced by executive-compensation packages in which equity comprised 62.2% of S&P 500 CEOs’ total compensation in 2015, according to Equilar—has pushed top executives to replace humans with robots, send jobs overseas or bring in lower-paid immigrants to do them here, hire part-time or temporary workers (or glorified day laborers and Uber “contractors”) instead of full-time ones, and lay off thousands of employees even when profits are soaring.

Cutting labor costs boosts earnings, which tends to push stock prices (and executive compensation) higher, and frees up cash for more “important” things like dividends or share buybacks. As of March, S&P 500 companies had bought back more than $2 trillion in stock over the last five years, making buybacks the biggest source of demand for stocks since 2009, HSBC estimated. That makes big pension funds and “activist” investors like Carl Icahn happy, but it’s bad news for the millions of Americans who still yearn for well-paying middle-class jobs that offer career advancement, decent health-care coverage, and retirement security. “Under our current conditions, creating shareholder value and creating good jobs are largely incompatible,” Davis wrote in his Brookings piece. “Corporations are ‘job creators’ only as a last resort.” “Companies do not exist to create jobs. You don’t get rewarded for creating jobs..”

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Hollowing out.

US Factory Orders Tumble For Longest Streak In History (ZH)

21 Months… US Factory Orders have decline year-over-year every month since October 2014 (the end of QE3). This is the longest period of decline in US history (since 1956) and has always indicated the US economy is in recession… While headlines will crow of 1.9% MoM gain (which missed expectations of a 2.0% rise), the trend is simply ugly: Year-over-year Factory Orders fell 3.5%. As Bloomberg also notes, there’s one key takeaway from the Commerce Department’s report Friday on U.S. factory orders. The value of unfilled orders dropped in July to the lowest level in two years, indicating producers are having an easier time meeting demand.

With soft sales, factories have little reason to add as many workers to their payrolls and may find it difficult to raise prices. Employment in manufacturing dropped 14,000 in August, the most in three months, another report from the Labor Department showed Friday. • Unfilled orders to all manufacturers fell 0.1% to $1.13 trillion, the lowest since June 2014, after a 0.9% slump. • Unfilled orders have increased just once since November. • Total factory orders rose 1.9% in July after a 1.8% drop. Just another WTF chart to ignore.

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The whole economy turns to junk.

Number Of Credit-Crimped US Companies Rises to 2009 Level, S&P Says (BBG)

You’d have to go back to the months following the financial crisis to find so many companies facing potentially ruinous debt problems. That’s according to the latest tally by S&P Global Ratings of “weakest link” issuers. S&P counted 251 with ratings at the low end of junk status and a negative outlook, the most since October 2009, when the total was 264. The issuers collectively have about $359 billion of debt outstanding, led by energy companies, according to S&P’s Sept. 1 report. “Weakest links maintain an important role as potential default indicators,” Diane Vazza, S&P’s head of global fixed income research, said in the report.

They’re almost 10 times more likely to miss payments than ordinary speculative-grade issuers, Vazza wrote, adding that 71 of 100 companies that defaulted this year had been previously tagged as weakest links. The oil and gas sector contributed 62 issuers, or about 25% of the total, as stress on commodities markets continues. Eight of the August additions were from that industry, including Chesapeake Energy and Hornbeck Offshore Services. Financial institutions followed with 34 issuers, or 14%. Other newcomers included Tesla Motors, Elon Musk’s cash-strapped electric-car maker, and Intelsat SA, the satellite operator that proposed a private bond exchange offer, which S&P labeled “a distressed restructuring and tantamount to default.”

S&P assembled the list based on the number of borrowers rated B- or lower with either negative outlooks or negative implications on Credit Watch that indicate a strong possibility of further downgrades. The number hit its record high of 300 issuers in April 2009. The U.S. speculative-grade corporate default rate grew to 4.8% in August after seven defaults, and is expected to reach 5.6% by June 2017, S&P said in a separate report. The U.S. speculative-grade default rate for energy issuers is 21.7% as of July 31, Vazza said.

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The power of buybacks. “..the American economy has transformed from a system of value creation to one of value extraction.”

US Exchanges Trade Fewest Stocks In 32 Years (ZH)

The number of common stocks traded on major U.S. exchanges are the fewest in three decades. As CNBC reports, “Currently, there are just 3,267 stocks in the University of Chicago’s CRSP data, and this is the lowest since 1984,” wrote longtime Jefferies equity strategist Steven DeSanctis. What’s behind this phenomenon? DeSanctis explains: “Between the lack of IPO activity, the pickup of M&A, and buybacks, the U.S. equity world is becoming smaller and smaller, and this could be one of many reasons why active managers are lagging behind their indexes. Companies may not want to come public due to the additional cost of Sarbanes-Oxley or the fact that the private market has become a bigger source of financing than it has been in the past.”

So whether it’s the total number of stocks or the amount of shares for each company outstanding, the stock market is shrinking. Or as Dark Bid’s Daniel Drew previously noted, The Stock Market Is Disappearing In One Giant Leveraged Buyout It’s easy to find critics and doomsayers who predict that the next stock market crash is just around the corner. They could be right, but another possibility is that the stock market itself will disappear entirely. Anyone who is familiar with mergers and acquisitions knows what happens when a company is being slowly acquired. The price climbs higher, slowly yet relentlessly. Liquidity evaporates as offers are lifted. If the price moves up too quickly, buy programs are canceled. The buyer waits until the froth dies down a little before resuming purchases.

Eventually, the bids reappear, and the process continues. Once the buyer acquires 5% of the company, a legal requirement is triggered: the SEC requires the buyer to file Schedule 13D, otherwise known as a “beneficial ownership report.” Once this report is filed, everyone can see the buyer, and the stock price will usually jump. This same process has been underway in the stock market over the last 6 years. The market is up well over 200%. Liquidity has evaporated in the S&P 500 futures market, and the central banks themselves are buying S&P 500 futures. Companies are spending nearly all of their profits on stock buybacks. All of this activity harms employees. William Lazonick discussed the negative effects in a Harvard Business Review article called “Profits Without Prosperity.” According to Lazonick, the American economy has transformed from a system of value creation to one of value extraction.

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Please do it before the election.

US Economy May Need Much Higher Interest Rates: Fed’s Lacker (R.)

The U.S. economy appears strong enough to warrant significantly higher interest rates, Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday. Lacker, who is not a voting member of the U.S. central bank’s rate-setting committee this year, said he still favors raising rates sooner than later and that the Fed’s last policy meeting in July would have been a “good time” to tighten policy. Speaking to a group of economists in Richmond, Lacker argued that a range of economic analysis suggests the Fed’s benchmark overnight interest rate – the federal funds rate – is currently too low. “It appears that the funds rate should be significantly higher than it is now,” he said in the speech. He made his comments after the U.S. government reported a hiring slowdown in August that could effectively rule out a rate increase later this month.

While Lacker is not due to have a vote on policy until 2018, he does participate in discussions on interest rates. The Fed has appeared sharply divided between policymakers who favor rate increases soon and those who urge more caution. Those favoring caution appeared to get a boost on Friday when a report showed 150,000 U.S. jobs were created last month, fewer than expected. But Lacker said the weaker pace of hiring still left the job market on a strengthening path and the case for higher rates would only grow stronger unless job growth slowed “significantly in the months ahead.” He suggested there were increased risks in waiting to raise rates. “The way the data is playing out I think the longer we wait there is a material increase in risks that we run,” Lacker told reporters after his speech.

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Pity. I’d love to see Draghi do a rate hike.

US Economic Misery Finds Company, Just Not In a Rate Hike (BBG)

The Federal Reserve is expected, sooner or later, to raise its key interest rate for a second time since the financial crisis – a feat not in sight for other major developed-nation central banks. It’ll depend on if the economy is doing well, and policy makers may take comfort that the U.S. ranking has fallen in a gauge of economic misery. With the unemployment rate at 4.9% and inflation at 0.8%, the U.S. Misery Index score of 5.7 has improved since the financial crisis, though it lags behind Switzerland, Japan, the U.K. and New Zealand. All these nations’ central banks are poised to hold rates at record lows, or cut them further, according to surveys conducted by Bloomberg. The Misery Index is a simple calculation adding the rate of unemployment and inflation, with lower scores indicating a healthier economy.

But if you think the four countries that are beating out the U.S. in terms of misery are doing everything right, think again. Japan and Switzerland, both of which have brought their rates to negative levels in an attempt to boost lending, are suffering from deflation, which is helping bring down their Misery Index scores. New Zealand, though faring a bit better economically, is also expected to cut its central bank rate as inflation remains suppressed, and the U.K. will do so as policy makers attempt to counteract the fallout from Brexit.

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All they have left is zeroes.

ECB Throws Twelfth Zero at Inflation (BBG)

The European Central Bank has added a digit to its odometer to read 1,000,000,000,000. Euros, not kilometers. That’s the amount of excess liquidity now sloshing through the financial system – equivalent to almost €3,000 ($3,360) for each of the 340 million people in the 19-nation region. The money is created by the ECB through a program of quantitative easing and bank loans, and is aimed at bringing inflation closer to its goal of just under 2%. It’s labeled “excess” because it’s the amount over and above what’s immediately needed by the banking system to serve the economy. That’s why it’s inflationary. But no matter how often the money is lent to companies and households, at the end of each day it lands at the central bank where commercial institutions have their accounts.

And because the ECB’s stimulus package also includes a negative deposit rate of 0.4%, lenders are charged for that surplus cash. With excess liquidity passing €1 trillion as of Sept. 1, the ECB now makes more than €11 million a day in interest from the deposit facility alone. Though that’s just a fraction of the institution’s revenue. “Earnings related to QE are more decisive for net income,” said Michael Schubert, an economist at Commerzbank in Frankfurt. “It was the bigger factor in the past years.” There is no single profit and loss account for the 19 national central banks and the ECB; everyone publishes their own. Germany’s Bundesbank, which implements monetary policy in Europe’s largest economy, made €248 million last year from charging interest for deposits and nearly €2 billion from past and present asset-purchase programs.

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Please make it stop!

Any ECB Move Into Stocks Unlikely To Be Plain Sailing (R.)

The ECB may soon be forced to follow the Bank of Japan’s example and buy equities as part of any expanded stimulus programme, but it faces significant hurdles in helping all 19 euro zone members equally without distorting a key market for investors. The European Central Bank could run out of eligible bonds for its €1.7 trillion bond-buying scheme, meaning alternative options are on the table should it decide to loosen policy further to lift growth and inflation across the bloc. Analysts say these could include large-scale share buying, a policy that the BOJ has already adopted after it started purchasing equity exchange traded funds (ETFs) for its own quantitative easing scheme six years ago.

ETFs allow an investor to trade a range of assets, from a basket of stocks to government debt. ETFs, which offer a convenient way to purchase a broad basket of securities in a single transaction from an exchange, have risen in popularity with investors due to their simplicity and lower fees. But buying ETFs in the 19-nation euro zone would be far from simple for the ECB, both practically and politically. “How do you buy an index which favours all countries within the euro zone? Obviously the ECB doesn’t want to be seen favouring one market above another,” said Commerzbank economist Peter Dixon.

The BOJ doubled its ETF purchases in late July to an annual pace of 6 trillion yen ($58 billion). According to SPDR ETFs, the BOJ is now estimated to hold almost 50% of the total Japanese ETF market. Investments in Europe-listed ETFs are worth just over $500 billion, compared with nearly $200 billion in Japan and more than $2 trillion in the United States, according to consultancy firm ETFGI. Although the European ETF market is bigger than Japan’s, such a scheme would have to benefit 19 member states, from heavyweight Germany to much smaller Slovakia.

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Washington should leave them alone.

Retailers Seek US Government Help With Shipping Crisis (WSJ)

U.S. retailers, bracing for a blow as they stock up for the crucial holiday sales season, asked the government to step in and help resolve a growing crisis caused by the near-collapse of South Korea’s Hanjin Shipping , one of the world’s largest container shipping companies. “While the situation is still developing, the prospect of harm is significant and apparent,” Sandra Kennedy, president of the Retail Industry Leaders Association, wrote in a letter to the Department of Commerce and the Federal Maritime Commission. Hanjin’s recent bankruptcy filing “presents an enormous challenge to U.S. shippers,” she said, and “could have a substantial impact on consumers and the economy at large.”

The trade group is urging the U.S. to work with ports, cargo handlers and the South Korean government to resolve the widespread disruption in freight shipments caused by the Hanjin bankrupcy filing. A spokesman for the Retail Industry Leaders Association said they’re hoping the South Korean government could help provide clarity and speed to the bankruptcy proceedings, which are being considered by courts there. Hanjin handles about 7.8% of the trans-Pacific trade volume for the U.S. market, Ms. Kennedy’s letter said. Since the shipping company filed for bankruptcy protection in a Seoul court Wednesday, terminal operators, ports, cargo handlers, truckers and others have refused to handle its cargo, for fear they won’t get paid. That is causing turmoil at U.S. ports and beyond, said shippers, importers and freight forwarders.

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There’s no maybe involved. The only way to finance Tesla was to agree to buy back its own second hand cars from lenders, or in other words: “..Tesla began providing “residual value guarantees” to those “leasing partners.”

Tesla’s Cash Crunch Worse Than You Think (Fortune)

It’s well known that Tesla is deploying gigantic amounts of capital to boost sales from a projected 50,000 vehicles this year to half-a-million in 2018. That’s arguably the most ambitious goal in corporate America. To make it happen, Musk has grown Tesla’s asset base from $1.3 billion at the end of 2013 to $11.9 billion by June 30, following a $1.7 billion equity raise in the second quarter. Now, Tesla will need to accelerate its capital-raising program to fund the SolarCity deal. It’s absolutely typical for a startup racing to build new plants and R&D centers to burn a lot more cash than it generates. Investors and analysts are mostly optimistic, predicting that Tesla will in a few years exploit its heavy investment by generating big positive and fast-growing cash flows.

Hence, it’s crucial to examine the arc of Tesla’s cash flows to project when, and if, it will become profitable. As with its other pro-forma measures, Tesla’s version of cash from operations looks a lot better than the official numbers. So which is the right figure for investors? As it reported in its 10K for 2015, Tesla made a major concession to an important group of customers. The shift was aimed at strengthening a fast-growing business, sales of vehicles to banks that lease its model S and X vehicles to end-customers. In the past, Tesla simply sold the autos to its leasing customers, with no strings attached. The banks had no right to get money back from Tesla if, for example, the market for used electric vehicles dropped, forcing them to sell at lower-than-expected prices when the leases ended.

But starting in the fourth quarter of 2014, Tesla began providing “residual value guarantees” to those “leasing partners.” Those guarantees state that when the lease expires, typically after three years, the bank has the option of selling the car back to Tesla at a fixed, pre-determined price. Or, if the lessor chooses to sell the cars on its own and receives less than the guarantee amount, Tesla must cover the shortfall. Of course, customers have the option of buying the Model S or Model X for a fixed price at the end of the lease period, and if a customer does keep the car, Tesla’s liability ends. But if a customer decides not to buy, the bank can return the car to Tesla and pocket the guaranteed price, or sell the three-year old vehicle on the nascent green used car market. Either way, Tesla takes a big loss, and effectively returns a lot of the original “purchase” price, if rates for used S and X’s drop.

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“..Australia’s real estate bubble, which is being held aloft by foreign capital..”

Apartment Correction To Cause Australia-Wide Recession (SMH)

A “correction” in the apartment market could see sharp falls in all Australian home prices and a nationwide recession, a gloomy bank analyst report on the housing market warns. The report by analysts CLSA paints a “base case” scenario which says Australia’s housing cycle has “peaked,” with household debt now extending the country’s property bubble. The shift by big banks to tighten lending standards is likely to cause a “correction” and “crisis” in cheap apartments which will spread, leading to defaults among smaller developers and a sharp contraction in construction, CLSA says.

The “worst case” scenario foresees “dwelling prices falling sharply in all areas, eventually leading to a recession,” the report’s authors, respected former banking analyst Brian Johnson, and his colleagues say. “Issues of affordability and household debt are overextending Australia’s real estate bubble, which is being held aloft by foreign capital,” they say. “Our base case has the crisis starting with cheap apartments and later spreading to other flats in close proximity.” The authors put a “sell” recommendation on stocks of companies most likely to be affected by the crunch, including the country’s biggest bank CBA and listed property giant Lendlease. Another property player Mirvac would also be impacted, they said.

Mr Johnson and co. said they believe a correction in the housing market will start with settlement problems among apartment buyers, where purchasers who stumped up a 10% deposit simply walk away leaving developers to recoup the money or resell the unit. Under the “base case” scenario the contagion from falling apartment prices has a “muted” impact on single-family homes and is not enough to push the economy into recession. The risk of the “worst case” happening, which predicts sharp price falls and a recession, is increased because Australian household’s are holding debt that is at 122% of GDP and house prices are 12 times price to income ratios, the authors say.

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No matter how the Apple case turns out, golden taxation days in Europe are over. Next up for scrutiny: Netherlands.

Starbucks, Amazon Pay Less Tax Than A Sausage Stand, Austria Says (R.)

Multinationals like coffee chain Starbucks and online retailer Amazon pay less tax in Austria than one of the country’s tiny sausage stands, the republic’s center-left chancellor lamented in an interview published on Friday. Chancellor Christian Kern, head of the Social Democrats and of the centrist coalition government, also criticized internet giants Google and Facebook, saying that if they paid more tax subsidies for print media could increase. “Every Viennese cafe, every sausage stand pays more tax in Austria than a multinational corporation,” Kern was quoted as saying in an interview with newspaper Der Standard, invoking two potent symbols of the Austrian capital’s food culture.

“That goes for Starbucks, Amazon and other companies,” he said, praising the European Commission’s ruling this week that Apple should pay up to €13 billion in taxes plus interest to Ireland because a special scheme to route profits through that country was illegal state aid. Apple has said it will appeal the ruling, which Chief Executive Tim Cook described as “total political crap”. Google, Facebook and other multinational companies say they follow all tax rules. Kern criticized EU states with low-tax regimes that have lured multinationals – and come under scrutiny from Brussels. “What Ireland, the Netherlands, Luxembourg or Malta are doing here lacks solidarity towards the rest of the European economy,” he said.

He stopped short of saying that Facebook and Google would have to pay more tax but underlined their significant sales in Austria, which he estimated at more than 100 million euros each, and their relatively small numbers of employees – a “good dozen” for Google and “allegedly even fewer” for Facebook. “They massively suck up the advertising volume that comes out of the economy but pay neither corporation tax nor advertising duty in Austria,” said Kern, who became chancellor in May.

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Always thought that ‘kills 99% of bacteria can’t be a good thing’. Without bacteria, there are no people.

Antibacterial Soaps Banned In US Amid Claims They Do ‘More Harm Than Good’ (G.)

Antibacterial soaps were banned from the US market on Friday in a final ruling by the Food and Drug Administration, which said that manufacturers had failed to prove the cleansers were safe or more effective than normal products. Dr Janet Woodcock, director of the FDA’s center for evaluation and research, said that certain antimicrobial soaps may not actually serve any health benefits at all. “Consumers may think antibacterial washes are more effective at preventing the spread of germs, but we have no scientific evidence that they are any better than plain soap and water,” she said in a statement. “In fact, some data suggests that antibacterial ingredients may do more harm than good over the long term.”

Manufacturers had failed to show either the safety of “long-term daily use” or that the products were “more effective than plain soap and water in preventing illness and the spread of certain infections”. The new federal rule applies to any soap or antiseptic product that has one or more of 19 chemical compounds, including triclocarbon, which is often found in bar soaps, and triclosan, often in liquid soaps. It does not affect alcohol-based hand sanitizers and wipes, which the FDA is still investigating, or certain healthcare products meant specifically for clinical settings. The FDA has given manufacturers a year to change their products or pull them off shelves.

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Aug 102016
 
 August 10, 2016  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 10 2016
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Lewis Wickes Hine Workshop of Sanitary Ice Cream Cone Co., OK City 1917

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)
Bank of England QE and the Imaginary “Brexit Shock” (AM)
Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)
The Private Pain of China’s Economy (WSJ)
Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)
The Problem With Europe Is The Euro (Stiglitz)
The EU Enters Its Endgame (Dowd)
Marc Faber: Tesla Shares Are Going To $0 (CNBC)
The US Public Pensions Ponzi (ZH)
Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)
Call Blockchain Developers What They Are: Fiduciaries (Walch)
Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

 

 

Did Carney really not see this coming? That would be stunning indeed. Not hard at all to find out.

Bank Of England Suffers Stunning Failure On Second Day Of QE (ZH)

It started off well enough. On the first day of the Bank of England’s resumption of Gilt QE after the central bank had put its monetization of bonds on hiatus in 2012, bondholders were perfectly happy to offload to Mark Carney bonds that matured in 3 to 7 years. In fact, in the first “POMO” in four years, there were 3.63 offers for every bid of the £1.17 billion in bonds the BOE wanted to buy. However, earlier today, when the BOE tried to purchase another £1.17 billion in bonds, this time with a maturity monger than 15 years, something stunning happened: it suffered an unexpected failure which has rarely if ever happened in central bank history: only £1.118 billion worth of sellers showed up, meaning that the BOE’s second open market operation was uncovered by a ratio of 0.96.

Simply stated, the Bank of England encountered an offerless market. What makes this particular failure especially notable – and troubling – is that while technically uncovered sales of government securities happen frequently, and Germany is quite prominent in that regard as numerous Bund auctions have failed to find enough demand in the open market in recent years forcing the “retention” of the offered surplus, when it comes to a central bank’s buying of securities, there should be, at least in practice, full coverage of the operation as the central bank is willing and able to pay any price to sellers to satisfy its quota. For example, in today’s operation, the scarcity led to the BOE accepting all submissions, even as some investors offered prices above the prevailing market.

The highest accepted price for the 4% bond due in 2060, for example, was 194.00, compared with a weighted average of 192.152, which means that the happy seller obtained a yield well in excess of that implied by the market. And yet, despite having a completely price indiscriminate buyer, some £52 million worth of bond sellers simply refused to sell to the BOE at any price! The QE failure quickly raised alarm signals among the bond buying community. In a Bloomberg TV interview, Luke Hickmore at Aberdeen Asset Management said that “lots of people are bidding us for bonds – Mark Carney is now bidding me for bonds and he still can’t have them. The problem is he was trying to buy 15-year plus bonds today in the gilt market. That’s a really difficult area.”

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“One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.”

Bank of England QE and the Imaginary “Brexit Shock” (AM)

For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame). The adulation he receives is really a major head-scratcher. What has he ever done aside from operating the “Ctrl. Prnt.” buttons? As far as we are aware, nothing. As we have discussed previously, his main legacy is that he has left Canada with one of the greatest and scariest real estate and consumer credit bubbles extant in the world today. Some accomplishment!

With respect to his economic analysis, it seems not the least bit different from the neo-Keynesian/ semi-monetarist mumbo jumbo we get to hear from central bankers everywhere. This is by the way no surprise: they’re an incestuous bunch and have largely received their education at the same institutions. Most of them seem genuinely convinced that central planning not only works, but is necessary to improve on the alleged drawbacks of an “unfettered market” (i.e., the mythical unhampered free market economy no-one alive today has ever experienced). If one looks closely at what they are actually doing, it soon becomes clear that it is in principle not much different from what John Law did in France in the early 18th century (the difference is one of degree only).

The much-dreaded “Brexit” has now given Mr. Carney the opportunity to do what he does best, namely open the monetary spigots wide. One might as well try to improve one’s health by playing a few rounds of Russian roulette every morning before breakfast.

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NIRP scares the sh*t out of people. And rightly so.

Negative-Yield Debt Is Doing The Opposite Of What It Was Supposed To Do (CNBC)

Paying someone to borrow your money sounds like a questionable idea on paper, and seems not to be working out so well in practice. Yet that’s exactly what people who buy negative-yielding bonds do: Instead of collecting payments in the form of yields, investors have to pay someone to take their cash. Investors ostensibly hope they can sell the debt elsewhere and make a profit, as prices go up when yields fall. It’s a strange arrangement that nonetheless has become policy in Japan and parts of Europe. The goal that sovereign debt issuers and central banks hope to achieve is a world where money is pushed toward risk and all that no-yielding debt causes inflation that leads to growth.

However, as the arrangement spreads around the world to the point where more than $11 trillion of global debt holds negative yields, questions are growing quickly about its efficacy. “It’s the definition of insanity: Keep doing the same thing over and again and expect a different result. That’s my assessment of central banks in a nutshell,” said Kim Rupert, managing director of global fixed income analysis at Action Economics. “I never thought I’d say that. I had a lot of respect for central bankers. But they’re getting way overindulgent with very little success as far as I can tell.”

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“..urged local officials to “chant bright songs about the China economy loudly” to boost confidence..”

The Private Pain of China’s Economy (WSJ)

Private investment is withering in China. Companies are shying away from risking their capital, discouraged by a cloudy global outlook and four years of slowing Chinese growth, intermittent deflation and conflicting policy messages. The development risks setting back Beijing’s aim to shift the economy from low-end manufacturing to the kind of high-tech industries and services that dynamic private companies tend to provide. Private investment on capital goods like factories and trucks grew by just 2.8% in the year’s first half following nearly 30% annual average growth over the past decade. In June, it fell for the first time since China started tracking the data in 2004. The July figure, to be released Aug. 12, is expected to show further weakness.

In a bid to reverse the trend, Beijing has stepped up efforts to slash red tape and reduce barriers for entrepreneurs and urged local officials to “chant bright songs about the China economy loudly” to boost confidence, according to one circular. Beijing also has tried to flood the economy with credit to compensate for the decline in private investment. It boosted total social financing, a broad measure of credit that includes both bank loans and nonbank lending, to a first-quarter record. But state banks, China’s main lenders, aren’t always cooperating. In the second quarter, state banks charged private companies interest rates that were 6 percentage points higher than for their public-sector counterparts, according to investment bank CICC. Officials at two state banks said they are careful when lending to smaller private borrowers given concerns over risk and lack of sufficient collateral.

Private companies also report more difficulty in raising informal loans from nonbank lenders, friends and relatives as bad loans increase and lenders grow more cautious. China’s leaders also have pressured state-owned firms to invest more. They responded with a 23% first-half jump in investment that helped prop up economic growth. But the strategy sidelines private companies that account for three-fifths of China’s economy and four-fifths of its workforce. “The government plans a lot of large-scale investments but rarely thinks about private investors getting squeezed out,” said Jon Chan Kung, founder of research group Beijing Anbound Information Co. “Companies are facing a lot of confusion and questions about China’s future.”

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It’s all about hoping prices will rise. If they don’t, and soon, these guys are toast.

Oil Companies Face $110 Billion Debt Wall Over Next 5 Years (BBG)

The worst may be yet to come for some strained oil services companies as $110 billion in debt, most of it junk rated, creeps closer to maturity. More than $21 billion of debt from oilfield services and drilling companies is estimated to be maturing in 2018, almost three times the total burden in 2017, according to a report from Moody’s Investors Service on Aug. 9. More than 70% of those high-yield bonds and term loans are rated Caa1 or lower, and more than 90% are rated below B1. Speculative-grade debt is becoming increasingly risky, as the default rate is expected to reach 5.1% in November, according to a separate Moody’s report.

The 12-month global default rate rose to 4.7% in July, up from its long-term average of 4.2%, Moody’s wrote. Of the 102 defaults this year, 49 have come from the oil and gas sector, Moody’s noted. “While some companies will be able to delay refinancing until business conditions improve, for the lowest-rated entities, onerous interest payments and required capital expenditure will consume cash balances and challenge their ability to wait it out,” Morris Borenstein, an assistant vice president at Moody’s, said in the report.

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The problem is the silly assumptions it was built on.

The Problem With Europe Is The Euro (Stiglitz)

Advocates of the euro rightly argue that it was not just an economic project that sought to improve standards of living by increasing the efficiency of resource allocations, pursuing the principles of comparative advantage, enhancing competition, taking advantage of economies of scale and strengthening economic stability. More importantly, it was a political project; it was supposed to enhance the political integration of Europe, bringing the people and countries closer together and ensuring peaceful coexistence. The euro has failed to achieve either of its two principal goals of prosperity and political integration: these goals are now more distant than they were before the creation of the eurozone. Instead of peace and harmony, European countries now view each other with distrust and anger.

Old stereotypes are being revived as northern Europe decries the south as lazy and unreliable, and memories of Germany’s behaviour in the world wars are invoked. The eurozone was flawed at birth. The structure of the eurozone – the rules, regulations and institutions that govern it – is to blame for the poor performance of the region, including its multiple crises. The diversity of Europe had been its strength. But for a single currency to work over a region with enormous economic and political diversity is not easy. A single currency entails a fixed exchange rate among the countries, and a single interest rate. Even if these are set to reflect the circumstances in the majority of member countries, given the economic diversity, there needs to be an array of institutions that can help those nations for which the policies are not well suited.

Europe failed to create these institutions. Worse still, the structure of the eurozone built in certain ideas about what was required for economic success – for instance, that the central bank should focus on inflation, as opposed to the mandate of the Federal Reserve in the US, which incorporates unemployment, growth and stability. It was not simply that the eurozone was not structured to accommodate Europe’s economic diversity; it was that the structure of the eurozone, its rules and regulations, were not designed to promote growth, employment and stability. Why would well-intentioned statesmen and women, attempting to forge a stronger, more united Europe, create something that has had the opposite effect? The founders of the euro were guided by a set of ideas and notions about how economies function that were fashionable at the time, but that were simply wrong.

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Strong by Kevin Dowd: “..what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?”

The EU Enters Its Endgame (Dowd)

The list of countries with strong sentiment for their own Exit votes is a long one: according to a recent opinion poll, over half of the French and Italian electorates want their own exit referenda, and around 40% of the Swedish, Belgian, German, Hungarian, Polish and Spanish electorates want them. There is also strong support in Austria, Denmark, Finland, the Netherlands, Portugal, Slovakia and Sweden. Other opinion polls suggest even stronger support, but by my count, there is strong support for exit referenda in at least 16 of the 28 member countries of the EU—and then there is Greece, which has its own bone or two to pick with the EU.

Further afield, there were calls for secessionist votes in the United States and the Canadian Prime Minister was soon fending off calls for a Quexit vote. The cat is well and truly out of Pandora’s bag. The issues now are not whether there will be a similar referendum in another country but rather which country will be next and then how many will follow after that. Brexit was merely the first domino. The EU will not survive the process—and by that I do not mean that it will not survive in its current form, which is obvious—I mean that it will not survive at all. The EU “project”—the attempt to establish a federalist European superstate against the wishes of many of its subjects—has failed and the EU itself is unraveling. The only question now is how unpleasant the endgame will be.

[..] A week or so ago, I saw the German Chancellor on the news again repeat her mantra that the UK will only have access to the Single Market if it complies with her demand that it maintain free movement of peoples across what is still now the EU. I found myself scratching my head. Memo to Planet Merkel: does she not see that free movement no longer exists? Schengen has largely broken down: border controls within the EU are already a reality and the Nordics are preparing or already have plans to impose further controls to prevent their welfare states being overwhelmed by migrants. So would someone please explain to me: what is the point of her insisting that the UK maintain completely open borders with the EU when nearly a dozen continental EU members no longer do so?

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“Anybody in the world can make it eventually, at much lower cost and probably much more efficiently..”

Marc Faber: Tesla Shares Are Going To $0 (CNBC)

Marc Faber, editor of the Gloom, Boom & Doom Report, is well-known his perennially bearish take on the overall market. But there are also some specific stocks of which the investor known as “Dr. Doom” takes a particularly dim view – and right now, prime among those is Tesla. “What they produce can be produced by Mercedes, BMW, Toyota, Nissan. Anybody in the world can make it eventually, at much lower cost and probably much more efficiently,” Faber said Monday on CNBC’s “Trading Nation.”

“The market for Toyota and these large automobile companies is simply not big enough, but the moment it becomes bigger, they’ll move into the field and then Tesla will have a lot of competition.” Faber sees this increased competition causing more than a small dent in the company’s business and stock performance. “I think Tesla is a company that is likely to go to zero eventually,” Faber said.

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“Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.”

The US Public Pensions Ponzi (ZH)

Defined Benefit Pension Plans are, in many cases, a ponzi scheme. Current assets are used to pay current claims in full in spite of insufficient funding to pay future liabilities… classic Ponzi. But unlike wall street and corporate ponzi schemes no one goes to jail here because the establishment is complicit. Everyone from government officials to union bosses are incentivized to maintain the status quo…public employees get to sleep better at night thinking they have a “retirement plan,” public legislators get to be re-elected by union membership while pretending their states are solvent and union bosses get to keep their jobs while hiding the truth from employees.

We even published a note several days ago entitled “Establishment Tries To Suppress “Dissident Actuaries” Explosive Report On Public Pensions,” which pointed out that the American Academy of Actuaries and the Society of Actuaries killed a report that would have warned about the implications of lowering long-term expected returns on pension assets. Apparently the truth was just too scary. Bill Gross has been warning of the unintended consequences of low interest rates for years, and reiterated his concerns to Bloomberg recently: “Fund managers that have been counting on returns of 7% to 8% may need to adjust that to around 4%, Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund, said. Public pensions, including the California Public Employees’ Retirement System, the largest in the U.S., are reporting gains of less than 1% for the fiscal year ended June 30.”

To our great surprise, certain pension funds are finally taking notice. Richard Ingram of Illinois’s largest pension fund recently announced that he would be taking another look at long-term return expectations noting that “anybody that doesn’t consider revisiting what their assumed rate of return is would be ignoring reality.” Ingram’s Illinois Teachers’ Retirement System is only 41.5% funded and currently assumes annual returns of 7.5%, down from 8% in 2014. We decided to take a look at what would happen if all federal, state and local pension plans decided to heed the advice of Mr. Gross. As one might suspect, the results are not pleasant.

We conservatively assume that public pensions are currently $2.0 trillion underfunded ($4.5 trillion of assets for $6.5 trillion of liabilities) even though we’ve seen estimates that suggest $3.5 trillion or more might be more appropriate. We then adjusted the return on asset assumption down from the 7.5% used by most pensions to the 4.0% suggested by Mr. Gross and found that true public pension underfunding could be closer to $5.5 trillion, or over 2.5x more than current estimates. Others have suggested that returns should be closer to risk-free rates which would imply an even more draconian $8.4 trillion underfunding.

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There’s lots of this in Europe.

Housing ‘Shell Shock’ Faces Danes Who Think Market Can Only Rise (BBG)

Denmark’s biggest mortgage bank is urging homeowners to remember that a seemingly unstoppable series of price gains can end, and even go into reverse. At Nykredit, chief analyst Mira Lie Nielsen says Danes need to start putting the possibility of housing price declines “on their radars” or risk going into “shell shock when it happens.” “Our expectation isn’t that home prices will fall in the near future, but it’s important to say, again and again, that especially apartment prices can also fall,” Nielsen said in an e-mail. After almost half a decade of negative interest rates, many homeowners in Denmark are being paid to borrow, excluding bank fees.

Most analysts estimate Danish rates won’t go positive until 2018 at the earliest, threatening to create an atmosphere of complacency as borrowers take on bigger mortgages based on assumptions that low rates are here to stay. Home prices rose an annual 4.5% across Denmark in July, according to Boligsiden.dk, a web portal that tracks the property market. Copenhagen apartment prices soared 9.4%, underpinning the “continued need to be particularly aware” of the potential risks, Nielsen said. “Prices for city dwellings are at a markedly higher level today and are in a range where few people who aren’t already benefiting from the price gains can join in,” Nielsen said.

“So the price level is playing its own damping role on the market, because incomes haven’t quite been able to keep up. This is already visible in Copenhagen.” Apartment prices in Denmark are about 5% above their 2006 peak, according to the latest data from Statistics Denmark. Back then, the country’s bubble burst and apartment prices slumped about 30% through 2009. But there’s also a flip side to record-low interest rates. Banks have suffered fewer writedowns as borrowers find it easier to repay cheaper loans. The number of homeowners unable to honor their mortgage commitments is falling, with just 0.19% failing to meet payment deadlines in the first quarter, according to industry data published on Tuesday.

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“..the romance of decentralization..”

Call Blockchain Developers What They Are: Fiduciaries (Walch)

The recent hack of the DAO (short for Decentralized Autonomous Organization) and the subsequent reversal of funds on Ethereum’s blockchain should finally put an end to a decentralization charade. People are, in fact, governing public blockchains, and we need to be able to trust them. From the beginning, the core developers (who write, evaluate and modify the software code) and the powerful miners (holders of significant chunks of computing power within the network) have been the governing bodies of these so-called decentralized systems. Yet the romance of decentralization – with the seductive idea that we don’t have to trust anyone because no human is doing anything – has allowed many to overlook this important truth.

In the techno-utopian world of blockchain technology, it has become fashionable to proclaim that software code and its operation can replace the need for human governance. Hence, the push toward “decentralized autonomous organizations,” which are essentially corporations run through code rather than by people. The first of these, the DAO, began operating in May 2016, raising $150 million from investors to operate as a venture fund for blockchain technology. The DAO is just software, coded by an ambitious group at the company Slock.It. It was embarrassingly compromised through a computer hack for $60 million within a month of its inception.

The theft’s fallout has been dramatic. Since the DAO was built on the Ethereum blockchain, everyone involved with the technology was affected: DAO investors, owners of ether (the cryptocurrency of Ethereum) and anyone building anything on Ethereum, which has sought to be a platform for so-called smart contracts. This raised serious questions like: Should folks try to get the stolen ether back? Should they leave it be, as the hack was simply an exploitation of a bug in the purportedly unstoppable code?

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“The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy.”

Construction Of Giant Dam In Canada Prompts Human Rights Outcry (G.)

Human rights campaigners are calling on Canadian authorities to halt construction of a huge hydroelectric dam in western Canada over concerns that the mega-project tramples on the rights of indigenous peoples in the area. A global campaign launched by Amnesty International on Tuesday called on the federal government and the provincial government of British Columbia to withdraw all permits and approvals for the Site C hydroelectric dam, a C$9bn project that will see more than 5,000 hectares (12,350 acres) of land – roughly equivalent to about 5,000 rugby fields – flooded in north-east British Columbia. The land is part of the traditional territories of indigenous peoples in the region, said Craig Benjamin of Amnesty International Canada.

“It’s an area that people have used for thousands upon thousands of years. Their ancestors are buried in the land; there are hundreds of unique sites of cultural importance; there is cultural knowledge of how to live on land that is associated with this specific spot.” Many continue to rely on the land to hunt, fish, plant medicines, gather berries and conduct ceremonies. “There are really few other places where they can go to practice their culture and to exercise their rights because this is a region that has been so heavily impacted by large-scale resource development.” Amid protests by several First Nations groups, the project was approved by provincial and federal authorities in 2014, allowing preparatory work to begin last summer.

Earlier this year, as clear-cutting began in the area, part of the construction was held up by a protest camp set up by indigenous activists. “This is home,” said Helen Knott, one of the half a dozen protesters who occupied the site. “The rivers are the arteries of the Earth. When we block them up, the earth becomes unhealthy. It’s about being able to protect something to pass on to our children.” After two months in the snow and braving temperatures that dropped as low as -20C, a provincial court ordered them to dismantle the camp.

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Jun 232016
 
 June 23, 2016  Posted by at 8:48 am Finance Tagged with: , , , , , , ,  4 Responses »
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Harris&Ewing Horse and Motor Oil, Washington, DC 1918

World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)
Who Is The “European Movement”? (Werner)
Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)
IMF Warns The US Over High Poverty (BBC)
China’s Xi Lauds New Silk Road (R.)
Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)
Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)
ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)
European Commission To Freeze Payments To Greece (NE)
Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)
EU Approves Common Border Agency (WSJ)

Won’t be sleeping peacefully.

World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)

Bank of Japan Governor Haruhiko Kuroda will be in Switzerland as the results are announced of the U.K.’s June 23 vote on whether to remain in the European Union. Kuroda will be traveling from June 23 to June 28 to attend meetings of the Bank for International Settlements, where other central bankers also will gather, the BOJ said Wednesday. Given the travel time between Europe and Japan, Kuroda would be unable to chair an emergency meeting if the central bank decides to hold one Friday Tokyo time in the event the U.K. votes to leave the EU. “This raises the likelihood of the BOJ not taking drastic measures right after the results come out,” said Daiju Aoki, an economist at UBS in Tokyo.

“Kuroda probably sees the benefit of being with other central bankers where they could talk about coordinated action.” In a press conference June 16, Kuroda declined to comment about whether he’d convene an emergency meeting after the Brexit vote and said the central bank was in touch with counterparts including the Bank of England amid Brexit concerns he said had had an impact in the bond market. The BOJ can hold an emergency meeting without the governor, according to the bank’s rules. In May 2010, then-Deputy Governor Hirohide Yamaguchi led an emergency gathering in the absence of Governor Masaaki Shirakawa, who was traveling in Europe.

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A comprehensive overview of things EU for those who can still stomach more.

Who Is The “European Movement”? (Werner)

Prime Minister David Cameron, together with the heads of the IMF, the OECD and various EU agencies have given dire warnings that economic growth will drop, the fiscal position will deteriorate, the currency will weaken and UK exports will decline precipitously. George Osborne, the chancellor of the exchequer has threatened to cut pensions if pensioners dare to vote for exit. But what are the facts? I have been trained in international and monetary economics at the London School of Economics and have a doctorate from the University of Oxford in economics. I have studied such issues for several decades. I have also recently tested, using advanced quantitative techniques, the question of the size of impact on GDP from entry to or exit from the EU or the eurozone.

The conclusion is that this makes no difference to economic growth, and everyone who claims the opposite is not guided by the facts. The reason is that economic growth and national income are almost entirely determined by a factor that is decided at home, namely the amount of bank credit created for productive purposes. This has sadly been very small in the UK in recent decades, thus much greater economic growth is possible as soon as steps are taken to boost bank credit for productive purposes – irrespective of whether the UK stays in the EU or not (although Brexit will make it much easier to take such policy steps).

We should also remember that a much smaller economy like Norway – thought more dependent on international trade – fared extremely well after its people rejected EU membership in a referendum in 1995 (which happened against the dire warnings and threats from its cross-party elites, most of its media and the united chorus of the heads of international organisations). Besides, Japan, Korea, Taiwan and China never needed EU membership to move from developing economy status to top industrialised nations within about half a century. The argument of dire economic consequences of Brexit is bogus.

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10 years late. We called it Hongcouver by then.

Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)

Vancouver, home of Canada’s priciest housing market, is proposing a tax on empty homes to help address an “unprecedented” low vacancy rate as residents struggle to find affordable housing. Vancouver’s preferred option is to have the provincial government of British Columbia create a new tax for empty or under-occupied residential homes, Mayor Gregor Robertson said in a statement Wednesday. Failing that, the city plans to impose a business tax on empty homes held as investment properties. The city wants a response from the province by Aug. 1.

“Vancouver housing is first and foremost for homes, not a commodity to make money with,” Robertson said. “We need a tax on empty homes to encourage the best use of all our housing, and help boost our rental supply at a time when there’s almost no vacancy.” Prices in Vancouver are the highest in Canada, topping C$1.5 million ($1.2 million) for a detached home in May, a 37% rise over the prior year, according to that city’s real estate board. At 0.6%, the current vacancy rate means there are only 330 purpose-built rental apartments available at a given time, Robertson said. That’s in a municipal region of about 2.5 million people.

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Lagarde’s just a lot of emptiness.

IMF Warns The US Over High Poverty (BBC)

The US has been warned about its high poverty rate in the International Monetary Fund’s annual assessment of the economy. The fund said about one in seven people were living in poverty and that it needed to be tackled urgently. It recommended raising the minimum wage and offering paid maternity leave to women to encourage them to work. The report also cut the country’s growth forecast for 2016 to 2.2% from a previous prediction of 2.4%. Slower global growth and weaker consumer spending were blamed. US economic growth slowed to an annual pace of 0.5% during the first three months of the year, down sharply from 1.4% in the last three months of 2015.

But the stronger labour market meant that overall “the US economy is in good shape”, said the IMF’s managing director Christine Lagarde. May’s unemployment figures showed the rate at an eight-year low of 4.7%. However Ms Lagarde warned that “not only does poverty create significant social strains, it also eats into labour force participation, and undermines the ability to invest in education and improve health outcomes”. “Our assessment is that, if left unchecked, these four forces – participation, productivity, polarisation and poverty – will corrode the underpinnings of growth and hold back gains in US living standards,” she added.

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All the things monopoly money can buy.

China’s Xi Lauds New Silk Road (R.)

Chinese companies invested nearly $15 billion in countries participating in Beijing’s new Silk Road initiative last year, up one-fifth from 2014, President Xi Jinping said in Uzbekistan, lauding a scheme that is one of his key foreign policy. Under the program, announced by Xi in 2013, and also known as the “One Belt, One Road” program, China aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe. China has dedicated $40 billion to a Silk Road Fund and the idea was the driving force behind the establishment of the $50 billion Asian Infrastructure Investment Bank.

In comments carried by state media late on Wednesday, Xi said China’s trade with countries participating in the new Silk Road exceeded $1 trillion in 2015, accounting for a quarter of its total foreign trade. “The Belt and Road Initiative’s primary planning and deployment has been completed and is now stepping onto the stage of taking root and intensive cultivation for sustained development,” Xi told the Uzbek parliament. Regions like the Balkans and Central Asia are key to the project, the government has said. Xi’s trip to Uzbekistan followed trips to Serbia and Poland. The initiative envisages the revival of the ancient Silk Road routes from China to Europe to open new trade markets for its firms as the domestic market slows.

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Musk has easy access to the green bubble.

Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)

Visions of a future dominated by electric cars have long powered Tesla Motors’ stock price. Sooner or later, the reality of corporate finance is likely to intervene. Tesla’s offer to acquire solar-energy company SolarCity brings this issue to the forefront. Though details on the financial benefits of the proposed tie-up are scant, Tesla CEO Elon Musk was his usual bold self on a conference call with analysts on Wednesday. He said the proposed deal could help Tesla become the world’s first company with a trillion-dollar market capitalization. That would require a more than 30-fold increase from today’s value. Yet that boast may not be the most jarring one Mr. Musk has offered of late.

Powered by the new Model 3 mass-market sedan, Tesla aims to deliver 500,000 vehicles in 2018, Mr. Musk said last month. That target is two years ahead of the previous goal. Tesla forecasts 80,000 to 90,000 deliveries this year. In a world of slow growth and cautious corporate management teams, bold ambition is a central part of Tesla’s appeal to investors. But reaching for the stars has proven expensive. Tesla’s core business has burned more than $3 billion in cash over the past six quarters. Capital needs are expected to further intensify over the coming years. No surprise there; automobile manufacturing is a low-return, capital-intensive business.

The SolarCity transaction could further pressure Tesla’s financial profile. Mr. Musk said Wednesday that Tesla would be willing to provide a bridge loan to SolarCity before the deal closes if needed, although he thought such a scenario to be unlikely. Still, even the possibility of such a loan should raise eyebrows. Mr. Musk said he expects SolarCity to be cash-flow positive within three to six months. That could be the case in a given quarter, but analysts at Barclays forecast 2016 free cash flow at negative-$1.8 billion. As for Tesla, Barclays expects the auto maker to burn $2.1 billion without much improvement over the coming two years. The combined company could burn as much as $3.4 billion in 2018, before factoring in the financial impact of the merger.

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Always funny how close shameful and shameless are in the English language.

Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)

Tesla’s bid to buy struggling solar energy firm SolarCity has been called “shameful” by financier Jim Chanos. Mr Chanos, who is betting against the shares of both firms, described the bid as a “shameful example of corporate governance at its worst”. Tesla made a $2.8bn (1.9bn) offer for SolarCity on Tuesday. Tesla’s chief executive Elon Musk said the deal, which will be paid for in Telsa shares, was a “no brainer”. The two firms have close ties. Mr Musk owns 22% of SolarCity and sits on the company’s board. SolarCity’s chief executive Lyndon Rive and Mr Musk are cousins. “As a combined automotive and power storage and power generation company, the potential is there for Tesla to be a trillion-dollar market cap company,” Mr Musk said.

Mr Chanos has taken short positions in both Tesla and SolarCity. When investors take short positions they borrow shares of a company, sell those shares and try to buy them back at a lower price. Mr Chanos said SolarCity was “headed toward financial distress,” and neither company could handle the burden of a tie-up. “[SolarCity] is burning hundreds of millions in cash every quarter, a burden that now Tesla shareholders will have to bear, at a total cost of over $8bn,” he said.

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Why now?

ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)

The ECB has restored a key waiver that will let Greek banks tap emergency central bank credit, one step toward putting the country’s financial institutions back on their feet. The decision announced Wednesday permits Greek government bonds to be used by banks as collateral to get cheap money from the ECB — even though those bonds are rated too low under the usual rules. Greek banks were shattered by the country’s financial and debt crisis which has led to three bailouts since 2010. They have been relying on more expensive financing from the Greek national central bank to do business. The ECB restored the waiver after the Greek government got a €7.5 billion installment on its latest bailout, ensuring the government can pay its bills for now.

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Still a very corrupt country. And not given the time to do something about it; ‘reform’ has eaten that away.

European Commission To Freeze Payments To Greece (NE)

The European Commission will stop all payments of the European Regional Development Fund/Cohesion fund to Greece for the 2014-2020 programmes. This is confirmed by an internal letter obtained by New Europe signed by Walter Deffaa, Director-General for Regional Development. The reason for the Commission’s pause is an investigation of the Greek competition authority, which concerns possible manipulation of tendering procedures for major infrastructure projects. While the letter was circulated internally on June 17, it is expected that the decision will not be announced until after the European Commission President, Jean-Claude Juncker, has concluded his trip to the Greek capital, but possibly before the competition authority will examine the case on July 21.

The European Commission did not immediately respond to New Europe on whether the President had discussed the issue with Greek Prime Minister Alexis Tsipras, or as to the amount of money that would be affected by this decision. According to the letter, the Greek authorities working on the case have “already identified companies participating in the cartel as all major constructions companies and large foreign companies present in Greece.” The cartel was allegedly active for over 27 years from 1989, to this year, in the domain of road construction, railroads, metro, and concession projects. The Director-General confirms that some of these projects “will certainly have been co-financed by EU funds”.

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We’ll file this under entertainment…

Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)

President Recep Tayyip Erdogan has said that Turkey might hold a referendum on whether to end or continue negotiations with European Union (EU). Erdogan commented on Turkey’s EU accession negotiations during a graduation ceremony of Fatih Sultan Mehmet Foundation University on Wednesday. “Just like United Kingdom, we could also ask our people whether to continue or end negotiations with EU”, Erdogan said.

“Turkey is not after visa-free travel or the shipping back [to Turkish territory of migrants who arrive in Greece]. However, you are after Turkey right now. You are thinking about what would happen if Turkey was to open the gates and let the refugees pass. You are losing your temper because Erdoan throws off your mask and reveals your true, ugly face. That’s why you are thinking of ways to get rid of Erdogan. Europe, you do not want us only because the majority of our people are Muslims”, Erdogan added.

Erdogan’s remarks came after European Commission President Jean-Claude Juncker said that the only person standing in the way of Turkey’s visa-free travel to EU was Erdogan. “If Turks cannot travel to EU without a visa right now, that is because they have not fulfilled the necessary criteria. If Erdogan breaks the deal, he has to explain his people why they can’t travel to EU [without a visa]”, Juncker said.

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Foreign armed ‘soldiers’ operating in another country’s sovereign territory. Is that what people want?

EU Approves Common Border Agency (WSJ)

The European Union on Wednesday agreed on setting up a common external border agency and coast guard to be deployed in countries struggling with a massive influx of migrants. The plan was originally put forward in December and has been pushed by Germany and France in response to the migration crisis that saw over one million asylum seekers arrive via Greece last year, and the threat from Islamic State terrorists mingling with the stream of refugees. Sovereignty concerns raised by some EU governments have been addressed in a compromise whereby a majority of governments would have to approve any deployment of EU border guards, including the country where the external border is deemed too porous and an intervention needed.

If an EU country which belongs to the Schengen border-free area refuses to accept such a deployment, and its failure to protect the common border is considered to endanger the border-free area, other countries can erect borders to isolate themselves from it. The U.K. and Ireland won’t be part of the new agency, as they are not part of the Schengen area. The compromise deal, approved Wednesday by the bloc’s 28 ambassadors, still requires the formal adoption by EU governments and the European Parliament, but EU officials say this is a formality that will likely happen in the coming weeks. The European Border and Coast Guard will build on an existing EU agency—Frontex—which is based in Warsaw and currently only has limited powers when it comes to patrolling land and sea borders—a national prerogative.

The new agency will also comprise a network of national authorities responsible for border management and will have a reserve pool of 1,500 border guards to be deployed in emergency cases within a week. But setting up the pool of 1,500 will take time and resources, as EU countries aren’t equally motivated to see this project come to life, EU officials say. In previous years, EU countries were slow in dispatching border guards to Greece and Italy, whose governments requested EU assistance for search and rescue missions at sea or for patrolling the land border between Greece and Turkey. This is partly because some EU countries need the guards back home and also because polyglot border guards are rare.

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