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


Arthur Rothstein Wasatch Mountains. Summit County, Utah 1940

 

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

 

 

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

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

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

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

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These buyers don’t exist.

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

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

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

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

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

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These guys can make themselves believe anything.

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

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

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

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US housing approaches a bottleneck.

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

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

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

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

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

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

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Now try and square this with that recovery story.

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

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

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

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Everything is.

Homeownership Is Increasingly For The Wealthy (CNBC)

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

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

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

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

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

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

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

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

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Something’s in the air.

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

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

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

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

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

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

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

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Tightening the noose…

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

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

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

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Wonder who paid for the study.

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

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

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

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

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

Are Driving Bans Coming for German Cities? (Spiegel)

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

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

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

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Did anyone actually believe they’d do something?

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

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

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

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Dec 162016
 
 December 16, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , ,  


John Vachon Big Four Cafe, Cairo, Illinois 1940

Obama’s Blunder; Trump’s Gambit (Rickards)
Trump Rally May Not Last Long – Marc Faber (CNBC)
This Stock Rally Is More Hope Than Substance (WSJ)
China, Others are Dumping US Treasurys as Never Before (WS)
The Longer China’s Record M&A Spree Lasts, The Stranger The Deals Get (BBG)
ECB Bond Buying Props Up Oil, Cars, Guns, Drones, Gambling, Handbags (DQ)
EU Agrees Dutch Demands On Ukraine Deal To Avoid ‘Present For Russia’ (R.)
Justin Trudeau: ‘Globalisation Isn’t Working For Ordinary People’ (G.)
Crackdown On Cash Is An Attack On The Poor And A Reward For Banks (Soos)
Why Are the Media Taking the CIA’s Hacking Claims at Face Value? (Nation)
Turkey Has Back-Up Plans If EU Fails To Keep Visa-Free Travel Promises (AFP)
“Without Antibiotics, Essentially You Do Not Have Modern Medicine” (R.)
The Shattering Effect Of Roads On Nature (G.)

 

 

We need more refreshing views like this. Actual thinking people.

Obama’s Blunder; Trump’s Gambit (Rickards)

[..] Russia is a more natural ally of the U.S. than China. Russia is a parliamentary system, albeit with autocratic overtones; China is a Communist dictatorship. Russia has empowered the Orthodox Church in recent decades, while China is officially atheistic. Russia is encouraging population growth while China’s one child policy and sex-selective abortions resulted in the deaths of over twenty million girls. These cultural aspects – elections, Christianity, and family formation – provide Russia with a natural affinity to western nations. Russia is also superior to China militarily despite recent Chinese advances. That makes Russia the more desirable ally in any two-against-one scenario.

The most powerful argument for embracing Russia to checkmate China is energy. The U.S. and Russia are the two largest energy producers in the world. U.S. energy production is set to expand with the support of the Trump administration. Russian production will expand also based in part on initiatives led by Rex Tillerson of Exxon, soon to be Secretary of State. China has few oil and natural gas reserves and relies heavily on dirty forms of coal and some hydropower. The remainder of China’s energy needs is met through imports. An energy alliance between the U.S. and Russia, supported by Saudi Arabia, could leave the Chinese economy and, by extension, the standing of the Communist Party of China, in jeopardy. That threat is enough to insure Chinese compliance with U.S. aims.

An emerging U.S.-Russian entente could also lead to the alleviation of western economic sanctions on Russia. This would open the door to an alliance between Germany and Russia. Those two economies have near perfect complementarity since Germany is technology rich and natural resource poor, while Russia is the opposite. Isolation of Russia is a fool’s errand. Russia is the twelfth largest economy in the world, has the largest landmass of any country in the world, is a nuclear power, has abundant natural resources, and is a fertile destination for direct foreign investment. The Russian culture is highly resistant to outside pressure, but open to outside cooperation. Just as fifty years of U.S. sanctions failed to change Cuban behavior, U.S. sanctions will not change Russian behavior except for the worse.

Engagement, not confrontation is the better course. The new Trump administration gets this. [..] Fortunately it’s not too late to reestablish a balance of power that favors the United States. China is a rising regional hegemon that should be constrained. Russia is a natural ally that should be empowered. The U.S. has blundered in its foreign policy for the past eight years. A new Trump administration has an opportunity to reverse those blunders by building bridges to Russia, and it seems to be moving in that direction.

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“..Ronald Reagan and Herbert Hoover also began their tenures with huge rallies, followed by crashes…”

Trump Rally May Not Last Long – Marc Faber (CNBC)

If President-elect Donald Trump’s rhetoric ends up fueling a trade war with China, it’s the U.S. that will take it on the chin, Marc Faber, the publisher of the Gloom, Boom & Doom report, told CNBC on Friday. “Mr. Trump is not particularly keen on China,” Faber told CNBC’s “Squawk Box” on Friday. “There may be some trade war escalation or trade restrictions with China, which in my view would rather be negative for the U.S. than for China.” Trump has certainly set his sights on China. On the campaign trail, Trump repeatedly accused China of manipulating its currency in order to give its exports an advantage over U.S.-made goods, and he threatened to slap a tariff of up to 45% on Chinese imports.

While China’s yuan has fallen against the U.S. dollar in recent months, policymakers on the mainland have been intervening to support the currency, not weaken it. But Faber, who is also known as Dr. Doom for his usually pessimistic predictions, noted that China wouldn’t be easily cowed. “China does not depend on the U.S. The U.S. is still its largest export destination as a country, but taken together, all the emerging markets are for China much more important,” Faber noted. China exported about $482 billion in goods to the U.S. last year, more than any other country exported to the United States, according to the Office of the United States Trade Representative. The U.S. exported about $116 billion in goods to China in 2015, putting its goods trade deficit $366 billion.

[..] “We have a credit bubble in China, like, by the way, everywhere else in the world. It’s just bigger in China and that, in my view, will have to be deflated,” he said. Dr. Doom also wasn’t trusting Wall Street’s rally since Trump’s election, nothing that Presidents Ronald Reagan and Herbert Hoover also began their tenures with huge rallies, followed by crashes. On Thursday, the Dow Jones rose 59.71 points, or 0.3%, to close at 19,858.24, after climbing at one point to a mere 50 points away from hitting the 20,000 mark. Faber said that the U.S. market was getting toppish. “If you want to be in equities, the U.S. market is now at the most expensive level compared to Europe, Japan and emerging economies it’s ever been,” he said.

Despite Thursday’s gains, “there were more new 12-month lows than new highs.” He wasn’t optimistic on how much further the market can run. “In March 2017, the U.S. bull market will be eight years old. By any standard, this is a very aging bull market. By June 2017, the economic recovery will be eight years old. By any standard, a recovery that is very mature,” he noted. Faber was also pessimistic about the market’s prospects under the Trump administration. “We have to be very careful when we talk about investments. We have a lot of volatility coming toward us. I think that in general people are far too optimistic about the U.S. becoming again a great country,” he said. “I doubt that one man alone can do it.”

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“When you have an adrenaline rush you don’t feel pain. It’s when the adrenaline wears off that you feel it.”

This Stock Rally Is More Hope Than Substance (WSJ)

Janet Yellen may not have an armored horse, but her effect on the bull market looks very like the ineffective stab of a picador. The stock market bull seemed to be badly hurt after the U.S. Federal Reserve chairwoman’s words on Wednesday. The Fed raised interest rates and said policy makers expected three rate increases next year, while Ms. Yellen said the economy is near full capacity and doesn’t need fiscal stimulus—suggesting rates will rise even faster if president-elect Donald Trump goes ahead with promised tax cuts. But after their stumble, stocks regained their feet on Thursday, with the S&P 500 recovering to where it was before Fed Day. A mere picador is never enough to take down a bull.

The true danger to this latest bull run—the Trump rally—comes from itself. The genius of a matador is to wear out the bull by persuading it to keep charging, entrancing the audience in the process. The stock market has been attracted by the flourishes of Mr. Trump, the appealing prospect of tax cuts and infrastructure spending. The question for the next month is whether the bull will be worn out before Mr. Trump even takes office. When markets move a long way very fast, they become vulnerable. Late investors who pile on to little more than momentum have less confidence in their positions. The more momentum builds, the more it hurts if the bull trips and those momentum investors jump off. This market has moved very fast indeed.

The post-election rotation from defensive stocks to economically sensitive cyclical shares has been the biggest of any similar period since the bounce back after the Lehman crash. The 10-year bond’s losses have almost matched the selloff of the 2013 taper tantrum. And the dollar has surged 9% against the yen, taking it to its strongest since 2002 against a basket of currencies. There are plenty of reasons to worry about whether Mr. Trump’s policies will be implemented quickly, or will be as big-league as he has said. So long as those remain worries for another day, the market can keep rising. David Bloom, head of foreign-exchange strategy at HSBC, says investors who missed out on the fast moves in stocks, bonds and the dollar after the election are now being sucked into the trade to avoid missing out. “We’re in a euphoric time,” he said. “When you have an adrenaline rush you don’t feel pain. It’s when the adrenaline wears off that you feel it.”

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We can only imagine where the dollar would be without this mass sell-off.

China, Others are Dumping US Treasurys as Never Before (WS)

All kinds of things are now happening in the world of bonds that haven’t happened before. For example, authorities in China today halted trading for the first time ever in futures contracts of government bonds, after prices had swooned, with the 10-year yield hitting 3.4%. Trading didn’t resume until after the People’s Bank of China injected $22 billion into the short-term money market. What does this turmoil have to do with US Treasurys? China has been dumping them to stave off problems in its own house…. The US Treasury Department released its Treasury International Capital data for October, and what it said about the dynamics of Treasury securities is a doozie of historic proportions. Net “acquisitions” of Treasury bonds & notes by “private” investors amounted to a negative $18.3 billion in October, according to the TIC data.

In other words, “private” foreign investors sold $18.3 billion more than they bought. And “official” foreign investors, which include central banks, dumped a net $45.3 billion in Treasury bonds and notes. Combined, they unloaded $63.5 billion in October. In September, these foreign entities had already dumped a record $76.6 billion. They have now dumped Treasury paper for seven months in a row. Over the past 12 months through October, they unloaded $318.2 billion. A 12-month selling spree in this magnitude has never occurred before. There have been a few months of timid net selling in 2012, and some in 2013, and a few in 2014, but no big deal because the Fed was buying under its QE programs. But then, with QE tapered out of the way, the selling picked up in 2015, and has sharply accelerated in 2016.

This chart (via Trading Economics), going back to the early 1980s, shows just how historic this wholesale dumping (circled in red) of US Treasury bonds and notes by foreign entities has been: The chart is particularly telling: It shows in brutal clarity that foreign buyers funded the $1 trillion-and-over annual deficits during and after the Financial Crisis, with net purchases in several months exceeding $100 billion. The other big buyer was the Fed. But since last year, the world has changed. China, once the largest holder of US Treasurys, has been busy trying to keep a lid on its own financial problems that are threatening to boil over. It’s trying to prop up the yuan. It’s trying furiously to stem rampant capital flight. It’s trying to keep its asset bubbles, particularly in the property sector, from getting bigger and from imploding – all at the same time. And in doing so, it has been selling foreign exchange reserves hand over fist.

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Beijing’s own policies come back to bite it hard. Fully predictable too.

The Longer China’s Record M&A Spree Lasts, The Stranger The Deals Get (BBG)

It’s no wonder the country’s regulators are getting concerned. This month, Chinese agencies including the National Development and Reform Commission said they’re closely watching “irrational” outbound purchases in sectors including entertainment and real estate, without naming specific deals. The heightened scrutiny coincides with a broader government effort to limit capital outflows, posing a risk to global takeover volumes after Chinese firms began rivaling their U.S. counterparts as the biggest buyers of overseas assets this year. For the Wall Street bankers helping to sell Western companies, the changing regulatory environment could make a delicate balance even trickier. Advisers need to court a widening pool of Chinese acquirers while at the same time making sure the companies are savvy enough to complete their deals.

“The M&A landscape has shifted focus to Chinese buyers,” said Brian Gu at JPMorgan Chase, the top-ranked adviser on Chinese outbound acquisitions tracked by Bloomberg this year. “How to solicit credible potential Chinese buyers now becomes an essential part of a pitch for any global sell-side mandates.” More than 360 Chinese companies announced their first cross-border acquisitions in the initial 11 months of this year, with the combined size of the transactions more than doubling from the full year 2015, according to data compiled by Bloomberg. Sifting through those new ranks of Chinese acquirers takes some work. When EQT Partners decided to sell Germany’s EEW Energy from Waste, its bankers at Morgan Stanley arranged for executives to meet potential buyers in Shanghai, Beijing and Hong Kong weeks before it began soliciting bids.

[..] While Chinese policy makers have been supportive of outbound acquisitions that help domestic companies gain foreign technology and strengthen industries seen as important drivers of economic growth, the worry is that some deals are being used as a way to move money offshore or make quick profits by re-listing acquired businesses at higher valuations in China. “Some of these companies invest outside of their core competency because they want to get money out of China, as they see the Chinese yuan will continue to depreciate,” said Christopher Balding, a professor at Peking University’s HSBC Business School in Shenzhen, without naming any specific deals.

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Nice piece of research from Don Quijones. Title is mine, couldn’t help myself.

ECB Bond Buying Props Up Oil, Cars, Guns, Drones, Gambling, Handbags (DQ)

In June 2016, the ECB activated its corporate bond buying program, ostensibly to revive the Eurozone’s stalled economy. The program has been shrouded in secrecy, as the ECB has refused to reveal the identity of most of the companies, divulging only the International Securities Identification Number (ISIN) of the bonds, but not the amounts. The ECB coordinates the overall effort, but the actual buying is done by the national central banks. Now the non-profit Corporate Europe Observatory (CEO) has cracked the code, so to speak: Finding the names via the ISIN code is a simple job. CEO has looked them all up to see what investments the ECB has found worthy of public money. Unfortunately, a lack of transparency at the ECB means the amounts held in bonds of individual corporations are not revealed.

While many pension funds do release this information, it seems that the common national bank for hundreds of millions of European citizens is unable to! Nevertheless, a lot can be learned from the lists… For instance, the fact that Europe’s oil majors have been particularly spoiled, with the ECB splurging on bonds issued by Shell no less than 11 times. The central bank bought bonds from Italian oil company Eni 16 times, Spain’s Repsol six times, Austrian OMV six times, and Total 7 times. Gas companies have also fared remarkably well. When counting the purchase of bonds in Spain, for example, 53% are from companies involved in the natural gas sector. The corresponding number in Italy is an astounding 68%. Also well favored are Europe’s biggest car companies, in particular those from Germany, with Daimler and BMW tied in top spot with 15 purchases apiece. The ECB also bought seven times bonds issued by Volkswagen, despite the reputational and financial fallout from its emissions scandal.

And it bought Renault bonds three times. Other companies on CEO’s list of coddled giants include Thales, a French producer of missiles, rifles, armored vehicles, and military drones, which has been engulfed in a spate of corruption scandals in recent years; France’s three major water corporations, Suèz, Vivendi, and Veolia; Novomatic, an Austrian-based gambling company owned by billionaire Johan Graf; and luxury goods companies like LVMH, producer of Moët & Chandon champagne, Hennessy cognac, and Louis Vuitton women’s handbags. These are just some of the corporations benefiting handsomely from a bond-buying binge that has already reached some €46 billion (as of Nov. 25, 2016). When the ECB buys these bonds, it inflates the bond prices and pushes their yields down, which is the purpose, and it thus lowers the cost of capital for this companies even further. By the end of the program, which is “scheduled” to finish in September, 2017, the ECB is expected to have lavished around €125 billion on them.

But that’s not the worst of it. As we reported in August, the ECB has admitted that it is not only buying already-issued bonds trading in secondary markets, as the public was initially led to believe; it is also buying bonds from companies via so-called “private placements.” These debt sales are not open to the broader market, so there’s no need for a prospectus. Only a small number of institutional investors participate. Private placements are not unusual. What’s new is that the ECB is using them to buy bonds. This was done discreetly, but it was leaked – and the ECB had some explaining to do. The central bank’s new role as “debt-buyer of first resort” raises a whole litany of concerns. It grants the ECB an almost god-like grip over Europe’s financial markets. And according to The Wall Street Journal, Citigroup figured “that bonds eligible for ECB purchases have already outperformed ineligible bonds by roughly 30% since the bond-buying program was announced in March.”

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A Dutch referendum in April voted down the EU association deal with Ukraine. PM Rutte now pretends that with a few minor tweaks it’s acceptable regardless. Rutte will now take it to his parliament for approval, which would overwrite the referendum result. Democracy. They’re handing the entire continent to Wilders and Le Pen on a platter. Oh, and who does Rutte blame for his behavior? You got it, Russia.

EU Agrees Dutch Demands On Ukraine Deal To Avoid ‘Present For Russia’ (R.)

EU leaders agreed on Thursday to additional Dutch demands over a landmark deal establishing closer ties with Ukraine, Maltese Prime Minister Joseph Muscat said. The EU’s so-called association agreement with Ukraine is central to the former Soviet republic’s efforts to move closer to the West. Mass street protests toppled a pro-Russian Ukrainian president in 2014 after he tried to ditch it. The Netherlands is the only EU country that has not ratified the deal, which fosters closer political ties and aims to free up trade between Ukraine and the bloc, after Dutch voters rejected it in a referendum last April. The Hague has asked the EU for additional guarantees to ensure the deal does not lead to EU membership for Ukraine.

Asked if all 28 EU leaders have arrived to a common position on the Dutch demand, Muscat said: “Yes, there is agreement.” Dutch Prime Minister Mark Rutte will now take it to his parliament for approval, which would overwrite the referendum result. Rutte told reporters before the talks that it was crucial to get a united European stance in the face of an emboldened Russia. “Russia is an increasing risk, look what happened in Crimea and eastern Ukraine and rockets being placed between Poland and Lithuania. You cannot, as the Netherlands … break this unity, that is why I’m so motivated to get this done,” he said.

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Justin is trying to make me believe that building pipelines is the way to go towards a “carbon-free economy”. Sure. He’s turning into soundbite man.

Justin Trudeau: ‘Globalisation Isn’t Working For Ordinary People’ (G.)

[..] A silver lining for Trudeau may lie in Trump’s pledge to resurrect plans for TransCanada’s Keystone XL pipeline. When the Obama administration rejected the plan last year, Trudeau said in a statement he was “disappointed” in the decision. When Trudeau called Trump to congratulate him after the election, the two briefly spoke about Keystone, said Trudeau, adding that it remains to be see how the US will move forward with plans for the pipeline. Any reluctance to move forward on climate change south of the border could be a boon for Canadian companies across various sectors, said Trudeau. “I know Canada is well positioned to pick up some of the slack and when people finally realise that it’s a tremendous business opportunity to lead on climate change, Canada will already have a head start.”

[..] Last week’s announcement of a national carbon price is a key part of Trudeau’s environmental policy – one that has been derided by environmentalists for enabling the expansion of fossil fuels, compensated by initiatives that include investments in clean tech and promises to phase out federal subsidies for oil and gas companies. The policy saw Trudeau recently approve a liquefied natural gas project in British Columbia as well as two pipelines that will offer Alberta’s oil sands nearly a million barrels a day in increased capacity. The approvals have sparked broad opposition among environmentalists, some First Nations and several of the communities affected by the planned infrastructure projects. “There is a number of people out there who’ve always [believed] if you stop pipeline, you stop the oil sands,” said Trudeau. “Well, actually as we’ve seen, it doesn’t work that way and what we end up with is much more oil by rail.”[..]

The government’s environmental policy takes a long view on the transition to a carbon-free economy, said Trudeau. “It’s not going to happen in a day, or in a week, but it will happen over years and perhaps a decade or two,” he said. “I know there are people out there extremely passionate about the environment, who don’t think I made the right decision on approving a couple of pipelines. But I think that everyone can see at least what it is we’re trying to do and that we’re consistent with what I’ve always said which is, you protect the environment and you build a strong economy at the same time.” The double-barrelled approach, said Trudeau, echoes his government’s broader effort to address the tensions currently wreaking havoc on the political status quo around the world. “People get that we need jobs, we need a protected environment,” he said. “On the other hand, if people have no jobs, if they have no opportunity, they’re not going to worry about protection of the air and water if they can’t feed their kids.”

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I don’t know that throwing in the drug legalization topic is very relevant. Just ‘hands off!’ should do it.

Crackdown On Cash Is An Attack On The Poor And A Reward For Banks (Soos)

The Coalition government recently announced a taskforce to investigate and recommend ways to deal with the so-called black economy. This primary revolves around business transactions conducted in cash to evade taxes. Other justifications concern the illicit drug trade and welfare fraud. The plan is to clamp down on this aspect of the black economy to make it more difficult for workers, businesses and households to evade tax, boosting taxation revenue. It is estimated the black economy accounts for about 1.5% of GDP or $21bn. There is also speculation that the $100-dollar bill may be removed from circulation. The Coalition government’s explanations seem sensible, with the mass media generally supportive. Yet, there are robust arguments why the Australian public should oppose this move – mostly because the government is trying to deal with problems it created itself.

The drug trade in Australia is thriving and constitutes a considerable portion of the black economy. This illegal trade, however, only exists because the government criminalises it. The primary reason offered is that it prevents the production and consumption of dangerous substances for recreational purposes. It clearly does nothing of the sort. By criminalising drugs, product is manufactured in unregulated and uncertain conditions, leading to vastly inferior quality relative to that in the legal and regulated pharmaceutical industry. Huge monopolistic profits are reaped by drug cartels and those in the supply chain, leading to a significant loss of taxable income. None of this would happen if the drug trade was legalised – and there is growing acceptance that it should be.

In short, the government cannot use the pretext of clamping down on an industry which is presently illegal by claiming the cash transactions facilitates the existence and growth of it when it is the government’s own criminalisation policy which brought it into existence. By legalising, billions of dollars of taxes could be raised through the GST, income tax and externality/sin taxes. Another area of alleged concern is welfare fraud. Recipients of welfare payments can work in the black economy, making a modest income without reporting it. If this were properly reported, welfare payments would be reduced. Again, this is a problem government has itself created. While the government and certain sections of the mass media pretend Australia has an out-of-control welfare system, the facts demonstrate Australia has some of the smallest welfare expenditures relative to GDP, easily the most well-targeted and has the highest “target-efficiency” (each dollar in spending reduces income inequality the most) in the OECD.

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I’d like to ignore this tale (who reads the WaPo anymore), but the Nation has a passable one: “..the CIA has “(1) attempted to overthrow more than 50 governments, most of which were democratically-elected, (2) attempted to suppress a populist or nationalist movement in 20 countries, (3) grossly interfered in democratic elections in at least 30 countries, (4) dropped bombs on the people of more than 30 countries, (5) attempted to assassinate more than 50 foreign leaders.”

Why Are the Media Taking the CIA’s Hacking Claims at Face Value? (Nation)

In 1977, Carl Bernstein published an exposé of a CIA program known as Operation Mockingbird, a covert program involving, according to Bernstein, “more than 400 American journalists who in the past 25 years have secretly carried out assignments for the Central Intelligence Agency.” Bernstein found that in “many instances” CIA documents revealed that “journalists were engaged to perform tasks for the CIA with the consent of the managements of America’s leading news organizations.” Fast-forward to December 2016, and one can see that there isn’t much need for a covert government program these days.

[..] The high-profile anchors and analysts on CNN, CBS, ABC, and NBC who have cited the work of The Washington Post and The New York Times seem to have come down with a bad case of historical amnesia. The CIA, in their telling, is a bulwark of American democracy, not a largely unaccountable, out-of-control behemoth that has often sought to subvert press freedom at home and undermine democratic norms abroad. The columnists, anchors, and commentators who rushed to condemn Trump for not showing due deference to the CIA seem to be unaware that, throughout its history, the agency has been the target of far more astute and credible critics than the president-elect.

In his memoir Present at the Creation, Truman’s Secretary of State Dean Acheson wrote that about the CIA, “I had the gravest forebodings.” Acheson wrote that he had “warned the President that as set up neither he, the National Security Council, nor anyone else would be in a position to know what it was doing or to control it.” Following the Bay of Pigs fiasco, President John F. Kennedy expressed his desire to “to splinter the CIA into a thousand pieces and scatter it to the winds.” The late New York Senator Daniel Patrick Moynihan twice introduced bills, in 1991 and 1995, to abolish the agency and move its functions to the State Department which, as the journalist John Judis has observed, “is what Acheson and his predecessor, George Marshall, had advocated.”

[..] To see what a corrosive effect outside powers can have on democratic processes, one need look no further than the 1996 Russian presidential election, in which Americans like the regime-change theorist Michael McFaul (later US Ambassador to Russia from 2012–14) interfered in order to keep the widely unpopular Boris Yeltsin in power against the wishes of the Russian people. For its part, the CIA has a long history of overthrowing sovereign governments the world over. According to historian William Blum, the CIA has “(1) attempted to overthrow more than 50 governments, most of which were democratically-elected, (2) attempted to suppress a populist or nationalist movement in 20 countries, (3) grossly interfered in democratic elections in at least 30 countries, (4) dropped bombs on the people of more than 30 countries, (5) attempted to assassinate more than 50 foreign leaders.”

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Yada yada

Turkey Has Back-Up Plans If EU Fails To Keep Visa-Free Travel Promises (AFP)

President Recep Tayyip Erdogan said Thursday Turkey had back-up plans if the EU failed to keep its promise over visa-free travel for Turks to the passport-free Schengen zone. Turkey and the EU signed a controversial deal in March, in which Ankara agreed to take back Syrian migrants landing on Greek islands in return for incentives including €3 billion in funds and visa-free travel. “If we do not get the expected outcome regarding the visa issue… if promises are not fulfilled, Turkey will no doubt have a plan B and it will have a plan C,” Erdogan warned during a news conference with his Slovenian counterpart in Ankara.

“We do not have to say ‘yes’ to every decision made about us. The EU has given us nothing so far,” he added, without elaborating. Ties between Brussels and Ankara have been strained since a failed July 15 coup in Turkey. The rocky relationship worsened after the European Parliament voted last month in favour of halting long-stalled membership talks with Turkey over its post-coup crackdown, a non-binding vote which Erdogan branded worthless. Turkey accuses the EU of failing to show enough solidarity after the failed putsch while Brussels has repeatedly urged Turkey to act within the rule of law as it arrests tens of thousands of people suspected of links to coup plotters.

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Horror story.

“Without Antibiotics, Essentially You Do Not Have Modern Medicine” (R.)

For nearly two years, a killer stalked the patients of Providence Alaska Medical Center. It was a bacteria called Acinetobacter baumannii, a common cause of infections in hospitals. This one was different. After a rash of mild cases in early 2011, doctors began seeing highly drug-resistant infections in patients, said Dr Megan Clancy, an infectious-disease specialist at the Anchorage, Alaska, hospital. And the bacteria was attacking more patients than just the severely ill ones who are the usual victims of drug-resistant “superbugs.” Clancy took emergency measures. Infected patients were isolated. Staff and visitors had to adhere to strict hand-washing and other infection-control protocols. Furniture and equipment were scrubbed to remove a microbe that can stubbornly persist on all sorts of surfaces.

Clancy also contacted outside researchers for help. They found that a strain of the bacteria had acquired a rare combination of traits. Bacteria typically are either highly resistant to drugs or highly virulent. This strain was both. Doctors quickly burned through the antibiotics used as the second and third lines of defense against superbugs. This strain shook them off. “When you start running out of medications, it gets pretty desperate,” Clancy said. Eventually, they turned to colistin. This powerful antibiotic was largely abandoned in the 1960s for its toxic side effects. Out of necessity, it has become in recent years a weapon of last resort against the worsening superbug scourge.

But in some of the Alaska cases, even colistin didn’t work. For public health officials, that’s the nightmare scenario. “It’s the worst of all possible worlds: You have a bacteria that is good at establishing infection, and it can’t be treated with antibiotics,” said Dr Robert Clifford, a microbiologist at the Walter Reed Army Institute of Research who studied the outbreak.

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Needs much more attention. This is how we kill the living world.

The Shattering Effect Of Roads On Nature (G.)

Rampant road building has shattered the Earth’s land into 600,000 fragments, most of which are too tiny to support significant wildlife, a new study has revealed. The researchers warn roadless areas are disappearing and that urgent action is needed to protect these last wildernesses, which help provide vital natural services to humanity such as clean water and air. The impact of roads extends far beyond the roads themselves, the scientists said, by enabling forest destruction, pollution, the splintering of animal populations and the introduction of deadly pests. New roads also pave the way to further exploitation by humans, such as poaching or mining, and new infrastructure.

An international team of researchers analysed open-access maps of 36m km of road and found that over half of the 600,000 fragments of land in between roads are very small – less than 1km2. A mere 7% are bigger than 100km2, equivalent to a square area just 10km by 10km. Furthermore, only a third of the roadless areas were truly wild, with the rest affected by farming or people. The last remaining large roadless areas are rainforests in the Amazon and Indonesia and the tundra and forests in the north of Russia and Canada. Virtually all of western Europe, the eastern US and Japan have no areas at all that are unaffected by roads. The scientists considered that land up to a kilometre on each side of a road was affected, which they believe is a conservative estimate.

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