Jul 132017
 
 July 13, 2017  Posted by at 8:56 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Vincent van Gogh Vineyards with a View of Auvers 1890

 

‘Investors Underestimate How Low The Bar Is For The Fed’ (CNBC)
Unwinding QE will be “More Disruptive than People Think” (WS)
I Wouldn’t Rule Out Another Financial Crisis – IMF’s Lagarde (CNBC)
The US Stock Market Is 66% Higher Than It Should Be (Kee jr)
Valuation Measures & Forward Returns (Lance Roberts)
Nonprime Mortgages Prove Leery Investors Are Finally Hungry Again (CNBC)
VISA takes its War on Cash to US Retailers (WS)
Greece To Exit EU’s Excessive Deficit Procedure (K.)
Brain Drain Gathers Pace as One in Three Greeks Looks for a Job Abroad
Germany Profits From Greek Debt Crisis (HB)
Defiant Varoufakis Ready to Face ‘Even Martial Court’ Over Plan B (GR)

 

 

What Yellen says is not so interesting. What lies beyond those carefully crafted speeches is.

BTW, no Trump today, but maybe we can start a separate gossip page.

“The Fed says it’s going to hike again this year, markets says 50-50. The Fed says three, four times next year, the market says it’s not going to happen at all..”

‘Investors Underestimate How Low The Bar Is For The Fed’ (CNBC)

Patrick Armstrong, the CIO at Plurimi Investment Managers, believes that very high valuations, an expected tightening in monetary policy and too much optimism over tax cuts and new fiscal spending should leave investors cautious on the United States. “Valuation doesn’t matter in the short term but at current CAPE (cyclically adjusted price to earnings, which gives a more clear indication of a stock price in comparison to average earnings over the last 10 years) of 29 times, U.S. equities have historically delivered negative real returns over periods of two to five years,” he said in an investment outlook published earlier this month. The U.S. Federal Reserve has begun normalizing its policy in the wake of improved economic growth and low unemployment levels.

According to Armstrong, the easy monetary policy of the past had boosted equities but this might change with the Fed’s plans to hike rates and reduce its balance sheet. “I think there was a clear warning in the last (meeting) minutes talking about risk premium, price earnings and investors haven’t acknowledged it, but when the Fed starts worrying about equity markets, as an equity investor they’ve given you that warning,” he told CNBC on Tuesday. The third reason to be “short” – where a trader takes a bet that prices will fall – on U.S. equities is the government’s plans on fiscal policy. President Donald Trump promised tax cuts and big infrastructure spending, which made U.S. equities rally since he took office last November. However, such policies are yet to reach the consultation stage and doubts have emerged over the president’s ability to deliver.

[..] Speaking to CNBC Tuesday, Armstrong suggested that investors aren’t listening to the U.S. Federal Reserve. “What investors are completely underestimating is how low the bar is for the United States Federal Reserve. They have told us what they intend to do, the markets don’t believe any of it,” Armstrong said. “The Fed says it’s going to hike again this year, markets says 50-50. The Fed says three, four times next year, the market says it’s not going to happen at all,” he added.

Read more …

Central banks are trying to get out before the blast. But in doing so they bring it forward. Were given far too much power.

Unwinding QE will be “More Disruptive than People Think” (WS)

“We’ve never had QE like this before, and we’ve never had unwinding like this before,” said JPMorgan CEO Jamie Dimon at the Europlace finance conference in Paris. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.” He was referring to the Fed’s plan to unwind QE, shedding Treasury securities and mortgage-backed securities on its balance sheet. The Fed will likely announce the kick-off this year, possibly at its September meeting. According to its plan, there will be a phase-in period. It will unload $10 billion the first month and raise that to $50 billion over the next 12 months. Then it will continue at that pace to achieve its “balance sheet normalization.” Just like the Fed “created” this money during QE to buy these assets, it will “destroy” this money at a rate of $50 billion a month, or $600 billion a year.

It’s the reverse of QE, with reverse effects. Other central banks are in a similar boat. The Fed, the Bank of Japan, and the ECB together have loaded up their balance sheets with $14 trillion in assets. Unwinding this is going to have some impact – likely reversing some of the asset price inflation in stocks, bonds, real estate, and other markets that these gigantic bouts of asset buying have caused. The Bank of Japan has been quietly tapering its asset purchases for a while to where it buys only enough to keep the 10-year yield barely above zero. And the ECB has tapered its monthly purchases by €20 billion earlier this year and is preparing the markets for more tapering. Once central banks stop buying assets, the phase starts when central banks try to unload some of those assets. The Fed is at the threshold of this phase.

Dimon was less concerned about the Fed’s rate hikes. People are too focused on rate hikes, he said, according to a Bloomberg recording of the conference. If the economy is strong, economic growth itself overcomes the issues posed by higher rates, he said. The economy has been through rate hikes many times before. They’re a known quantity. But “when selling securities in the market place starts,” that’s when it gets serious. “When that happens of size or substance, it could be a little more disruptive than people think,” he said. Whatever it will do, no one knows what it will do – because “it never happened before.”

Read more …

Don’t woryy, they serve the same lords.

I Wouldn’t Rule Out Another Financial Crisis – IMF’s Lagarde (CNBC)

The IMF’s Managing Director, Christine Lagarde, has said that she would not rule out another financial crisis in her lifetime, indicating that comments made recently by Federal Reserve Chair Janet Yellen may have been premature. “There may, one day, be another crisis,” Lagarde told CNBC Tuesday on the sidelines of a joint conference with the IMF and the Croatian National Bank in Dubrovnik. Lagarde’s comments responded to a statement made by Yellen a fortnight earlier in which she said she does not expect to see another financial crisis in her lifetime. “I plan on having a long life and I hope she (Yellen) does, too, so I wouldn’t absolutely bet on that because there are cycles that we have seen over the past decade and I wouldn’t exclude that,” Lagarde said.

She, however, noted the unpredictability of financial crises and said that finance ministers and policymakers should act with caution to prepare for such eventualities. “Where it will come from, what form it takes, how international and broad-based it will be is to be seen, and typically the crisis never comes from where we expect it,” she added. “Our duty, and certainly the message that we give to the finance ministers, to the policymakers, is ‘be prepared’. Make sure that your financial sector is under good supervision, that it’s well regulated, that the institutions are rock-solid, and anticipate at home with enough buffers so that you can resist the potential crisis.”

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And we will see undershoot on the way down. The Fed killing off price discovery will be a scourge on society.

The US Stock Market Is 66% Higher Than It Should Be (Kee jr)

I have, in previous articles here on MarketWatch, pointed out the fundamental risks in the U.S. stock market. I have identified the liquidity risks created by the ECB and the Federal Reserve in the tightening of monetary policy, in the reduction of the Fed’s balance sheet, and the likelihood that these risks will prick the asset bubble that the market is in today. Most people I speak and email with agree. The risks are high, as the price-to-earnings multiple of the S&P 500 (about 25, depending on the indicator) is far greater than its historical norm (14.5). The truth, however, is that no one knows for sure. But, still, people are apathetic. In fact, my experience over the past 20 years and through each of the past two major asset bubbles (the internet bubble in 2000 and the credit crisis in 2008-2009), is that the unanimous identification of an asset bubble did not take place until after the asset bubble had burst.

By that time, all of the major indices — the Dow Jones Industrial Average S&P 500, Nasdaq 100 and Russell 2000 — had already fallen. The result largely handcuffed investors to investments that were severely underwater. As luck would have it, though, after the credit crisis, the Fed’s policy-making body printed $2 trillion and, with that money, bought assets to prop up the economy and save investors from destruction. Largely, this perceived savior is probably why investors are so lethargic when it comes to the asset bubble that we are probably in right now. This bubble even seems to include real estate and bonds in addition to stocks, and it has been driven by fabricated central bank liquidity.

Admittedly, I cannot be sure what will happen. I do not know if this bubble will burst, and I do not know if central banks will come running to the rescue again, as they did after the credit crisis. Unfortunately, I do know a great deal of people who believe that the central banks of the world will simply print more money if the going gets tough again, but that is a seriously risky bet. With major indices coming off all-time highs and technical trading patterns (dojis) surfacing in long-term chart patterns last week, potential reversal signals are coming on a technical basis. As much as it is appealing to opt for relaxation and vacationing during the summer months, some time must be spent evaluating the conditions the market is facing right now.

In previous articles, I have offered alternatives to the traditional buy-and-hold methodology, and I think everyone should consider heading that way because strategies like “lock and walk” can work no matter what happens. The risks in the market today are extremely high for buy-and-hold investors because the liquidity picture is changing for the worse, and that is fundamental in nature. But longer-term technical observations point toward serious risks as well. My longer-term macroeconomic analysis, The Investment Rate, is offering warnings that this market is 66% higher than it should be. Given the changes in liquidity and technical observations happening now, those risk warnings should be heard with an acute ear.

Read more …

A whole bunch of Lance graphs again. Hard to choose. But pretty as the graphs are, they do not paint a pretty picture. They say BUBBLE.

Valuation Measures & Forward Returns (Lance Roberts)

[..] if the market can reverse the current course of weakness and rally above recent highs, it will confirm the bull market is alive and well, and we will continue to look for a push to our next target of 2500. With portfolios currently fully allocated, we are simply monitoring risk and looking for opportunities to invest “new capital” into markets with a measured risk/reward ratio. However, this is a very short-term outlook which is why “price is the only thing that matters.” “Price measures the current “psychology” of the “herd” and is the clearest representation of the behavioral dynamics of the living organism we call “the market.” But in the long-term, fundamentals are the only thing that matters. I have shown you the following chart many times before. Which is simply a comparison of 20-year forward total real returns from every previous P/E ratio.

I know, I know. “P/E’s don’t matter anymore because of Central Bank interventions, accounting gimmicks, share buybacks, etc.” Okay, let’s play. In the following series of charts, I am using forward 10-year returns just for consistency as some of the data sets utilized don’t yet have enough history to show 20-years of forward returns. The purpose here is simple. Based on a variety of measures, is the valuation/return ratio still valid, OR, is this time really different? Let’s see. Tobin’s Q-ratio measures the market value of a company’s assets divided by its replacement costs. The higher the ratio, the higher the cost resulting in lower returns going forward. Just as a comparison, I have added Shiller’s CAPE-10. Not surprisingly the two measures not only have an extremely high correlation, but the return outcome remains the same.

One of the arguments has been that higher valuations are okay because interest rates are so low. Okay, let’s take the smoothed P/E ratio (CAPE-10 above) and compare it to the 10-year average of interest rates going back to 1900. The analysis that low rates justify higher valuations clearly does not withstand the test of history.

Read more …

Substitute nonprime for subprime and you open a whole new can of suckers again. “No, these are fine and upstanding citizens. They just don’t have access to normal bank loans.” Gee, why is that?

Nonprime Mortgages Prove Leery Investors Are Finally Hungry Again (CNBC)

The appetite for riskier mortgages is rising, and a small cadre of investment firms is ready to feed it. Angel Oak Capital Advisors just announced its second rated securitization of nonprime residential mortgages this year, a deal worth just more than $210 million and its largest ever. Its first deal was slightly less, but demand from borrowers and investors alike is growing, and the securitizations are growing with it. Angel Oak is one of very few firms offering these private-label mortgage-backed securities — the ones that were so very popular during the last housing boom and which were later blamed for the financial crisis. Today’s nonprime loans, however, are nothing like the ones of the past. The government cracked down on faulty loan products, those with low teaser rates, negative amortization and no documentation.

Still, for the past decade investors wouldn’t touch anything that wasn’t government-backed. Only now are they seeing value and dipping their toes in again. The number of nonprime mortgage-backed securities “skyrocketed” in the second quarter of this year, according to Inside Mortgage Finance — a total of $1.08 billion of MBS backed by nonprime home loans. That was the strongest quarter for the sector since the financial crisis. It is still, however, nothing compared with the volume that caused the housing crash. “At one point during the housing boom, we had a third of all mortgage originations that were nonprime [subprime or Alt-A, the latter having low or no documentation]. We’re not going to be even 5% of the market if we have a record year this year. It still has a long, long way to go,” said Guy Cecala, CEO of Inside Mortgage Finance.

That is because while investors are hungry for yield, they are still very skeptical. The ratings agencies are as well. That makes it difficult for companies like Angel Oak, and its competitors — Lone Star and Deephaven Mortgage — to issue large quantities of nonprime MBS. Nonprime securitizations today are far less risky, consisting of loans that were underwritten far more stringently. Angel Oaks’ securitization does consist of both fixed- and floating-rate loans. “In addition to borrowers that had prior credit events, our loans are also for borrowers who are self-employed,” said Lauren Hedvat, capital markets director at Angel Oak. “They are of high credit quality, but they are not able to access mortgage products by the more traditional bank routes.”

Read more …

Start paying cash everywhere.

VISA takes its War on Cash to US Retailers (WS)

“We’re focused on putting cash out of business,” Visa’s new CEO Al Kelly said on June 22 at Visa Investor Day. Pushing consumers into digital and electronic payments is the company’s “number-one growth lever.” Visa has been dogged by the stubborn survival of cash and checks, despite widespread government and corporate efforts to kill them off. Globally, check and cash transactions totaled $17 trillion in 2016, Visa President Ryan McInerney said. Confusingly, that’s up 2% from a year earlier. So today, Visa rolled out a new initiative on its war on cash. It’s designed “for small business restaurants, cafés, or food truck owners,” and the like. In this trial, it will award up to $10,000 each to 50 eligible businesses (online businesses are excluded) when they commit to refusing cash payments.

Going “100% cashless,” as Visa calls it, means that consumers can only pay with debit or credit cards or with their smartphones. That’ll be the day. You go to your favorite taco truck, and when it comes time to pay, you pull out a wad of legal tender, only to be treated to an embarrassed nod toward a sign that says, “No Cash.” I’d walk. But Visa hopes that other folks will pull out their Visa-branded card or a smartphone with a payment app that uses the Visa system. This would help Visa extract its fees from the transaction. “We have an incredible opportunity to educate merchants and consumers alike on the effectiveness of going cashless,” Jack Forestell, Visa’s head of global merchant solutions, said in the press release, which touted a “study” that Visa recently “conducted” that “found that if businesses in 100 cities transitioned from cash to digital, their cities stand to experience net benefits of $312 billion per year.”

However dubious these “net benefits” may be, one thing is not dubious: Visa gets a cut from every transaction made via Visa-branded cards or digital payment systems that use Visa. The merchant pays the cut and then tries to pass it on to customers via higher prices. The total card fees normally range between 1% and 3%. Among the entities that get to divvy this moolah up are the bank that issued the visa card and the credit card network – such as Visa, MasterCard, and the like. Visa gets just a small piece of the pie, but if it is on every transaction, it adds up. And payments by cash and check seriously get in the way of a lot of money. In 2016, Visa extracted $15 billion from processing transactions globally without even carrying any credit risk (the banks have to deal with that).

Read more …

Purely symbolic. Everyone loves to present a meme of recovery, but it’s not there. Ironically, the move from deficit to -forced- surplus guarantees it. Greece should run a deficit now to boost its economy.

Greece To Exit EU’s Excessive Deficit Procedure (K.)

After eight years, Greece emerged on Wednesday from the European Commission’s process for countries with excessive deficit. The Commission proposed Greece’s exit from the process as its general government debt has dropped below the threshold of 3% of GDP. This is a largely symbolic move, but it does have some significance given that the government is planning to return to the bond markets for the first time since 2014. Economic Affairs Commissioner Pierre Moscovici gave a wink to the markets on Wednesday, saying that the disbursement of the tranche of 7.7 billion euros on Monday and the decision on the deficit is “good news that the markets ought to read,” even though he explained that what the investors do is not up to him.

Commission Vice President Valdis Dombrovskis called on Greece to capitalize on its achievements and continue to strengthen confidence in its economy, which is crucial as the country prepares its return to the credit markets. The Commission’s proposal for Greece’s emergence from the deficit procedure has to be ratified by the EU’s finance ministers, but has little practical use. Ultimately, Greece’s fiscal targets are dictated by the bailout agreement and not by the rules that apply to other eurozone members. As one European official told Kathimerini, “nothing changes essentially, the fiscal targets Greece must hit remain high and [yesterday’s] decision is only of a symbolic dimension.”

Read more …

Greece can only get worse, for many years into the future.

Brain Drain Gathers Pace as One in Three Greeks Looks for a Job Abroad

A new study highlights the problem in the Greek labor market as more than 30% of Greek unemployed say that they are actively seeking a job abroad. According to the annual survey by the firm Adecco titled “Employability in Greece,” the brain drain phenomenon has been increasing over the last three years. In 2015 only about 11% of unemployed respondents said that they were actively looking for a job abroad. This figure increased to 28% in 2016 and reached 33% this year. The responses show that the unemployed have different reasons to seek work abroad. Whereas in 2005, the main reason was the prospect of a better wage, in 2016 and 2017 the main reason given were better career opportunities.

The study conducted for the third year running, in collaboration with polling company LMG, was based on a sample of 903 people from the age of 18 to 67. According to other findings, 37% of respondents say that they have been out of the labor market for at least 12 months. Despite the slight improvement in official unemployment rates, the Adecco survey finds that there is an increasing number of people who state that they have been at least once without a job – 58% this year compared to 54% in 2016. According to the data, more than 1 out of 4 (28%) are out of the labor market, a higher rate compared with the previous two years.

Read more …

Money that could have helped Greece escape the claws of Schäuble et al. The pattern is not coincidental.

Germany Profits From Greek Debt Crisis (HB)

The German government has long been accused by critics of profiting from Greece’s debt crisis. Now there are some new numbers to back it up: Loans and bonds purchased in support of Greece over nearly a decade have resulted in profits of €1.34 billion for Germany’s finance ministry, which confirmed the number in response to a parliamentary query from the Green Party, according to a report by German daily Süddeutsche Zeitung. The profits come from a range of programs, running into the hundreds of billions, that Germany and other euro-zone countries have backed to keep Greece’s government and economy afloat since its massive debt crisis emerged in 2009. It includes, for example, a €393-million profit generated from a 2010 loan by the development bank KfW, which is owned by the German government.

The report also shows that Germany’s central bank, the Bundesbank, has received profits from the Securities Market Program (SMP), a now-defunct government bond-buying plan initiated by the ECB and run from 2010 to 2012. The ECB collected more than €1.1 billion in 2016 in interest payments on the nearly €20 billion-worth of Greek bonds it bought through the SMP, according to the report. This year, the figure will be €901 million, which will again be redistributed to the euro zone’s 19 member states. Since 2015, Germany has collected a total of €952 million in SMP profits. The new revelations drew strong criticism from the Greens Party, in opposition. “The profits from collecting interest must be paid out to Greece. [Finance Minister] Wolfgang Schäuble cannot use the Greek profits to clean up Germany’s federal budget,” Manuel Sarrazin, EU expert for the Green Party in the parliament, told the Süddeutsche newspaper.

Mr. Schäuble, a member of Chancellor Angela Merkel’s conservative Christian Democrats, has been cannily keeping Germany’s federal budget balanced over the past four years, taking on no new debt. Berlin’s surplus amounted to €6.2 billion in 2016 alone. Critics complain that Greece’s crisis has helped it achieve that goal. “It might be legal for Germany to profit from the crisis in Greece, but from a moral and solidarity perspective, it is not right,” Sven-Christian Kindler, budget policy spokesperson for the Green Party, also told the paper. Mr. Schäuble has said he is open to reducing Greece’s interest burden but has resisted calls to end them completely. His finance ministry has argued that, with inflation, deferring interest payments would eventually end up costing Greece’s creditors.

Read more …

There are many parties not too keen on such an investigation, and Varoufakis is not one of them.

Defiant Varoufakis Ready to Face ‘Even Martial Court’ Over Plan B (GR)

Undeterred over the controversy surrounding the new disclosures over the system of a parallel currency that was apparently considered by the government of Alexis Tsipras in 2015, Yanis Varoufakis said that he is ready to face any court to respond to the charges. Speaking in a radio show, Varoufakis, the finance minister at the time and the instigator of the parallel payments system or Plan B, said that Tsipras had a copy of the proposals from as early as 2012 when he was still in opposition. “I have handed the plan to Tsipras in 2012,” so it could become the government’s plan B if negotiations with Greece’s creditors collapsed.

Mr. Varoufakis said he was willing to accept any kind of judicial investigation into Plan B and his role in drafting it. “Let’s have a special court of inquiry, or even a martial court, or any other court, so all the facts can be revealed,” he said responding to calls from the opposition for a judicial inquiry. He also attacked the SYRIZA-led government for refusing to proceed with an investigation. The Varoufakis Plan B for the Greek economy in the event that the country clashed with creditors and went bankrupt was to partially pay civil servants with coupons. Parts of the plan were revealed last week by his financial advisor Glenn Kim.

Read more …

Mar 122017
 
 March 12, 2017  Posted by at 9:59 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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NPC Newsstand with Out-of-Town Papers, Washington DC 1925

 

Individual Investors Wade In as Stocks Soar (WSJ)
Stock Market Valuations Are Totally Unprecedented (Felder)
US Subprime Auto Loan Losses At Highest Level Since Financial Crisis (BBG)
US Government Revenues Suffer Biggest Drop Since The Financial Crisis (ZH)
Trump Fires US Attorney Preet Bharara After He Refuses To Quit (ZH)
A Generation of Sociopaths: How the Boomers Betrayed America (MW)
Netherlands Bars Turkish Ministers As Rally Dispute Escalates (R.)
Flynn Attended Intel Briefings While Taking Money To Lobby for Turkey (NBC)
Turkish Diaspora In Germany Divided On Powers For Erdogan (G.)
Greek Activists Target Sales Of Homes Seized Over Bad Debts (G.)

 

 

Mom and pop get squeezed again.

Individual Investors Wade In as Stocks Soar (WSJ)

The stock-market rally presents a difficult choice for some individual investors: Miss out or risk getting in at the top. The scars of the financial crisis have left many wary, even as the second-longest bull run in S&P 500 history has added more than $14 trillion in value to the index since it bottomed in March 2009, according to S&P Dow Jones Indices. Yet there are signs that caution is dissipating. Investors have poured money into stocks through mutual funds and exchange-traded funds in 2017, with global equity funds posting record net inflows in the week ended March 1 based on data going back to 2000, according to fund tracker EPFR Global. Inflows continued the following week, even as the rally slowed. The S&P 500 shed 0.4% in the week ended Friday.

The investors’ positioning suggests burgeoning optimism, with TD Ameritrade clients increasing their net exposure to stocks in February, buying bank shares and popular stocks such as Amazon.com and sending the retail brokerage’s Investor Movement Index to a fresh high in data going back to 2010. The index tracks investors’ exposure to stocks and bonds to gauge their sentiment. “People went toe in the water, knee in the water and now many are probably above the waist for the first time,” said JJ Kinahan at TD Ameritrade. That brings individual investors increasingly in line with Wall Street professionals. A February survey of fund managers by Bank of America Merrill Lynch found optimism about the global economy improving while investors were holding above-average levels of cash, leaving room for them to drive stocks still higher.

Bullishness among Wall Street newsletter writers reached 63.1%—the highest level since 1987—a week ago in a survey by Investors Intelligence, before falling to 57.7% this past week. Overall investor sentiment is strong right now for the U.S. stock market, said Ann Gugle, principal at Alpha Financial Advisors. She pointed to a typical growth-and-income portfolio with 70% in stocks and 30% in bonds and alternatives. The 70% allocation to stocks, she said, would ordinarily be evenly split between U.S. and international stocks, but for the past three years it has shifted about 40% to U.S. stocks and 30% international.

Read more …

“The Most Broadly Overvalued Moment in Market History”.

Stock Market Valuations Are Totally Unprecedented (Felder)

Last week I updated the Warren Buffett yardstick, market cap-to-GNP. The only time it was ever higher than it is today was for a few months at the top of the dotcom mania.

However, when you look under the surface of the market-cap-weighted indexes at median valuations they are currently far more extreme than they were back then. As my friend John Hussman puts it, this is now “the most broadly overvalued moment in market history.”

Another way to look at stock prices is in relation to monetary velocity and here, too, we see something totally unprecedented.

Read more …

Time for public transport investments, Donald.

US Subprime Auto Loan Losses At Highest Level Since The Financial Crisis (BBG)

U.S. subprime auto lenders are losing money on car loans at the highest rate since the aftermath of the 2008 financial crisis as more borrowers fall behind on payments, according to S&P Global Ratings. Losses for the loans, annualized, were 9.1% in January from 8.5% in December and 7.9% in the first month of last year, S&P data released on Thursday show, based on car loans bundled into bonds. The rate is the worst since January 2010 and is largely driven by worsening recoveries after borrowers default, S&P said. Those losses are rising in part because when lenders repossess cars from defaulted borrowers and sell them, they are getting back less money. A flood of used cars has hit the market after manufacturers offered generous lease terms.

Recoveries on subprime loans fell to 34.8% in January, the worst since early 2010, S&P data show. With losses increasing, investors in bonds backed by car loans are demanding higher returns, as reflected by yields, on their securities. That increases borrowing costs for finance companies, with those that depend on asset-backed securities the most getting hit hardest. American Credit Acceptance, one of nearly two dozen subprime lenders to securitize their loans in recent years, had one of the highest cost of funds last year with yields on its securitizations as high as 4.6%, even as the two-year swap rate benchmark hovered around 1%, according to a report from Wells Fargo. The company relies heavily on asset-backed securities for funding.

Read more …

2nd article in a row that ends with “Since The Financial Crisis”.

US Government Revenues Suffer Biggest Drop Since The Financial Crisis (ZH)

[..] something more concerning emerges when looking at the annual change in the rolling 12 month total. It is here that we find that, like last month, in the LTM period ended Feb 28, total federal revenues, tracked as government receipts on the Treasury’s statement, were $3.275 trillion. This amount was 1.1% lower than the $3.31 trillion reported one year ago, and is the third consecutive month of annual receipt declines. This was the biggest drop since the summer of 2008. At the same time, government spending rose 3.8%. Why is this important? Because as the chart below shows, every time since at least 1970 when government receipts have turned negative on an annual basis, the US was on the cusp of, or already in, a recession. Indicatively, the last time government receipts turned negative was in July of 2008.

One potential mitigating factor this time is that much of the collapse in receipts is due to a double digit % plunge in corporate income tax, which begs the question what are real corporate earnings? While we hear that EPS are rising, at least for IRS purposes, corporate America is in a recession. How about that far more important indicator of overall US economic health, and biggest contributor to government revenue, individual income taxes? As of February, the YTD number was $611bn fractionally higher than the same period a year ago, and declining. Finally should Trump proceed to cut tax rates without offsetting sources of government revenue, a recession – at least based on this indicator – is assured.

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Why did he refuse?

Trump Fires US Attorney Preet Bharara After He Refuses To Quit (ZH)

The speculation over whether Trump would or would not fire the US attorney for the Southern District of New York, Preet Bharara, who earlier reportedly said he would not resign on his own, came to a close a 2:29pm ET when Preet Bharara, tweeting from his private Twitter account, announced he had been fired. “I did not resign. Moments ago I was fired. Being the US Attorney in SDNY will forever be the greatest honor of my professional life.” Bharara’s dismissal ended an “extraordinary” showdown in which a political appointee who was named by Mr. Trump’s predecessor, President Barack Obama, declined an order to submit a resignation. “I did not resign. Moments ago I was fired. Being the US Attorney in SDNY will forever be the greatest honor of my professional life,” Mr. Bharara wrote on his personal Twitter feed, which he set up in the last two weeks.

Bharara was among 46 holdover Obama appointees who were called by the acting deputy attorney general on Friday and told to immediately submit resignations and plan to clear out of their offices. But Bharara, who was called to Trump Tower for a meeting with the incoming president in late November 2016, declined to do so. As reported previously, Bharara said he was asked by Trump to remain in his current post at the meeting. Bharara met with Trump at Trump Tower, and then addressed reporters afterward. Before the firing, one of New York’s top elected Republicans voiced support for Bharara on Saturday.

The Southern District of New York, which Bharara has overseen since 2009, encompasses Manhattan, Trump’s home before he was elected president, as well as the Bronx, Westchester, and other counties north of New York City. Last weekend, Trump accused Barack Obama of wiretapping Trump Tower in Manhattan, an allegation which various Congressmen have said they will launch a probe into. And now the speculation will begin in earnest why just three months after Bharara, who at the time was conducting a corruption investigation into NYC Mayor Bill de Blasio as well as into aides of NY Gov. Andrew Cuomo, told the press that Trump had asked him to “stay on” he is being fired and whether this may indicate that the NYSD has perhaps opened a probe into Trump himself as some have speculated.

Read more …

Don’t look at me, I didn’t write the book.

A Generation of Sociopaths: How the Boomers Betrayed America (MW)

Millennials have a reputation for being entitled, self-absorbed and lazy, but a new book argues that their parents are actually a bigger danger to society. In “A Generation of Sociopaths: How the Boomers Betrayed America,” Bruce Cannon Gibney traces many of our nation’s most pressing issues, including climate change and the rising cost of education, back to baby boomers’ idiosyncrasies and enormous political power. Raised in an era of seemingly unending economic prosperity with relatively permissive parents, and the first generation to grow up with a television, baby boomers developed an appetite for consumption and a lack of empathy for future generations that has resulted in unfortunate policy decisions, argues Gibney, who is in his early 40s. (That makes him Generation X.) “These things conditioned the boomers into some pretty unhelpful behaviors and the behaviors as a whole seem sociopathic,” he said.

The book comes as Americans of all ages are sorting through a new political reality, which Gibney argues that boomers delivered to us through years of grooming candidates to focus on their political priorities such as, preferential tax treatment and entitlement programs, and then voting for them in overwhelming numbers. Though these circumstances are new, making the argument that a generation – particularly boomers – are to blame for society’s ills is part of a storied tradition, said Jennifer Deal, the senior research scientist at the Center for Creative Leadership. “There are a lot of people who like to blame the baby boomers for stuff and this has been going on for as far as I can tell since the late 60s,” Deal said. Indeed, a 1969 article in Fortune magazine warned that the group of then-20-somethings taking over the workplace were prone to job-hopping and having their egos bruised.

If that sounds familiar, it’s probably because it is. There’s no shortage of articles describing millennials similarly. Both are indicative of a natural human tendency to want to explain the world and other people through the lens of group mentalities, said Deal. “Everybody can think of someone older or someone younger who has done something annoying,” she said. “Everybody likes a good scapegoat.” Still, Gibney, a venture capitalist, argues there is something inherently different about the boomers from the generations that preceded them and those that followed: a sense of entitlement that comes from growing up in a time of economic prosperity.

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Rotterdam was absolutely flattened by Nazi bombers.

Netherlands Bars Turkish Ministers As Rally Dispute Escalates (R.)

Turkey told the Netherlands on Sunday that it would retaliate in the “harshest ways” after Turkish ministers were barred from speaking in Rotterdam in a row over Ankara’s political campaigning among Turkish emigres. President Tayyip Erdogan had branded its fellow NATO member a “Nazi remnant” and the dispute escalated into a diplomatic incident on Saturday evening, when Turkey’s family minister was prevented by police from entering the Turkish consulate in Rotterdam. Hundreds of protesters waving Turkish flags gathered outside, demanding to see the minister. Dutch police used dogs and water cannon early on Sunday to disperse the crowd, which threw bottles and stones. Several demonstrators were beaten by police with batons, a Reuters witness said. They carried out charges on horseback, while officers advanced on foot with shields and armored vans.

Less than a day after Dutch authorities prevented Foreign Minister Mevlut Cavusoglu from flying to Rotterdam, Turkey’s family minister, Fatma Betul Sayan Kaya, said on Twitter she was being escorted back to Germany. “The world must take a stance in the name of democracy against this fascist act! This behavior against a female minister can never be accepted,” she said. The Rotterdam mayor confirmed she was being escorted by police to the German border. Kaya later boarded a private plane from the German town of Cologne to return to Istanbul, mass-circulating newspaper Hurriyet said on Sunday. The Dutch government, which stands to lose heavily to the anti-Islam party of Geert Wilders in elections next week, said it considered the visits undesirable and “the Netherlands could not cooperate in the public political campaigning of Turkish ministers in the Netherlands.”

The government said it saw the potential to import divisions into its own Turkish minority, which has both pro- and anti-Erdogan camps. Dutch politicians across the spectrum said they supported Prime Minister Mark Rutte’s decision to ban the visits. In a statement issued early on Sunday, Prime Minister Binali Yildirim said Turkey had told Dutch authorities it would retaliate in the “harshest ways” and “respond in kind to this unacceptable behavior”. Turkey’s foreign ministry said it did not want the Dutch ambassador to Ankara to return from leave “for some time”. Turkish authorities sealed off the Dutch embassy in Ankara and consulate in Istanbul in apparent retaliation and hundreds gathered there for protests at the Dutch action.

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The curious story of Mr. Flynn.

Flynn Attended Intel Briefings While Taking Money To Lobby for Turkey (NBC)

Former National Security Advisor Michael Flynn was attending secret intelligence briefings with then-candidate Donald Trump while he was being paid more than half a million dollars to lobby on behalf of the Turkish government, federal records show. Flynn stopped lobbying after he became national security advisor, but he then played a role in formulating policy toward Turkey, working for a president who has promised to curb the role of lobbyists in Washington. White House spokesman Sean Spicer on Friday defended the Trump administration’s handling of the matter, even as he acknowledged to reporters that the White House was aware of the potential that Flynn might need to register as a foreign agent.

When his firm was hired by a Turkish businessman last year, Flynn did not register as a foreign lobbyist, and only did so a few days ago under pressure from the Justice Department, the businessman told The Associated Press this week. [..] Flynn was fired last month after it was determined he misled Vice President Mike Pence about Flynn’s conversations with the Russian ambassador to the United States. His security clearance was suspended. When NBC News spoke to Alptekin in November, he said he had no affiliation with the Turkish government and that his hiring of Flynn’s company, the Flynn Intel Group, had nothing to do with the Turkish government. But documents filed this week by Flynn with the Department of Justice paint a different picture. The documents say Alptekin “introduced officials of the Republic of Turkey to Flynn Intel Group officials at a meeting on September 19, 2016, in New York.”

In the documents, the Flynn Intel Group asserts that it changed its filings to register as a foreign lobbyist “to eliminate any potential doubt.” “Although the Flynn Intel Group was engaged by a private firm, Inovo BV, and not by a foreign government, because of the subject matter of the engagement, Flynn Intel Group’s work for Inovo could be construed to have principally benefited the Republic of Turkey,” the filing said. The firm was paid a total of $530,000 as part of a $600,000 contract that ended the day after the election, when Flynn stepped away from his private work, the documents say. During the summer and fall, Flynn, the former director of the Defense Intelligence Agency, was sitting in on classified intelligence briefings given to Trump.

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Funniest movie review in a while.

Turkish Diaspora In Germany Divided On Powers For Erdogan (G.)

Only 38 people turned up at screen 7 of Berlin s Alhambra cinema on Thursday night to watch a powerful Turkish president make a pitch for why he deserves even more power. But those who came were impressed. Reis (the Turkish word for chief), a biopic in which Recep Tayyip Erdogan is played by soap opera star Reha Beyoglu, premiered in Istanbul last month. It is now touring cinemas among Europe s Turkish diaspora communities in the run-up to the constitutional referendum on 16 April, a vote that could boost Erdogan’s powers and allow him to remain president until 2029. The film shows the co-founder of Turkey s ruling Justice and Development party (AKP) growing up in Istanbul’s working class Kasimpasa neighbourhood to become a man of prodigal talent and saintly self-denial, scoring the last-minute winner in a five-a-side football match with an overhead kick and getting up in the middle of the night to rescue a puppy that has fallen down a well.

His supporters are willing to use blunter means to defend their chief against Turkey s cosmopolitan elite. In the film s final scene, showing one of Erdogan’s guards punching an assailant in the face, the Berlin audience watching the film with German subtitles broke into spontaneous applause. The dialogue was widely understood to be a reference to last July s averted coup: Who are you? asks the assailant. The people, the guard replies. Smoking cigarettes on the pavement outside the cinema, a group of four Turkish-Germans in their late teens said Reis had only affirmed their decision to vote yes in the referendum. A strong Erdogan is good for a strong Turkey, said Ahmet, 19.

Tensions between the German and Turkish governments, triggered by the arrest of Die Welt s correspondent Deniz Yucel and culminating in Erdogan accusing Germany of Nazi practices over banned rallies in German cities, had merely strengthened his allegiance, said 20-year-old Mehmet. To be honest, when America, Germany and France tell me to vote no in the referendum, then I am going to vote yes. Both said no German party represented their interests: We are just foreigners to them. The heightened fervour of support for Erdogan even among younger members of Germany s population with Turkish roots, a community of about 3 million, of which roughly half are entitled to vote in April has scandalised the country’s public and media.

German politicians allege that the AKP is trying to influence the diaspora vote not just through public rallies but by covertly pressurising and threatening its opponents in Germany via religious and business networks. In January, Turkish-German footballer Hakan Calhanoglu was publicly criticised by his club Bayer Leverkusen for posting a video on social media in which he declared his allegiance with the evet (yes) camp. You are part of our country, Angela Merkel, the chancellor, appealed to the Turkish-speaking community on Thursday. We want to do everything to make sure that domestic Turkish conflicts aren’t brought into our coexistence. This is a matter of the heart for us.

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“They will have to evict people from their homes and that won’t be easy. The people will react in unforeseeable ways.”

Greek Activists Target Sales Of Homes Seized Over Bad Debts (G.)

The cavernous halls of Athens’ central civil court are usually silent and sombre. But every Wednesday, between 4pm and 5pm, they are anything but. For it is then that activists converge on the building, bent on stopping the auctions of properties seized by banks to settle bad debts. They do this with rowdy conviction, chanting “not a single home in the hands of a banker,” unfurling banners deploring “vulture crows”, and often physically preventing notaries and other court officials from sitting at the judge’s presiding bench. “Poor people can’t afford lawyers, rich people can,” says Ilias Papadopoulos, a 33-year-old tax accountant who feels so strongly that he has been turning up at the court to orchestrate the protests with his eye surgeon brother, Leonidas, for the past three years.

“We are here to protect the little man who has been hit by unemployment, hit by poverty and cannot keep up with mortgage payments. Banks have already been recapitalised. Now they want to suck the blood of the people.” The tall, bearded brothers were founding members of Den Plirono, an activist group that emerged in the early years of Greece’s economic crisis in opposition over road tolls. The organisation, which sees itself as a people’s movement, then moved into the power business – restoring the disconnected electricity supplies of more than 5,000 Greeks who could not afford to pay their bills. Auctions are their latest cause. “Solidarity is the only answer,” Papadopoulos insists. “Rich people have political influence. They can negotiate their loans and are never in danger of actually losing the roof over their heads.”

The protests have been highly effective. In law courts across Greece, similar scenes have ensured that auctions have been thwarted. Activists estimate that only a fraction of auctions of 800 homes and small business enterprises due to go under the hammer since January have actually taken place. Under pressure to strengthen the country’s fragile banking system, Athens’ leftist-led government has agreed to move ahead with around 25,000 auctions this year and next. In recent weeks they have more than doubled, testimony, activists say, to the relaxation of laws protecting defaulters. “There is not a Greek who does not owe to the banks, social security funds or tax office,” says Evangelia Haralambus, a lawyer representing several debtors.

“Do you know what it is like to wake up every morning knowing that you can’t make ends meet, that you might lose your home? It makes you sick.” [..] “We see our country as a country under occupation. It is inadmissible what has happened to Greece,” she splutters. “These vulture crows, homing in on the properties of the poor, are all part of the larger plan to control us.” [..] Fears are mounting that if the banks fail to recover losses, a Cypriot-style bail-in could follow and the government has announced that it will pushed ahead with electronic auctions. But the prospect of mass auctions at a click of a button has only incensed critics further. “It will create huge tensions and destabilise Greek society,” said Papadopoulos, claiming that laws protecting the poor had been increasingly whittled down. “They will have to evict people from their homes and that won’t be easy. The people will react in unforeseeable ways.”

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May 072015
 
 May 7, 2015  Posted by at 9:55 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Unknown General Patrick’s headquarters, City Point, Virginia 1865

21 Countries Where a 40-Hour Work Week Still Keeps Families Poor (Bloomberg)
Central Bank Driven ‘Markets’ Have Nothing To Do With Economics (Stockman)
Yellen Says Stock Valuations Are ‘Quite High’ (MarketWatch)
El-Erian Warns Of Trouble As Bond Liquidity Dries Up (MarketWatch)
There Will Be No 25-Year Depression (Bill Bonner)
More Pain Ahead For China Steel (CNBC)
Brexit Threat Looms Over Britain’s Election And Europe’s Fate (AEP)
Extreme Secrecy Eroding Support For Obama’s TPP Trade Pact (Politico)
UN Calls For Suspension Of TTIP Talks Over Human Rights Abuses (Guardian)
Defiant Greece Overturns Civil Service Cuts Agreed In Previous Bailouts (FT)
A Blueprint for Greece’s Recovery (Yanis Varoufakis)
European Lenders Dash Greek Hopes For Quick Aid Deal (Reuters)
At Greek Port, ‘Migrants’ Dream And Despair In Abandoned Factories (Reuters)
Greek Banks Are Having Trouble Trading Foreign Currencies (Bloomberg)
ECB Decision on Greek Haircuts Said to Depend on Political Talks (Bloomberg)
Bernanke Inc.: The Lucrative Life of a Former Fed Chairman (Bloomberg)
Canada’s Political Landscape In Seismic Shift On Alberta Election (Guardian)
The Choice Before Europe (Paul Craig Roberts)
California Regulators Approve Unprecedented Water Cutbacks (AP)
Save The Bees To Save The Planet (Giorgio Torrazza)

Progress 21st century style.

21 Countries Where a 40-Hour Work Week Still Keeps Families Poor (Bloomberg)

How often have you felt that no matter how hard and long you work you just couldn’t make ends meet? Turns out life is just that hard for minimum-wage workers pretty much across the globe. A global ranking out Wednesday by the Paris-based Organization for Economic Cooperation and Development painted a grim picture of the situation in member countries straddling continents. The 34-member organization found that a legal minimum wage existed in 26 countries and crunched the numbers to see how they compared. Forget taking a siesta in Spain. There, you’d have to work more than 72 hours a week to escape the trappings of poverty. Turns out that is the norm, not the exception. In the 21 countries highlighted with blue bars in the chart below, a full 40-hour work week still won’t lift families out of relative poverty.

This list includes France, home to the 35-hour work week, which almost met the threshold. Minimum wage workers there who are supporting a spouse and two children need to work 40.2 hours to get their families out of poverty. (The poverty line is defined as 50% of the median wage in any nation.) To gauge the generosity of each country’s floor on hourly pay, you can also look at another measure: The minimum wage as a percentage of the local median wage. Those ratios vary widely across the world. In the U.S., the minimum wage was less than 40% of the median wage in 2013, which meant the country had one of the lowest percentages among the economies the OECD examined. Those ratios are much higher across the Atlantic, but Europe’s sovereign debt crisis has taken its toll. In Ireland, Greece and Spain – three of the hardest-hit countries in the euro area – minimum wage levels as a ratio to the median wage were higher in 2007 than in 2013.

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That’s what I said.

Central Bank Driven ‘Markets’ Have Nothing To Do With Economics (Stockman)

The German bund yield is soaring like a rocket today. After touching on the truly lunatic rate of 5 bps only a few weeks back, it has just crossed the 60 bps marker. Needless to say, when a blue chip 10-year bond widely held on @95% repo leverage moves that far that fast – there is some heavy duty furniture breakage happening in fast money land. But don’t cry for the bond market gamblers. They already made a killing front-running the ECB. During the 16 months between January 2014 and the April peak, speculators in German 10-year bunds would have made a 350% profit using essentially zero cost repo funding. So in the last few days they have given a tad of that back while making a bee line for the exit.

Yet during the uninterrupted march of the bund into the monetary Valhalla depicted above, how many times did you hear that the market was merely “pricing in” a flight to quality among investors and the dreaded specter of “deflation”. That is, what amounted to sheer lunacy – valuing any 10-year government bond at a deeply negative after-tax and after-inflation yield – was attributed to rational economic factors. No it wasn’t. The manic drive to 5 bps was pure speculative caprice, triggered by the ECB’s public pledge to corner the market in German government debt. What gambler in his right mind would not buy hand-over-fist any attempt to corner the market by a central bank with a printing press – especially one managed by a dim bulb apparatchik like Mario Draghi!

Never has an agency of a state anywhere on the planet pleasured speculators with such stupendous windfalls. Yet any day now we will hear from the talking heads on CNBC that, no, massive bond buying by central banks does not repress or distort interest rates because once Europe’s QE started, rates actually backed up. And, furthermore, this is entirely logical because QE will enable the economy to escape its deflationary trap, meaning that investors are discounting an imminent resurgence of growth!

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The spin narrative. “Yellen said that she thought risks to financial stability “are moderated, not elevated, at this point.”

Yellen Says Stock Valuations Are ‘Quite High’ (MarketWatch)

Federal Reserve Chairwoman Janet Yellen on Wednesday used her bully pulpit to warn of the risks from “quite high” stock prices. “I would highlight that equity market valuations at this point generally are quite high,” Yellen said in a conversation with Christine Lagarde, the managing director of the International Monetary Fund, sponsored by the Institute for New Economic Thinking. “They are not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there,” Yellen said. The S&P 500 is up about 12% over the last year and has more than tripled from its March 2009 low. The Fed has kept interest rates near zero since the end of 2008.

The price to earnings ratio of S&P 500 stocks was 20.40 for April, according to data from Haver Analytics, which is near five-year highs. Yellen said her comments were part of the Fed’s new remit in the wake of the Great Recession to monitor and speak publicly about potential risks to financial stability. Yellen noted that long-term bond yields were low due to low term premiums, which can move rapidly. “We saw this in the case of the taper tantrum in 2013,” Yellen said. “We need to be attentive and are to the possibility that when the Fed decides it is time to begin raising rates, these term premiums could move up and we could see a sharp jump in long-term rates,” Yellen said. As a result, the Fed was working overtime not to take markets by surprise, she said.

Yellen also repeated a long-standing concern with the leveraged loan market, saying there was a deterioration in underwriting standards. She also noted that the compression in spreads on high yield debt which looks like “reach-for-yield type of behavior.” Despite these concerns, Yellen said that she thought over risks to financial stability “are moderated, not elevated, at this point.” “We’re not seeing any broad based pickup in leverage, we’re not seeing rapid credit growth, we’re not seeing an increase in maturity transformation,” which are the hallmarks of bubbles, she said.

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More QE!

El-Erian Warns Of Trouble As Bond Liquidity Dries Up (MarketWatch)

The leap in German bund yields over the last two weeks is another sign that liquidity issues could eventually present serious problems for financial markets, former Pimco Chief Executive Mohamed El-Erian on Wednesday warned at the annual SALT investment conference in Las Vegas. “There isn’t the countercyclical risk-taking we need,” said El-Erian, chief economic adviser at Pimco parent Allianz. That could spell trouble when there is a big shift market positioning, he warned at SALT, a gathering of around 1,800 hedge-fund and investment-industry professionals. That is because investors may not be able to reposition at a low cost. Bond liquidity is a “delusion, not an illusion,” he noted.

El-Erian’s remarks came during SALT’s opening panel, which included Peter Schiff, CEO of Euro Pacific Capital, and Gene Sperling, a former economic adviser to President Barack Obama and the Clinton White House. Sperling argued that a lackluster U.S. economic recovery is the aftermath of a financial crisis, which typically gives way to less robust recoveries as banks, businesses and consumers focus on eliminating debt. Meanwhile, the Federal Reserve was left to do much of the heavy lifting as the federal government’s stimulus efforts were offset by fiscal contraction at the state and local level.

Schiff, a persistent Fed critic, charged that the U.S. economy is witnessing a bubble rather than a recovery and that the Fed was crowding out small businesses who would otherwise be creating jobs. Fed Chairwoman may not entirely disagree with Schiff’s bubble assessment, On Wednesday, Yellen referred to stock valuations as “quite high,” and hinted that bond values may be even higher during a conversation with International Monetary Fund head Christine Lagarde sponsored by the Institute for New Economic Thinking.

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And how many times have I said this?: “..the developed economies have been zombified..”

There Will Be No 25-Year Depression (Bill Bonner)

Today, we have bad news and good news. The good news is that there will be no 25-year recession. Nor will there be a depression that will last the rest of our lifetimes. The bad news: It will be much worse than that. On Monday, the Dow rose another 43 points. Gold seems to be working its way back to the $1,200 level, where it feels most comfortable. “A long depression” has been much discussed in the financial press. Several economists are predicting many years of sluggish or negative growth. It is the obvious consequence of several overlapping trends and existing conditions. First, people are getting older. Especially in Europe and Japan, but also in China, Russia and the US. As we’ve described many times, as people get older, they change. They stop producing and begin consuming.

They are no longer the dynamic innovators and eager early adopters of their youth; they become the old dogs who won’t learn new tricks. Nor are they the green and growing timber of a healthy economy; instead, they become dead wood. There’s nothing wrong with growing old. There’s nothing wrong with dying either, at least from a philosophical point of view. But it’s not going to increase auto sales or boost incomes – except for the undertakers. Second, most large economies are deeply in debt. The increase in debt levels began after World War II and sped up after the money system changed in 1968-71. By 2007, US consumers reached what was probably “peak debt.” That is, they couldn’t continue to borrow and spend as they had for the previous half a century. Most of their debt was mortgage debt, and the price of housing was falling.

The feds reacted, as they always do… inappropriately. They tried to cure a debt problem with more debt. But consumers were both unwilling and unable to borrow. Their incomes and their collateral were going down. This left corporations and government to aim only for their own toes. Central banks created more money and credit – trillions of dollars of it. But since the household sector wasn’t borrowing, the money went into financial assets and zombie government spending. Neither provided any significant support for wages or output. So, the real economy went soft, even as the cost of credit fell to its lowest levels in history. Third, the developed economies have been zombified. The US, for example, is way down at No. 46 on the World Bank’s list of places where it is easiest to start a new business. And only one G8 country – Canada – even makes the top 10.

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And for China’s steel suppliers.

More Pain Ahead For China Steel (CNBC)

Sluggish demand at home is driving up the chronic supply surplus at China’s steel mills to critical levels and is set to drive down global prices, analysts warn. “Chinese authorities will be slow to react to the over-capacity,” E&Y’s Michael Elliott told CNBC. In the meantime, “steel prices will remain low for the next five years, until the global industry consolidation starts to take place,” he said. For a decade, China’s mostly state-owned steelmakers have been supplying the country’s building boom with more steel than it needed, while steel prices nearly halved during the same period. Now, with the economy growing at the slowest pace in six years and demand shrinking at home, the excess capacity is hitting critical levels, although China’s steel mills have shown few signs of slowing down production.

The level of excess capacity may be as high as 30% according to E&Y, and little relief is in sight on the domestic front: demand for steel in China contracted for the first time in a decade in 2014, falling by 3.3% on-year, and is set to drop by 0.5% on-year in both 2015 and 2016, according to World Steel Association forecasts. “The need for consolidation has been recognized for some time and the government has set targets for capacity closure in the past,” Capital Economics’ Caroline Bain said in a report on Tuesday. “However, production (and losses and debts) just kept on rising,” she said.

Beijing’s record on keeping to its reduction targets is not entirely stellar, in part because the state-owned steelmakers are major local employers. The government has just recently pushed back its target date for restructuring and consolidating the steel industry by ten years to 2025, according to E&Y’s Elliot. The solution, at least for the Chinese steel mills, has been to ramp up exports. In 2014, Chinese steel exports soared by 50% on-year and continued to grow by 40% on-year in the first-quarter of 2015, according to Capital Economics.

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Ambrose is all Tory. He may not be a happy man come nightfall.

Brexit Threat Looms Over Britain’s Election And Europe’s Fate (AEP)

The subject of Europe has barely crept into the current campaign, which is odd given that UKIP’s primary demand – and its original raison d’etre – is the restoration of British self-government and the end of split parliamentary sovereignty between Westminister and Strasbourg. Yet the inescapable controversy of Britain’s dispensation with Europe looms over everything as we vote.

Whoever is elected will almost certainly have to deal a perpetual running sore in the eurozone. It is clear by now that monetary union is fundamentally deformed and will never be stable until there is a fiscal union and an EMU-wide government to back it up, but there is no democratic support for such a Utopian leap forward in any country. It is sheer fantasy following the Front National’s victory in the European elections in France. The ECB’s Mario Draghi has averted a deflationary collapse – in the nick of time – but the gap in competitiveness between the North and South is wider than ever. The EU Fiscal Compact will force the weakest debtor states to pursue contractionary policies for two decades to come asymmetrically, starving the south of investment and further entrenching the divide.[..]

A recent study by Stephen Jen, at SLJ Macro Partners, found that EMU states have reacted in radically different ways to globalisation and the rise of China. They are now further apart than they were in 1982. Worse yet, the perverse effects of euro itself has set off a self-reinforcing vicious circle. “The combination of a common monetary policy, fixed exchange rates and limited scope for member countries to conduct their own fiscal policies may have led to weak economies weakening further and strong economies strengthening further. We find these results rather alarming,” he said.

The implication is that EMU will lurch from crisis to crisis until the victims of this cruel dynamic rebel through the ballot box, as the Greeks are already doing. Cheap oil, a weak euro and a blast of QE have together lifted the region off the reefs for now, but the deformed structure will be exposed again when the world economy spins into another downturn. The European elites may imagine that a defeat for David Cameron can extinguish the Brexit threat. In reality it is has become a permanent fixture of the British landscape. They over-reached and brought it on themselves.

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There are 1000 reasons support should erode.

Extreme Secrecy Eroding Support For Obama’s TPP Trade Pact (Politico)

If you want to hear the details of the Trans-Pacific Partnership trade deal the Obama administration is hoping to pass, you’ve got to be a member of Congress, and you’ve got to go to classified briefings and leave your staff and cellphone at the door. If you’re a member who wants to read the text, you’ve got to go to a room in the basement of the Capitol Visitor Center and be handed it one section at a time, watched over as you read, and forced to hand over any notes you make before leaving. And no matter what, you can’t discuss the details of what you’ve read. “It’s like being in kindergarten,” said Rep. Rosa DeLauro (D-Conn.), who’s become the leader of the opposition to President Barack Obama’s trade agenda. “You give back the toys at the end.”

For those out to sink Obama’s free trade push, highlighting the lack of public information is becoming central to their opposition strategy: The White House isn’t even telling Congress what it’s asking for, they say, or what it’s already promised foreign governments. The White House has been coordinating an administration-wide lobbying effort that’s included phone calls and briefings from Secretary of State John Kerry, Labor Secretary Tom Perez, Treasury Secretary Jack Lew, Agriculture Secretary Tom Vilsack, Commerce Secretary Penny Pritzker and others. Energy Secretary Ernest Moniz has been working members of the House Energy and Commerce Committee. Housing and Urban Development Secretary Julián Castro has been talking to members of his home state Texas delegation.

Officials from the White House and the United States trade representative’s office say they’ve gone farther than ever before to provide Congress the information it needs and that the transparency complaints are just the latest excuse for people who were never going to vote for a new trade deal anyway. “We’ve worked closely with congressional leaders on both sides of the aisle to balance unprecedented access to classified documents with the appropriate level of discretion that’s needed to ensure Americans get the best deal possible in an ongoing, high-stakes international negotiation,” said USTR spokesman Matt McAlvanah. Obama’s seeking a renewal of fast-track authority, which would empower him to negotiate trade deals that then go to Congress for up-or-down votes but not amendments.

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“We don’t want a dystopian future in which corporations and not democratically elected governments call the shots.”

UN Calls For Suspension Of TTIP Talks Over Human Rights Abuses (Guardian)

A senior UN official has called for controversial trade talks between the European Union and the US to be suspended over fears that a mooted system of secret courts used by major corporations would undermine human rights. Alfred de Zayas, a UN human rights campaigner, said there should be a moratorium on negotiations over the Transatlantic Trade and Investment Partnership (TTIP), which are on course to turn the EU and US blocs into the largest free-trade area in the world. Speaking to the Guardian, the Cuban-born US lawyer warned that the lesson from other trade agreements around the world was that major corporations had succeeded in blocking government policies with the support of secret arbitration tribunals that operated outside the jurisdiction of domestic courts.

He said he would becompiling a report on the tactics used by multinationals to illustrate the flaws in current plans for the TTIP. De Zayas said: “We don’t want a dystopian future in which corporations and not democratically elected governments call the shots. We don’t want an international order akin to post-democracy or post-law.” The intervention by de Zayas comes amid intense scrutiny in the US, Europe and Japan of groundbreaking trade deals promoted by Barack Obama. The European commission, which supports the talks, believes an agreement that would lower tariffs and establish basic health and safety standards would boost trade and add billions of euros to the EU’s income. UK ministers estimate Britain could benefit from a rise in GDP of between £4bn and £10bn a year.

Under the proposed agreement, companies will be allowed to appeal against regulations or legislation that depress profits, resulting in fears that multinationals could stop governments reversing privatisations of parts of the health service, for instance. The investor state dispute settlement (ISDS) scheme that includes the secret tribunals is already a cornerstone of a trade deal between the EU and Canada and is scheduled to be included in the TTIP deal, as well as a trans-pacific deal being negotiated between the US and Japan. EU officials said the ISDS would be part of the package when it is put to a vote in the EU parliament later this year. Cecilia Malmström, the European trade commissioner, has sought to dampen criticism by publishing discussion documents submitted to the TTIP talks.

Following growing calls from environmental groups, unions and MEPs for the deal to be scrapped, she has put forward a series of suggestions to “safeguard the rights of governments to regulate” and protect public service provision from demands for competition. More than 97% of respondents to an official EU survey voted against the deal. However De Zayas, the UN’s special rapporteur on promotion of a democratic and equitable international order, said that while these were helpful initiatives, the adoption of a separate legal system for the benefit of multinational corporations was a threat to basic human rights. “The bottom line is that these agreements must be revised, modified or terminated,” he said. “Most worrisome are the ISDS arbitrations, which constitute an attempt to escape the jurisdiction of national courts and bypass the obligation of all states to ensure that all legal cases are tried before independent tribunals that are public, transparent, accountable and appealable.

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Kudos.

Defiant Greece Overturns Civil Service Cuts Agreed In Previous Bailouts (FT)

Even as the Greek government scrambled to reach an agreement on new economic reforms with its creditors in Brussels, it began reversing similar measures agreed during previous bailout negotiations in a parliamentary session in Athens. A new law proposed by the leftwing Syriza-led government and passed Tuesday night opens the way to rehire thousands of workers cut loose from the country’s inefficient public sector in a reform enacted by the previous government. The move came on the same day the new government announced changes to a finance ministry system of electronic procurements and public payments that was supposed to improve transparency and had been blessed by international lenders.

And it followed legislation passed last week to reopen the state broadcaster, ERT, which was shut down by the previous government as a cost-cutting measure. The moves highlighted the conflicting impulses of Greece’s new left-wing government and creditors bent on securing economic reforms in exchange for their support. They could further complicate already-fraught negotiations aimed at closing the country’s current €172bn bailout and giving Athens access to €7.2bn in desperately needed cash; in February, the new government agreed any economic legislation would be introduced only after consultations with creditors.

Opposition lawmakers accused Syriza of violating that agreement with the new laws, which could expand the government payroll by as many as 15,000 employees. But government ministers remained defiant. “We aren’t going to consult [bailout monitors], we don’t have to, we’re a sovereign state,” Nikos Voutsis, the powerful interior minister, told parliament.

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He keeps on making a lot of sense. But that’s not the picture painted in the media.

A Blueprint for Greece’s Recovery (Yanis Varoufakis)

Imagine a development bank levering up collateral that comprises post-privatization equity retained by the state and other assets (for example, real estate) that could easily be made more valuable (and collateralized) by reforming their property rights. Imagine that it links the European Investment Bank and the European Commission President Jean-Claude Juncker’s €315 billion investment plan with Greece’s private sector. Instead of being viewed as a fire sale to fill fiscal holes, privatization would be part of a grand public-private partnership for development. Imagine further that the “bad bank” helps the financial sector, which was recapitalized generously by strained Greek taxpayers in the midst of the crisis, to shed their legacy of non-performing loans and unclog their financial plumbing.

In concert with the development bank’s virtuous impact, credit and investment flows would flood the Greek economy’s hitherto arid realms, eventually helping the bad bank turn a profit and become “good.” Finally, imagine the effect of all of this on Greece’s financial, fiscal, and social-security ecosystem: With bank shares skyrocketing, our state’s losses from their recapitalization would be extinguished as its equity in them appreciates. Meanwhile, the development bank’s dividends would be channeled into the long-suffering pension funds, which were abruptly de-capitalized in 2012 (owing to the “haircut” on their holdings of Greek government bonds).

In this scenario, the task of bolstering social security would be completed with the unification of pension funds; the surge of contributions following the pickup in employment; and the return to formal employment of workers banished into informality by the brutal deregulation of the labor market during the dark years of the recent past. One can easily imagine Greece recovering strongly as a result of this strategy. In a world of ultra-low returns, Greece would be seen as a splendid opportunity, sustaining a steady stream of inward foreign direct investment. But why would this be different from the pre-2008 capital inflows that fueled debt-financed growth? Could another macroeconomic Ponzi scheme really be avoided?

During the era of Ponzi-style growth, capital flows were channeled by commercial banks into a frenzy of consumption and by the state into an orgy of suspect procurement and outright profligacy. To ensure that this time is different, Greece will need to reform its social economy and political system. Creating new bubbles is not our government’s idea of development. This time, by contrast, the new development bank would take the lead in channeling scarce homegrown resources into selected productive investment. These include startups, IT companies that use local talent, organic-agro small and medium-size enterprises, export-oriented pharmaceutical companies, efforts to attract the international film industry to Greek locations, and educational programs that take advantage of Greek intellectual output and unrivaled historic sites.

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Greece must leave the euro or it will never be it own master.

European Lenders Dash Greek Hopes For Quick Aid Deal (Reuters)

European lenders on Wednesday dashed Greece’s hopes for a quick cash-for-reforms deal in the coming days, leaving Athens in an increasingly desperate financial position ahead of a major debt payment next week. Talks between the two sides have dragged on for months without a breakthrough and EU officials say Greece’s leftist government has failed to produce enough concessions for a deal at next Monday’s meeting of euro zone finance ministers. “Since the last Eurogroup quite a bit of progress has been made,” Eurogroup chief Jeroen Dijsselbloem said. “Still, lots of issues have to be solved, have to be deepened more, with more details, so there will be no agreements on Monday. We have to be realistic.”

Prime Minister Alexis Tsipras’s government remains hopeful the Eurogroup meeting will acknowledge progress in the talks, possibly enabling the ECB to let Greek banks buy more short-term government debt to ease a cash crunch. But there was no sign in Brussels or Frankfurt that any such easing of the squeeze is likely soon without concrete evidence of progress on reforms.The ECB’s governing council extended emergency liquidity assistance to Greek banks by €2 billion at its weekly review on Wednesday, the biggest increase in recent weeks. The governors also debated tightening collateral conditions but were expected to hold off for another week.

Athens managed to scrape together funds to make a €200 million interest payment to the IMF on Wednesday, but faces a more daunting €750 million repayment on May 12. With some municipalities, regional and public entities resisting an order to turn over cash reserves to the central bank, sources close to the government have expressed doubt about whether Athens can make both the IMF payment and pay wages and pensions later this month. A government source said the money raised so far by the decree has fallen short of a target of €2.5 billion and that Athens is expected to continue resorting to other one-off measures such as holding off some payments to suppliers. Monday’s Eurogroup meeting could serve as a “platform” for an eventual accord with lenders, Greek Finance Minister Yanis Varoufakis said after talks with his Italian counterpart.

Tsipras’ government has sought to shift blame onto the euro zone and IMF for a lack of agreement in the three-month-old negotiations, charging that each was setting different “red lines” on multiple issues from pension and labour reforms to the primary budget surplus, making a deal impossible. The three institutions issued a rare joint statement rejecting that accusation and insisting they share the same objective of helping Greece achieve financial stability and growth. German Finance Minister Wolfgang Schaeuble, one of Greece’s harshest critics among euro zone policymakers, also dismissed the accusation and said help for Greece had to “make sense”. “Neither the troika, nor Europe, nor Germany can be blamed for Greece’s problems,” Schaeuble said, referring to the trio of European Commission, ECB and IMF informally dubbed the troika. “Greece lived beyond its means for many years.”

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Let them walk cross the border.

At Greek Port, ‘Migrants’ Dream And Despair In Abandoned Factories (Reuters)

Rapper Mahdi Babika Mohamed’s journey to a better life in Europe started in his native Sudan and passed through Libya and Turkey before abruptly ending in a squalid abandoned factory at Greece’s western port of Patra. There, the 37-year-old is one of hundreds of migrants making desperate attempts to board ferries to Italy by hanging on to the underside of cargo trucks – usually unsuccesfully. “We come from a country in war to another war here in Patra,” said Mohamed. “Every day I try to get on the ferry and it’s dangerous hiding under the trucks, I could die any minute.” Patra is no longer on the frontline of Greece’s migrant crisis as it was six years ago when authorities shut down a makeshift camp in the port where hundreds of migrants had lived in squalid conditions.

Focus has since shifted to the thousands of Syrian and other migrants now breaking through Greece’s eastern sea border, but the refugee problem in Patra is far from over. Today, about 100 Afghan, Iranian and Sudanese migrants live in two deserted textile and wood factories opposite the main ferry terminal, living off food scraps and without electricity. Some arrived recently, others have lived there for as long as two years. Each day, some try to jump over a high fence into the terminal in the hope of sneaking onto a ferry set for Italy, where they dream of a better life than in crisis-hit Greece, where jobs are scarce and sympathy even harder to find.

Others hide by the roadside, dashing to scramble underneath trucks waiting at traffic lights before entering the ferry terminal. One of those is Azam, a 26-year-old from South Sudan who says he boarded a small fishing boat in Egypt with 175 other immigrants earlier this year. He says he paid around $3,000 to go to Italy but the boat took them to Crete instead. Despite several attempts, he has yet to make it on to a ferry to Italy. But he refuses to abandon his dream. “I want to go to northern Europe and find a decent job and live a good life I will try until I make it,” Azam said. “I’ll never give up.”

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“The market has increasingly become aggressive in preparing for a Greek default and in protecting itself from the potential financial impact.”

Greek Banks Are Having Trouble Trading Foreign Currencies (Bloomberg)

Greek banks are increasingly being hampered from trading currencies, one of most liquid markets, as international dealers cut back credit lines and costs soar, according to people with knowledge of the trades. International securities firms are curtailing trading with Greece’s major lenders that may expose them to the risk of a default by the nation and the possible use of capital controls to stem outflows from banks, the people said, asking not to be named because they are not authorized to speak publicly.
Those threats are adding to concern that the euro would decline in the event of a default or a Greek exit from the currency region, leaving counterparties exposed to multiple risks, said the people.

A months-long impasse on Greece’s bailout talks with creditors has prompted depositors to withdraw funds from the nation’s lenders, leaving banks no choice but to rely on emergency funds for liquidity. The ECB on Wednesday raised the limit on Emergency Liquidity Assistance, people familiar with the matter said, a sign the financial system remains under strain. “The latest sign the market is attempting to fortify itself against a Greek default is playing out in the FX market,” said Mark Williams, a former bank examiner for a Federal Reserve bank and now a lecturer at Boston University’s Questrom School of Business. “The market has increasingly become aggressive in preparing for a Greek default and in protecting itself from the potential financial impact.”

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ECB and politics should never appear in the same sentence.

ECB Decision on Greek Haircuts Said to Depend on Political Talks (Bloomberg)

The ECB will decide after next week’s meeting of euro region finance ministers whether to tighten Greek access to emergency liquidity, two people familiar with the matter said. The ECB is prepared to raise the discount demanded on Greek collateral to a level last seen in 2014 unless the country’s government shows a willingness to compromise in bailout talks, said one of the officials, who spoke on condition of anonymity. An ECB spokesman declined to comment. The Governing Council’s stance adds pressure on Prime Minister Alexis Tsipras to make progress with creditors at Monday’s meeting of finance ministers in Brussels, or risk watching his country’s banks being pushed deeper into crisis.

Such is the rate of deposit withdrawals that ECB officials meeting Wednesday in Frankfurt raised their cap on Emergency Liquidity Assistance by €2 billion to €78.9 billion, the people said. The ECB also wants to ensure Greece makes a €767 million payment to the International Monetary Fund due on May 12, one of the officials said. The central bank decided in October to reduce the risk premium charged on Greek securities, citing “overall improved market conditions” for the assets at the time. Since then, the government has changed and the incoming administration has stalled on the reforms needed to access its bailout funds. Early this year, the ECB suspended a waiver on collateral requirements for Greek debt, forcing banks to rely more on ELA from their own central bank.

Increasing the haircuts now would force lenders to post higher collateral in exchange for funding. Even so, more draconian ideas have been floated. An internal ECB proposal circulated in April contained an option that would see haircuts raised to as high as 90%, a level consistent with Greece being in default. Euro-area central bankers are concerned about Greece’s solvency as debt repayments loom, though they remain reluctant to act before politicians have had a chance to salvage the bailout program. Most Governing Council members, led by President Mario Draghi, argued that it would be unfair to restrict access to liquidity before the outcome of Monday’s meeting is clear, one of the people said.

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Morals have nothing to do with it.

Bernanke Inc.: The Lucrative Life of a Former Fed Chairman (Bloomberg)

Between Boyz II Men at The Mirage and Celine Dion at Caesars Palace, a hot new act is playing Vegas: Ben Bernanke. One day only, live from Sin City – the economist formerly known as chairman of the Federal Reserve. Fifteen months after leaving the Fed and its trappings of mystery and power, Bernanke, 61, is settling into the peripatetic and highly lucrative life of a Washington former. Beyond the dancing fountains of the Bellagio, in the gilded splendor of the Grand Ballroom, Bernanke will play to a full house at the SkyBridge Alternatives Conference on Wednesday: 1,800 hedge fund types who used to hang on his every word. Bernanke is, in a sense, one of them now – a well-paid investment consultant who can fete clients, open doors and add a gloss of Fed luster to conferences and meetings.

Call it Bernanke Inc., a post-Fed one-man-show that’s worth millions annually on the open market. While the former chairman hasn’t disclosed his fees and compensation – nor, as a private citizen, is he required to – he is almost certainly pulling down many times what he did while in government. First there are speaking fees, which bring in at least $200,000 per engagement, according to a person who hired Bernanke. Then there are new advisory roles at Pimco, the big bond house; and Citadel, one of the world’s largest hedge funds. Executive recruiters say each is probably worth more than $1 million a year. Finally, there’s a book deal, details of which haven’t been made public. Bernanke’s predecessor, Alan Greenspan, reportedly landed an $8.5 million contract for his memoir in 2006.

Bernanke – who has a day job as a distinguished fellow in residence at the Brookings Institution – used the same Washington lawyer, Robert Barnett, to negotiate his deal. Policy makers like Bernanke are often criticized for going to work for the financial industry, but they are following a well-worn path. Robert Rubin, Lawrence Summers, Timothy Geithner: countless economic policy makers, in the U.S. and elsewhere, have spun through the revolving door, sometimes more than once. Summers –who picked up work at the hedge fund D.E. Shaw – is scheduled to address the SALT conference this week as well. So are former Secretary of State Condoleezza Rice and former Defense Secretary Chuck Hagel. What does someone like Bernanke bring to a Pimco or a Citadel? Both say investment insight and some face time with clients. Many in the industry, however, tend to view such appointments as little more than high-paid marketing jobs.

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“The perception from the market based on their comments is they’re extremely dangerous.”

Canada’s Political Landscape In Seismic Shift On Alberta Election (Guardian)

Canada’s rockbound political landscape has undergone a seismic shift with the election of a leftwing government in oil-rich Alberta, the country’s wealthiest and – until now – most conservative province. The once-marginal New Democratic Party swept to victory in the western province on Tuesday night, humiliating the Progressive Conservative party that has ruled the province since the first term of US president Richard Nixon. “We made a little bit of history tonight,” the province’s New Democrat leader, Rachel Notley, told supporters. The result marks the latest and most surprising setback to prime minister Stephen Harper’s signature diplomatic effort to transport bitumen from Alberta’s tar sands to world markets through the controversial Keystone XL pipeline.

During the campaign, Notley promised to withdraw provincial support for the project, raise corporate taxes and also potentially to raise royalties on a regional oil industry already reeling from the collapse in world prices. Notley led her party from a four-seat toehold in the provincial legislature to a commanding majority of 54 with a buoyant campaign that contrasted sharply with the flatfooted effort of the Progressive Conservatives under leader Jim Prentice, a former Harper cabinet member often touted as a future Conservative prime minister. Despite being one of a handful of PC candidates returned to office, Prentice resigned both his new seat and his leadership after the rout.

Canadian oil stocks slid slightly in response to the NDP win, with tar-sands giant Suncor Energy Inc losing 4.3% of its value in the first few hours of trading in Toronto before recovering half the loss by noon. The election of the NDP is “completely devastating”, declared financier Rafi Tahmazian of Canoe Financial in Calgary, Canada’s oil capital. “The perception from the market based on their comments is they’re extremely dangerous.” [..] .. ordinary Canadians were reeling from the sheer magnitude of the shift in Alberta, which has placed the country’s most notoriously conservative province, taken for granted as an impregnable redneck kingdom, in the hands of its most progressive regional government. To explain the phenomenon, Toronto-based writer Doug Saunders asked his American Twitter followers to imagine socialist presidential candidate Bernie Saunders “becoming Texas governor by a big majority”.

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Do you really want war with Russia?

The Choice Before Europe (Paul Craig Roberts)

Washington continues to drive Europe toward one or the other of the two most likely outcomes of the orchestrated conflict with Russia. Either Europe or some European Union member government will break from Washington over the issue of Russian sanctions, thereby forcing the EU off of the path of conflict with Russia, or Europe will be pushed into military conflict with Russia. In June the Russian sanctions expire unless each member government of the EU votes to continue the sanctions. Several governments have spoken against a continuation. For example, the governments of the Czech Republic and Greece have expressed dissatisfaction with the sanctions. US Secretary of State John Kerry acknowledged growing opposition to the sanctions among some European governments.

Employing the three tools of US foreign policy–threats, bribery, and coercion, he warned Europe to renew the sanctions or there would be retribution. We will see in June if Washington’s threat has quelled the rebellion. Europe has to consider the strength of Washington’s threat of retribution against the cost of a continuing and worsening conflict with Russia. This conflict is not in Europe’s economic or political interest, and the conflict has the risk of breaking out into war that would destroy Europe. Since the end of World War II Europeans have been accustomed to following Washington’s lead. For awhile France went her own way, and there were some political parties in Germany and Italy that considered Washington to be as much of a threat to European independence as the Soviet Union.

Over time, using money and false flag operations, such as Operation Gladio, Washington marginalized politicians and political parties that did not follow Washington’s lead. The specter of a military conflict with Russia that Washington is creating could erode Washington’s hold over Europe. By hyping a “Russian threat,” Washington is hoping to keep Europe under Washington’s protective wing. However, the “threat” is being over-hyped to the point that some Europeans have understood that Europe is being driven down a path toward war.

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Problems that cannot be solved.

California Regulators Approve Unprecedented Water Cutbacks (AP)

California water regulators adopted sweeping, unprecedented restrictions Tuesday on how people, governments and businesses can use water amid the state’s ongoing drought, hoping to push reluctant residents to deeper conservation. The State Water Resources Control Board approved rules that force cities to limit watering on public property, encourage homeowners to let their lawns die and impose mandatory water-savings targets for the hundreds of local agencies and cities that supply water to California customers. Gov. Jerry Brown sought the more stringent regulations, arguing that voluntary conservation efforts have so far not yielded the water savings needed amid a four-year drought. He ordered water agencies to cut urban water use by 25% from levels in 2013, the year before he declared a drought emergency.

“It is better to prepare now than face much more painful cuts should it not rain in the fall,” board Chairwoman Felicia Marcus said Tuesday as the panel voted 5-0 to approve the new rules. Although the rules are called mandatory, it’s still unclear what punishment the state water board and local agencies will impose for those that don’t meet the targets. Board officials said they expect dramatic water savings as soon as June and are willing to add restrictions and penalties for agencies that lag. But the board lacks staff to oversee each of the hundreds of water agencies, which range dramatically in size and scope. Some local agencies that are tasked with achieving savings do not have the resources to issue tickets to those who waste water, and many others have chosen not to do so.

Despite the dire warnings, it’s also still not clear that Californians have grasped the seriousness of the drought or the need for conservation. Data released by the board Tuesday showed that Californians conserved little water in March, and local officials were not aggressive in cracking down on waste. A survey of local water departments showed water use fell less than 4% in March compared with the same month in 2013. Overall savings have been only about 9% since last summer. Under the new rules, each city is ordered to cut water use by as much as 36% compared with 2013. Some local water departments have called the proposal unrealistic and unfair, arguing that achieving steep cuts could cause higher water bills and declining property values, and dissuade projects to develop drought-proof water technology such as desalination and sewage recycling.

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“..[beekeepers and bee-product manufacturers] generate a turnover of somewhere between €57 and €62 million per year. The value of the pollination services provided to the agricultural sector is estimated to run to €2.6 billion.”

Save The Bees To Save The Planet (Giorgio Torrazza)

In 2004, local production of acacia, chestnut, citrus and meadow flower honey in Italy fell by half and the reason for this is very simple: the bees are dying. According to estimates released by the beekeepers associations, every year some 175-thousand tons of chemical substances are sprayed onto the fields, substances that pollute and compromise the ecosystem in which the bees live and reproduce. Here in Italy there are some 40-thousand beekeepers and 12-thousand bee-product manufacturers, and if you include all the associated secondary enterprises, together they generate a turnover of somewhere between €57 and €62 million per year. The value of the pollination services provided to the agricultural sector is estimated to run to €2.6 billion.

What is of inestimable value to mankind instead is that according to the FAO data, bees are responsible for pollinating 71 of the top 100 crops that constitute around 90% of all the foodstuff products worldwide. The multinationals encourage the indiscriminate use of insecticides and weed killers, many of which are currently banned in the European Union, but if the TTIP were to be approved, according to a study conducted by the Center for International and Environmental Law, no less than 82 pesticides currently banned in Europe but approved for use in the USA would flood onto the market, further aggravating an already dire situation. This is total folly. We interviewed a beekeeper by the name of Giorgio Torrazza who loves bees and explains in his own simple way precisely who is causing the problem and how to resolve it. #SavetheBees to save the planet!

The bee emergency is linked to parasites that come in from outside the country. There is the Varroa parasitic mite, which has been around for more than 30 years, then there is also the Asian predatory wasp and now there is also another parasite from Africa, the (Aethina tumida), which has already arrived in Calabria and will undoubtedly get here too. The parasite emergency is causing problems but it is still manageable at this stage. However, one of the things that is very difficult to manage at the moment are the chemical poisons that are being spread about like rose water on all the crops. If you spray a weed-killer, even if it is not classified as a pesticide, do you know what happens?

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