Jun 062016
 June 6, 2016  Posted by at 8:38 am Finance Tagged with: , , , , , , , , ,  12 Responses »

Goldman Finds That China’s Debt Is Far Greater Than Anyone Thought (ZH)
World’s Most Battered Market Is the Worst Place to Find Bargains (BBG)
China’s Hidden Unemployment Rate (BBG)
China’s Factory to the World Is in a Race to Survive (BBG)
BOJ Board Member Warns Of “2003 Shock” Historic Bond Market Collapse (ZH)
As Iran’s Oil Exports Surge, International Tankers Help Ship Its Fuel (R.)
Saudi Arabia Races Through Financial Toolkit to Raise Funds (BBG)
If Wind/Solar Is So Cheap, Why Require Government Subsidy? (SL)
Pound Tumbles, Volatility Jumps After Polls Show Brexit Momentum (BBG)
Constitutional Crisis: Pro-Remain MPs Consider Pre-Empting Brexit Vote (BBC)
Brexit May Seem Like The West’s Biggest Problem. But Look At The US Economy (G.)
‘Brexit Voters Succumbing To Impulse Irritation And Anger’ (AEP)
Erdogan: Childless Women Deficient, Incomplete: Have At Least 3 (AFP)
Turkey Shelves Refugee ‘Readmission’ Deal With EU (DS)

Well, I’ve pointed a zillion times to the size and power of China’s shadow banks. And here you go…

Goldman Finds That China’s Debt Is Far Greater Than Anyone Thought (ZH)

In an analysis conducted by Goldman’s MK Tang, the strategist notes that a frequent inquiry from investors in recent months is how much credit has actually been extended to Chinese households and corporates. He explains that this arises from debates about the accuracy of the commonly used credit data (i.e., total social financing (TSF)) in light of an apparent rise in financial institutions’ (FI) shadow lending activity (as well as due to the ongoing municipal bond swap program). Tang adds that while it is clear that banks’ investment assets and claims on other FIs have surged, it is unclear how much of that reflects opaque loans, and also how much such loans and off-balance sheet credit are not included in TSF. By the very nature of shadow lending, it is almost impossible to reach a conclusion on these issues based on FIs’ asset information.

Goldman circumvents these data complications by instead focusing on the “money” concept, a mirror image to credit on FIs’ funding side. The idea is that money is created largely only when credit is extended—hence an effective gauge of “money” can give a good sense of the size of credit. We construct our own money flow measure, specifically following and quantifying the money flow from households/corporates. Goldman finds something stunning: true credit creation in China was vastly greater than even the comprehensive Total Social Financing series. To wit: “a substantial amount of money was created last year, evidencing a very large supply of credit, to the tune of RMB 25tn (36% of 2015 GDP). This is about RMB 6tn (or 9pp of GDP) higher than implied by TSF data (even after adjusting for municipal bond swaps). Divergence from TSF has been particularly notable since Q2 last year after a major dovish shift in policy stance.”

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China stocks are already down 40% in 12 months, but look down below.

World’s Most Battered Market Is the Worst Place to Find Bargains (BBG)

It’s going to take more than the world’s deepest stock-market selloff to turn China into a destination for international bargain hunters. Even after a 40% tumble in the Shanghai Composite Index over the past 12 months, valuations for China’s domestic A shares are three times as expensive as every other major market worldwide. The median price-to-earnings ratio on the nation’s exchanges is 59, higher than that of U.S. technology shares at the height of the dot-com boom in 2000. One year after China’s equity bubble peaked, valuations have yet to fall back to earth as government intervention keeps stock prices elevated at a time of shrinking corporate profits.

For money managers at Silvercrest Asset Management and Blackfriars Asset Management who predicted last year’s selloff, China’s weak economic growth and fragile investor sentiment mean it’s too early to jump back into the $6 trillion market. “We do not own any A shares,” said Tony Hann, the London-based head of equities at Blackfriars, which oversees about $270 million. The firm’s Oriental Focus Fund has outperformed 83% of peers this year. “The bull case seems to be that I can buy at this P/E because someone else will buy it from me at a higher P/E. The biggest risk is that investor psychology on the mainland changes.”

There’s plenty for investors to be worried about. After expanding at the weakest pace since 1990 last year, China’s economy shows few signs of recovery. Earnings at Shanghai Composite companies have declined by 13% since last June, while corporate defaults are spreading and the yuan is trading near a five-year low.

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Debt is hidden, losses are hidden, unemployment is hidden.

China’s Hidden Unemployment Rate (BBG)

China’s authorities may face a bigger worry than slowing economic growth. The jobless rate may be three times the official estimate, according to a new report by Fathom Consulting, whose China’s Underemployment Indicator has tripled to 12.9% since 2012 even while the official jobless rate has hovered near 4% for five years. The weakening labor market may explain China’s decision to uncork the credit spigots and revive old growth drivers in an effort to stabilize the world’s no. 2 economy. Leaders have stressed that keeping employment stable is a top priority. Fathom’s data shows that while mass layoffs haven’t materialized, the number of people not working at full capacity or hours has increased. “The degree of slack has surged in recent years,” analysts at the London-based firm wrote.

“China has a substantial hidden unemployment problem, in our view, and that explains why the authorities have come under so much pressure to re-start the old growth engines.” Leaders of the world’s most populous nation have promised to slash excess capacity in coal mines and steel mills while at the same time ensuring that the economy grows by at least 6.5% this year. Across the nation, state-backed ‘zombie’ factories are being kept alive by local governments to keep a lid on any social unrest. To keep the plants ticking over, employees in some cases have been asked to work half the time for half the pay. The official registered unemployment gauge is notorious for not changing during economic cycles. It’s compiled from the number of people who register at local governments for unemployment benefits, which excludes most of the nation’s more than 270 million migrant workers.

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China as a robotics guinea pig. What could go wrong?

China’s Factory to the World Is in a Race to Survive (BBG)

China’s shift to consumption and services lies at the heart of Xi’s quest for new growth drivers to escape the middle-income trap, when productivity and profit margins fail to keep up with wage growth. That’s spurred provincial leaders to encourage cities to attract new businesses and upgrade factories, headlined by the aphorisms that China’s administrators are fond of. “Empty the cages to welcome better birds,” demanded former Guangdong Communist Party Chief Wang Yang, meaning let the old industries leave and replace them with new, higher-value ones.

“Replace humans with robots,” added his successor, Hu Chunhua, 53, one of the youngest members of the Politburo, in a 950 billion yuan ($144 billion) plan to upgrade 2,000 companies in three years, the official Guangzhou Daily reported in March 2015, adding that the move is not expected to cause heavy layoffs. Dongguan replaced 43,684 workers with robots in 2015, cutting costs at those factories by nearly 10%, according to the local government. Lu Miao, a vice general manager of Lyric Robot in Guangdong’s Huizhou city, said the government pays as much as 50,000 yuan to Lyric’s customers for each robot they use to replace workers. “The government at all levels in Guangdong has been encouraging companies to replace human workers as rapidly as possible,” said Lu. “I can see our business increasing more than 50% this year.”

The ultimate result is so-called “dark factories” that don’t need lighting because only robots work on the production line. TCL has such a plant making LCD displays, Li said in an interview at the company’s headquarters in Huizhou, about an hour’s drive from Dongguan. “For society at large, some workers will be laid off,” said Huizhou Mayor Mai Jiaomeng. “But it’s good for companies to improve their competitiveness.” Local officials say the layoffs are under control, but are reluctant to provide details on how many plants have shut or moved away. A municipal report from Shenzhen in January said that the city has “washed out” or “transformed” more than 17,000 low-end factories over the past five years.

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Looks inevitable, just a question of where on the globe it will begin.

BOJ Board Member Warns Of “2003 Shock” Historic Bond Market Collapse (ZH)

In a somewhat shocking break from the age-old tradition of lying and obfuscation, Bank of Japan policy board member Takehiro Sato raised significant concerns about global financial stability in a speech last week. In addition to raising concerns about Japanese economic fragility, Sato warned that due to the impact of negative interest rates, he “detected a vulnerability similar to that seen before the so-called VaR (Value at Risk) shock in 2003.”

Financial institutions are facing the risk of a negative spread for marginal assets due to the extreme flattening of the yield curve and the drop in the yield on government bonds in short- to long-term zones into negative territory. When there is a negative spread, shrinking the balance sheet, rather than expanding it, would be a reasonable business decision. In the future, this may prompt an increasing number of financial institutions to take such actions as restraining loans to borrowers with potentially high credit costs and raising interest rates on loans to firms with poor access to finance.

…a weakening of the financial intermediary functioning could affect the financial system’s resilience against shocks in times of stress. In addition, an excessive drop in bond yields in the super-long-term zone could also make the financial system vulnerable by increasing the risk of a buildup of financial imbalances in the system.

There is also the risk that financial institutions that have problems in terms of profitability or fiscal soundness will make loans and investment without adequate risk valuation. From financial institutions’ recent move to purchase super-long-term bonds in pursuit of tiny positive yield, I detect a vulnerability similar to that seen before the so-called VaR (Value at Risk) shock in 2003.

Simply put, as Bloomberg notes, Sato is concerned the government bond market is heading for an historic collapse after 10-year yields plunged below zero, forcing banks to pile into super-long-term bonds in pursuit of tiny positive yields. This is creating huge concentrated positions with increasing duration risk (as we detailed previously), causing a vulnerability “similar to that seen before the so-called VaR (Value at Risk) shock in 2003,” when an initial jump in yields triggered a spectacular sell-off by breaching banks’ models for estimating potential losses.

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Reuniting OPEC.

As Iran’s Oil Exports Surge, International Tankers Help Ship Its Fuel (R.)

More than 25 European and Asian-owned supertankers are shipping Iranian oil, data seen by Reuters shows, allowing Tehran to ramp up exports much faster than analysts had expected following the lifting of sanctions in January. Iran was struggling as recently as April to find partners to ship its oil, but after an agreement on a temporary insurance fix more than a third of Iran’s crude shipments are now being handled by foreign vessels. “Charterers are buying cargo from Iran and the rest of the world is OK with that,” said Odysseus Valatsas, chartering manager at Dynacom Tankers Management. Greek owner Dynacom has fixed three of its supertankers to carry Iranian crude.

Some international shipowners remain reluctant to handle Iranian oil, however, due mainly to some U.S. restrictions on Tehran that remain and prohibit any trade in dollars or the involvement of U.S. firms, including banks and reinsurers. Iran is seeking to make up for lost trade following the lifting of sanctions imposed in 2011 and 2012 over its nuclear program. Port loading data seen by Reuters, as well as live shipping data, shows at least 26 foreign tankers with capacity to carry more than 25 million barrels of light and heavy crude oil, as well as fuel oil, have either loaded crude or fuel oil in the last two weeks or are about load at Iran’s Kharg Island and Bandar Mahshahr terminals.

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One more major price drop and we have panic.

Saudi Arabia Races Through Financial Toolkit to Raise Funds (BBG)

Saudi Arabia’s plans to bolster its finances are taking on a new sense of urgency as lower oil prices put the economy under more strain than at any other time in the past decade. In recent weeks, the kingdom raised a $10 billion loan, clamped down on currency speculators and informed banks of plans to raise as much as $15 billion in its first international bond sale, people with knowledge of the matter said. It’s also said to be contemplating IOUs to pay contractor bills and hired HSBC Holdings Plc banker Fahad Al Saif to set up a new debt office. The speed of the measures underscores Deputy Crown Prince Mohammed bin Salman’s urgency to shore up the country’s finances as an era of oil-fueled abundance falters.

Though currency reserves remain strong – among the world’s largest – net foreign assets are at a four-year low after declining for 15 months in a row and the kingdom may post a budget deficit of about 13.5% of economic output this year. “The pace of the decline in Saudi Arabia’s foreign assets is faster than in previous oil downturns and the period over which they’ve been falling is longer,” Raza Agha, VTB Capital’s chief economist for the Middle East and Africa, said by e-mail. “This generates a real sense of urgency to get the ball rolling in raising external funding.”

Five years ago, oil surged to more than $100 a barrel, adding billions of dollars to the country’s reserves. The windfall allowed the kingdom to slash its debt and post an average budget surplus of 8.2% between 2000 and 2012, according to International Monetary Fund data. Now, with crude having tumbled about 50%, the country is moving to sell assets and find other ways to raise funds.

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Just a cute graph.

If Wind/Solar Is So Cheap, Why Require Government Subsidy? (SL)

I don’t have an inherent dislike of solar and wind energy, but I am suspicious of the way they are being pushed. Here’s an example: Renewable energy advocates such as Tony Seba are talking about how solar and battery technology will enable exponential uptake in renewable technology, and that people won’t want to invest in a thermal power plant anymore. But on the other hand: Renewable advocates want government legislation to support their chosen renewable energy targets. e.g. “50% renewable energy would put Australia in line with leading nations” at the Conversation. Or another example might be where energy companies are talking about how the government has to ‘support the transition’ in this AFR article: AGL says government must support power industry exit from coal.

But wait a minute, if wind and solar are truly so amazing and so cheap – why does the government need to get involved? Why wouldn’t these renewable energy companies and advocates find a way to profitably do it and not make any fuss about wanting governmental regulation/subsidies? Borrowing from Mark Perry’s excellent Venn diagram idea over at AEI Carpe Diem blog: (Could it be that renewable advocates are using the government to push renewable energy cost and risk onto taxpayers?)

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17 days still to go. Brace for increased madness. it’s going to be so much fun.

Pound Tumbles, Volatility Jumps After Polls Show Brexit Momentum (BBG)

The pound slumped to a three-week low after polls showed more Britons favor exiting the European Union, reviving concern a June 23 referendum will throw global markets into turmoil and undermine confidence in the 28-nation trading bloc. Sterling weakened against all 10 developed-market peers after two surveys showed more voters were willing to vote to leave the EU than those wishing to stay. A gauge of the currency’s expected swings against the dollar during the next month surged to a seven-year high. The Bank of England has said uncertainty surrounding the referendum vote is damping U.K. growth, while global institutions including the IMF and OECD are warning of dire fallout if Britain votes to quit the EU.

Federal Reserve Bank of Chicago President Charles Evans said the referendum is undermining confidence in the outlook at a time when the international economy is already losing momentum. “A ‘Leave’ vote would expose a host of uncertainties,” said Sue Trinh at Royal Bank of Canada in Hong Kong. “It would be more negative for the euro and the EU since the issue will drag on for other members.” A YouGov poll for television network ITV found 45% would choose ‘Leave,’ compared with 41% picking ‘Remain.’ A separate survey by global market research company TNS showed 43% for ‘Leave’ and 41% for ‘Remain.’

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Well, that seems modeled after the EU’s attitude towards democracy alright. They fit right in.

Constitutional Crisis: Pro-Remain MPs Consider Pre-Empting Brexit Vote (BBC)

Pro-Remain MPs are considering using their Commons majority to keep Britain inside the EU single market if there is a vote for Brexit, the BBC has learned. The MPs fear a post-Brexit government might negotiate a limited free trade deal with the EU, which they say would damage the UK’s economy. There is a pro-Remain majority in the House of Commons of 454 MPs to 147. A Vote Leave campaign spokesman said MPs will not be able to “defy the will of the electorate” on key issues. The single market guarantees the free movement of goods, people, services and capital. The BBC has learned pro-Remain MPs would use their voting power in the House of Commons to protect what they see as the economic benefits of a single market, which gives the UK access to 500 million consumers.

Staying inside the single market would mean Britain would have to keep its borders open to EU workers and continue paying into EU coffers. Ministers have told the BBC they expect pro-EU MPs to conduct what one called a “reverse Maastricht” process – a reference to the long parliamentary campaign fought by Tory eurosceptic MPs in the 1990s against legislation deepening EU integration. Like then as now, the Conservative government has a small working majority of just 17. They say it would be legitimate for MPs to push for the UK to stay in the single market because the Leave campaign has refused to spell out what trading relationship it wants the UK to have with the EU in the future. As such, a post-Brexit government could not claim it had a popular mandate for a particular model.

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Equal partners.

Brexit May Seem Like The West’s Biggest Problem. But Look At The US Economy (G.)

Britain is trapped in its own little Brexit bubble. For the next two and a half weeks, the country will be obsessed with the result of the referendum on 23 June. Nothing that is going on in the rest of the world will get much of a look-in. But beyond these shores, things are happening. The authorities in China are desperately trying to shore up growth. Eurozone finance ministers have all but guaranteed that, sooner or later, the Greek crisis will flare up again. Most pressingly, the US economy looks to be heading for serious trouble. Make no mistake, the jobs report issued in Washington on Friday was a shocker. Wall Street had been expecting the non-farm payroll – the benchmark for the strength of the US labour market – to increase by 164,000. The actual figure was 38,000, the smallest monthly increase since September 2010.

True, the total was slightly distorted because 35,000 striking workers at Verizon were counted as jobless because they were not being paid. But that still would have meant an NFP increase of just 73,000. The weak jobs report comes at a particularly sensitive time because America’s central bank, the Federal Reserve, has been softening the markets up for an increase in interest rates, either this month or next. Any such move is now out of the question. US borrowing costs will not be going up again until the autumn at the earliest. This is all rather chastening for the Fed. When it raised interest rates in December for the first time since the Great Recession, the central bank signalled that there would be four more increases during the course of 2016.

Financial markets subsequently went into freefall during the early weeks of the year, forcing the Fed into a crash rethink. In March, it indicated that the number of 2016 rate increases had been halved from four to two – but the guidance was promptly ignored by traders, who based their decisions on the assumption that there would be no further tightening of policy by the Fed until 2017. With its reputation at stake, the Fed has gone out of its way since March to convince the markets that it was serious about two rate rises in 2016. Really, really it was. Janet Yellen, the Fed’s chair, told Wall Street that it might be “confused” about the way the central bank was going about its business.

Yet if anyone is confused it is Yellen, not the markets, which have rightly calculated that the Fed is all talk and should be judged by what it does and not by what it says. Here’s the position. The US economy grew at an annualised rate of 0.8% in the first quarter of 2016, which was not just weaker than the UK but substantially worse than the eurozone. Friday’s May payrolls were not a one-off, since the totals for March and April were revised downwards by a combined 59,000.

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Not quite sure what Ambrose intends here, but yeah, Britons’ dislike of Cameron, Major and any and all EU mouthpieces may well decide the issue.

‘Brexit Voters Succumbing To Impulse Irritation And Anger’ (AEP)

British voters are succumbing to impulsive gut feelings and irrational reflexes in the Brexit campaign with little regard for the enormous consequences down the road, the world’s most influential psychologist has warned. Daniel Kahneman, the Israeli Nobel laureate and father of behavioural economics, said the referendum debate is being driven by a destructive psychological process, one that could lead to a grave misjudgment and a downward spiral for British society. “The major impression one gets observing the debate is that the reasons for exit are clearly emotional,” he said. “The arguments look odd: they look short-term and based on irritation and anger. These seem to be powerful enough that they may lead to Brexit,” he said, speaking to The Telegraph at the Amundi world investment forum in Paris.

The counter-critique is that the Remain campaign is equally degrading the debate, playing on visceral reactions and ephemeral issues of the day. In a sense the two sides are egging each other on. That is the sociological fascination of it. Professor Kahneman, who survived the Nazi occupation of France as a Jewish child in the Second World War, said the risk is that the British people will be swept along by emotion and lash out later at scapegoats if EU withdrawal proves to be a disastrous strategic error. “They won’t regret it because regret is rare. They’ll find a way to explain what happened and blame somebody. That is the general pattern when things go wrong and people are afraid,” he said. The refusal to face up to the implications of what is really at stake in the referendum comes as no surprise to a man imbued with deep sense of anthropological pessimism.

His life’s work is anchored in studies showing that people are irrational. They are prone to cognitive biases and “systematic errors in thinking”, made worse by chronic over-confidence in their own judgment – and the less intelligent they are, the more militantly certain they tend to be. People do not always act in their own economic self-interest. Nor do they strive to maximize “utility’ and minimize risk, contrary to the assumptions of efficient market theory and the core premises of the economics profession. “People are myopic. Our brain circuits respond to immediate consequences,” he said.

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Added for entertainment value. BTW, what century is this?

Erdogan: Childless Women Deficient, Incomplete: Have At Least 3 (AFP)

President Recep Tayyip Erdogan on Sunday urged Turkish women to have at least three children, saying a woman’s life was “incomplete” if she failed to have offspring. Erdogan’s comments were the latest in a series of controversial remarks aimed at encouraging women to help boost Turkey’s population, which had already risen exponentially in the last years. The president emphasised he was a strong supporter of women having careers but emphasised that this should not be an “obstacle” to having children. “Rejecting motherhood means giving up on humanity,” Erdogan said in a speech marking the opening of the new building of Turkey’s Women’s and Democracy Association (KADEM). “I would recommend having at least three children,” added the president.

“The fact that a woman is attatched to her professional life should not prevent her from being a mother,” he added, saying that Turkey had taken “important steps” to support working mothers. Erdogan had on Monday said that family planning and contraception were not for Muslim families, prompting fury among women’s activists. In his speech Sunday he went on to add: “A woman who says ‘because I am working I will not be a mother’ is actually denying her feminity.” “A women who rejects motherhood, who refrains from being around the house, however successful her working life is, is deficient, is incomplete,” he added.

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And there we go.

Turkey Shelves Refugee ‘Readmission’ Deal With EU (DS)

The agreement between Turkey and the EU that will facilitate visa liberalization for Turkish nationals and allow readmission of Syrian refugees who enter Europe illegally is practically shelved due to ongoing disagreements, according to sources from the Foreign Ministry. The Turkey-EU agreement that will pave the way for visa liberalization was initially signed on Dec. 16, 2013 and was later included in the comprehensive refugee deal by both parties. Although Brussels says the deal will succeed, it also requires Turkey to meet the EU’s 72 benchmarks, which include narrowing its counterterrorism laws.

Turkey’s Aksam daily reported over the weekend that a senior official from the Foreign Ministry said Turkey has used its administrative measures correctly to temporarily suspend the Readmission Agreement, which will return undocumented, illegal refugees who enter Europe via Turkey in exchange for registered migrants. Sources from the Foreign Ministry who spoke to Daily Sabah yesterday said: “In order for the Readmission Agreement to be successfully fulfilled, a Cabinet decision approving the bill published in the Official Gazette must be announced.” Such an approval is not expected anytime soon. Although the European Commission had announced early last week that the Readmission Agreement would come into full force as of June 1, Ankara asserted that “the EU has failed to fulfill its duties resulting from the agreement,” stressing that it suspended the Readmission Agreement as part of administrative measures.

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Jun 042016

Walker Evans Street Scene, Vicksburg, Mississippi 1936

The Funniest BLS Jobs Report Ever (Quinn)
US Payrolls Huge Miss: Worst Since September 2010 (ZH)
This Financial Bubble Is 8 Times Bigger Than The 2008 Subprime Crisis (SM)
Lew Says China’s Overcapacity Skewing Markets (BBG)
UBS Tells Clients To Stick With Cash-Bleeding Hedge Funds (BBG)
Schroedinger’s Assets (Coppola)
Homes Should Be Lived In, Not Traded (G.)
EC Wants “Immunity” For EU Technocrats At Greek Privatization Fund (KTG)
Greek Banks Mulling Special NPL Vehicles (Kath.)
A Russian Warning (Dmitry Orlov et al)
20,000 Migrants Wait For Boats To Take Them To UK (DM)
At Least 117 Bodies Of Migrants Found After Boat Capsized Off Libya (AP)
Hundreds Rescued, At Least 9 Die In Shipwreck Off Crete (Kath.)

Is the narrative falling apart?

The Funniest BLS Jobs Report Ever (Quinn)

Only a captured government drone could put out a report showing only 38,000 new jobs created, with the working age population rising by 205,000, and have the balls to report the unemployment rate plunged from 5.0% to 4.7%, the lowest since August 2007. If you ever needed proof these worthless bureaucrats are nothing more than propaganda peddlers for the establishment, this report is it. The two previous months were revised significantly downward in the fine print of the press release. It is absolutely mind boggling that these government pond scum hacks can get away with reporting that 484,000 people who WERE unemployed last month are no longer unemployed this month.

Life is so fucking good in this country, they all just decided to kick back and leave the labor force. Maybe they all won the Powerball lottery. How many people do you know who can afford to just leave the workforce and live off their vast savings? In addition, 180,000 more Americans left the workforce, bringing the total to a record 94.7 million Americans not in the labor force. The corporate MSM will roll out the usual “experts” to blather about the retirement of Baby Boomers as the false narrative to deflect blame from Obama and his minions. The absolute absurdity of the data heaped upon the ignorant masses is clearly evident in the data over the last three months.

Here is government idiocracy at its finest:
• Number of working age Americans added since March – 406,000
• Number of employed Americans since March – NEGATIVE 290,000
• Number of Americans who have supposedly voluntarily left the workforce – 1,226,000
• Unemployment rate – FELL from 5.0% to 4.7%

Talk about perpetrating the BIG LIE. Goebbels and Bernays are smiling up from the fires of hell as their acolytes of propaganda have kicked it into hyper-drive. We only need the other 7.4 million “officially” unemployed Americans to leave the work force and we’ll have 0% unemployment. At the current pace we should be there by election time. I wonder if Cramer, Liesman, or any of the other CNBC mouthpieces for the establishment will point out that not one single full-time job has been added in 2016. There were 6,000 less full-time jobs in May than in January, while there are 572,000 more low paying, no benefits, part-time Obama service jobs. Sounds like a recovery to me.

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“..a massive surge in people not in the labor force..” We’re approaching negative employment.

US Payrolls Huge Miss: Worst Since September 2010 (ZH)

If anyone was “worried” about the Verizon strike taking away 35,000 jobs from the pro forma whisper number of 200,000 with consensus expecting 160,000 jobs, or worried about a rate hike by the Fed any time soon, you can sweep all worries away: moments ago the BLS reported that in May a paltry 38,000 jobs were added, a plunge from last month’s downward revised 123K (was 160K). The number was the lowest since September 2010! The household survey was just as bad, with only 26,000 jobs added in May, bringing the total to 151,030K. This happened as the number of unemployed tumbled from 7,920K to 7,436K driven by a massive surge in people not in the labor force which soared to a record 94,7 million, a monthly increase of over 600,000 workers.

As expected Verizon subtracted 35,000 workers however this was more than offset by a 36,000 drop in goods producing workers. Worse, there was no offsetting increase in temp workers (something we caution recently), and no growth in trade and transportation services. What is striking is that while the deteriorationg in mining employment continued (-10,000), and since reaching a peak in September 2014, mining has lost 207,000 jobs, for the first time the BLS acknowledged that the tech bubble has also burst, reporting that employment in information declined by 34,000 in May. The change in total nonfarm payroll employment for March was revised from +208,000 to +186,000, and the change for April was revised from +160,000 to +123,000.

With these revisions, employment gains in March and April combined were 59,000 less than previously reported. Over the past 3 months, job gains have averaged 116,000 per month. There is no way to spin this number as anything but atrocious.

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And growing..

This Financial Bubble Is 8 Times Bigger Than The 2008 Subprime Crisis (SM)

On July 1, 2005, the Chairman of then President George W. Bush’s Council of Economic Advisors told a reporter from CNBC that “We’ve never had a decline in house prices on a nationwide basis. So, what I think is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” His name was Ben Bernanke. And within a year he would become Chairman of the Federal Reserve. Of course, we now know that he was dead wrong. The housing market crashed and dragged the US economy with it. And Bernanke spent his entire tenure as Fed chairman dealing with the consequences. One of the chief culprits of this debacle was the collapse of the sub-prime bubble.

Banks had spent years making sweetheart home loans to just about anyone who wanted to borrow, including high risk ‘sub-prime’ borrowers who were often insolvent and had little prospect of honoring the terms of the loan. When the bubble got into full swing, lending practices were so out of control that banks routinely offered no-money-down mortgages to subprime borrowers. The deals got even sweeter, with banks making 102% and even 105% loans. In other words, they would loan the entire purchase price of a home plus closing costs, and then kick in a little bit extra for the borrower to put in his/her pocket. So basically these subprime home buyers were getting paid to borrow money.

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They know this already, Jack.

Lew Says China’s Overcapacity Skewing Markets (BBG)

The U.S. will push China to reduce excess capacity in its economy at upcoming talks in Beijing, with Treasury Secretary Jacob J. Lew calling it an “area of central concern” Friday in Seoul. The issue bears watching when “excess capacity is distorting markets and important global commodities,” Lew said in remarks to reporters ahead of the U.S.-China Strategic and Economic Dialogue, scheduled for June 6-7 in Beijing. China Vice Premier Wang Yang, State Councilor Yang Jiechi and U.S. Secretary of State John Kerry will attend the meeting along with Lew. A senior Treasury official told reporters China has made a commitment to take serious action to reduce excess capacity in areas like steel and aluminum.

It’s a tough transition, especially as millions of workers would have to find new jobs. However, if the actions aren’t taken, excess capacity will continue to erode China’s economic growth prospects, said the official, who asked not to be identified. Chinese authorities are cutting excess capacity in industries including coal and steel while striving to keep growth above their 6.5% minimum target for this year. The economy has endured four years of factory-gate deflation, though forecasters expect that to turn around. Producer prices will improve in each of the next four quarters and turn positive in 2018, according to economists surveyed by Bloomberg in April.

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At what fee for UBS?

UBS Tells Clients To Stick With Cash-Bleeding Hedge Funds (BBG)

UBS is advising its wealthiest clients to stick with hedge funds even after the $2.9 trillion industry had its worst start to a year since 2008. While the days of “double-digit and triple-digit returns” for hedge funds are over, they still generate enough to satisfy yield-hungry clients who face negative interest rates, said Mark Haefele, global CIO of UBS Wealth Management. “Their performance in the first half hasn’t been impressive but they provide diversification,” he said in an interview with Bloomberg. “They still provide a better risk-reward or different risk-reward than other parts like sovereign bonds.”

UBS in April boosted its recommended allocation to hedge funds to 20% from 18%, saying the strategy will provide stability from volatile markets. The move comes as a net $15 billion was pulled from the global hedge-fund industry in the the first quarter and as some of world’s largest institutions including MetLife said they will scale back their holdings. Hedge funds may lose about a quarter of their assets in the next year as performance slumps Blackstone’s billionaire president, Tony James, predicted last week. The HFRI Fund Weighted Composite Index declined 0.6% in the first quarter, its worst start to a year since 2008.

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The number of non-dead assets is much higher than we let on.

Schroedinger’s Assets (Coppola)

In a new paper, Michael Woodford has reimagined the famous “Schroedinger’s Cat” thought experiment. I suspect this is unintentional. But that’s what happens when, in an understandable quest for simplicity, you create binary decisions in a complex probability-based structure. Schroedinger imagined a cat locked in a box in which there is a phial of poison. The probability of the cat being dead when the box is opened is less than 100% (since some cats are tough). So if p is the probability of the cat being dead, 1-p is the probability of it being alive. The problem is that until the box is opened, we do not know if the cat is alive or dead. In Schroedinger’s universe of probabilities, the cat is both “alive” and “dead” until the box is opened, when one of the possible outcomes is crystallised. Now for “cat”, read assets. In Woodford’s model, when there is no crisis, the probability of asset collapse is zero. But if there is a crisis, the probability of an asset collapse is greater than zero but less than 100%:

“The sequence of events, and the set of alternative states that may be reached, within each period is indicated in Figure 1. In subperiod 1, a financial market is open in which bankers issue short-term safe liabilities and acquire risky durables, and households decide on the cash balances to hold for use by the shopper. In subperiod 2, information is revealed about the possibility that the durable goods purchased by the banks will prove to be valueless. With probability p, the no crisis state is reached, in which it is known with certainty that the no collapse in the value of the assets will occur, but with probability 1-p, a crisis state is reached, in which it is understood to be possible (though not yet certain) that the assets will prove to be worthless. Finally, in subperiod 3, the value of the risky durables is learned.”

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Close to my heart, but very incomplete in its argumentation.

Homes Should Be Lived In, Not Traded (G.)

The problem is twofold: the move to viewing houses as assets, a predictable investment that lets you turn a profit and offers more return on the pound than a pension, means there’s an incentive for wealthy buyers to invest in bricks and mortar without bothering with tenants. But also, as long as our economy gets sucked into a south-east vortex, more people will head to the capital for work, as the rest of the country struggles. George Osborne’s northern powerhouse claims to address this imbalance, twinned with the excruciatingly named “Midlands engine”. But with the announcement that 250 jobs in the very department responsible for rolling out the northern powerhouse are moving from Sheffield to London, that commitment looks as weak as the efforts to give it a catchy moniker.

As long as jobs fail to materialise in post-industrial towns, empty terraces will multiply. Conservative politicians have long opined that people seeking work should “get on their bike”, without stopping to observe that many do: hence the brain drain from the north and Wales, and the exponential demand for housing in the south-east England. Houses should be lived in, most people would agree: so the government’s move to criminalise squatting is key to understanding the problem of empty houses. Contrary to scare stories, people don’t pop out for a pint of milk and find that squatters have moved in to their home. Squatters often took up residence in vacant buildings, and used the houses for their intended purpose: living in.

Prosecuting squatters reasserts people’s right to treat homes as assets, not shelter. When it comes to empty houses, it’s the inequality stupid. The inequality that means some can buy multiple houses, while others cannot rent one. That sees London swallowing up wealth, jobs and land value hikes, while parts of the country grow desolate. There shouldn’t be empty homes while some people sleep on the streets, but the fact that so many lie empty should worry us: many houses aren’t homes, they’re investment vehicles, and long term, they scupper all our chances of financial and social security.

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Selling off a country in peace.

EC Wants “Immunity” For EU Technocrats At Greek Privatization Fund (KTG)

The European Commission directly intervened in the work of the Greek Justice and demanded that EU technocrats working at the Greek Privatization Fund enjoy “immunity.” The EC intervenes two days after corruption prosecutors in Athens raised charges against 3 Greeks and 3 EU-nationals of the HRADF for selling public assets thus causing losses of several millions of euro to the state. On Friday, EC spokesman Margaritis Schinas told reporters in Brussels that EU experts working in Greece under the Greek program, should enjoy some kind of ‘guarantee’. “For us, satisfactory operating margins should be guaranteed for all European experts assisting Greece to improve its economy and find its way back to growth,” Schinas said.

At the same time, he stressed that “there is full respect to judicial procedures” currently under way against 6 members of the old Privatization Fund.but the invervention was clear. Schinas did not elaborate on the Eurogroup request referring to immunity for EU technocrats who will work for the new Greek Privatization Fund. The EC intervention came right after the corruption prosecutors raised charges against 6 members of the TAIPED for the sale of 28 public assets. Three of those members are Greeks, the other three from Italy, Spain and Slovakia appointed by the Eurogroup. The six have been investigated for the period 2013-2014 and have been called to testify before corruption investigator Costas Sargiotis.

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Yeah, let’s create some more creativity.

Greek Banks Mulling Special NPL Vehicles (Kath.)

Greece’s core banks are considering the creation of special purpose companies which will receive large portfolios of nonperforming loans and then be sold so that they stop burdening the lenders’ financial figures, as NPLs now exceed €100 billion in total. The ECB is asking bank managers to proceed with tackling this huge matter at a speedier pace and to make brave decisions for the drastic slashing of bad loans from their finances. In this context, one of the plans being examined concerns the special vehicles to be created with NPL portfolios and sold off not to third parties but to the existing stakeholders of the banks.

This creation of what would resemble a “bad bank” for each lender would serve to immediately lighten the credit sector’s financial reports, while the transfer of those vehicles to the existing stakeholders could offer them future benefits from the active management of those bad loans. Nowadays the biggest obstacle to the sale of NPLs to third parties is the great distance between buyers and sellers. The buyers of bad loans want to acquire such portfolios at exceptionally low prices, due to the country risk, the devaluation of assets owing to the protracted recession in Greece, the inefficient legal system etc. On the other hand, the sellers – i.e. the banks – are refusing to sell at such low prices as they appear certain that among the current NPL stock that reaches up to 55 percent of all loans there is a huge volume of debts that could revert to normality with the right management.

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They are not kidding.

A Russian Warning (Dmitry Orlov et al)

We, the undersigned, are Russians living and working in the USA. We have been watching with increasing anxiety as the current US and NATO policies have set us on an extremely dangerous collision course with the Russian Federation, as well as with China. Many respected, patriotic Americans, such as Paul Craig Roberts, Stephen Cohen, Philip Giraldi, Ray McGovern and many others have been issuing warnings of a looming a Third World War. But their voices have been all but lost among the din of a mass media that is full of deceptive and inaccurate stories that characterize the Russian economy as being in shambles and the Russian military as weak—all based on no evidence. But we—knowing both Russian history and the current state of Russian society and the Russian military, cannot swallow these lies. We now feel that it is our duty, as Russians living in the US, to warn the American people that they are being lied to, and to tell them the truth.

And the truth is simply this: If there is going to be a war with Russia, then the United States will most certainly be destroyed, and most of us will end up dead. Let us take a step back and put what is happening in a historical context. Russia has suffered a great deal at the hands of foreign invaders, losing 22 million people in World War II. Most of the dead were civilians, because the country was invaded, and the Russians have vowed to never let such a disaster happen again. Each time Russia had been invaded, she emerged victorious. In 1812 Nepoleon invaded Russia; in 1814 Russian cavalry rode into Paris. On June 22, 1941, Hitler’s Luftwaffe bombed Kiev; On May 8, 1945, Soviet troops rolled into Berlin.

But times have changed since then. If Hitler were to attack Russia today, he would be dead 20 to 30 minutes later, his bunker reduced to glowing rubble by a strike from a Kalibr supersonic cruise missile launched from a small Russian navy ship somewhere in the Baltic Sea. The operational abilities of the new Russian military have been most persuasively demonstrated during the recent action against ISIS, Al Nusra and other foreign-funded terrorist groups operating in Syria. A long time ago Russia had to respond to provocations by fighting land battles on her own territory, then launching a counter-invasion; but this is no longer necessary. Russia’s new weapons make retaliation instant, undetectable, unstoppable and perfectly lethal.

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Be afraid! There’s only 60 million of you!

20,000 Migrants Wait For Boats To Take Them To UK (DM)

A file lying in the drawer of the manager’s office at a small French seaside hotel provides intriguing clues about the gangsters who smuggle migrants across the Channel to Britain. It contains the passport details of four shadowy men who booked in for a night to pull off an audacious crime by trafficking 30 Pakistanis and Albanians by sea into the UK. Gangs of people smugglers now operate along all 450 miles of the north French coast — from Calais on the Belgian border to Cherbourg and beyond — as 20,000 migrants wait to get to England for a new life. During the past week they have used small fishing vessels, private yachts and speedboats to slip migrants onto England’s South Coast beaches under cover of darkness.

Early last Sunday, 18 migrants were rescued in Dymchurch, a coastal village in Kent, after their rubber dinghy began to sink offshore. The same morning, eight migrants were rescued by a lifeboat in Portsmouth harbour as they floated adrift in a fishing boat. The determination of migrants and the greed of traffickers has not been diminished by the French government’s demolition in March of the ‘Jungle’ migrant camp in Calais, an unhygienic shanty town of 4,000. The migrants simply moved on — initially 30 or so miles away to Dunkirk, where thousands live in a camp near the port, paying traffickers to cross the Channel, and then spreading further along the coast.

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How many boats and bodies sink that we never hear about?

At Least 117 Bodies Of Migrants Found After Boat Capsized Off Libya (AP)

More than 110 bodies were found along a Libyan beach after a smuggling boat of mostly African migrants sank, while a separate search-and-rescue operation across the Mediterranean saved 340 people Friday and recovered nine bodies. The developments were the latest deadly disasters for refugees and migrants seeking a better life in Europe, and they followed the drownings of more than 1,000 people since May 25 while attempting the long and perilous journey from North Africa to southern Europe. As traffickers take advantage of improving weather, officials say it is impossible to know how many unseaworthy boats are being launched — and how many never reach their destination. Naval operations in the southern Mediterranean, co-ordinated by Italy, have been stretched just responding to the disasters they do hear about.

At least 117 bodies — 75 women, six children and 36 men — washed up on a beach or were pulled from the water near the western Libyan city of Zwara Thursday and Friday, Mohammed al-Mosrati, a spokesman for Libya’s Red Crescent, told The Associated Press. All but a few were from African countries. The death toll was expected to rise. The children were aged between 7 and 10, said Bahaa al-Kwash, a top media official in the Red Crescent. “It is very painful, and the numbers are very high,” he said, adding that the dead were not wearing life jackets — something the organization had noticed about bodies recovered in recent weeks. “This is a cross-border network of smugglers and traffickers, and there is a need for an international effort to combat this phenomenon,” he said.

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Crete is a somewhat novel destination.

Hundreds Rescued, At Least 9 Die In Shipwreck Off Crete (Kath.)

Hundreds of migrants were rescued on Friday after a smuggling boat sank in international waters south of Crete, while the Hellenic Coast Guard recovered the bodies of at least nine drowned migrants. The 25-meter vessel capsized in the early hours of Friday morning under circumstances that remained unclear, leaving hundreds of migrants in the sea, some 70 nautical miles south of Crete. According to the International Organization for Migration, around 700 migrants had been aboard the vessel. Five ships – cargo and commercial vessels – had been near the scene and offered assistance, rescuing scores of migrants. The Hellenic Coast Guard sent two vessels while the navy dispatched two Super Puma helicopters to scour the area.

By late Friday, 340 migrants had been rescued and the bodies of nine migrants pulled out of the sea by rescue workers. Another vessel capsized off the coast of Libya on Friday, leading to a larger death toll, with more than 100 bodies found in the sea. Meanwhile authorities on the islands of the eastern Aegean expressed concern as tensions are rising at detention centers and frequently escalating into brawls. The influx of migrants to the islands, which had all but stopped in recent weeks, following a deal between the European Union and Ankara to return migrants to Turkey, appears to have picked up again, unnerving authorities. A group of 120 migrants arrived on Chios Friday and another 25 on Lesvos.

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Mar 122015
 March 12, 2015  Posted by at 9:21 am Finance Tagged with: , , , , , , , , ,  15 Responses »

NPC Kidwell’s Market on Pennsylvania Avenue, Washington DC 1920

I think I’ll just give you a slew of quotes, and then you can figure out if you can figure out why I chose to call this the Yellen Massacre. Which consists, by the way, of two separate but linked parts, not quite the Siamese twin perhaps, but close. What links them is the upcoming Fed decision to raise interest rates, and the timing of the announcement of that decision. It will blow up both bond markets and a large swath of emerging markets. People keep saying ‘the Fed won’t do it’, or ask ‘why would they do it’, but arguably they’re already quite late. It must be half a year ago now that I wrote it would hike rates, and also told you why: Wall Street banks. First, here’s a fine little ditty published at Econmatters:

Six Days Until Bond Market Crash Begins

Early on Thursday morning, realizing this was going to be a robust selloff in equities, the ‘smart money’, i.e., the big banks, investments banks, hedge funds and the like, ran to the old staple of buying bonds hand over fist with little regard for the yield they are getting paid for stepping in front of the freight train of rate rises coming down the tracks.

Just six days away from the most important FOMC meeting in the last seven years, and another 300k employment report in the rear view mirror, this looks like an excellent place to hide for nervous investors who have far more money than they have grains of common sense. Newsflash for these investors, yes markets are over-valued, and you need to get out of Apple, and about 100 other high flying overpriced momentum stocks, but you can`t hide out in bonds this time.

That party is over, and next Wednesday`s FOMC meeting is going to make this point abundantly clear. There is no place to hide except cash. You should have thought about that before you gorged yourself on ZIRP to the point where you have pushed stocks and bonds to unsupportable price levels, and you keep begging for the Fed to stall just another six months, so you can continue to buy more stocks and bonds.

Well you have done an excellent job hoodwinking the Fed to wait until June, you should thank your lucky stars you have done such a good job manipulating the Federal Reserve; but just like the boy crying wolf, this strategy loses its effectiveness over time. Throwing another temper tantrum right before another important FOMC meeting hoping that Janet Yellen will be alarmed by these Pre-FOMC Selloffs to put off another six months the inevitable rate hike, this blackmail strategy has run its course.

The Fed is forced to finally start the Rate Hiking Cycle after 7 plus years of Recession era Fed policies by an overheating labor market. You knew this day was going to come, but most of you are still in denial. What the heck were you buying 10-year bonds with a 1.6% yield five months before a rate hike?? You only have yourself to blame for the 65 basis point backup in yields on that disaster of an “Investment”.

But really what were you thinking here?? That is the problem when the Fed has incentivized such poor investment decisions and poor allocation of capital to useful, growth oriented projects over the past 7 plus years of ZIRP that these ‘investors’ don`t think at all, they have become behaviorally trained ZIRP Crack Addicts!

They can cry over the strong dollar, have a couple of 300 point Dow Selloffs, scare monger over Europe or Emerging Market currencies, but the fact is that the due date has come on your stupidity. You bought all this crap, and now you have to sell it! Well too freaking bad, boo hoo, you shouldn’t have bought so many worthless stocks and bonds at unsustainable levels in the first place. [..]

The positioning for this inevitability is as poor as I have seen in any market. The carnage in the bond market is just going to be gruesome, the denial is so strong, the lack of historical perspective of what normal bond yields look like, and what a normalized economy represents where savers actually get paid to save money in a CD or checking account. The fact that the Fed has so de-sensitized investors to what a normalized rate economy and healthy functioning financial system looks like is probably one of the biggest drawbacks of ZIRP Methodology.

The Federal Reserve, and now the European Union have set the stage for the biggest collapse in bond markets that will make the sub-prime financial crisis look like a cakewalk.

One may question whether 6 days is carved in stone; maybe THE announcement will come the next meeting, not this one. But does it really matter? Yellen has created a narrative about the US economy, especially the (un)employment rate. About which yet another narrative has been created by the BLS, which refuses to count many millions of Americans as unemployed, for various reasons. And that leads to the article’s claim of ‘an overheating labor market’. The only way the US jobs market is overheating is that it seems to have created a huge oversupply of underpaid waiters, greeters and burger flippers.

But the narrative is now firmly in place, so Yellen and her stooges can claim they have no choice but to hike. Not just once, but three times this year, suggests Ambrose Evans-Pritchard in the following very bleak read and weep portrait of the world today. In which he also describes how all of this plays out in sync with the soaring dollar, which will have devastating consequences around the world, starting in the poorer parts of the world (what else is new?).

Global Finance Faces $9 Trillion Stress Test As Dollar Soars

The report – “Global dollar credit: links to US monetary policy and leverage” – was first published by the Bank for International Settlements in January, but its biting relevance is growing by the day. It shows how the Fed’s zero rates and quantitative easing flooded the emerging world with dollar liquidity in the boom years, overwhelming all defences.[..]

Foreigners have borrowed $9 trillion in US currency outside American jurisdiction, and therefore without the protection of a lender-of-last-resort able to issue unlimited dollars in extremis. This is up from $2 trillion in 2000. The emerging market share – mostly Asian – has doubled to $4.5 trillion since the Lehman crisis, including camouflaged lending through banks registered in London, Zurich or the Cayman Islands. The result is that the world credit system is acutely sensitive to any shift by the Fed. “Changes in the short-term policy rate are promptly reflected in the cost of $5 trillion in US dollar bank loans,” said the BIS.

Markets are already pricing in such a change. The Fed’s so-called “dot plot” – the gauge of future thinking by Fed members – hints at three rate rises this year, kicking off in June. The BIS paper’s ominous implications are already visible as the dollar rises at a parabolic rate, smashing the Brazilian real, the Turkish lira, the South African rand and the Malaysian Ringitt, and driving the euro to a 12-year low of $1.06.

The dollar index (DXY) has soared 24pc since July, and 40pc since mid-2011. This is a bigger and steeper rise than the dollar rally in the mid-1990s – also caused by a US recovery at a time of European weakness, and by Fed tightening – which set off the East Asian crisis and Russia’s default in 1998. Emerging market governments learned the bitter lesson of that shock. They no longer borrow in dollars. Companies have more than made up for them.

“The world is on a dollar standard, not a euro or a yen standard, and that is why it matters so much what the Fed does,” said Stephen Jen, a former IMF official now at SLJ Macro Partners. He says the latest spasms of stress in emerging markets are more serious than the “taper tantrum” in May 2013, when the Fed first talked of phasing out quantitative easing. “Capital flows into these countries have continued to accelerate over recent quarters. This is mostly fickle money. The result is that there is now even more dry wood in the pile to serve as fuel,” he said. Mr Jen said Asian and Latin American companies are frantically trying to hedge their dollar debts on the derivatives markets, which drives the dollar even higher and feeds a vicious circle. “This is how avalanches start,” he said.

Companies are hanging on by their fingertips across the world. Brazilian airline Gol was sitting pretty four years ago when the real was the strongest currency in the world. Three quarters of its debt is in dollars. This has now turned into a ghastly currency mismatch as the real goes into free-fall, losing half its value. Interest payments on Gol’s debts have doubled, relative to its income stream in Brazil. The loans must be repaid or rolled over in a far less benign world, if possible at all.

You would not think it possible that an Asian sovereign wealth fund could run into trouble too, but Malaysia’s 1MDM state fund came close to default earlier this year after borrowing too heavily to buy energy projects and speculate on land. Its bonds are currently trading at junk level. It became a piggy bank for the political elites and now faces a corruption probe, a recurring pattern in the BRICS and mini-BRICS as the liquidity tide recedes and exposes the underlying rot.

BIS data show that the dollar debts of Chinese companies have jumped fivefold to $1.1 trillion since 2008, and are almost certainly higher if disguised sources are included. Among the flow is a $900bn “carry trade” – mostly through Hong Kong – that amounts to a huge collective bet on a falling dollar. Woe betide them if China starts to drive down the yuan to keep growth alive.

Manoj Pradhan, from Morgan Stanley, said emerging markets were able to weather the dollar spike in 2014 because the world’s deflation scare was still holding down the cost of global funding. These costs are now rising. Even Singapore’s three-month Sibor used for benchmark lending is ratcheting up fast. The added twist is that central banks in the developing world have stopped buying foreign bonds, after boosting their reserves from $1 trillion to $11 trillion since 2000.

The Institute of International Finance (IIF) calculates that the oil slump has slashed petrodollar flows by $375bn a year. Crude exporters will switch from being net buyers of $123bn of foreign bonds and assets in 2013, to net sellers of $90bn this year. Russia sold $13bn in February alone. China has also changed sides, becoming a seller late last year as capital flight quickened. Liquidation of reserves automatically entails monetary tightening within these countries, unless offsetting action is taken. China still has the latitude to do this. Russia is not so lucky, and nor is Brazil. If they cut rates, they risk a further currency slide.

In short, Janet Yellen will go down into history as the person responsible for what may be the biggest economic crash ever, or at least delivering the final punch of the way into it, a crash that will make the rich banks even much richer. And there is not one iota of coincidence in there. Yellen works for those banks. The Fed only ever held investors’ hands because that worked out well for Wall Street. And now that’s over. Y’all are on the same side of the same trade, and there’s no profit for Wall Street that way.

Nov 252014
 November 25, 2014  Posted by at 9:49 pm Finance Tagged with: , , , , , , , ,  8 Responses »

John Vachon Rain. Pittsburgh, Pennsylvania Jun 1941

US Q3 GDP was revised up by the BEA to 3.89%, but that’s no longer what financial markets react to. They sit and wait for more QE somewhere on the planet to be doled out. Will Americans, if they see this at all, take those numbers, add them to the sweet drop in prices at the pump and spend what they save on more holiday purchases? I’m not saying I know, but I do see that US consumer confidence is down, as is global business confidence – the latter at a five year low.

The Case/Shiller index reports a “broad-based slowdown” for US home prices, and that in the rear view mirror that looks at Q3. So that’s not where those 3.89% came from, it wasn’t housing (wonder what it was). The Gallup Christmas survey lost 8% of exuberance in one month. What this adds up to is that Americans may not spend all of that saved gas money, and that means there’s a real danger of deflation coming to America too – as if Japanese and European attempts to export their own were not enough yet.

While the media continue to just about exclusively paint a picture of recovery and an improving economy, certainly in the US – Europe and Japan it’s harder to get away with that rosy image -, in ordinary people’s reality a completely different picture is being painted in sweat, blood, agony and despair. Whatever part of the recovery mirage may have a grain of reality in it, it is paid for by something being taken away from people leading real lives. US unemployment numbers are being massages three ways to Sunday, as is common knowledge, or should be; the amounts of working age people not working, and not being counted as unemployed either, is staggering.

But there’s a very large, and growing, number of people who do work, but find it impossible to sustain either themselves or their families on their wages. That’s how the recovery, fake as it even is, is paid for. And this will have grave consequences for many years, if not decades, to come.

If a government would come clean with its citizens, explain the overwhelming debt situation a nation is in, that everyone will have to do with less at least for a while, and then openly start restructuring the debts, those consequences would be much less damaging. But all governments choose to talk about only recovery and growth, and to let their people suffer the consequences of the policies enacted to achieve these goals, even if after 6-7 years of crisis and dozens of trillions in stimulus, we’re no closer to either. Quite the contrary. We’re not in ‘drive’, we’re stuck in ‘reverse’. We’re backing up. We’re moving backwards.

Lance Roberts at StreetTalkLive provides stats on how many Americans have been made dependent on some sort of handout:

The Dismal Economy: 148 Million Government Beneficiaries

.. the Federal Reserve has stopped their latest rounds of bond buying and are now starting to discuss the immediacy of increasing interest rates. This, of course, is based on the “hopes” that the economy has started to grow organically as headline unemployment rates have fallen to just 5.9%. If such activity were real then both inflation and wage pressures should be rising – they are not. According to the Congressional Budget Office study that was just released, approximately 60% of all U.S. households get more in transfer payments from the government than they pay in taxes.

Roughly 70% of all government spending now goes toward dependence-creating programs. From 2009 through 2013, the U.S. government spent an astounding 3.7 trillion dollars on welfare programs. In fact, today, the percentage of the U.S. population that gets money from the federal government grew by an astounding 62% between 1988 and 2011. Recent analysis of U.S. government numbers conducted by Terrence P. Jeffrey, shows that there are 86 million full-time private sector workers in the United States paying taxes to support the government, and nearly 148 million Americans that are receiving benefits from the government each month.

Yet Janet Yellen, and most other mainstream economists suggests that employment is booming in the U.S. Okay, if we assume that this is indeed the case then why, according to the Survey of Income and Program Participation conducted by the U.S. Census, are well over 100 million Americans are enrolled in at least one welfare program run by the federal government. Importantly, that figure does not even include Social Security or Medicare. (Here are the numbers for Social Security, Medicaid and Medicare: More than 64 million are receiving Social Security benefits, more than 54 million Americans are enrolled in Medicare and more than 70 million Americans are enrolled in Medicaid.) Furthermore, how do you explain the chart below? With roughly 45% of the working age population sitting outside the labor force, it should not be surprising that the ratio of social welfare as a percentage of real, inflation-adjusted, disposable personal income is at the highest level EVER on record.

Tyler Durden addresses deteriorating wages in America with a great metaphor:

The Mystery Of America’s “Schrodinger” Middle Class, Which Is Either Thriving Or About To Go Extinct

On one hand, the US middle class has rarely if ever had it worse. At least, if one actually dares to venture into this thing called the real world, and/or believes the NYT’s report: “Falling Wages at Factories Squeeze the Middle Class.” Some excerpts:

For nearly 20 years, Darrell Eberhardt worked in an Ohio factory putting together wheelchairs, earning $18.50 an hour, enough to gain a toehold in the middle class and feel respected at work. He is still working with his hands, assembling seats for Chevrolet Cruze cars at the Camaco auto parts factory in Lorain, Ohio, but now he makes $10.50 an hour and is barely hanging on. “I’d like to earn more,” said Mr. Eberhardt, who is 49 and went back to school a few years ago to earn an associate’s degree. “But the chances of finding something like I used to have are slim to none.” Even as the White House and leaders on Capitol Hill and in Fortune 500 boardrooms all agree that expanding the country’s manufacturing base is a key to prosperity, evidence is growing that the pay of many blue-collar jobs is shrinking to the point where they can no longer support a middle-class life.

In short: America’s manufacturing sector is being obliterated: “A new study by the National Employment Law Project, to be released on Friday, reveals that many factory jobs nowadays pay far less than what workers in almost identical positions earned in the past.

Perhaps even more significant, while the typical production job in the manufacturing sector paid more than the private sector average in the 1980s, 1990s and early 2000s, that relationship flipped in 2007, and line work in factories now pays less than the typical private sector job. That gap has been widening — in 2013, production jobs paid an average of $19.29 an hour, compared with $20.13 for all private sector positions. Pressured by temporary hiring practices and a sharp decrease in salaries in the auto parts sector, real wages for manufacturing workers fell by 4.4% from 2003 to 2013, NELP researchers found, nearly three times the decline for workers as a whole.

How is this possible: aren’t post-bankruptcy GM, and Ford, now widely touted as a symbol of the New Normal American manufacturing renaissance? Well yes. But there is a problem: recall what we wrote in December 2010: ‘Charting America’s Transformation To A Part-Time Worker Society:”

.. one of the most important reasons for lower pay is the increased use of temporary workers. Some manufacturers have turned to staffing agencies for hiring rather than employing workers directly on their own payroll. For the first half of 2014, these agencies supplied one out of seven workers employed by auto parts manufacturers. The increased use of these lower-paid workers, particularly on the assembly line, not only eats into the number of industry jobs available, but also has a ripple effect on full-time, regular workers. Even veteran full-time auto parts workers who have managed to work their way up the assembly-line chain of command have eked out only modest gains.

And that’s not some isolated incident, as the Guardian makes clear, it’s the same thing in Britain.:

Record Numbers Of UK Working Families In Poverty Due To Low-Paid Jobs

Insecure, low-paid jobs are leaving record numbers of working families in poverty, with two-thirds of people who found work in the past year taking jobs for less than the living wage, according to the latest annual report from the Joseph Rowntree Foundation. The research shows that over the last decade, increasing numbers of pensioners have become comfortable, but at the same time incomes among the worst-off have dropped almost 10% in real terms. Painting a picture of huge numbers trapped on low wages, the foundation said during the decade only a fifth of low-paid workers managed to move to better paid jobs. The living wage is calculated at £7.85 an hour nationally, or £9.15 in London – much higher than the legally enforceable £6.50 minimum wage.

As many people from working families are now in poverty as from workless ones, partly due to a vast increase in insecure work on zero-hours contracts, or in part-time or low-paid self-employment. Nearly 1.4 million people are on the controversial contracts that do not guarantee minimum hours, most of them in catering, accommodation, retail and administrative jobs. Meanwhile, the self-employed earn on average 13% less than they did five years ago, the foundation said. Average wages for men working full time have dropped from £13.90 to £12.90 an hour in real terms between 2008 and 2013 and for women from £10.80 to £10.30.

Poverty wages have been exacerbated by the number of people reliant on private rented accommodation and unable to get social housing, the report said. Evictions of tenants by private landlords outstrip mortgage repossessions and are the most common cause of homelessness. The report noted that price rises for food, energy and transport have far outstripped the accepted CPI inflation of 30% in the last decade. Julia Unwin, chief executive of the foundation, said the report showed a real change in UK society over a relatively short period of time. “We are concerned that the economic recovery we face will still have so many people living in poverty. It is a risk, waste and cost we cannot afford: we will never reach our full economic potential with so many people struggling to make ends meet.

And it’s even worse in Greece and Spain and Italy, all so northern Europe and the Brussels politicos can keep alive the idea that Germany and Holland are doing well, and overall growth is almost at hand. That southern Europe must suffer for that idea has been justified away for years now, and it’s not even an issue deemed worth discussing anymore.

And that attitude will blow up in their faces, it’s inevitable that it will. Very few people understand how dangerous the games are that our governments and central banks play. And when the effects do play out, they will be blamed on other causes. Debt and propaganda rule our world supreme.

Excellent writer and great friend Jim Kunstler shows how simple the entire facade is to fathom, and how the next step away from the mess we’re in is so painfully obvious: downscale.

Buy the All Time High

Wall Street is only one of several financial roach motels in what has become a giant slum of a global economy. Notional “money” scuttles in for safety and nourishment, but may never get out alive. Tom Friedman of The New York Times really put one over on the soft-headed American public when he declared in a string of books that the global economy was a permanent installation in the human condition. What we’re seeing “out there” these days is the basic operating system of that economy trying to shake itself to pieces. The reason it has to try so hard is that the various players in the global economy game have constructed an armature of falsehood to hold it in place — for instance the pipeline of central bank “liquidity” creation that pretends to be capital propping up markets.

It would be most accurate to call it fake wealth. It is not liquid at all but rather gaseous, and that is why it tends to blow “bubbles” in the places to which it flows. When the bubbles pop, the gas will tend to escape quickly and dramatically, and the ground will be littered with the pathetic broken balloons of so many hopes and dreams. All of this mighty, tragic effort to prop up a matrix of lies might have gone into a set of activities aimed at preserving the project of remaining civilized. But that would have required the dismantling of rackets such as agri-business, big-box commerce, the medical-hostage game, the Happy Motoring channel-stuffing scam, the suburban sprawl “industry,” and the higher ed loan swindle.

All of these evil systems have to go and must be replaced by more straightforward and honest endeavors aimed at growing food, doing trade, healing people, traveling, building places worth living in, and learning useful things.

All of those endeavors have to become smaller, less complex, more local, and reality-based rather than based, as now, on overgrown and sinister intermediaries creaming off layers of value, leaving nothing behind but a thin entropic gruel of waste. All of this inescapable reform is being held up by the intransigence of a banking system that can’t admit that it has entered the stage of criticality. It sustains itself on its sheer faith in perpetual levitation. It is reasonable to believe that upsetting that faith might lead to war.

But that’s not yet where we are, though Ferguson sure looks close to that war Jim talks about. Our leading classes will not let us downscale, no matter how much sense that makes for the ‘lower’ 95% of the population, because that would risk their leading positions. And so we’ll have to deal with a lot more misery before the whole edifice finally blows up, and we’ll end up with huge swaths of traumatized people. In a great article, Lynn Stuart Parramore describes how that works:

So Many People Are Badly Traumatized by Life in America: It’s Time We Admit It

Recently Don Hazen, the executive editor of AlterNet, asked me to think about trauma in the context of America’s political system. As I sifted through my thoughts on this topic, I began to sense an enormous weight in my body and a paralysis in my brain. What could I say? What could I possibly offer to my fellow citizens? Or to myself? After six years writing about the financial crisis and its gruesome aftermath, I feel weariness and fear. When I close my eyes, I see a great ogre with gold coins spilling from his pockets and pollution spewing from his maw lurching toward me with increasing speed. I don’t know how to stop him. Do you feel this way, too?

All along the watchtower, America’s alarms are sounding loudly. Voter turnout this last go-round was the worst in 72 years, as if we needed another sign that faith in democracy is waning. Is it really any wonder? When your choices range from the corrupt to the demented, how can you not feel that citizenship is a sham? Research by Martin Gilens and Benjamin I. Page clearly shows that our lawmakers create policy based on the desires of monied elites while “mass-based interest groups and average citizens have little or no independent influence.” Our voices are not heard.

When our government does pay attention to us, the focus seems to be more on intimidation and control than addressing our needs. We are surveilled through our phones and laptops. As the New York Times recently reported, a surge in undercover operations from a bewildering array of agencies has unleashed an army of unsupervised rogues poised to spy upon and victimize ordinary people rather than challenge the real predators who pillage at will. Aggressive and militarized police seem more likely to harm us than to protect us, even to mow us down if necessary.

Our policies amplify the harm. The mentally ill are locked away in solitary confinement, and even left there to die. Pregnant women in need of medical treatment are arrested and criminalized. Young people simply trying to get an education are crippled with debt. The elderly are left to wander the country in RVs in search of temporary jobs. If you’ve seen yourself as part of the middle class, you may have noticed cries of agony ripping through your ranks in ways that once seemed to belong to worlds far away.

[..] A 2012 study of hospital patients in Atlanta’s inner-city communities showed that rates of post-traumatic stress are now on par with those of veterans returning from war zones. At least 1 out of 3 surveyed said they had experienced stress responses like flashbacks, persistent fear, a sense of alienation, and aggressive behavior. All across the country, in Detroit, New Orleans, and in what historian Louis Ferleger describes as economic “dead zones” — places where people have simply given up and sunk into “involuntary idleness” — the pain is written on slumped bodies and faces that have become masks of despair. We are starting to break down.

When our alarm systems are set off too often, they start to malfunction, and we can end up in a state of hyper-vigilance, unable to properly assess the threats. It’s easy for the powerful to manipulate this tense condition and present an array of bogeymen to distract our attention, from immigrants to the unemployed, so that we focus our energy on the wrong enemy. Guns give a false sense of control, and hatred of those who do not look like us channels our impotent rage. Meanwhile, dietary supplements and prescription painkillers lure us into thinking that if we just find the right pill, we can shut off the sound of the sirens. Popular culture brings us movies with loud explosions that deafen us to what’s crashing all around us.

The 21st century, forged in the images of flames and bodies falling from the Twin Towers, has sputtered on with wars, financial ruin and crushing public policies that have left us ever more shaken, angry and afraid. At each crisis, people at the top have seized the opportunity to secure their positions and push the rest of us further down. They are not finished, not by a long shot.

Trauma is not just about experiencing wars and sexual violence, though there is plenty of that. Psychology researchers have discussed trauma as something intense that happens in your life that you can’t adequately respond to, and which causes you long-lasting negative effects. [..] trauma comes with a very high rate of interest. The children of traumatized people carry the legacy of pain forward in their brains and bodies, becoming more vulnerable to disease, mental breakdown, addiction, and violence. Psychiatrist Bessel van der Kolk, an expert on trauma, emphasizes that it’s not just personal.

Trauma occupies a space much bigger than our individual neurons: it’s political. If your parents lost their jobs, their home or their sense of security in the wake of the financial crisis, you will carry those wounds with you, even if conditions improve. Budget cuts to education and the social safety net produce trauma. Falling income produces trauma. Job insecurity produces trauma.

There’s much more at the link, and every word is worth reading. The mental consequences of the gutting of our societies by governments and the financial industry does not get nearly enough scrutiny. We act, or politicians and media do, as if millions of people losing their jobs, and over half of young people in certain nations never having had a chance of a job, is just a matter of numbers, of mere statistics.

And then all sorts of ‘experts’ claim it’s all just the price to pay for technological progress, that will make everything so much better for everyone some sunny day soon. But that sunny say will never come, the techno happy ideal version of the future has already died with the debt incurred to facilitate it. We need to take a step backwards, or we’ll continue to drive backwards. Or be driven, to be more precise, since we’ve handed over the steering wheel to people who have no intention of taking us where we want to, and should, go. They are only intent on taking us where they can squeeze us most.

Thing is, there’s precious little left to squeeze. And they know that much better than most of us do. That’s why it’s imperative that we should get rid of these clowns, or there’ll be a whole lot more trauma. We can organize our societies, and we can even organize ways to downscale them peacefully . But not with those at the helm who see us only as mere entities to draw blood from.

We need to be a whole lot more assertive about this; we shouldn’t want to be surrounded by traumatized friends and family members and neighbors There’s nothing good for us in that. It’ll be used against us in increased surveillance and clampdowns and all that comes with it.

We can have good jobs for everyone, all it takes is to have what we need, produced in our own communities and societies, instead of having it shipped over from China. It’s not rocket science. It’s just that there’s a certain segment in society, which unfortunately happens to be the most powerful one, that doesn’t want us to do that. They want more and bigger, not smaller and better.

Until we solve that issue, things will keep getting worse. And not just a little bit. We need to find leaders that actually represent us, our needs and desires and ideas, and we need to find ways to elect them. If we don’t, we face a very bleak future in which there won’t be much left for us to choose. Or enjoy. We live in a pivotal moment in time, but we don’t recognize it for what it is. We seem to think it’s all some minor hiccup. We are dead wrong.

Aug 222014
 August 22, 2014  Posted by at 7:50 pm Finance Tagged with: , , , ,  9 Responses »

Dorothea Lange Siler City, North Carolina Jul 1939

If you’re a girl and you’re old and you’re grey and you’re the size of a hobbit, who’s going to get angry at you? If your predecessor had all the qualities anyone could look for in a garden gnome, and his predecessor was known mainly as a forward drooling incoherent oracle, how bad could it get? Think maybe they select Fed heads on purpose for how well they would fit into the Shire?

Janet Yellen has a serious problem: the story no longer fits. The Fed under Bernanke said in its forward guidance that it would taper if certain job market conditions were met. And now they have been, at least on paper, but Yellen knows only too well that those are not the real numbers.

She’s acutely aware of how the BLS calculates US unemployment numbers. She knows about all the millions of people who are not counted as being in the labor force anymore, all the millions who are forced to work part time jobs, all those working more than one job just to make ends meet, and all of the above who simply don’t bring home enough money at the end of the month to pay the bills.

She knows it all, but she has to go by the official numbers, lest the US government looks like a bunch of manipulative inglourious lying basterds. So this afternoon she once again went off into that staple most boring and elaborate speech this side of your least favorite librarian. It’s a routine job for Janet.

But imagine, or maybe you don’t have to because you actively experience it on a daily basis, that you’re unemployed or you’re working 3 jobs or you’re simply just scraping by and still always falling behind, you got credit card debt, maybe a looming foreclosure. And then Janet Yellen speaks, at Jackson Hole, an event you will certainly never be invited to, but she talks about the policies she and her minions decide on that will greatly influence your life too.

How about this fine paragraph courtesy of her spin writers:

… wage developments reflect not only cyclical but also secular trends that have likely affected the evolution of labor’s share of income in recent years. As I noted, real wages have been rising less rapidly than productivity, implying that real unit labor costs have been declining, a pattern suggesting that there is scope for nominal wages to accelerate from their recent pace without creating meaningful inflationary pressure. However, research suggests that the decline in real unit labor costs may partly reflect secular factors that predate the recession, including changing patterns of production and international trade, as well as measurement issues. If so, productivity growth could continue to outpace real wage gains even when the economy is again operating at its potential.

If you’re an unemployed American, like millions of your fellow country(wo)men, what are you supposed to think about that, or do with it? If you’re busting your behind just to feed your kids, and perhaps provide a decent education for them, so they don’t end up in the streets in some gang or drug operation, what do those words mean?

Janet Yellen is not talking to you. But she IS talking about you. Just in a language you don’t understand. And that you’re not supposed to understand. Or she would choose to use different words. Yellen and her fellow ” the ring is mine” chasers won’t invite you to their meetings, and they won’t talk in a language that relates to you. They will, however, make decisions that affect your life, and often to a great extent.

What Yellen said in her speech today is that while she’s bound to go by the official numbers, she knows very well those numbers have very little to do with the reality Americans experience in their lives.

Which is why she says things like:

More jobs have now been created in the recovery than were lost in the downturn

And follows up with:


.. it speaks to the depth of the damage that, five years after the end of the recession, the labor market has yet to fully recover.

More jobs created than lost, but the job market hasn’t recovered. Go figure. Yellen could tell the BLS to redo their numbers, but instead says “the labor market has yet to fully recover”, which is a polite way of saying it’s a mess out there (always note the choice of words). More Yellen:

I would like to provide some context concerning the role of the labor market in shaping monetary policy over the past several years. During that time, the FOMC has maintained a highly accommodative monetary policy in pursuit of its congressionally mandated goals of maximum employment and stable prices.

This in nonsense, and she knows it very well. The Fed’s ‘highly accommodative monetary policy’ was never aimed at the job market, and even if it were, it failed so badly, once you count part time and poorly paid and not in the labor force, that it should have been abandoned. Instead, the policy was – always – aimed at keeping banks standing up, zombified as they are, at the cost of the people scrambling for their share of the jobs market, and their children too.

As the recovery progresses, assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve’s dual mandate

How empty can a speech be? What does this have to do with Americans who only seek to feed their kids? How is this not mere gobbledy gook designed to put the unemployed to sleep while their few remaining future resources are being looted?

As an accounting matter, the drop in the participation rate since 2008 can be attributed to increases in four factors: retirement, disability, school enrollment, and other reasons, including worker discouragement. Of these, greater worker discouragement is most directly the result of a weak labor market, so we could reasonably expect further increases in labor demand to pull a sizable share of discouraged workers back into the workforce.

Indeed, the flattening out of the labor force participation rate since late last year could partly reflect discouraged workers rejoining the labor force in response to the significant improvements that we have seen in labor market conditions. If so, the cyclical shortfall in labor force participation may have diminished.

I’m going to leave it at this as far as quotes are concerned. I’m bad at never ending empty. And that’s all Yellen has to offer.

Janet Yellen was brought up with the idea of economic cycles. The short term ones. She doesn’t look like a huge 70 year Kondratieff cycle afficionado.

The scary thing about these people is that they seem to believe in what they say. Which is based on some hodgepodge stew of Keynes and Milton Friedman, not exactly people with proven track records outside of college class rooms.

But wouldn’t you know, while Janet did her show and tell, the international financial press is overflowing with experts and analysts who insist Europe’s state is so bad that trillions of euros in not even yet existent taxpayer money must be thrown at whatever the problem is Europe have got.

The only counter voice is Germany, but Germany landed a negative GDP number. So the pressure on Draghi continues. From all the people who claim that QE has been such a great success in the US and UK. Which sounds cute as long as you don’t count all the debt added to get to what US and UK seem to be at now. Without adding that debt.

London and Washington look good for now, but then so does China, which has launched more debt into the new global stratosphere than anyone else. Will that end well? How about Japan, which has QE’d itself into a trough we will only see the true despair of as we go forward? How good do they make US and UK look? Beyond next week?

All these people who sing the praises of QE, and who say Europe should pour in a trillion or two, they live in their rear-view mirrors. Thay want to go back to what once was, and at all costs. But how realistic is that? And moreover, how wise is it? Do we really want to return, even if it were possible, to, let’s say, the situation of 10 years ago?

It may be tempting when you look at certain sets of numbers, like GDP growth and housing markets, but once you realize all that was achieved only through a huge accumulation of additional debt, is it still all that attractive? And do we really want to risk adding more debt, before the old piles are paid off or restructured, just to return there?

Europe’s problem is the entire western world’s problem: people don’t spend nearly enough to keep the economy growing. And it’s not as if nothing has been done to lure them into more spending. The thing is, you won’t get there by making them borrow. People will spend more only when they have more. But rapidly increasing numbers of them have precious little. And if they don’t spend, you’re not going to get more of the so-called inflation (which is defined as rising prices).

It’s a dead end street, the whole thing. There’s only one school left in economics, and it was never a serious field to start with, let alone a science. But the nincompoops who emanate from the various schools and universities end up having an enormous influence on government and central bank policies, all at the cost of you and me. All they have is theories about how things should go, but nothing for when they don’t.

Central banks exist to protect banks, and the banking system as a whole, from danger. They pretend that they protect the larger economy, and the people on Main Street, but that’s just a convenient little story. Enhanced by the idea that what is good for banks is also good for you. Which is absolute baloney, but it works like a charm.

More often than not, banks’ interests are 180º opposites of Main Street, they certainly demonstrably have been since 2007. But then, how would you ever know? The Fed and Wall Street and Washington and all the media that are supposed to inform you but in reality promote only their propaganda, have got an iron grip on how the picture is painted.

So what if the banks themselves are the danger, and not the real economy? Well, then you’re out of luck, because the first thing on the agenda is always to save the banks, no matter what its costs Main Street or the children of Main Street.

And that’s why Janet Yellen holds stupid and insulting speeches like the one today. To tell you that she knows, but she just doesn’t care.

Very nice.

Worse Than The 1930s: Europe’s Recession Is Really A Depression (WaPo)

As I was arguing last week, it’s time to call the eurozone what it really is: one of the biggest catastrophes in economic history. There have been plenty of those lately. And it’s not just the Great Recession. It’s the way we’ve struggled to make up the ground we lost since. The United States, for one, has had its slowest postwar recovery. Britain has had its slowest one, period. But, six and a half years later, Europe has distinguished itself by not having much of a recovery at all. And, as you can see above, that’s about to make it worse than the worst of the 1930s. I’ve taken the chart above from Nicholas Crafts, and extended it a bit to put Europe’s depression in, well, even more depressing perspective. Eurozone GDP still hasn’t gotten back to its 2007 level, and doesn’t look like it will anytime soon. Indeed, it already wasn’t clear if its last recession was even over before we found out the eurozone had stopped growing again in the second quarter. And not even Germany has been immune: its GDP just fell 0.2% from the previous quarter.

It’s a policy-induced disaster. Too much fiscal austerity and too little monetary stimulus have crippled growth like almost never before. Europe is doing worse than Japan during its “lost decade,” worse than the sterling bloc during the Great Depression, and barely better than the gold bloc then—though even that silver lining isn’t much of one. That’s because, at this rate, it’ll only be another year until the eurozone is well behind the gold bloc, too. So how is Europe making the Great Depression look like the good old days of growth? Easy: by ignoring everything we learned from it. Back then, there were two types of countries: ones that had left the gold standard, and ones that were about to. But that “about to” could take awhile. That’s because governments were sentimentally attached to gold, even though, as Barry Eichengreen has shown, giving it up led to recovery. They simply equated the gold standard with civilization, so they were willing to sacrifice their economies for it. And sacrifice them they did. Although there were limits in extremis.

Britain, for example, refused to raise rates to defend the gold standard in 1931, because unemployment was already 20%. It devalued instead, and the rest of the “sterling bloc”—Sweden, Finland, Norway, Denmark, Portugal, and Canada—followed suit (silver line). The irony, of course, is that this economic weakness made them stronger. Abandoning gold let them do fiscal and monetary stimulus that jumpstarted rather rapid recoveries. Then there were the diehards. Countries that had lots of gold, like France, could actually stay on the gold standard if they wanted to—so they did. They pushed through one austerity budget after another as offerings to almighty gold, and, for that, they paid the economic price. Now, they never crashed like the U.S. did, but they never recovered, either (yellow line). The vicious circle of falling prices, rising unemployment, and bigger budget cuts kept them in a never-ending slump. Until, that is, France and the remaining members of the “gold bloc,” which, at its peak, included Belgium, Poland, Italy, the Netherlands, and Switzerland, finally gave up their Midas delusions in October 1936. Recovery followed.

Read more …

Boost the buck!

The Key To Supercharging The Dollar Rally (CNBC)

After a calm and boring summer of trading, the currency market is getting exciting again with the dollar breaking out to an 11-month high. Things could heat up even further for foreign exchange, as global central bankers convene in Jackson Hole, Wyoming, for the Kansas City Fed Symposium. The dollar index is at the highest level since September. The euro has broken below 1.33 for the first time since that month. The dollar/yen has fought back to levels last seen in April. What’s behind the recent moves to these highs? It’s become apparent to forex traders that the world’s central banks are increasingly diverging in their policy paths. The U.S. economy is outperforming, and the Fed is seen as being the first major actor when it comes to normalizing interest rates from unprecedented crisis lows.

“The essence of a multiyear strong dollar story is U.S. dollar policy divergence, particularly with the ECB and BOJ, but more generally an expectation that the Fed will be hiking rates more than any other G-10 central bank in the next three years,” said Alan Ruskin, chief forex strategist at Deutsche Bank. Here’s what could move exchange rates and supercharge this dollar rally, when policymakers speak in Wyoming. ECB President Mario Draghi speaks Friday, after Fed Chair Janet Yellen. Investors are eager to hear about how he plans to fight a recent economic slump across the 18-member euro zone and the dangerously low inflation rate of 0.4%. Remember, the ECB’s sole mandate is to keep prices rising at just under a 2% rate, so not only is it missing its target, but it’s getting dangerously close to deflation. In June, Draghi lowered the deposit rate below zero and the main interest rate to a record low. He also announced other liquidity-boosters, including a new program designed to spur lending. Importantly, Draghi recently signaled that he’s willing to do more if the outlook gets worse.

Read more …

Been there for a full week.

Moscow Defies Kiev, Aid Convoy Passes Ukraine Border (Reuters)

Russia ordered a convoy of aid trucks across the border into eastern Ukraine on Friday apparently without Kiev’s permission, raising the danger of direct confrontation with the Ukrainian military which is fighting pro-Russian rebels. A Ukraine government source said 90 white-painted trucks, part of a column of about 260 that had been waiting at the border for over a week, had crossed the border and was heading towards the rebel stronghold of Luhansk accompanied by a small number of separatist fighters. The convoy did not have clearance from the International Committee for the Red Cross (ICRC) or Ukrainian border guards, the source said. An unnamed Ukrainian official told Interfax news agency that the trucks were accompanied by a small number of pro-Russian rebels. The trucks were previously in the no-man’s land between the Russian and Ukrainian border posts, but have now moved past the Ukrainian border post.

The ICRC tweeted that it had not escorted the convoy due to the “volatile” security situation. Timothy Ash, head of emerging markets at Standard Bank said that if true, the move represented a “dangerous development”. “The Ukrainian side have previously argued that they would see such actions (convoy crossing the border without agreement from Ukraine) as an act of aggression by Russia.” Kiev and Western capitals have expressed concern that the convoy, held up by wrangling over the terms of passage, the content of the cargo and the role of the ICRC, could be used as a pretext for some form of direct Russian military intervention. Russia denies the accusation as absurd. Moscow had earlier declared its patience with the delays at the border to be an end. “All excuses to delay sending have been exhausted,” the Russian foreign ministry said in a statement, warning against any attempts to disrupt the convoy’s movement. “The Russian side has taken the decision to act.”

Read more …

Huh? What? Regime change?

Ukraine’s President Poised To Dissolve Parliament (Reuters)

Ukrainian President Petro Poroshenko said on Thursday he might announce the dissolution of parliament as early as Sunday – a move that will set up a parliamentary election in Ukraine in late October. “The decision will be made when there is a constitutional basis for it and that moment, as everyone knows, is on Independence Day (Aug. 24),” Poroshenko was quoted as saying by Interfax Ukraine news agency. The governing coalition in Ukraine, which ousted its Moscow-backed president in street protests in February precipitating major separatist rebellions in its eastern regions in which more 2,000 people have been killed, collapsed on July 24. Under the constitution, at least a month has to pass before parliament can be dissolved.

Poroshenko, a wealthy confectionery magnate, and his pro-Europe leadership hope to have stabilized the situation enough by October to be able to hold an election under normal conditions which will earn his new administration increased legitimacy. He and his liberal supporters will be seeking an endorsement for the tough line they have taken in the separatist war and the confrontation with Russia, which annexed Crimea in March after ex-president Viktor Yanukovich fled. Poroshenko’s government, headed by the liberal Arseny Yatesniuk, hope an election will clear out many of the “old guard” who supported Yanukovich and produce a parliamentary coalition that will be able to push through vital economic and political reform after years of chaotic misrule and malpractice. “In my discussions with party factions and parliamentary leaders, I will be guided by the desire of the Ukrainian people. They want a ‘reboot’, they want a purging (of the system). The elections will be the best form for a purging,” he said.

Read more …


G20 Edging Towards Deal On ‘Bail-in’ Bond Cushion For Banks (Reuters)

Government leaders are expected to agree in November that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said. The bonds, known as “gone concern loss absorption capacity” or GLAC, are seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail”. The plans are being drafted by the Financial Stability Board, the regulatory task force of the Group of 20 economies which declined to comment ahead of a G20 summit in November, when G20 leaders will discuss the reform before it is put out to public consultation. The reform would put in place the final major piece of G20 regulation on banking as the global body turns to a “post-crisis” agenda of fostering economic growth and bedding down the rules it has approved.

There had been unease in Asia and parts of Europe over how big the bond issues need to be to provide this cushion but there is now a new optimism amongst bankers and regulators that the G20 will reach a deal in November. “The industry is definitely in favour of making resolution, supported by an appropriately flexible concept of GLAC, work. That is the key pending aspect on ending too-big-to-fail,” said Andres Portilla, director of regulatory affairs at the Institute of International Finance, a Washington-based banking and insurance lobby.
“What is likely to happen is that there will be a consultative proposal, but without all the detail that a lot of people would like,” Portilla added. However, a G20 source said a deal was not only expected but would also be more detailed than some parties anticipate, which is essential for conducting a thorough impact assessment before finalising the rules.

Read more …

Ambrose’s been busy lately.

Nobel Guru Fears It May Be Nigh Impossible To Stop Deflation (AEP)

A quick word from Lindau, where half the world’s Nobel economists are gathered on a beautiful island with cobbled streets on Lake Constance, looking out across the Alps. It is a Wittlesbach jewel. Christopher Sims – a monetary expert, who now thinks money indicators have been rendered “essentially obsolete” by modern finance – says it may be impossible to reverse deflation in the Western economies by any normal means, in which case we are in trouble. He argues that the public (including investors) are convinced that there will have to be some sort of payback for all the debts accumulated during the great era of leverage and excess. They have “internalised” the prospect of future tax rises and spending that will make them feel poorer. “Some 60pc of people in the US say they doubt there will be any government benefits for them when they retire, and 60pc of those already retired think their benefits will be reduced,” he said. This has powerful implications. Many of these people are retrenching pre-emptively, en masse, in most of the mature industrial economies.

They are discounting a “future stream of primary surpluses”. By the same token businesses are putting off investment and hoarding cash in anticipation of a hit to come. We may be deluding ourselves in thinking that companies will soon be confident enough to let rip with a fresh burst of spending and investment. They may just sit on their money for year after year. If this is broadly true, it means that any use of fiscal stimulus will be neutralised by the countervailing actions of taxpayers, and may even be a net negative. Deficits become “deflationary”, contrary to standard textbook theory or populist assumptions, and threaten a self-fulfilling effect that becomes almost impossible to stop over time. Prof Sims, who won the Nobel Prize in 2011 for studying “cause and effect in the macroeconomy”, says monetary policy cannot do the trick either once interest rates have dropped to zero. He dismisses the monetary effects of quantitative easing as trivial. At best, he says, QE is a bluff intended to show resolve and change psychology.

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How Central Banks Destroy Corporate Value (Stockman)

Monetary central planning gives rise to economic waste, distortion and deformation because it causes capital to be mis-priced. Nowhere is this more evident than in the massive and destructive level of mergers and acquisitions (M&A) that has become a standard component of bubble finance. Stated simply, ZIRP and financial repression push long-term interest rates to deeply sub-economic levels, causing the value of future cash flows from M&A deals to be grossly and systematically over-estimated. Accordingly, by nearly all accounts upwards of 75-80% of deals fail—that is, they destroy shareholder value rather than enhance it on a long-term basis. Needless to say, such an outcome would not occur on the free market because companies which engaged in serial, loss-making M&A would be severely punished by stock market investors. [..]

M&A speculators could not afford to play the game if they had to pay an honest economic price for their “downside insurance”. That is, takeover speculators typically protect their “long position” in the target company’s stock by means of a short-position or put on the broad market. In that manner, they insulate themselves from a sudden unexpected drop in the stock market that could nix the deal and cause them to experience heavy losses. In today’s central bank dominated capital markets this “speculators insurance” is doubly cheap. First, takeover speculators increasingly opt for thin coverage because they are confident that the Fed has a safety net under the market and that other investors will “buy the dips”. And secondly, for the coverage that they do acquire such as puts on the S&P 500, premiums are at rock-bottom levels owing to the fact that the Fed has crushed volatility and driven short-sellers out of the casino.

As a consequence, the power and scale of of takeover speculation in today’s markets vastly exceeds what would occur in a two-way market of honest money and economically priced finance. In their misguided efforts to stimulate investment and demand via ultra-low interest rates, therefore, the central banks have actually accomplished the opposite. Namely, by subsidizing mindless deal-making—so-called Merger Monday—-they cause an after-the-fact scramble for artificial “synergies” to justify financially-driven deals. In the end, jobs are eliminated, stores and plants are closed, assets are written-off and capital is destroyed as a result of financial engineering, not capitalist enterprise.

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Free Money for Germany Is Bad News for Euro (Bloomberg)

When investors are willing to lend money to Germany for two years for free, at a zero interest rate, you know the euro project is in trouble again. Germany yesterday sold €4.04 billion ($5.3 billion) of notes that pay no interest, repayable in September 2016. Investors, it seems, are willing to forgo income for the safety of stashing their cash in the AAA-rated government debt of Europe’s biggest economy. That’s a huge vote of no-confidence in the region’s growth prospects. Here’s a chart showing how much Germany has paid for two-year money in recent years:

Note that on July 18, 2012, Germany sold two-year notes at a negative yield for the first and only time, meaning investors paid 0.06% for the privilege of lending to the nation. Back then, the euro debt crisis was reaching its climax, with Spanish 10-year borrowing costs spiking to 7.62% at the same time as yields for short-dated Austrian, Finnish and Dutch debt dropped below zero as bond buyers sought safety. A week after that German auction, European Central Bank President Mario Draghi delivered the rescue speech that turned everything around. “The ECB is ready to whatever it takes to preserve the euro,” he said in London. “And, believe me, it will be enough.”

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Time To Dust Off Old Euro Crisis Strategies (FT)

The euro area has lived a charmed life in the two years since European Central Bank President Mario Draghi said he would do “whatever it takes” to save the single currency. But the magic seems to be wearing thin. Growth is weakening, lead indicators are rolling over and a persistently weak earnings trend means European equities are making new lows relative to the US without being particularly cheap. A downside shock to European growth or an upside shock to US rates could widen peripheral bond spreads, hurt the banks and see a return of familiar vicious cycle dynamics. Europe urgently needs policies to boost nominal growth. Japan offers a precedent here. It may take a witches’ brew of serious structural reform, unconventional monetary easing and sustained fiscal expansion to raise inflation expectations. Two years ago the euro area was in perpetual crisis. Three words from Mr Draghi and the downward spiral swung powerfully into reverse.

Those who remember the late 1990s euro convergence trade got to see it all over again as the average 10-year sovereign spread for France, Italy and Spain hurtled in from more than 4percentage points over Germany to less than 1percentage point. Funding markets reopened, bank balance sheets improved and economic growth returned. At one point the euro was up 15% against the dollar and unhedged investors saw European equities outperform the US by a full 25%. In recent weeks it seems Mr Draghi’s spell has been wearing off. European lead indicators are weak. France is flat lining, Italy is back in recession and the conflict in Ukraine is hurting business confidence in Germany. There has been some derating of equity markets but it is the persistently weak relative earnings trend that has the Euro Stoxx 50 index making new lows against the S&P 500.

Gradual European underperformance is starting to look normal but a more intense phase could easily return. The euro crisis has been in remission while domestic growth has been strong and the global need for income has provided ready flows into high yielding bond markets. However, the old feedback loop remains largely in place, with banks heavily exposed to their sovereign, legacy debt excluded from discussions on banking union, and a single deposit protection scheme elusive. A downward shock to European growth or a steady rise in US interest rates could put upward pressure on peripheral yields, hurting banks, triggering asset price falls and pushing the more fragile economies back into recession when they are already on the verge of deflation. Worse still, economic weakness would lead to calls for self-defeating austerity when the exact opposite is required.

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Spectre Of ‘Lost Decade’ Haunting Europe (FT)

When Nobel Prize-winner Joseph Stiglitz was asked in Germany this week if the country and its neighbours would suffer a lost decade, his response was unequivocal. “Is Europe going the same way as Japan? Yes,” Mr Stiglitz said in Lindau at a meeting for Nobel Laureates and economics students. “The only way to describe what is going on in some European countries is depression.” Dire gross domestic product figures, which showed the eurozone’s recovery had stuttered to a halt in the second quarter, and inflation at a four-and-a-half year low of just 0.4 per cent in July have been a stark reminder of the problems befalling the world’s second-largest economic bloc. Hopes of a meaningful recovery this year have faded, overtaken by concerns that a rise in geopolitical tensions could worsen conditions in the months ahead. Beyond the latest figures, the big picture is bleaker still.

Despite hopes that the worst ravages of the region’s sovereign and banking crises are behind it, the eurozone’s economy remains smaller than it was before the collapse of Lehman Brothers in the autumn of 2008. With debt burdens worryingly high in parts of the currency area, low inflation and little growth risk causing another crisis. That has bolstered calls for the European Central Bank, facing price pressures of less than a quarter of its target, to embark on broad-based asset purchases immediately. The ECB has signalled it will not embark on quantitative easing until at least the end of the year, preferring instead to gauge the impact of the package of measures announced in June, which include up to €1tn in cheap loans for the eurozone banks. The central bank further believes its health check of the bloc’s biggest lenders, whose results will be announced in October, will help to boost investor confidence.

The governing council will also hope that signs the Bank of England and the US Federal Reserve are beginning to consider raising rates will weaken the single currency, boosting exports and lifting inflation. But waiting carries risks. John Llewellyn, of Llewellyn Consulting, said: “QE by the ECB looks almost an inevitability. But it would probably have to be massive. And having left it so late, with low-growth expectations now embedded; with deflation an increasing spectre; and with only a limited availability of financial instruments to buy, the ECB may well have missed the boat.” Ken Wattret, economist at BNP Paribas, said: “The longer the inflation rate is allowed to stay so low, and continually approach zero, the smaller the cushion against deflation. Inflation expectations can also suddenly turn into something much more destabilising. The experience in Japan is a warning in both respects.”

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Buiter?! That still exists?

Citi Chief Economist Buiter Defends ‘Helicopter Ben’ (CNBC)

Quantitative easing (QE) programs by central banks under the right conditions will always have a positive outcome for household demand, according to Willem Buiter, chief economist at Citi, who predicts that Japan and the euro zone will soon launch “massive” stimulus packages. In a 52-page thesis released on Thursday, the economist analyses Milton Friedman’s principles on “helicopter money”, giving the example of permanent QE – the irreversible open market purchase of sovereign debt by central banks. He concludes that three conditions need to be met for QE to “always” boost aggregate demand. “Deflation, ‘lowflation’ and secular stagnation are therefore unnecessary. They are policy choices,” he said in the paper. “State-issued fiat money is indeed net wealth to the private sector.”

The three conditions that need to be met, according to Buiter, are that there need to be benefits to holding that money other than its rate of return. It also needs to be irredeemable and viewed as an asset, and nominal interest rates need to be positive. He also tries to dispel the idea that households will try to save money in times of easy liquidity in order to pay for future tax increases that may be initiated to pay off the debt. He believes that the issuance of money is effective in boosting household demand regardless of this theory. Buiter name checks former Federal Reserve Chairman Ben Bernanke, who launched a total of three quantitative easing programs in the U.S. following the global financial crash of 2008. “Ben Bernanke spent years living down the moniker ‘Helicopter Ben'”, according to Buiter, whose new thesis is in direct conflict with the idea that QE has had little effect on the real economy and should be swiftly removed.

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Give it to me.

Few Homeowners To Benefit From $16.65 Billion Bank of America Settlement (AP)

Bank of America’s record $16.65 billion settlement for its role in selling shoddy mortgage bonds — $7 billion of it geared for consumer relief — offers a glint of hope for desperate homeowners. The settlement requires the nation’s second-largest bank to reduce some homeowners’ loan balances, provide new loans to low-income buyers and address areas of neighborhood blight. But consumer advocates say few people will be helped relative to the devastation triggered by the mortgage bonds, which fueled the worst financial crisis since the 1930s and threw millions of homes into foreclosure.

Only a fraction of homeowners would be eligible for refinancing under the settlement. And the process by which people would qualify and receive aid could drag on for years, with payouts set to be completed as late as 2018. Those who have lost their homes to a foreclosure or a short sale — when a lender accepts less money from a sale than what the borrower owes — likely wouldn’t benefit at all. “It is certainly better than nothing,” said Bruce Marks, chief executive of the nonprofit Neighborhood Assistance Corporation of America. “But for the millions who lost their homes, it reinforces the appearance that the government has not been on their side.”

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But they spent billions saving GM …

US Federal Prosecutors Questioning GM Lawyers On Vehicle Recalls (Reuters)

U.S. federal prosecutors have learned that lawyers for General Motors Co were present at key meetings during which information about problems with some of its vehicles were discussed, a source close to the investigation said. The prosecutors from the U.S. Department of Justice have asked how lawyers attending those meetings participated in them and what they did afterward with the information that was shared during the meetings, the source said.

General Motors had issued a report in June which detailed how for 11 years it turned a blind eye to an ignition-switch problem linked to at least 13 deaths but largely pinned the blame on what the report described as incompetent lower-level employees, leaving top brass untouched. Lower-level lawyers are among the 15 people GM has dismissed in the safety debacle that has resulted in millions of recalled vehicles. “We’re cooperating fully,” a representative from the company said. Employees within the No.1 U.S. automaker’s legal department are being scrutinized for concealing evidence from regulators about a faulty ignition switch.

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Nothing new.

A Third Of Americans Have Nothing Saved For Retirement (USA Today)

A lot of folks have empty nest eggs. A third of people (36%) in the U.S. have nothing saved for retirement, a new survey shows. In fact, 14% of people ages 65 and older have no retirement savings; 26% of those 50 to 64; 33%, 30 to 49; and 69%,18 to 29, according to the survey of 1,003 adults, conducted for Bankrate.com, a personal finance website. “These numbers are very troubling because the burden for retirement savings is increasingly on us as individuals with each passing day,” says Greg McBride, chief financial analyst for Bankrate.com. “Regardless of your age, there is no better time than the present to start saving for your retirement. The key to a successful retirement is to save early and aggressively.” Other recent research confirms that many people aren’t saving enough for their golden years.

About 36% of workers have less than $1,000 in savings and investments that could be used for retirement, not counting their primary residence or defined-benefits plans such as traditional pensions, and 60% of workers have less than $25,000, according to a survey of 1,000 workers from the non-profit Employee Benefit Research Institute and Greenwald and Associates. Many people realize that they are not on track in saving for retirement, and the two most important reasons they give are cost of living and day-to-day expenses, says Jack VanDerhei, the institute’s research director. He advises people to join the 401(k) plan if their employer offers one and to make sure to contribute at least enough to receive the maximum employer match. “Contributing anything less than that is leaving free money on the table,” he says.

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I like Chinese.

GMO Production In China Halted (RT)

In a surprise U-turn, China’s Ministry of Agriculture has decided not to continue with a program which developed genetically-modified rice and corn. Some environmentalists say public concerns about GM crops played a key role in the decision. On August 17, when these permits were up for renewal, the Ministry of Agriculture decided not to extend them. In 2009, the ministry’s Biosafety Committee issued approval certificates to develop the two crops, rice and corn. Developed by the Huazhong Agricultural University, near Wuhan, it was hoped that the GMO strains would help to reduce pesticide use by 80% while raising yields by as much as 8%, said Huang Jikun, the chief scientist with the Chinese Academy of Sciences, told Reuters in 2009. It is illegal to sell genetically-modified rice on the open market in China.

However in July, GM rice was found on sale in a large supermarket in Wuhan, which is just across the Yangtze River from the Huazhong Agricultural University, where the product was developed, which caused a public outcry. “We believe that loopholes in assessing and monitoring [GMO] research, as well as the public concern around safety issues are the most important reasons that the certifications have not been renewed,” Wang Jing, a Greenpeace official based in Beijing, wrote in an email to ScienceInsider. According to the South China Morning Post, state television commissioned tests on five packets of rice, which were picked at random, and found three contained genetically-modified rice. It is illegal to sell or commercially grow GM rice in mainland China. The safety certificates issued in 2009 only allowed the rice to be planted for research purposes, but never for sale on the open market.

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Tests Under Way For Ebola Following Donegal, Ireland Death (Irish Times)

Tests are being carried out for the Ebola virus and isolation procedures have been put in place after the death of a man in Co Donegal. It is understood the deceased had been working in Sierra Leone and that a number of colleagues had contracted the virus there. He was found dead late last night and taken to Letterkenny General Hospital, it is understood. While the cause of death is unknown the HSE is carrying out tests to see whether it was due to exposure to Ebola. It is believed the suspected victim, named locally as Dessie Quinn, from the Doorin area, outside Mountcharles, Co Donegal, was a father of one aged 43. He is thought to have been living with his partner in Dublin but was visiting his large family in Co Donegal when he was taken ill. In a statement, the HSE said it was currently assessing a suspected case of Ebola virus disease (EVD) in Donegal.

“The public health department was made aware earlier today of the remains of an individual, discovered early this morning, who had recently travelled to the one of the areas in Africa affected by the current Ebola virus disease outbreak,” it said. “The appropriate national guidelines, in line with international best practice, are being followed by the public health team dealing with the situation. This means that the body of the deceased has been isolated to minimise the potential spread of any possible virus.” The statement said blood samples had been sent for laboratory testing to confirm whether or not this individual had contracted Ebola virus disease. “Until a diagnosis is confirmed, and as a precautionary measure, the individual’s remains will stay in the mortuary pending the laboratory results which are expected late tomorrow.”

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As if it’s not going fast enough.

Global Warming Slowdown ‘Could Last Another Decade’ (BBC)

The hiatus in the rise in global temperatures could last for another 10 years, according to new research. Scientists have struggled to explain the so-called pause that began in 1999, despite ever increasing levels of CO2 in the atmosphere. The latest theory says that a naturally occurring 30-year cycle in the Atlantic Ocean is behind the slowdown. The researchers says this slow-moving current could continue to divert heat into the deep seas for another decade. However, they caution that global temperatures are likely to increase rapidly when the cycle flips to a warmer phase. According to the Intergovernmental Panel on Climate Change (IPCC), global average temperatures have increased by around 0.05C per decade in the period between 1998 and 2012. This compares with a decadal average of 0.12 between 1951 and 2012. More than a dozen theories have been put forward on the cause of this pause in temperature growth that occurred while emissions of carbon dioxide were at record highs.

These ideas include the impact of pollution such as soot particles that have reflected back some of the Sun’s heat into space. Increased volcanic activity since 2000 has also been blamed, as have variations in solar activity. The most recent perspectives have looked to the oceans as the locations of the missing heat. Last year a study suggested that a periodic upwelling of cooler waters in the Pacific was limiting the rise. However this latest work, published in the journal Science, shifts the focus from the Pacific to the Atlantic and Southern oceans. The team, lead by Prof Ka-Kit Tung from the University of Washington, US, says there is now evidence that a 30-year current alternately warms and cools the world by sinking large amounts of heat beneath these deep waters.

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Lot of water.

US West Missing 62 Trillion Gallons Of Water, Surface Rises (Smithsonian)

The record-breaking California drought is so bad that monitoring stations used to study earthquakes can detect the drying ground rising up. Measurements of these subtle movements, made using GPS instruments, suggest that the western United States is missing some 62 trillion gallons of water, enough to cover the entire region six inches deep. Drought has plagued various parts of the western United States for years. California’s dry times started at the beginning of 2013 and have continued to worsen. Nearly 100% of the state is now experiencing drought conditions, according to the U.S. Drought Monitor, and more than half the state falls under the most severe category of “exceptional drought.” Water restrictions are in place. Farmers have been hard hit. And some people are even questioning participation in the viral “ice-bucket challenge” that is raising awareness and funding for amyotrophic lateral sclerosis (ALS).

While it’s not difficult to see parched lawns and drying lakes, and scientists can directly measure changes in rainfall and stream flow, getting a measure of how much water has been lost from the desiccating landscape hasn’t been easy. The new study, appearing today in the journal Science, provides a way to do just that by taking advantage of GPS monitors set up across the country. The Plate Boundary Observatory consists of more than 1,000 permanent GPS stations, with the majority concentrated along the seismically active West Coast. The stations measure millimeter-size movements of the ground, and scientists use that data to study what is happening at the boundary between the Pacific and North American tectonic plates. But Adrian Borsa, a geophysicist at the Scripps Institution of Oceanography in La Jolla, California, noticed an odd trend in the data: Most of the stations have been gradually rising in the last couple of years, just when the region was drying out.

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