Jan 122018
 
 January 12, 2018  Posted by at 10:29 am Finance Tagged with: , , , , , , , , , , , ,  


Do these people ever consider this perhaps helps Trump? The Man’s on Fire!

 

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)
Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)
South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)
China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)
China Sets New Records for Gobbling Up the World’s Commodities (BBG)
Household Debt Boom Sows The Seeds For A Bust (CBR)
Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)
We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)
Why We Have to Talk About a Bubble (BBG)
Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)
Monsanto Seeks To Cash In On The Organic Food Market (CP)
Electric Car Dreams Run Into Metal Crunch (BBG)
Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

 

 

It’s a slide! It’s a surge! Depends who you ask, and what time of day. Ask again every half hour, or you may miss the big moves. Translation: bitcoin is far from ready for the big leagues. It’s about stability.

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)

Bitcoin steadied Friday after four days of losses for the largest cryptocurrency amid increasing scrutiny from regulators around the world with concerns ranging from investor losses to strains on power systems. Bitcoin was little changed on the day, at $13,467 as of 1:27 p.m. Hong Kong time, reversing an earlier decline. It was down as much as 23% for the week at one point, on track for the deepest decrease since January 2015, according to Bloomberg composite pricing, and is now down about 20%. The token peaked in mid-December soon after the introduction of futures trading on regulated exchanges in Chicago. Among the blows to cryptocurrencies this week was the South Korean justice minister’s reiteration of a proposal to ban local cryptocurrency exchanges, though the comments were later downplayed by a spokesman for the president.

Meanwhile, bitcoin mining is set to become more expensive as China’s government cracks down on the industry, in part out of concerns about power use. In the U.S., scrutiny is set to increase amid concerns about the potential use of cryptocurrencies for fraudulent purposes such as money laundering. Securities and Exchange Commission Chairman Jay Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo are set to testify to the Senate Banking Committee on risks tied to bitcoin and its counterparts, according to a person with direct knowledge of the matter. The committee intends to hold a hearing in early February, the person said.

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The reaction scared the sh*t out of Seoul. But they still have to act, because bitcoin’s wide acceptance in the country means it’s a real danger to the whole economy.

Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)

After what has seemed like a non-stop barrage of bad news for crypto bulls from South Korea, we noted some cracks in the foundation of the anti-cryptocurrency push as the ministry of finance refused to support the ministry of justice’s exchange shutdown bill. Tonight we get further clarification that the end of South Korean crypto trading is not nigh as Yonhap reports the various government ministries need more time and more consultations over the mininstry of justice’s plan to ban crypto-exchanges. “The issue of shutting down (cryptocurrency) exchanges, told by the justice minister yesterday, is a proposal by the justice ministry and it needs consultations among ministries,” Kim said.

Ministers reportedly seek a “soft-landing” considering the shock the measures may have on the market is an issue that can result in huge social, economic damage. Additionally Yonhap notes that even if pursued, shutdown of exchanges would take some time as it needs discussion at parliament (it would take months or even years for a bill to become a law). All of which can be roughly translated as – we have no idea of the impact of banning this stuff and just how much damage to the nation’s wealth could occur if we do… The result is a broad-based rally across the major cryptocurrencies… Tens of thousands of people filed an online petition, asking the presidential office to stop the clampdown against cryptocurrency trading. South Korea is home to one of the world’s biggest private bitcoin exchanges, with more than 2 million people estimated to own some of the best-known digital currency.

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Stand up comedian minister: “..a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.”

South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)

South Korea’s finance minister on Friday said that relevant officials need to hold more consultations over the justice ministry’s plan to ban cryptocurrency exchanges in the country. “All government ministries agree on the need for a government response to an overheating in cryptocurrency speculation and for a degree of regulation,” Minister Kim Dong-yeon told reporters, according to news agency Yonhap. “The issue of banning exchanges that the justice minister talked about yesterday is a proposal by the Justice Ministry and it needs more coordination among ministries,” Kim added. He also said that discussion was under way on how the government could reasonably regulate cryptocurrency trading that’s overheating with irrational and speculative behavior, Yonhap reported.

Kim said “a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.” Kim’s comments followed news that the country’s justice ministry appeared to have softened its stance after remarks from its chief on Thursday saw billions wiped off the global cryptocurrency market. The justice ministry explained, according to Yonhap, that the ban was not a done deal in a text message to reporters on Thursday. “The ministry has been preparing a special law to shut down all cryptocurrency exchanges, but we will push for it after careful consideration with related government agencies,” the justice ministry said.

[..] “Justice Minister Park Sang-ki’s remarks regarding the shutdown of cryptocurrency exchanges is one of the measures that have been prepared by the Justice Ministry, but it is not a finalized decision and will be finalized through discussion and a coordination process with each government ministry,” the chief press secretary to President Moon Jae-in said in a statement reported by Yonhap. Even if a bill aiming to ban all cryptocurrency trading is drafted, it will require a majority vote in the country’s National Assembly before it can be enacted into law. That process could take months — or even years.

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This must worry Xi. China sets itself up for a strong reaction. And then? Withdraw back into its own cocoon? Not an option for an export-dependent economy. The shift to domestic consumption has so far failed miserably.

China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)

China’s 2017 trade surplus with the U.S. was $275.81 billion, the country’s customs data showed Friday, according to Reuters. By that data, last year’s surplus is a record high, the wire service reported. For comparison, the previous record was a surplus of $260.8 billion in 2015. The world’s second-largest economy had a surplus of $25.55 billion in December, data showed, compared to $27.87 billion in November. Trade with China is politically sensitive as the world’s second-largest economy runs surpluses against many of its trading partners. President Donald Trump has repeatedly signaled tougher action on what he calls unfair practices that have lead to a massive trade deficit with China. Overall, China’s trade balance for 2017 was a surplus of $422.5 billion

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Stocking up on oil and gas instead of Treasuries, just in case Trump launches a trade war.

China Sets New Records for Gobbling Up the World’s Commodities (BBG)

China continues to gobble up the world’s commodities, setting new records for consumption of everything from crude oil to soybeans. In a year of flux marked by industrial capacity cuts, environmental curbs and financial deleveraging, demand for raw materials has continued to grow in the world’s biggest consumer, helping drive a second annual gain in global commodity returns. As President Xi Jinping consolidates power behind an economy that may have posted its first full-year acceleration since 2010, there are few signs of the Chinese commodity juggernaut slowing as it rolls into 2018. “China’s economic expansion has been beating expectations since the second half of last year, boosting demand for all kinds of commodities,” Guo Chaohui at China International Capital, said by phone. “We are expecting continued strength in economic growth in 2018 which will keep up the nation’s import appetite.”

Inbound shipments from across the globe – Russia to Saudi Arabia and Venezuela – jumped about 10% to average 8.43 million barrels a day in 2017, data from China’s General Administration of Customs showed on Friday. The unprecedented purchases may be bettered in 2018, if import quotas granted by the government to China’s independent refiners are a signal. The first batch of allocations was 75% higher than for 2017. The world’s second-biggest economy is also realizing that the key to winning its war on smog may lie overseas. Record amounts of less-polluting grades of iron ore – typically not available within China – are being pulled in to feed the nation’s mammoth steel industry, with imports rising 5% to 1.07 billion metric tons in 2017.

Purchases of less-polluting ore is only one tactic in China’s war against pollution. Another is curbing coal use and encouraging the use of cleaner natural gas instead. Imports of the fuel via both sea and pipeline surged almost 27% to 68.57 million tons in 2017.

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Coherent.

Household Debt Boom Sows The Seeds For A Bust (CBR)

What causes the ebbs and flows of the business cycle? In the first of two videos, Chicago Booth’s Amir Sufi argues that one key factor is the financial sector and its willingness to lend. As credit becomes more and more available, the economy booms—but when household debt becomes unsustainable, it sows the seeds for a bust.

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Financial stress at a record low. There’s no stronger stress indicator.

Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)

“So, what am I worried about?” New York Fed President William Dudley, who is considered a dove, asked rhetorically during a speech on Thursday at the Securities Industry and Financial Markets Association in New York City. “Two macroeconomic concerns warrant mention,” he continued. And they are: One: “The risk of economic overheating.” He went through some of the mixed data points, including “low” inflation, “an economy that is growing at an above-trend pace,” a labor market that is “already quite tight,” and the “extra boost in 2018 and 2019 from the recently enacted tax legislation.” Two: The markets are blowing off the Fed. He didn’t use those words. He used Fed-speak: “Even though the FOMC has raised its target range for the federal funds rate by 125 basis points over the past two years, financial conditions today are easier than when we started to remove monetary policy accommodation.”

When the Fed raises rates, its explicit intention is to tighten “financial conditions,” meaning that borrowing gets a little harder and more costly at all levels, that investors and banks become more risk-averse and circumspect, and that borrowers become more prudent or at least less reckless – in other words, that the credit bonanza cools off and gets back to some sort of normal. To get there, the Fed wants to see declining bond prices and therefor rising yields, cooling equities, rising risk premiums, widening yield spreads, and the like. These together make up the “financial conditions.” There are various methods to measure whether “financial conditions” are getting “easier” or tighter. Among them is the weekly St. Louis Fed Financial Stress Index, whose latest results were published on Thursday.

The Financial Stress Index had dropped to a historic low of -1.6 on November 3, meaning that financial stress in the markets had never been this low in the data series going back to 1994. Things were really loosey-goosey. On Thursday, the index came in at -1.57, barely above the record low, despite another rate hike and the Fed’s “balance-sheet normalization. And this rock-bottom financial stress in the markets is occurring even as short-term interest rates have rocketed higher in response to the Fed’s rate hikes, with the two-year Treasury yield on Thursday closing at 1.96% for the third day in a row, the highest since September 2008.

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Nomi doesn’t really clarify what is radical about events.

We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)

In last year’s roadmap, I forecast that 2017 would end with gold prices up and the dollar index down, both of which happened. I underestimated the number of Fed hikes by one hike, but globally, average short term rates have remained around zero. That will be a core pattern throughout 2018. Central banks may tweak a few rates here and there, announce some tapering due to “economic growth”, or deflect attention to fiscal policy, but the entire financial and capital markets system rests on the strategies, co-dependencies and cheap money policies of central banks. The bond markets will feel the heat of any tightening shift or fears of one, while the stock market will continue to rush ahead on the reality of cheap money supply until debt problems tug at the equity markets and take them down.

Central bankers are well aware of this. They have no exit plan for their decade of collusion. But a weak hope that it’ll all work out. They have no dedicated agenda to remove themselves from their money supplier role, nor any desire to do so. Truth be told, they couldn’t map out an exit route from cheap money even if they wanted to. The total books of global central banks (that hold the spoils of QE) have ballooned by $2 Trillion in assets (read: debt) over 2017. That brings the amount of global central banks holdings to more than $21.7 trillion in assets. And growing. Teasers about tapering have been released into the atmosphere, but numbers don’t lie.

That’s a hefty cushion for international speculation. Every bond a central bank buys or holds, gets a price-lift. Trillions of dollars of such buys have artificially lifted all bond prices, and stocks because of the secondary-lift effect and rapacious search for self-perpetuating returns. Financial bubbles pervade the world. Central bank leaders may wax hawkish –manifested in strong words but tepid actions. Yet, overall, policies will remain consistent with those of the past decade to combat this looming crisis. US nationalistic trade policies will push other nations to embrace agreements with each other that exclude the US and shun the US dollar.

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Jean-Michel Paul, founder and Chief Executive of Acheron Capital in London, says: “..one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash.. “. Well, not in my circles, which talk ONLY about that.

Why We Have to Talk About a Bubble (BBG)

Back in November, former Fed chief Janet Yellen described the current low level of inflation as a “mystery.” Despite a small pickup in prices, Europe has the same mystery to solve: Economic confidence in the euro area is at its highest point for a decade, according to the European Commission’s measure, released this week. But there’s no sign of the inflation that you’d normally expect with that kind of economic upsurge. The ECB minutes from December, released Thursday, show some in the ECB are similarly baffled by what they call a “disconnect” between the real economy and prices. With QE having multiplied the amount of fiat money issued by central banks in just a few years, it’s fair to wonder: How come it didn’t trigger much higher levels of inflation than what we now see?

The technical answer is that the money created has ended up full circle – on the books of the central banks. The more fundamental answer is that QE resulted in a wealth increase for the richest, who consume relatively little of their revenue, while the middle class and the neediest largely failed to reap any benefit. Having not gained from QE, their consumption has not risen, leaving prices pretty much flat. There are many problems with this, from growing inequality to pressures on social cohesion. But one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash, as Jeremy Grantham, co-founder of the investment firm GMO, argued in a note last week. He predicts a “melt-up” – where investors pile into assets as prices rise – followed by a significant decline “of some 50%.”

[..] central bankers are still using inflation as a measure to gauge how much more QE they should proceed with. The ECB has repeatedly justified QE expansion because its goal of 2 percent consumer inflation remains unmet. [..] British journalist Ambrose Evans-Pritchard, commenting on the Grantham thesis recently in the Daily Telegraph, put the challenge now in the starkest possible terms, as a threat not simply to the recovery but to democracy: “The central banks themselves entered into a Faustian Pact from the mid-Nineties onwards, falsely thinking it safe to drive real interest rates ever lower with each cycle, until they became ensnared in what the Bank for International Settlements calls a policy “debt trap”. This has gone on so long, and pushed debt ratios so high, that the system is now inherently fragile. The incentive to let bubbles run their course has become ever greater.”

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Can’t decide if this is hard to believe, or entirely normal by now.

Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)

In May 2015 about 10 investigators for the Quebec tax authority burst into Uber Technologies Inc.’s office in Montreal. The authorities believed Uber had violated tax laws and had a warrant to collect evidence. Managers on-site knew what to do, say people with knowledge of the event. Like managers at Uber’s hundreds of offices abroad, they’d been trained to page a number that alerted specially trained staff at company headquarters in San Francisco. When the call came in, staffers quickly remotely logged off every computer in the Montreal office, making it practically impossible for the authorities to retrieve the company records they’d obtained a warrant to collect. The investigators left without any evidence.

Most tech companies don’t expect police to regularly raid their offices, but Uber isn’t most companies. The ride-hailing startup’s reputation for flouting local labor laws and taxi rules has made it a favorite target for law enforcement agencies around the world. That’s where this remote system, called Ripley, comes in. From spring 2015 until late 2016, Uber routinely used Ripley to thwart police raids in foreign countries, say three people with knowledge of the system. Allusions to its nature can be found in a smattering of court filings, but its details, scope, and origin haven’t been previously reported. The Uber HQ team overseeing Ripley could remotely change passwords and otherwise lock up data on company-owned smartphones, laptops, and desktops as well as shut down the devices.

This routine was initially called the unexpected visitor protocol. Employees aware of its existence eventually took to calling it Ripley, after Sigourney Weaver’s flamethrower-wielding hero in the Alien movies. The nickname was inspired by a Ripley line in Aliens, after the acid-blooded extraterrestrials easily best a squad of ground troops. “Nuke the entire site from orbit. It’s the only way to be sure.” [..] Uber deployed Ripley routinely as recently as late 2016, including during government raids in Amsterdam, Brussels, Hong Kong, and Paris, say the people with knowledge of the matter. The tool was developed in coordination with Uber’s security and legal departments, the people say. The heads of both departments, Joe Sullivan and Salle Yoo, left the company last year.

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Monsanto wants a monopoly on all the world’s food. If you don’t stop them now, it’ll soon be too late.

Monsanto Seeks To Cash In On The Organic Food Market (CP)

At the recent Codex meeting in Berlin, there was an attempt to define genetically engineered (GE) food ingredients as ‘biofortified’ and therefore mislead consumers. This contravened the original Codex mandate for defining biofortification. That definition is based on improving the nutritional quality of food crops through conventional plant breeding (not genetic engineering) with the aim of making the nutrients bioavailable after digestion. The attempt was thwarted thanks to various interventions, not least by the National Health Federation (NHF), a prominent health-freedom international non-governmental organization and the only health-freedom INGO represented at Codex. But the battle is far from over.

The Codex Alimentarius Commission’s Codex Committee on Nutrition and Foods for Special Dietary Uses (CCNFSDU) convened in Berlin during early December and drafts provisions on nutritional aspects for all foods. It also develops international guidelines and standards for foods for special dietary uses that will be used to facilitate standardized world trade. Based upon previous meetings, the initial intention of the Committee was to craft a definition for biofortification that could then be used uniformly around the World. Biofortification originally referred to increasing certain vitamin and mineral content of basic food crops by way of cross-breeding, not genetic engineering, for example by increasing the vitamin or iron content of sweet potatoes so that malnourished populations would receive better nutrition.

However, according to president of the NHF, Scott Tips, Monsanto wants to redefine the definition to include GE ‘biofortified’ foods and it has seemingly influenced Codex delegates in that direction. Tips says, “I am sure that Monsanto would be thrilled to be able to market its synthetic products under a name that began with the word ‘bio’.” [..] Including GE foods within any definition of biofortification risks consumer confusion as to whether they are purchasing organic products or something else entirely. “Monsanto seeks to cash in on the organic market with the loaded word ‘bio’,” argues Scott Tips. At the Codex meeting in Berlin, Tips addressed the 300 delegates in the room. “Although NHF was an early supporter of biofortification, we have since come to see that the concept is in the process of being hijacked and converted from something good into something bad,” explained Tips.

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Luckily the CIA is still dividing the people in the Congo. And making money selling all sides weapons.

Electric Car Dreams Run Into Metal Crunch (BBG)

When BMW revealed it was designing electric versions of its X3 SUV and Mini, the going rate for 21 kilograms of cobalt—the amount of the metal needed to power typical car batteries—was under $600. Only 16 months later, the price tag is approaching $1,700 and climbing by the day. For carmakers vying to fill their fleets with electric vehicles, the spike has been a rude awakening as to how much their success is riding on the scarce silvery-blue mineral found predominantly in one of the world’s most corrupt and underdeveloped countries. “It’s gotten more hectic over the past year,” said Markus Duesmann, BMW’s head of procurement, who’s responsible for securing raw materials used in lithium-ion batteries, such as cobalt, manganese and nickel. “We need to keep a close eye, especially on lithium and cobalt, because of the danger of supply scarcity.”

[..] Complicating the process is the fact that the cobalt trail inevitably leads to the Democratic Republic of the Congo, where corruption is entrenched in everyday business practices. The U.S. last month slapped sanctions on Glencore’s long-time partner in Congo, Israeli billionaire Dan Gertler, saying he used his close ties to Congolese President Joseph Kabila to secure mining deals. There’s also another ethical obstacle to negotiate. The African nation produces more than 60 percent of the world’s cobalt, a fifth of which is drawn out by artisanal miners who work with their hands — some of whom are children. The country is also planning to double its tax on the metal.

“There just isn’t enough cobalt to go around,” said George Heppel, a consultant at CRU. “The auto companies that’ll be the most successful in maintaining long-term stability in terms of raw materials will be the ones that purchase the cobalt and then supply that to their battery manufacturer.” To adjust to the new reality, some carmakers are recruiting geologists to learn more about the minerals that may someday be as important to transport as oil is now. Tesla Inc. just hired an engineer who supervised a nickel-cobalt refinery in New Caledonia for Vale to help with procurement. But after decades of dictating terms with suppliers of traditional engine parts, the industry is proving ill-prepared to confront what billionaire mining investor Robert Friedland dubbed “the revenge of the miner.”

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Never use Greece and Recovery in one sentence together. Because you’d be spouting nonsense.

Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

According to the market, the situation in Greece has staged a tremendous recovery. So much so, in fact, that Greek 2Y bonds are now trading inside US 2Y Treasurys. Yes, according to the market, Greece is now a safer credit than the US. And yet, a quick peek inside the actual Greek economy, reveals that nothing has been fixed. In fact, one can argue that things are now worse than they were when Greece defaulted (for the first time), According to statistics from IAPR, unpaid taxes in Greece currently make up more than 55% of the country’s GDP due to – well – the inability of people to pay the rising taxes. Overdue debt to the state has reached nearly €100 billion with only €15 billion possible to be returned to the government’s coffers, as most are due to bankrupt businesses and deceased individuals.

The Greek tax authorities seized pensions, salaries, and assets of more than 180,000 taxpayers in 2017, meanwhile bad debt to the state treasury continue to grow. The Independent Authority for Public Revenue confiscated nearly €4 billion in the first 10 months of this year with forced measures to be reportedly taken against 1.7 million defaulters in 2018. Bad debt owed to the state in Greece has been growing at €1 billion a month since 2014, and nearly 4.17 million taxpayers currently owe money to the country, which means that every second Greek is directly indebted. Demonstrating the full extent of the economic mess, a recent report from Kathimerini revealed that Greek lenders are proposing huge haircuts, as high as 90%, for borrowers with debts from consumer loans, credit cards or small business loans without collateral.

In the context of the sale of a 2.5-billion-euro bad-loan portfolio named Venus, Alpha Bank is using the incentive of major haircuts in letters it has sent to some 156,000 debtors. The fact that this concerns some 240,000 bad loans means that some debtors may have two or three overdue loans. Another major local lender, Eurobank, is employing the same strategy for a set of loans adding up to 350 million euros. Most of them range between 5,000 and 7,000 euros each and have been overdue for over a decade. Yes, most Greek are unable to repay a few thousands euros and would rather default. This means that the banks are expecting to collect a small amount of those debts, coming to 250 million euros for Alpha and 35 million for Eurobank – whopping 90% haircuts – accepting that the rest of the debt is uncollectible.

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Feb 092017
 
 February 9, 2017  Posted by at 10:14 am Finance Tagged with: , , , , , , , , , , ,  


Russell Lee Migrant family in trailer home near Edinburg, Texas Feb 1939

China Approaches Maxi-Devaluation (DR)
German Exports Break Record as Trump Targets Trade Balance (BBG)
The Blood Bath Continues In The US Major Oil Industry (SRSrocco)
Record $1 Trillion in US Junk Debt to Mature in Next 5 Years (WSJ)
Trump EU Envoy Says Greece Is Now More Likely To Leave The Euro (G.)
Le Pen Aide Briefed French Central Banker on Plan to Print Money (BBG)
Global Banks In London To Relocate $1.9 Trillion Of Assets After Brexit (BBG)
Former Fed Staffer Says Central Bank Is Under the Thumb of Academics (WSJ)
Out of Pocket, Italians Fall Out of Love With The Euro (R.)
Italy’s “Bitter” Bank Rescue Tsar Bemoans Strategy Vacuum (R.)
Activists Plan Emergency Actions Across The Country To Protest DAPL (IC)
UK Government Backtracks On Pledge To Take Syrian Child Refugees (Ind.)
My Country Was Destroyed (Tima Kurdi)

 

 

Very much in line with what I’ve been saying. China’s dollar reserves are plunging but its dollar-denominated debt soars. A devaluation looks inevitable, and it has to be big because having to do a second one is the worst of all worlds.

China Approaches Maxi-Devaluation (DR)

The Institute of International Finance reports that capital outflows swelled to a record $725 billion last year. China’s desperate to keep that capital at home to support the economy. And it’s been burning holes in its dollar reserves to support the yuan. Selling its dollar holdings to buy yuan puts footings under the yuan. Makes it more attractive. Halts the capital flight. But the fire can only burn so long before it torches the remaining reserves… A $2.99 trillion war chest or a $3 trillion war chest sounds like plenty. But as Jim Rickards explained recently, it’s not nearly as much as it sounds: “Of the $3 trillion that China has left, only $1 trillion of that is a liquid. One trillion is invested in hedge funds, private equity funds, gold mines, et cetera. That money is not liquid. It cannot be used to support the currency, so remove a trillion.”

That leaves $2 trillion: “Another trillion has to be held on what’s called a precautionary reserve to bail out their banking system. The Chinese banks are completely insolvent. That system is going to need to be bailed out sooner rather than later.” Scratch another trillion: “That leaves only $1 trillion of the original $4 trillion in liquid form. The problem is that capital flight is continuing at a rate of $1 trillion per year, so China will be devoid of usable liquid assets by late 2017.” So now what? Jim has warned that Trump could soon label China a currency manipulator. That has vast implications, as you’ll see. But it’s not just Mr. Rickards. We learn today that a group of analysts at Deutsche Bank is piping an identical tune:

“Sometime in the next few weeks, President Trump or his Treasury secretary may declare China a currency manipulator and propose penalties including tariffs on some or all imports from China unless it ceases this and other alleged unfair trade policies.” And that would invite Chinese retaliation. Tariffs of their own on American goods. And then… China might reach for the nuclear option — a “maxi-devaluation.” Jim again: “We know what Donald Trump has said. China’s going to be labeled a currency manipulator. That’s like firing the first shot in a major currency war. We could see tariffs imposed in both directions, shots in retaliation, a financial war… China will retaliate with what I call their nuclear option, which is a maxi-devaluation of the Chinese yuan.”

If China’s going to be branded a currency manipulator and have its exports slapped with a steep tariff, why not go ahead and devalue? One, it would make Chinese exports more competitive. Two, China could stop depleting its dollar reserves. It would no longer have to burn through dollars to boost the yuan. And three, it could actually halt the capital outflows. How? Many Chinese fear the government will impose stricter capital controls as the situation worsens. So they move their capital out of the country in advance. That brings greater fear of capital controls. And more incentives for capital flight. It’s a vicious cycle. But if China devalues all at once, say, 25% or 30%, it sends this message: The worst is over. You may as well keep your capital in China. There will be no further devaluation.

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German trade surplus is bigger than the entire Greek economy. That is how the European Union ‘functions’.

German Exports Break Record as Trump Targets Trade Balance (BBG)

Germany posted a record trade surplus in 2016, which may further fuel accusations by the Trump administration that Europe’s largest economy is exploiting a “grossly undervalued” euro. Exports climbed 1.2% last year to 1.2 trillion euros ($1.3 trillion), the Federal Statistics Office in Wiesbaden reported on Thursday, while imports rose 0.6% to 954.6 billion euros. That left Germany’s trade surplus at 253 billion euros in 2016. The report feeds into a debate kicked off late last month by Peter Navarro, the head of the White House National Trade Council, who told the Financial Times that Germany is gaining an unfair advantage over the U.S. and other nations with a weak currency.

ECB President Mario Draghi, Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble all rejected the claim that came on the back of President Donald Trump’s promises of renegotiating or tearing up free-trade treaties. “The fact that the German economy is exporting much more than it imports is a source of concern and no reason to be proud” because weak imports are the result of a lack of investment, Marcel Fratzscher, head of the DIW economic institute in Berlin, said in an e-mailed statement. “The record surplus will continue to fuel conflict with the U.S. and within the EU.” Exports fell 3.3% in December from the previous month, the report said, while imports were unchanged. The country’s current-account surplus reached 266 billion euros in 2016.

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Zombies on life support.

The Blood Bath Continues In The US Major Oil Industry (SRSrocco)

The carnage continues in the U.S. major oil industry as they sink further and further in the RED. The top three U.S. oil companies, whose profits were once the envy of the energy sector, are now forced to borrow money to pay dividends or capital expenditures. The financial situation at ExxonMobil, Chevron and ConocoPhillips has become so dreadful, their total long-term debt surged 25% in just the past year. [..] While the Federal Government could step in and bail out BIG OIL with printed money, they cannot print barrels of oil. Watch closely as the Thermodynamic Oil Collapse will start to pick up speed over the next five years. According to the most recently released financial reports, the top three U.S. oil companies combined net income was the worst ever. The results can be seen in the chart below:

In 2011, ExxonMobil, Chevron and Conocophillips enjoyed a combined $80.4 billion in net income profits. ExxonMobil recorded the highest net income of the group by posting a $41.1 billion gain, followed by Chevron at $26.9 billion, while ConocoPhillips came in third at $12.4 billion. However, the rapidly falling oil price, since the latter part of 2014, totally gutted the profits at these top oil producers. In just five short years, ExxonMobil’s net income declined to $7.8 billion, Chevron reported its first $460 million loss while ConocoPhillips shaved another $3.6 billion off its bottom line in 2016. Thus, the combined net income of these three oil companies in 2016 totaled $3.7 billion versus $80.4 billion in 2011. Even though these three oil companies posted a combined net income profit of $3.7 billion last year, their financial situation is much worse when we dig a little deeper.

We must remember, net income does not include capital expenditures or dividend payouts. If we look at these oil companies Free Cash Flow, they have been losing money for the past two years. Their combined free cash flow fell from a healthy $46.3 billion in 2011 to a negative $8.7 billion in 2015 and a negative $7.3 billion in 2016. Now, their free cash flow would have been much worse in 2016 if theses companies didn’t reduce their CAPEX spending by nearly a whopping $20 billion.

[..] the free cash flow minus dividend payouts provides us evidence that these oil companies have been seriously in the RED since 2013, not just the past two years displayed in the Free Cash Flow chart. As we can see, the group’s free cash flow minus dividends was a negative $32.8 billion in 2015 and a negative $29 billion last year. Of course, these three companies may have sold some financial investments or assets to reduce these negative values, but a company can’t stay in business for long by selling assets that it would need to use to produce oil in the future. So, what has falling free cash flow and dividends done to ExxonMobil, Chevron and ConocoPhillips long-term debt? You guessed it… it skyrocketed:

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Does this sound like a good thing? : “..the environment remains highly favorable for junk-rated businesses..”

Record $1 Trillion in US Junk Debt to Mature in Next 5 Years (WSJ)

More than $1 trillion of junk-rated corporate debt is slated to mature over the next five years, creating a stiff challenge for heavily-indebted businesses if the market for riskier debt were to deteriorate, according to a new report from Moody’s Investors Service. The $1.063 trillion in maturing debt is the highest ever recorded by the ratings firm over a five-year period and also includes the highest single-year volume in 2021, when $402 billion of junk-rated corporate debt is scheduled to come due. Overall, a little more than $2 trillion of corporate debt is scheduled to mature by 2021 when factoring in $944 billion of investment-grade bonds. But it is the volume of junk-rated debt that could be of greater significance, given that investment-grade companies rarely have trouble extending debt maturities even in more difficult conditions.

As it stands, the environment remains highly favorable for junk-rated businesses, making it easy for most to access funds at their choosing. The average junk-bond yield was 5.72% Tuesday, the lowest level since September 2014. Buoyed by rising interest rates, junk-rated bank loans, which feature floating-rate coupons, have performed especially well of late, enabling U.S. companies to refinance $100 billion of loans in January, the largest monthly total in at least a decade, according to data from S&P Global Still, conditions can change quickly in the leveraged finance markets. A year ago, amid concerns that the U.S. was heading toward another recession, the average junk bond yield was nearly 10%, raising the risk that many borrowers would be unable to refinance bonds with looming maturities, hastening their descent into bankruptcy.

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“..you might have to ask the question if what comes next could possibly be worse than what’s happening now.”

Trump EU Envoy Says Greece Is Now More Likely To Leave The Euro (G.)

Donald Trump’s administration has put itself on a fresh collision course with the European Union after the president’s candidate to be ambassador in Brussels said Greece should leave the euro and predicted the single currency would not survive more than 18 months in its present form. Days after being accused of “outrageous malevolence” towards the EU for publicly declaring that it “needs a little taming”, Ted Malloch courted fresh controversy by saying Greece should have left the eurozone four years ago when it would have been “easier and simpler”. Malloch made his comments as financial markets began to take fright at the possibility of a fresh Greek debt crisis later this year. Shares fell and interest rates on Greek debt rose after it emerged that the EU was at loggerheads with the IMF over whether to give the country more generous debt relief.

“Whether the eurozone survives I think is very much a question that is on the agenda,” he told Greek Skai TV’s late-night chat show Istories. “We have had the exit of the UK, there are elections in other European countries, so I think it is something that will be determined over the course of the next year, year and a half. “Why is Greece again on the brink? It seems like a deja vu. Will it ever end? I think this time I would have to say that the odds are higher that Greece itself will break out of the euro,” Malloch said. The stridently Brexit-supporting businessman, who has yet to be confirmed as the US president’s EU ambassador and is seen by Brussels as a provocative nominee for the post, said he wholeheartedly agreed with Trump’s tweet from 2012 saying Greece should return to the drachma, its former currency.

“I personally think [Trump] was right. I would also say that this probably should have been instigated four years ago, and probably it would have been easier or simpler to do,” Malloch said in the interview with the show’s chief anchor, Alexis Papahelas. Seven years of arduous austerity – the price of the international bailout – had been so bad for the country that it was questionable whether what came next could possibly be worse, Malloch said. In the third bailout in as many years, Greece has lost more than 25% of its GDP due to austerity-fuelled recession, the biggest slump of any advanced western economy in modern times. Without further emergency funding from its €86bn rescue programme, Athens could face a default in July when debt repayments of about €7bn to the European Central Bank mature.

[..] The renewed focus came as the IMF revealed its board was split over how far spending cuts in the country should go, raising fresh doubts over the IMF’s participation in rescue plans for the struggling Greek economy. The IMF believes that the budgetary demands being imposed on Greece by Europe are unreasonable and that the country’s debts will hit 275% of national income by 2060 without fresh assistance. Malloch said: “I have travelled to Greece, met lots of Greek people, I have academic friends in Greece and they say that these austerity plans are really deeply hurting the Greek people, and that the situation is simply unsustainable. So you might have to ask the question if what comes next could possibly be worse than what’s happening now.” The biggest unknown was not a euro exit, but the chaos it would likely engender as Greece moved to a new currency, he said.

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French revolution. Ironic that the central bank governor makes Le Pen’s point while trying to ‘push back’: “The Bank of France belongs to all French and is at the service of a French asset – our currency.” That’s exactly Le Pen’s point, it’s just that she doesn’t see the euro as ‘our currency’. For her, that means the franc.

Le Pen Aide Briefed French Central Banker on Plan to Print Money (BBG)

Presidential candidate Marine Le Pen’s chief economic adviser Bernard Monot met with Bank of France Governor Francois Villeroy de Galhau in September and set out her party’s plans to take control of the central bank and use it to finance government spending. The meeting took place on the sidelines of Villeroy de Galhau’s public hearing in Brussels at the economic and monetary committee of the European Parliament, Monot, who also sits on the panel, said in a Feb. 4 interview. The central bank has become one of Le Pen’s key targets as she fleshes out her plans for taking control of the French economy and leaving the euro. She intends to revoke the Bank of France’s independence and use it to finance French welfare payments and service the government’s debts after abandoning the European monetary union.

While the National Front leader is ahead in polling for the first ballot on April 23, she’s still an outsider to become the next president because of the two-round system which requires broad-based support to win the run-off two weeks later. Villeroy de Galhau, who also sits on the governing council of the ECB, pushed back against her proposals in an interview on BFM television Thursday, though he didn’t mention her specifically. “It’s important that we have institutions and a currency that straddle daily turbulence,” the governor said. “The Bank of France belongs to all French and is at the service of a French asset – our currency.” The spread between French 10-year bonds and similarly dated German debt was the widest in more than four years earlier this week, as political uncertainty deterred investors. Villeroy de Galhau described the move as “temporary tension.”

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The British economy will be healthier when its dependence on banking goes down. Not richer, but healthier. For instance, home prices can finally fall, a much needed development. There’s nothing good about a one-trick pony.

Global Banks In London To Relocate $1.9 Trillion Of Assets After Brexit (BBG)

Global banks in London may have to relocate 1.8 trillion euros ($1.9 trillion) of assets to the continent after Britain withdraws from the European Union, putting as many as 30,000 U.K. jobs at risk, according to Brussels-based research group Bruegel. The assets potentially on the move represent 17% of the U.K. banking system, Bruegel said in a report published Wednesday. Based on discussions with market participants, the researchers estimate that 35% of wholesale banking activity in London can be attributed to dealings with customers inside the EU. Financial firms will have to move that business to countries inside the trading bloc after the U.K. leaves the EU in 2019, likely spelling the end of passporting, where firms seamlessly service the rest of the single market from their London hubs.

Banks, and their clients, are most concerned about a “cliff edge” Brexit, whereby all access is cut off after two years. To safeguard against that loss of access, banks are already in discussions with European regulators about setting up new bases inside the EU and have said they will start the process of moving people within weeks of the government triggering Brexit talks, expected in March. “At a minimum, it is expected that the new EU27-based entities will need to have autonomous boards, full senior management teams, senior account managers and traders, even though much of the back-office might stay in London or elsewhere in the world,” researchers led by Andre Sapir said in the report.

London-based firms will likely have to move about 10,000 employees into these new EU entities, Breugel estimates. An additional 18,000 to 20,000 people in associated professions, such as lawyers, consultants and accountants, may also have to relocate. Bruegel’s estimates are at the conservative end of the spectrum. TheCityUK industry lobby group forecasts as many as 35,000 banking jobs could be relocated, rising to 70,000 when including associated financial services. London Stock Exchange CEO Xavier Rolet has said Brexit would likely see 232,000 jobs leaving the U.K.

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Both Danielle DiMartino Booth and Ann Pettifor have new books coming out. We need girl power, badly.

Former Fed Staffer Says Central Bank Is Under the Thumb of Academics (WSJ)

The Federal Reserve is dominated by academics who don’t know how finance and the economy really work, according to a former Federal Reserve Bank of Dallas staffer in her new book. Danielle DiMartino Booth, an adviser to Richard Fisher when he was Dallas Fed president, says the economists who control most of the central bank’s seats of power filter their decision-making through theoretical models. That led the institution to miss the forces that created the financial crisis, and then adopt the wrong policies to put the economy back on track, she says. Ms. Booth makes her case in a book called “Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America,” set to be published Tuesday. Her book comes as other Fed critics are pushing for more diversity at the central bank.

They often focus on the dearth of women and minorities among the top officials, but some have said a broader range of educational and professional backgrounds also would widen the central bank’s perspective. Of the 17 Fed governors and regional bank presidents, 16 are white, 13 are men, and 10 have a Ph.D. in economics. Ms. Booth’s arguments echo those of her former boss, who led the Dallas Fed from 2005 to 2015, and frequently voted against the central bank’s aggressive stimulus efforts during and after the financial crisis. “If you rely entirely on theory, you are not going to conduct the right policy, because policies have consequences” that in many cases people with real-world experience are particularly well-suited to spot, Mr. Fisher said in an interview late last year.

Mr. Fisher hired Ms. Booth, a former Wall Street trader turned financial journalist, to work at the Dallas Fed in 2006 on the strength of columns she had written warning about the state of the housing market and financial markets. She eventually rose to be his appointed eyes and ears on financial markets. In her book, Ms. Booth describes a tribe of slow-moving Fed economists who dismiss those without high-level academic credentials. She counts Fed Chairwoman Janet Yellen and former Fed leader Ben Bernanke among them. The Fed’s “modus operandi” is defined by “hubris and myopia,” Ms. Booth writes in an advance copy of the book. “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.’”

“Global systemic risk has been exponentially amplified by the Fed’s actions,” Ms. Booth writes, referring to the central bank’s policies holding interest rates very low since late 2008. “Who will pay when this credit bubble bursts? The poor and middle class, not the elites.” Fed officials have defended their crisis-era stimulus policies, saying they lowered unemployment and helped the housing market recover. Opponents feared near-zero interest rates would cause excessive inflation and dangerous market bubbles, neither of which has happened. Ms. Booth also is among the Fed critics who see a worrisome revolving door between the central bank and the financial firms it regulates. She points to New York Fed President William Dudley, a former Goldman Sachs chief economist, as an illustration of a “codependent” relationship between the central bank and markets. He and three other regional Fed bank presidents have worked for or had associations with Goldman Sachs. With this in mind, she writes, “Goldman has positioned players on the Fed’s chessboard.”

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“Italy was the second most pro-euro nation after Luxembourg, with 79% expressing a positive opinion.” But now: “only 41% said the euro was “a good thing”..”

Out of Pocket, Italians Fall Out of Love With The Euro (R.)

When the Italian central bank’s deputy governor joined a radio phone-in show last week, many callers asked why Italy didn’t ditch the euro and return to its old lira currency. A few years ago such a scenario, that Salvatore Rossi said would lead to “catastrophe and disaster”, would not have been up for public discussion. Now, with the possibility of an election by June, politicians of all stripes are tapping into growing hostility towards the euro. Many Italians hold the single currency responsible for economic decline since its launch in 1999. “We lived much better before the euro,” says Luca Fioravanti, a 32-year-old real estate surveyor from Rome. “Prices have gone up but our salaries have stayed the same, we need to get out and go back to our own sovereign currency.”

The central bank is concerned about the rise in anti-euro sentiment, and a Bank of Italy source told Reuters Rossi’s appearance is part of a plan to reach out to ordinary Italians. Few Italians want to leave the European Union, as Britain chose to do in its referendum last year. Italy was a founding EU member in 1957 and Italians think it has helped maintain peace and stability in Europe. And the ruling Democratic Party (PD) is pro-euro and wants more European integration though it complains that the fiscal rules governing the euro are too rigid. But the three other largest parties are hostile, in various degrees, to Italy’s membership of the single currency in its current form. The PD is due to govern until early 2018, unless elections are called sooner. The PD’s prospects of victory have waned since its leader Matteo Renzi resigned as premier in December after losing a referendum on constitutional reform, and polls suggest that under the current electoral system no party or coalition is likely to win a majority.

Italians used to be among the euro’s biggest supporters but a Eurobarometer survey published in December by the European Commission showed only 41% said the euro was “a good thing”, while 47% called it “a bad thing.” In the Eurobarometer published in April 2002, a few months after the introduction of euro notes and coins, Italy was the second most pro-euro nation after Luxembourg, with 79% expressing a positive opinion. Italy is the only country in the euro zone where per capita output has actually fallen since it joined the euro, according to Eurostat data. Its economy is still 7% smaller than it was before the 2008 financial crisis, and youth unemployment stands at 40%.

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They literally don’t know what they’re doing: “badly devised and even more badly executed”

Italy’s “Bitter” Bank Rescue Tsar Bemoans Strategy Vacuum (R.)

The head of Italy’s bank-bailout fund said on Tuesday the country lacked a clear strategy for shifting 356 billion euros ($381 billion) in problem loans. In an extraordinary outburst from a man picked by Rome to help tackle the problem, Alessandro Penati, whose boutique asset management firm was chosen to raise private funds for struggling banks, said he felt “bitter and disillusioned”. His comments exposed tensions within the banking sector over Italy’s rescue efforts. “There is no clear vision of the problem and no strategy,” Penati said at a financial conference in Milan, suggesting that he was virtually working alone on rescues that had revealed “horror stories” within some banks. “There is simply a reaction to a problem and this has been the main difficulty for me over these past few months – I had nobody to relate to.”

The Atlante fund, created 10 months ago following pressure from the government, gathered 4.25 billion euros from around 70 mostly private investors, including Italy’s healthier lenders, to buy up bad loans and invest in weaker banks. But the fund’s investors are already making big writedowns on the value of their stakes in Atlante, which promised them annual returns of 6%. The fund faces ever greater demands for capital and no investors willing to stump up more money. In December, Penati’s plan to buy into Italy’s biggest-ever sale of bad debts – 28 billion euros worth of loans written by struggling bank Monte dei Paschi di Siena (BMPS.MI) — fell apart when the bank failed to find any other major investors.

Penati, a former economist who set up Milan-based Quaestio Capital Management, said the sale had collapsed because it had been tied to a capital raising that had been “badly devised and even more badly executed”. Monte dei Paschi (MPS) is now to be rescued by the state. “It would no longer make sense for Atlante to play a role now. The point is that state intervention is considered a way to solve all problems, but it isn’t … MPS’s bad loan problem remains and how they are going to solve it – I don’t know.”

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Drilling has reportedly restarted. How bad can this get?

Activists Plan Emergency Actions Across The Country To Protest DAPL (IC)

On Tuesday the Army Corps of Engineers gave notice to Congress that within 24 hours it would grant an easement allowing Energy Transfer Partners to move forward with construction on the Dakota Access Pipeline, which North Dakota’s Standing Rock Sioux tribe and thousands of allies have attempted to halt out of concern for water contamination, dangers to the climate, and damage to sites of religious significance to the tribe. The federal government dismissed those concerns in its filing. “I have determined that there is no cause for completing any additional environmental analysis,” Douglas Lamont, the acting assistant secretary of the Army, wrote in a memorandum. “The COE has full responsibility to take the reasonable steps necessary to execute the requested easement.”

Two weeks earlier, after only four days in office, Trump signed two memoranda instructing federal officials to ram forward approvals for the Dakota Access and Keystone XL pipelines, both of which had been halted by the Obama administration after people mobilized across the U.S. to stop them. On Dakota Access, the Army Corps did just what the president demanded, waiving the standard 14-day waiting period before such a permit becomes official. The tribe has been left with just one day to rally a legal response. Lawyers for the tribe say they will argue in court that an environmental impact statement, mandated by the Army Corps under Obama, was wrongfully terminated. They will likely request a restraining order while the legal battle ensues. Pipeline company lawyers have said that it would take at minimum 83 days for oil to flow from the date that an easement is granted.

Although the tribal government once supported the string of anti-pipeline camps that began popping up last spring, leaders have since insisted that pipeline opponents go home and stay away from the reservation. “Please respect our people and do not come to Standing Rock and instead exercise your First Amendment rights and take this fight to your respective state capitols, to your members of Congress, and to Washington, D.C.,” tribal chairman Dave Archambault said in a statement. Still, the easement announcement is already activating pipeline opponents to return. A “couple thousand people” are headed back to the camps, including contingents of veterans, said former congressional candidate Chase Iron Eyes, a member of the tribe, in a video posted to Facebook.

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Boy, what a moral void.

UK Government Backtracks On Pledge To Take Syrian Child Refugees (Ind.)

Hours before the final vote on the triggering of Article 50 the government quietly announced it would allow just 350 unaccompanied Syrian children to come to the UK, thousands short of the figure suggested by government sources last year. The statement from Immigration Minister Robert Goodwill said local authorities indicated “have capacity for around 400 unaccompanied asylum-seeking children until the end of this financial year” and said the country should be “proud” of its contribution to finding homes for refugees. Liberal Democrat leader Tim Farron called the decision “a betrayal of British values”. “Last May, MPs from all parties condemned the Government’s inaction on child refugees in Europe, and voted overwhelmingly to offer help to the thousands of unaccompanied kids who were stranded without their families backed by huge public support,” Mr Farron said.

“Instead, the Government has done the bare minimum, helping only a tiny number of youngsters and appearing to end the programme while thousands still suffer. At the end of December last year the Government had failed to bring a single child refugee to the UK under the Dubs scheme from Greece or Italy where many of these children are trapped.” Ministers introduced the programme last year after coming under intense pressure to give sanctuary to lone children stranded on the continent. Calls for the measure were spearheaded by Lord Dubs, whose amendment to the Immigration Act requires the Government to “make arrangements to relocate to the UK and support a specified number of unaccompanied refugee children from other countries in Europe”.

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“This is not about supporting Bashar. This is about ending the war in Syria. We can’t continue like this, supporting regime change.”

My Country Was Destroyed (Tima Kurdi)

I am the aunt of Alan Kurdi, the Syrian boy who tragically drowned September 2, 2015. The devastating image of my 2-year old nephew’s lifeless body, lying face-down on the beach in Turkey, was all over the news across the world. Two weeks ago, I got home from work and my husband showed me a video of Tulsi Gabbard talking about her visit to my home country of Syria. The things she was saying about the United States policy of regime change and how the West and the Gulf countries are funding the rebel groups who wind up with the terrorists are true. I was shocked because it’s something no other U.S. politician has the courage to say. Regime change policy has destroyed my country and forced my people to flee. Tulsi’s message was exactly what I have been trying to say for years, but no one wants to listen.

I live in Canada now, but I was born and raised in Damascus, Syria. Growing up, our country was peaceful, beautiful and safe. Our neighbors were Christian, Muslim, Sunni, Shia; all kinds of religion and color. We all lived together and respected each other. Syria is a secular country. In 2011, the war started in Syria. Most of my family was still in Damascus. I was always in close contact with them and talked to them on the phone on a daily basis. For a year, I heard many tragic stories of people, friends, and neighbors who I grew up with having died in this war. Ultimately, my family had to flee to Turkey. I did what everyone would do for their own family to help, I sent them money and I listened to their struggles to survive as refugees in Turkey.

In 2014, I went to Turkey to visit my family and tried to help them. What I saw and experienced is not what we all saw in the news or we heard in the radio. It was worse than I could ever have imagined. I saw people in the streets without homes, without hope. Children were hungry, begging for a piece of bread. I heard many heartbreaking stories from other refugees who were suffering so much and many who had lost loved ones in the war. After I returned to Canada, I decided I wanted to bring my family here as refugees, but I couldn’t get them approved to come in. Eventually, my brother Abdullah and his wife Rehana, like thousands of Syrians, decided they had to take the risk and trust a smuggler they thought would bring them to freedom, safety, and hope. In September 2, 2015, I heard the tragic news that my sister-in-law Rehana and her two sons drowned crossing from Turkey to Greece.

The image of my two year old nephew Alan Kurdi lying face down on a Turkish beach was all over the media across the world. It was the wake up call to the world. Enough suffering. Enough killing. And most importantly, it was my wake up call. [..] Like me, many Syrians are encouraged that Tulsi met with President Bashar Assad in Syria. Tulsi recognizes that we need to talk to him because a political solution is the only way to restore peace in Syria. If the West keeps funding the rebels, we will see more people flee, more bloodshed, and more suffering. My people have suffered for at least six years. This is not about supporting Bashar. This is about ending the war in Syria. We can’t continue like this, supporting regime change. We have seen it before in Iraq, in Libya, and look what happened to them.

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Jan 132016
 
 January 13, 2016  Posted by at 9:01 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle January 13 2016


Jimmy King Bowie last photo on last birthday Jan 8 2016

Beware The Great 2016 Financial Crisis, Warns Albert Edwards (Guardian)
Chinese Exports Post First Annual Decline Since 2009 (WSJ)
China’s Hefty Trade Surplus Is Dwarfed by Outflows (WSJ)
China Predicts Painful Year In 2016 As Trade Slumps (Guardian)
Behind Chinese Yuan’s Tiny Drop, Indications of True Crisis Lurk (BBG)
Chinese Shipyards Vanish With Appetite for Consuming Iron Ore (BBG)
China’s Banks Could Be The Next Big Problem (MarketWatch)
Yuan Jolt May Prompt Looser Policies in Australia, Singapore (BBG)
In Rush to Exit Yuan, China Traders Buy Sinking Hong Kong Stocks (BBG)
OPEC Considering Emergency Meeting On Oil Prices (CNN)
Saudi Arabia Says It Remains Committed to Dollar Peg (WSJ)
Saudi Debt Risk on Par With Junk-Rated Portugal as Oil Slides (BBG)
What Market Turbulence Is Telling Us (Martin Wolf)
UK Industrial Output Plunges Most in Almost Three Years (BBG)
California Air Resources Board Rejects VW Engine Fix (BBG)
First Lady’s Box Should Be Empty At State Of The Union Speech (USA Today)
Population Growth In Africa: Grasping The Scale Of The Challenge (Guardian)
3.7 Million Brazilians Return To Poverty Due To Economic Crisis (Xinhua)
Smugglers Change Tactics As Refugee Flow To Greece Holds Steady (DW)

“Deflation is upon us and the central banks can’t see it.”

Beware The Great 2016 Financial Crisis, Warns Albert Edwards (Guardian)

The City of London’s most vocal “bear” has warned that the world is heading for a financial crisis as severe as the crash of 2008-09 that could prompt the collapse of the eurozone. Albert Edwards, strategist at the bank Société Générale, said the west was about to be hit by a wave of deflation from emerging market economies and that central banks were unaware of the disaster about to hit them. His comments came as analysts at RBS urged investors to “sell everything” ahead of an imminent stock market crash. “Developments in the global economy will push the US back into recession,” Edwards told an investment conference in London. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed.”

Fears of a second serious financial crisis within a decade have been heightened by the turbulence in markets since the start of the year. Share prices have fallen rapidly and a slump in the cost of oil has left Brent crude trading at barely above $30 a barrel. “Can it get any worse? Of course it can,” said Edwards, the most prominent of the stock market bears – the terms for analysts who think shares are overvalued and will fall in price. “Emerging market currencies are still in freefall. The US corporate sector is being crushed by the appreciation of the dollar.” The Soc Gen strategist said the US economy was in far worse shape than the Federal Reserve realised. “We have seen massive credit expansion in the US. This is not for real economic activity; it is borrowing to finance share buybacks.”

Edwards attacked what he said was the “incredible conceit” of central bankers, who had failed to learn the lessons of the housing bubble that led to the financial crisis and slump of 2008-09. “They didn’t understand the system then and they don’t understand how they are screwing up again. Deflation is upon us and the central banks can’t see it.” Edwards said the dollar had risen by as much as the Japanese yen had in the 1990s, an upwards move that pushed Japan into deflation and caused solvency problems for the Asian country’s banks. He added that a sign of the crisis to come was the collapse in demand for credit in China. “That happens when people lose confidence that policymakers know what they are doing. This is what is going to happen in Europe and the US.”

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Some confusion stems from counting trade in yuan vs dollars. But remember these are all still official Chinese numbers.

Chinese Exports Post First Annual Decline Since 2009 (WSJ)

Chinese exports declined for the year, marking their worst performance since 2009, as weak demand continued to weigh on the world’s second-largest economy. Exports, however, fell less than expected in December thanks to a favorable comparison with year-earlier figures. The improved monthly results don’t signal a major recovery this year despite a weaker yuan, economists said. “In the next few months, the comparative price effect will fade out and export growth will recover,” ING Group economist Tim Condon said. “But it’s not going to be as strong as in 2013 or 2014.” According to the General Administration of Customs, China’s exports fell 1.4% in December in dollar terms from a year earlier, after a drop of 6.8% in November.

This was a more modest decline than the 8.0% fall forecast by 15 economists surveyed by The WSJ In yuan terms, exports rose last month. Imports last month fell 7.6% from a year earlier, compared with an 8.7% decline in November. The country’s trade surplus widened to $60.1 billion in December from $54.1 billion in November. Last year’s weak Chinese exports and even weaker imports led to a record $594.5 billion annual trade surplus, compared with $382.5 billion in 2014, the agency said, as full-year exports fell 2.8% and imports fell 14.1%. Despite the decline in exports last year, the Asian giant managed to increase its share of global trade. “China’s declining exports in 2015 were mainly due to sluggish external demand on the back of slowing global economic recovery since the financial crisis,” Customs spokesman Huang Songping told reporters Wednesday.

“But China’s export performance is better than other major economies in the world.” Few economists see a huge export turnaround ahead, however, with exports no longer as important for China as they used to be. December’s improved outbound data may reflect a one-time boost as companies rushed to meet year-end orders. While business sentiment in Germany picked up recently, confidence surveys in the U.S. have weakened. And on the import side, domestic demand and global commodity prices remain weak. “Demand may not be a big driver,” said Standard Chartered Bank economist Ding Shuang.

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“..there was roughly $750 billion of capital outflow in 2015. No wonder the currency is under pressure.”

China’s Hefty Trade Surplus Is Dwarfed by Outflows (WSJ)

China’s fat trade surplus should be a source of comfort. But juxtaposed against falling reserves, it actually sends an alarming message about the degree of capital flight. The surplus swelled by 55% in 2015, to $595 billion, figures released Wednesday showed. This news isn’t as good as looks. For one, it doesn’t reflect a boom in exports, which for the full year actually fell by 2.8%. The surplus widened because imports fell even more, by 14.1%. Moreover, it raises a question: How did China manage to post a decline of $513 billion in foreign-exchange reserves last year? Since a trade surplus brings foreign currency into the country, and most exporters turn that currency over to the central bank, it should boost reserves by a corresponding amount. That reserves fell suggests fund outflows large enough to overwhelm even that trade surplus.

To get a full picture, more variables must be accounted for. Full-year data isn’t yet available for China’s foreign direct investment, overseas direct investment and services trade deficit. But based on numbers currently available, and adding the trade surplus, a rough estimate of total net inflows from trade and direct investment in 2015 comes to about $379 billion. This must be compared with the fall in reserves. In fairness, this decline was exaggerated by the stronger dollar, which makes China’s holdings in other currencies less valuable when they are reported in dollar terms. Taking these valuation effects into account, and based on estimates of the composition of its mostly secret portfolio, China may have sold a net $375 billion of reserves in 2015. Putting these two figures together, it appears that there was roughly $750 billion of capital outflow in 2015. No wonder the currency is under pressure.

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“It’s just a shame they had to go to such lengths to achieve this. The question is what asset class will be the next target for the speculators?”

China Predicts Painful Year In 2016 As Trade Slumps (Guardian)

Weak demand for Chinese goods will continue to hurt the country’s economy in 2016, according to officials, despite better than expected trade figures that helped shore up stock markets in Asia Pacific. China’s trade volume fell 7% in 2015 compared with the previous year, Chinese customs said on Wednesday, as slowing growth in the world’s second-largest economy and plunging commodity prices took their toll. Although imports slumped 13.2% and exports were down 1.8%, the numbers surprised the markets where economists had been forecasting a much weaker reading. Helped by further action from Beijing to stabilise the yuan and dampen fears of a devaluation, equity markets in the region initially bounced back after days of volatile trading.

The Shanghai Composite index was up slightly at 4am GMT while the Australian ASX/S&P200 index looked set to snap eight straight days of losses by surging more than 1%. In Japan, the Nikkei was up 2.4% and Hong Kong’s Hang Seng was also up more than 2%. However, customs spokesman Huang Songping warned at a news conference that China’s trade faced “many challenges” in 2016 due to weak external demand. One of the main reasons for China’s lower exports in 2015 was weak external demand, he added. The 5% fall in the value of the yuan since last August had helped support exports but the impact would begin to fade, he said. Earlier, the People’s Bank of China held the line on the yuan for a fourth straight session on Wednesday while putting the squeeze on offshore sellers of the currency.

The central bank has also used aggressive intervention to engineer a huge leap in yuan borrowing rates in Hong Kong, essentially making it prohibitively expensive to short the currency. The result has been to drag the offshore level of the yuan back toward the official level, closing a gap that had threatened to get out of control just a few days earlier. Confusion about China’s policy had stoked concerns Beijing might be losing its grip on economic policy, just as the country looks set to post its slowest growth in 25 years. Chris Weston at IG Markets in Melbourne welcomed a more stable day of trading but cautioned that Beijing may have delayed another outbreak of volatility by driving up funding costs in Hong Kong and making it impossible to short the yuan.

“What counts is the fact Chinese authorities have achieved their goal of converging the onshore and offshore yuan, with stability in the ‘fix’ and they have even seen a positive session in the equity markets,” he said. “It’s just a shame they had to go to such lengths to achieve this. The question is what asset class will be the next target for the speculators?”

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Objects in mirror are bigger than they appear.

Behind Chinese Yuan’s Tiny Drop, Indications of True Crisis Lurk (BBG)

The Chinese yuan’s 6% decline over the past five months is hardly anyone’s idea of a crisis. On average it comes out to a drop of less than 0.04% a day. But behind the scenes, Chinese policy makers are unleashing a torrent of measures to stabilize the currency and prevent it from tumbling. Added up, these efforts rival some of the biggest currency defenses seen in emerging markets over the past two decades. Here’s a quick look at the central bank’s most aggressive steps. Hong Kong has become a key focal part for policy makers. Over the last two days, they bought enough yuan there to push overnight borrowing costs for the currency to a record 67% on Tuesday from just 4% at the end of last week. These rates, designed to discourage speculators, are even higher than those at the peak of Russia’s defense of the ruble in 2014 and Brazil’s intervention in 1999.

In propping up the exchange rate, the People’s Bank of China also burnt through more than half a trillion of dollars in foreign reserves in the past 12 months, cutting them to $3.3 trillion. The draw-down was almost equivalent to the entire stockpile of Switzerland, the world’s fourth largest holder. Regulators also went to great lengths to tighten capital controls, cracking down on illegal money transfers and restricting lenders from conducting some cross-border transactions. Among its emerging-market peers, the yuan remains one of the top-performing currencies over the past year against the dollar, yet Chinese policy makers are acting with an increasing sense of urgency. At stake is the financial stability of the world’s No. 2 economy – disorderly depreciation could fuel more capital outflows, which already approached $1 trillion in the 12 months through November. “They are really trying to stop the panic,” said Lucy Qiu at UBS Wealth Management said.

By intervening in the Hong Kong market, the PBOC is forcing the offshore rate to converge toward the stronger onshore rate in an effort to anchor expectations among overseas investors. Officials also stressed that the aim is to keep the yuan basically stable against a basket of currencies, rather than pegging it against the rising dollar. Deterring speculators and attracting investors with off-the-chart rates can help contain a currency crisis, but it can also send an economy into a tailspin by cutting companies and consumers off from credit. That is unlikely to be the case in China. The yuan loan increase in Hong Kong would have less impact on the mainland’s economy, where the benchmark seven-day interbank rate remains stable at about 2.4%.

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Job losses will be a major China issue in 2016. Beijing will try and force companies to hire large groups of people, but that’s sure to backfire.

Chinese Shipyards Vanish With Appetite for Consuming Iron Ore (BBG)

The weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered. About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan analysts Sokje Lee and Minsung Lee wrote in a Jan. 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013. Total orders at Chinese shipyards tumbled 59% in the first 11 months of 2015, according to data released Dec. 15 by the China Association of the National Shipbuilding Industry.

Builders have sought government support as excess vessel capacity drives down shipping rates and prompts customers to cancel contracts. Zhoushan Wuzhou Ship Repairing & Building last month became the first state-owned shipbuilder to go bankrupt in a decade. “The chance of orders being canceled at Chinese yards is becoming greater and greater,” said Park Moo Hyun at Hana Daetoo Securities in Seoul. “While a weaker yuan could mean cheaper ship prices for customers, it still won’t be enough to lure back any buyers. Chinese shipbuilders won’t be able to revive even if you try breathing some life into them.” The Baltic Dry Index, which measures the cost of transporting raw materials, dropped 39% last year and hit a historical low Dec. 16.

Aggravating the situation is Chinese shipyards’ heavy reliance on bulk carriers, which are used to haul commodities from iron ore to coal and grain. Bulk ships accounted for 41.6% of Chinese shipyards’ $26.6 billion orderbook as of Dec. 1, according to Clarkson, the world’s largest shipbroker. That compares with a 3.5% share at South Korean shipyards, which have more exposure to the tankers and gas carriers that are among the few bright spots in a beleaguered shipping industry.

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How is Xi going to save his banks? Hard to see.

China’s Banks Could Be The Next Big Problem (MarketWatch)

While China’s equity turbulence appears to have temporarily paused, its main equity indices are now 15% lower since the start of the year, despite Beijing remaining committed to its policy of market intervention. In some ways the government’s hands are tied from last year’s stock buying as it now has a substantial position to protect. Added to this, the original reason the party could not let its bull market die remains due to the potential political fallout from losses after it effectively orchestrated the bubble. But in attempting to solve one problem, are policy makers just sowing the seeds of another? Attention is now turning to the collateral damage from official intervention to support stocks, in particular to the banks. Analysts are questioning the cost to China’s state-owned yet overseas-listed banks, which have once again been called up for national service.

The concern is that by acting as a buyer of last resort to prop up the stock market, this sets up China’s banks to be the next fault line in the economy. In a new report, rating agency Fitch warns of a clear conflict between banks struggling to manage state strategic roles and their profit goals. How much intervention has come this year is still unknown, but last July after the initial stock market rout 17 banks, including the big five, were reported to have lent $200 billion. There is also a pattern here. Last summer state-owned banks had to play another strategic role as they were strong-armed by the central government into a 3.2 trillion yuan debt-for-bond swap to help bail out local authorities. The list of troubled assets needing help is unlikely to end there. The central government has prioritized cleaning up struggling state-owned enterprises, which, according to SocGen, includes some 30% that are bankrupt with 23 trillion yuan in liabilities.

Given this accumulation of questionable assets at the behest of the state, investors might feel somewhat anxious in case there ultimately is a reckoning. While Fitch notes these initiatives will harm profits, it does at least expect the central government rather than non-sovereign shareholders will be the banks’ main source of funds if they do need additional capital. If investors suspected that they would be forced to repeat the scenario from the global financial crisis when Western banks raised fresh capital from shareholders with deeply discounted share issues, stock prices would be vulnerable to steep falls. Fitch’s sanguine assumption of the central government stepping in depends on how much capital China’s banks may need.

Analyst Charlene Chu at Autonomous Economics, estimates this figure could be as high as $7.7 trillion of new capital in the next three years. Such a figure would send the government debt-to-GDP ratio skyrocketing, which at around 22% is usually used to reaffirm China’s robust financial position. Another issue is that in China the overlap between corporates and the state can often make it difficult to get a true financial picture. For instance, hugely profitable state banks in recent years have by some estimates accounted for 50% of the net profits of all listed Chinese companies. This could mean if China’s banks had to recognize a substantial increase in bad debts, another wild card is the impact on the central government’s fiscal position through lost tax revenue.

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The yuan can shake the entire region.

Yuan Jolt May Prompt Looser Policies in Australia, Singapore (BBG)

The extreme jolt financial markets received this year from a weakening yuan is spurring speculation that central banks from Singapore to Australia will be forced to loosen policy. The Monetary Authority of Singapore may widen the band within which it guides the local dollar if the currencies of its major trading partners and competitors become “extremely volatile,” said Mirza Baig at BNP Paribas. Central banks in Australia, Taiwan and India are most likely to respond by cutting interest rates, said Mansoor Mohi-uddin at RBS. Weaker-than-estimated yuan fixings last week heightened concerns that China’s economic slowdown is accelerating and triggered a global market rout. About a year ago, foreign-exchange markets were hammered when Switzerland surrendered its three-year-old cap on the franc against the euro and nations from Canada to Singapore unexpectedly eased monetary policy.

“The depreciation of the RMB is clearly creating large financial shocks,” said Baig, who is based in Singapore. “One thing that we are considering – although this doesn’t enter into our forecast – is that the RMB becomes more of a free-floating, more volatile currency. Then local central banks are also likely to adopt a more laissez-faire kind of approach towards currency management.” China stepped up its defense of the yuan, buying the currency in Hong Kong on Tuesday, according to people familiar with the matter. Betting against the yuan will fail and calls for a large depreciation are “ridiculous” as policy makers are determined to ensure the currency’s stability, Han Jun, the deputy director of China’s office of the central leading group for financial and economic affairs, said Monday in New York. The State Bank of Vietnam has already moved this year to a more market-based methodology in setting a daily reference rate versus the dollar.

“They’re now forced to change their currency regime to make it more in tune with day-to-day fluctuations in markets,” Baig said. While BNP Paribas expects Singapore’s central bank to maintain its monetary policy, there is a risk that it may widen its band ”in response to elevated financial market volatility,” Baig said. The Monetary Authority of Singapore guides the local currency against an undisclosed basket and adjusts the pace of appreciation or depreciation by changing the slope, width and center of a band. It refrains from disclosing details of the basket, the band, and the pace of appreciation or depreciation. The yuan probably has the third-highest weighting in the basket, exceeded only by the U.S. dollar and Malaysian ringgit, Baig said. A JPMorgan gauge of currency volatility rose to 10.42% Monday, the most since September. “The more volatile and weaker yuan is set to be more of a risk to regional central banks’ outlooks than higher Fed interest rates this year,” RBS’s Mohi-uddin said.

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But just how low can the yuan go?

In Rush to Exit Yuan, China Traders Buy Sinking Hong Kong Stocks (BBG)

Chinese investors are so desperate to shift their money out of yuan-denominated assets that they’re piling into some of the world’s worst-performing stocks. Mainland buyers purchased Hong Kong shares through the Shanghai stock link for a 10th week last week, even as the Hang Seng Index tumbled 6.7%. Chinese traders held 112.5 billion yuan ($17.1 billion) of the city’s equities by Monday, the most since the bourse program started in 2014, and up by 23.7 billion yuan since late October. With the yuan weakening, investors are looking for a way out, according to Reorient. “By buying Hong Kong stocks, it’s like buying the Hong Kong dollar,” said Uwe Parpart, chief strategist at the brokerage. Mainland investors are expecting “further depreciation and when that’s the case it’s a good idea to get out. If you buy at a certain rate and then the yuan goes down, even when the stock market goes down, you may still be getting ahead in the game.”

Hong Kong and mainland markets are at the epicenter of a global stock slump fueled by concern about China’s sliding currency and economic management. The Hang Seng Index was down 9.2% this year through Monday, while a rout in Shanghai and Shenzhen wiped out more than $1.3 trillion in value. With forecasters expecting the yuan to weaken further against the dollar and restrictions on capital outflows whittling down investment options, the exchange link offers a government-sanctioned way for Chinese traders to own assets in a strengthening currency. “Channels for outflows from mainland China are currently limited,” said Cindy Chen at Citigroup. “I expect the flow to continue.”

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Result will be zero.

OPEC Considering Emergency Meeting On Oil Prices (CNN)

After watching the price of crude oil collapse by more than 65% to a 12-year low, there are signs that OPEC may have had enough. Nigeria’s top oil official and OPEC President Emmanuel Kachikwu said the cartel is considering an emergency meeting, perhaps as soon as next month. At issue is whether OPEC would agree to cut production, a move that could help stop the crude price freefall. “I expect to see one. … There’s a lot of energy currently around that,” he told CNN. “I think a … majority in terms of [OPEC] membership are beginning to feel that the time has come to … have a meeting and dialogue again once more without the sort of tension that we had in Vienna on this.” When OPEC last met in the Austrian capital in December, it was bitterly divided and refused to cut output.

The next ordinary meeting is scheduled for June 2. Led by Saudi Arabia, OPEC decided in 2014 to wage a price war with low cost producers in the U.S. and elsewhere in a bid to defend market share. Since then, oil companies have sacked hundreds of thousands of workers, and slashed investment budgets. But the global supply glut continues, thanks in part to China’s slowing economy, and prices have continued to tumble. A strong dollar, which makes oil more expensive around the world, has fueled the slump. Oil prices fell toward $30 a barrel early on Tuesday, having plunged by 16% in 2016 alone, but steadied later to trade little changed on the day. Many OPEC countries are still making money at these prices but others are losing – Nigeria’s production costs are estimated at about $31 a barrel, for example.

And all, including Saudi Arabia, are suffering a huge squeeze on government revenues. Kachikwu said most OPEC members were watching their economies “being shattered,” and something had to give. “We need to… see how we can balance the need to protect our market share with the need for the survival of the business itself, and survival of the countries.” An emergency meeting is no guarantee that OPEC will act to restrain supply, however Iran is eager to boost production this year as soon as Western sanctions are lifted – expected imminently – and it’s hard to see Saudi Arabia working with its big Mideast rival to support oil prices. Saudi Arabia broke off diplomatic relations with Iran last week after its embassy in Tehran was attacked. That attack followed Saudi Arabia’s execution of a prominent Shiite cleric.

Still, the OPEC president believes an agreement of some form is possible. “I think ultimately for the interest of everybody some policy change will happen,” Kachikwu said. “Now will the amount of barrels that you can take out because of that policy change necessarily make that much of a dramatic difference? Probably not, but the symbolism of the action is even more important than the volumes that are taken out of the market.”

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Lots of private debt in foreign currrencies. The confidence starts to look out of place…

Saudi Arabia Says It Remains Committed to Dollar Peg (WSJ)

Saudi Arabia will maintain the riyal’s peg to the U.S. dollar, the governor of the country’s central bank said Monday, while criticizing bets against the currency. In a statement posted on the website of Saudi Arabian Monetary Agency, as the central bank is known, governor Fahad al-Mubarak said speculation was driving volatility in the forward market for the Saudi riyal, but the country’s financial and economic fundamentals remained stable. “I would like to reiterate our official position that Saudi Arabian Monetary Agency will uphold its mandate of maintaining the peg, “ the governor said.

The riyal is fixed at roughly 3.75 to the dollar, but one-year forward contracts have hit multiyear highs in the past days—reflecting speculation on a weaker riyal—after the kingdom ran a record budget deficit of nearly $98 billion last year, forcing it to announce late last month spending and subsidy cuts for 2016 to cope with a fall in the global price of oil, the kingdom’s main revenue earner. A sharp fall in the price of oil since the middle of 2014 has put immense pressure on Saudi Arabia’s petrodollar-dependent economy, with some investors betting in recent months that the kingdom would let go of the nearly 30-year old peg as foreign-exchange reserves decline. These have fallen to $635.5 billion at the end of November, down 15% from a peak of $746 billion in August last year, according to the latest central bank data.

Analysts say the central bank has spent billions to maintain the currency peg; in the past, the has worked well for Saudi Arabia, giving it stability as it enjoyed a decade of high-price oil. But income from oil sales has slumped, adding strains to Saudi Arabia’s finances. Abandoning the peg would stretch those dollars as the riyal would weaken. Backing away from peg pledges isn’t unprecedented, however. Officials at the Swiss National Bank, for instance, publicly backed the franc’s link to the euro mere days before the bank stunned markets by abandoning it a year ago. Still, most analysts don’t see Saudi Arabia abandoning its peg in the near- to midterm, as repayment costs for households and corporates that have borrowed in foreign currencies will rise in local-currency terms. Consumer price inflation is likely to accelerate due to a rise in import prices, which the government can ill-afford after cutting subsidies.

And even if the peg were adjusted rather than abandoned, this would add uncertainty about future adjustments, and ultimately make it more vulnerable to speculative attacks. “The peg is a key policy anchor,” said Paul Gamble, senior director for sovereigns at Fitch Ratings. “There is a huge capacity to defend it and a strong political commitment to it.”

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… where confidence really stands.

Saudi Debt Risk on Par With Junk-Rated Portugal as Oil Slides (BBG)

Investors wanting to take out insurance on Saudi Arabia’s debt have to pay as much as they would for Portugal, a nation still saddled with a junk credit-rating five years after an international bailout. The cost of insuring the kingdom’s debt more than doubled in the past 12 months to a 190 basis points, or $190,000 annually to insure $10 million of the country’s debt for five years, the highest since April 2009. That’s almost identical to contracts linked to debt from Portugal, whose rating is seven levels below Saudi Arabia’s Aa3 investment grade at Moody’s Saudi Arabia’s finances are under pressure as it fights a war in Yemen at a time when crude prices are languishing at the lowest level in almost 12 years.

The country, which counts on energy exports for 70% of government revenue, sold domestic bonds for the first time since 2007 last year to help fund a budget deficit that may have been the widest since 1991. Net foreign assets dropped for 10 straight months through November, the longest streak since at least 2006, to $627 billion. “They have huge reserves and extremely low debt, but the question is, how long are oil prices going to stay at this level?” said Anthony Simond at Aberdeen Asset Management. Brent crude, a pricing benchmark for more than half the world’s oil, sank below $35 a barrel last week. It advanced 0.8% to $31.82 a barrel today, rebounding from the lowest level in almost 12 years. The Saudi government, which doesn’t have any outstanding international bonds, said it will choose from options including selling local and international debt and drawing from its reserves to finance an expected 2016 budget deficit of 326 billion riyals ($87 billion).

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“Global investors withdrew about $52bn from emerging market equity and bond funds in the third quarter of 2015..” Otherwise, Wolf gets lost in his own growth story.

What Market Turbulence Is Telling Us (Martin Wolf)

Bull markets, it is said, climb a wall of worry. There are certainly plenty of reasons to worry. But markets are no longer climbing, which indicates the bull market is dead. Since markets are already highly valued, that would not be surprising. Standard & Poor’s composite index of the US market has in effect marked time since June 2014. According to Robert Shiller’s cyclically adjusted price/earnings ratio, the US market has been significantly more highly valued than it is at present only during the disastrous bubbles that burst in 1929 and 2000. Professor Shiller’s well-known measure of value is not perfect. But it is a warning that stock market valuations are already generous and that a continued bull market might be dangerous. Still more important, a portfolio rebalancing is under way.

The most important shift is in the perceived economic and financial prospects for emerging economies. As a result, capital is now flowing out of emerging economies. These outflows are driving the strong dollar. Given that, the US Federal Reserve’s decision to tighten monetary policy looks like an important blunder. In its new Global Economic Prospects report, the World Bank brings out the extent of the disillusionment with (and within) emerging economies. It notes that half of the 20 largest developing country stock markets experienced falls of 20 per cent or more from their 2015 peaks. The currencies of commodity exporters (including Brazil, Indonesia, Malaysia, Russia, South Africa), and of big developing countries subject to rising political risks (including Brazil and Turkey), fell to multiyear lows both against the US dollar and in trade-weighted terms.

Global investors withdrew about $52bn from emerging market equity and bond funds in the third quarter of 2015. This was the largest quarterly outflow on record. Net short-term debt and bank outflows from China, combined with retrenchment in Russia, accounted for the bulk of this; but portfolio and short-term capital inflows dried up elsewhere in the third quarter of 2015. Net capital flows to emerging and frontier economies even fell to zero, the lowest level since the 2008-09 crisis. An important feature is not just the reduction in inflows but also the sheer size of outflows from affected economies.

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The ‘healthy’ British economy has become a mere narrative.

UK Industrial Output Plunges Most in Almost Three Years (BBG)

U.K. industrial production fell the most in almost three years in November as warmer-than-usual weather reduced energy demand. Output dropped 0.7% from the previous month, with electricity, gas and steam dropping 2.1%, the Office for National Statistics said in London on Tuesday. Economists had forecast no growth on the month. The data highlight the uncertain nature of U.K. growth, which remains dependent on domestic demand and services. After stagnating in October and falling in November, industrial production will have to rise 0.5% to avoid a contraction in the fourth quarter. The pound fell against the dollar after the data and was trading at $1.4486 as of 9:35 a.m. London time, down 0.4% from Monday. Manufacturing also delivered a lower-than-forecast performance in November, with output dropping 0.4% on the month.

On an annual basis, factory output fell 1.2%, a fifth consecutive decline. The data follow other reports of weakness in the manufacturing sector. A survey published by Markit this month showed growth cooled in December, suggesting it made little contribution to the economy in the fourth quarter. According to manufacturers’ organization EEF, companies are feeling increasingly pressured by issues such as the strength of the pound. It said on Monday that only 56% of manufacturers say the U.K. is a competitive location, compared with 70% a year ago. Bank of England officials will probably keep their key interest rate at a record-low 0.5% this week. Minutes of the meeting released Thursday may reveal their thinking on the fall in oil prices and worries about China’s economy.

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CARB is one organization you don’t want to do battle with.

California Air Resources Board Rejects VW Engine Fix (BBG)

Volkswagen’s work to overcome the emissions-cheating scandal was set back after the California Air Resources Board rejected its proposed engine fix, just a day before Chief Executive Officer Matthias Mueller meets regulators to discuss ways out of the crisis. California spurned the automaker’s December recommendation for how to fix 2-liter diesel engines as “incomplete.” VW said it will present a reworked plan to the U.S. Environmental Protection Agency at a meeting in Washington on Wednesday. Europe’s largest automaker is in the midst of complex technical talks with the California board and counterparts at the EPA about possible fixes for 480,000 diesel cars. The EPA said Tuesday it agreed that VW’s plan can’t be approved. Volkswagen set aside $7.3 billion in the third quarter to help pay for the crisis and has acknowledged this won’t be enough.

“The message from the regulators to VW couldn’t be more clear – you need to come up with a better plan,” said Frank O’Donnell, president of Clean Air Watch, a Washington environmental group. “VW has mistakenly thought it could resolve this on the cheap.” On its website, the state said it determined that there was “no easy and expeditious fix for the affected vehicles.” “Volkswagen made a decision to cheat on emissions tests and then tried to cover it up,” Mary Nichols, chairwoman of the state board, said in an e-mailed statement. “They need to make it right.” Volkswagen responded that it had asked California last month for an extension to submit additional information and data about the turbocharged direct injection, or TDI, diesel engines.

“Since then, Volkswagen has had constructive discussions with CARB, including last week when we discussed a framework to remediate the TDI emissions issue,” VW said in an e-mailed statement. The California board said it and the EPA will continue to evaluate VW’s technical proposals. The rejection closely followed a bumble by CEO Mueller on Sunday, the eve of the North American International Auto Show in Detroit. During an interview with National Public Radio, he appeared to dismiss the crisis by saying Europe’s largest automaker “didn’t lie” to regulators about what amounts to a “technical problem.” When the interview aired Monday morning, VW asked NPR for a do-over, where Mueller blamed a noisy atmosphere for his earlier comments. He apologized on behalf of the automaker, hewing more closely to comments he had made in a Detroit speech on Sunday night.

[..] Fixes prescribed for Europe haven’t translated into U.S. approval because of the tougher emissions standards in North America, which is why Volkswagen had begun cheating in the U.S. in the first place. In Europe, the company’s proposed fix on 8.5 million diesel engines was approved a month ago. For most vehicles in Europe, software upgrades will suffice, while others will get a tube with mesh on one end to regulate air flow. VW estimated that repair would take less than an hour to complete. Germany took the lead on signing off on the technical fix, which encompasses a range of engine sizes including the 2-liter variant now contested in the U.S. In the U.S., beyond developing an effective fix for each of the three types of non-compliant 4-cylinder engines, VW must document any adverse impacts on vehicles and consumers.

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If you have to look at USA TOday for some sanity….

First Lady’s Box Should Be Empty At State Of The Union Speech (USA Today)

The White House announced that there will be a seat left vacant in the gallery during Obama’s State of the Union Address “for the victims of gun violence who no longer have a voice.” This old stunt is part of Obama’s campaign for new federal restrictions on firearms ownership, but if he really wanted to provide a voice for those who’ve lost theirs, at least in part, due to his own administration’s policies, he’d have to empty all the seats in the gallery reserved for the first lady and her guests. While trumpeting the private death toll from guns, Obama on Tuesday night will likely ignore the 986 people killed by police in the United States last year according to The WaPo’s database. Many police departments are aggressive — if not reckless — in part because the Justice Department always provides cover for them at the Supreme Court.

Obama’s “Justice Department has supported police officers every time an excessive-force case has made its way” to a Supreme Court hearing, The New York Times noted last year. Attorney General Loretta Lynch recently said that federally-funded police agencies should not even be required to report the number of civilians they kill. To add a Euro flair to the evening, Obama could drape tri-color flags on a few empty seats to commemorate the 30 French medical staff, patients, and others slain last Oct. 3 when an American AC-130 gunship blasted their well-known hospital in Kunduz, Afghanistan. The U.S. military revised its story several times but admitted in November that the carnage was the result of “avoidable … human error.” Regrettably, that bureaucratic phrase lacks the power to resurrect victims.

No plans have been announced to designate a seat for Brian Terry, the U.S. Border Patrol agent killed in 2010. Guns found at the scene of Terry’s killing were linked to the Fast and Furious gunwalking operation masterminded by the Alcohol, Tobacco, Firearms and Explosives (ATF) agency. At least 150 Mexicans were also killed by guns illegally sent south of the border with ATF approval. The House of Representatives voted to hold then-attorney general Eric Holder in contempt for refusing to disclose Fast and Furious details, but Obama is not expected to dwell on this topic in his State of the Union address. On a more festive note, why not save some seats for a wedding party? Twelve Yemenis who were celebrating nuptials on Dec. 12, 2013, won’t be able to attend Obama’s speech because they were blown to bits by a U.S. drone strike.

The Yemeni government – which is heavily bankrolled by the U.S. government – paid more than a million dollars compensation to the survivors of innocent civilians killed and wounded in the attack. Four seats could be left vacant for the Americans killed in the 2012 attack in Benghazi, Libya – U.S. Ambassador Christopher Stevens, Foreign Service Officer Sean Smith, and CIA contractors Tyrone Woods and Glen Doherty. But any such recognition would rankle the presidential campaign of Hillary Clinton, who has worked tirelessly to sweep those corpses under the rug. It would also be appropriate to include a hat tip to the hundreds, likely thousands, of Libyans who have been killed in the civil war unleashed after the Obama administration bombed Libya to topple its ruler, Moammar Gadhafi.

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Welcome to Europe.

Population Growth In Africa: Grasping The Scale Of The Challenge (Guardian)

The last 100 years have seen an incredible increase in the planet’s population. Some parts of the world are now seeing smaller increments of growth, and some, such as Japan, Germany, and Spain, are actually experiencing population decreases. The continent of Africa, however, is not following this pattern. Now home to 1.2 billion (up from just 477 million in 1980), Africa is projected by the United Nations Population Division to see a slight acceleration of annual population growth in the immediate future. In the past year the population of the African continent grew by 30 million. By the year 2050, annual increases will exceed 42 million people per year and total population will have doubled to 2.4 billion, according to the UN. This comes to 3.5 million more people per month, or 80 additional people per minute.

At that point, African population growth would be able to re-fill an empty London five times a year. From any big-picture perspective, these population dynamics will have an influence on global demography in the 21st century. Of the 2.37 billion increase in population expected worldwide by 2050, Africa alone will contribute 54%. By 2100, Africa will contribute 82% of total growth: 3.2 billion of the overall increase of 3.8 billion people. Under some projections, Nigeria will add more people to the world’s population by 2050 than any other country. The dynamics at play are straightforward. Since the middle of the last century, improvements in public health have led to a inspiring decrease in infant and child mortality rates. Overall life expectancy has also risen.

The 12 million Africans born in 1955 could expect to live only until the age of 37. Encouragingly, the 42 million Africans born this year can expect to live to the age of 60. Meanwhile, another key demographic variable – the number of children the average African woman is likely to have in her lifetime, or total fertility rate – remains elevated compared to global rates. The total fertility rate of Africa is 88% higher than the world standard (2.5 children per woman globally, 4.7 children per woman in Africa). In Niger, where GDP per capita is less than $1 per day, the average number of children a woman is likely to have in her life is more than seven. Accordingly, the country’s current population of 20 million is projected to grow by 800,000 people over the next 12 months.

By mid-century, the population may have expanded to 72 million people and will still be growing by 800,000 people – every 18 weeks. By the year 2100, the country could have more than 209 million people and still be expanding rapidly. This projectionis based on an assumption that Niger’s fertility will gradually fall to 2.5 children over the course of the century. If fertility does not fall at all – and it has not budged in the last 60 years – the country’s population projection for 2100 veers towards 960 million people. As recently as 2004, the United Nations’ expected Africa to grow only to 2.2 billion people by 2100. That number now looks very out of date.

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Got to keep wondering what the Olympics will look like. An international podium for protests?

3.7 Million Brazilians Return To Poverty Due To Economic Crisis (Xinhua)

Around four million Brazilians have returned to poverty as a consequence of the country’s ongoing economic crisis, local media reported on Monday. The news daily Valor Economico cited data from a recent study carried out by Banco Bradesco, one of the largest private banks in Brazil, which found the crisis pushed around 3.7 million Brazilians back to poverty. The middle class dropped by two%age points to 54.6% during the period of January to November, 2015. Meanwhile, the number of those in the lower class increased to 35%, according to the report. The study also indicates a drop in salaries, with the middle class receiving a monthly income of $407 to $1630 US and that of the poorest stands at $233. Brazil is in the depth of a recession as it grapples with rising unemployment, stagnant growth and soaring inflation. Brazil’s Central Bank has changed its previous prediction for the country’s drop in GDP for 2016 from 2.95% to 2.99%.

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“Boat captains are now forcing refugees to jump out and swim ashore before steering the dinghies back to Turkey.”

“These people will travel around the whole world just to find an open door.”

Smugglers Change Tactics As Refugee Flow To Greece Holds Steady (DW)

Looking over pitch-black waters, Pothiti Kitromilidi smokes a cigarette with her eyes fixed on distant streetlights along the Turkish coast. Aside from the stars, little else is visible. It is Friday night, and Kitromilidi, a coordinator for the FEOX Rescue Team, is standing on the southeastern shore of Chios, a Greek island where asylum-seekers have been arriving under the cover of darkness ever since the Turkish Coast Guard increased its presence. Only a few refugees made the crossing in recent days, but Kitromilidi credits bad weather over the authorities, who she says “pretend to work during the week and take weekends off.” Now the seas are calm again and Kitromilidi’s expecting a long night out. She radios back and forth with team members spread out over the area on ATVs and Vespa scooters.

Everyone is waiting as Kitromilidi shines a light into the dark water below. “We don’t see them, we have to hear them,” she said. Then the call comes in: “Boat landed! Boat landed!” Kitromilidi jumps in her car and speeds to the arrival site where 45 Afghans are standing, dripping wet and shivering. The rescue team gets to work, providing dry clothes and emergency thermal blankets with help from a Norwegian humanitarian group, Drop in the Ocean, while Spanish doctors from Salvamento Maritimo Humanitario (SMH) attend to the injured. Amidst screaming children and aching bodies, the chaotic process seems almost streamlined: Wet clothes off, dry clothes on, plastic bags replace wet socks and everyone gets filed onto a bus while volunteers pick up any trash left behind in an impressive display of cross-organizational coordination.

Yet after months of refining their procedures, humanitarian workers in Chios continue facing new challenges as smugglers change tactics under new pressures from Turkey and the European Union. Whenever the flow seems to slow down, large backlogs of refugees arrive in short bursts of time, overwhelming humanitarian services. This past weekend, more than 3,000 people arrive in Chios alone. “The numbers have been stable since the fall and now we are thinking they will stay the same until March,” said Edith Chazelle, Camp management coordinator for the Norwegian Refugee Council. “We are all surprised they are still coming with the cold weather and the rough water.”

Rescue workers also noted most dinghies are no longer being abandoned on Greek beaches. Boat captains are now forcing refugees to jump out and swim ashore before steering the dinghies back to Turkey. On Friday night, FEOX volunteer Mihalis Mierousis swam out to save a baby that was tossed overboard. The infant was less than one year old and survived the ordeal, but Mierousis said the practice might be due to a shortage of dinghies. “Unfortunately, this is not unusual,” he said. “Many people get thrown into the water, and we have to save them this way.” Other rescue workers said smugglers are taking families hostage and forcing fathers to steer dinghies to Chios and back as ransom. Rumors abound.

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