Mar 142017
 
 March 14, 2017  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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Arthur Rothstein Family leaving South Dakota drought for Oregon 1936

 


Wall Street Buzz Over Trump Gives Shiller Dot-Com Deja Vu (BBG)
This Is The Most Overvalued Stock Market On Record – Even Worse Than 1929 (MW)
Wall Street Has Found Its Next Big Short in US Credit Market: Malls (BBG)
Fed, In Shift, May Move To Faster Pace Of Rate Hikes (R.)
The Mystery of the Treasury’s Disappearing Cash (Stockman)
Countries With National Health Insurance Spend Less, Live Longer Than US (M&B)
Rand Paul, Tulsi Gabbard Introduce Bill To Stop The US Arming Terrorists (TAM)
Several States Jointly Sue To Block Trump’s Revised Travel Ban (R.)
Shadow Banking Has Made China’s Credit Markets More Complex And Opaque (BI)
The Pause That Refreshes (Jim Kunstler)
Iceland’s Recovery Shows Benefits Of Letting Over-Reaching Banks Go Bust (Tel.)
Merkel Calls Erdogan Attack ‘Absurd’ as Tensions Escalate (BBG)
UK Parliament Passes Brexit Bill And Opens Way To Triggering Article 50 (G.)
Theresa May Rejects Scotland’s Demand For New Independence Vote (G.)
‘1st In Canada’ Supermarket Donation Plan Aids Food Banks, Tackles Waste (G.)
Stock Of Properties Conceded To The Greek State Or Confiscated Grows (G.)

 

 

“They’re both revolutionary eras..” “This time a ‘Great Leader’ has appeared. The idea is, everything is different.”

Wall Street Buzz Over Trump Gives Shiller Dot-Com Deja Vu (BBG)

The last time Robert Shiller heard stock-market investors talk like this in 2000, it didn’t end well for the bulls. Back then, the Nobel Prize-winning economist says, traders were captivated by a “new era story” of technological transformation: The Internet had re-defined American business and made traditional gauges of equity-market value obsolete. Today, the game changer everyone’s buzzing about is political: Donald Trump and his bold plans to slash regulations, cut taxes and turbocharge economic growth with a trillion-dollar infrastructure boom. “They’re both revolutionary eras,” says Shiller, who’s famous for his warnings about the dot-com mania and housing-market excesses that led to the global financial crisis. “This time a ‘Great Leader’ has appeared. The idea is, everything is different.”

For Shiller, the power of a new-era narrative helps answer one of the most hotly debated questions on Wall Street as stocks set one high after another this year: Why are traders so fixated on the upsides of a Trump presidency when the downside risks seem just as big? For all his pro-business promises, the former reality TV star’s confrontational foreign policy and haphazard management style have bred uncertainty – the one thing investors are supposed to hate most. Charts illustrating the conundrum have been making the rounds on trading floors. One, called “the most worrying chart we know” by SocGen at the end of last year, shows a surging index of global economic policy uncertainty severing its historical link with credit spreads, which have declined in recent months along with other measures of investor fear. The VIX index, a popular gauge of anxiety in the U.S. stock market, has dropped more than 30 percent since Trump’s election.

[..] For Hersh Shefrin, a finance professor at Santa Clara University and author of a 2007 book on the role of psychology in markets, the rally is just another example of investors’ remarkable penchant for tunnel vision. Shefrin has a favorite analogy to illustrate his point: the great tulip-mania of 17th century Holland. Even the most casual students of financial history are familiar with the frenzy, during which a rare tulip bulb was worth enough money to buy a mansion. What often gets overlooked, though, is that the mania happened during an outbreak of bubonic plague. “People were dying left and right,” Shefrin says. “So here you have financial markets sending signals completely at odds with the social mood of the time, with the degree of fear at the time.”

Shiller says when markets are as buoyant as they are now, resisting the urge to pile in is hard regardless of what else might be happening in society. “I was tempted to do it, too,” he says. “Trump keeps talking about a new spirit for America and so you could (A) believe that or (B) you could believe that other investors believe that.” On whether stocks are nearing a top, Shiller can’t say with any certainty. He’s loathe to make short-term forecasts. Despite the well-timed publication of his book “Irrational Exuberance” just as the dot-com bubble peaked in early 2000, the Yale University economist had warned (with caveats) that shares might be overvalued as early as 1996. Investors who bought and held an S&P 500 fund in the middle of that year made about 8 percent annually over the next decade, while those who invested at the start of 2000 lost money. The index sank 49 percent from its high in March 2000 through a bottom in October 2002.

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“Don’t be fooled by the booming headline indexes.”

This Is The Most Overvalued Stock Market On Record – Even Worse Than 1929 (MW)

This is the most dangerous and overvalued stock market on record — worse than 2007, worse than 2000, even worse than 1929. Or so warns Wall Street soothsayer John Hussman in his scariest jeremiad yet. “Presently, we observe the broadest market valuation extreme in history,” writes the chairman of the cautious Hussman Funds investment group, “with the steepest median valuations on record, and the most reliable capitalization-weighted measures within a few percent of their 2000 peaks.” On top of such warning signs as “extreme valuations, bullish sentiment, and consumer confidence,” he adds, “market action has deteriorated in interest-sensitive sectors… As of Friday, more than one-third of stocks are already below their 200-day moving averages.” Don’t be fooled by the booming headline indexes.

More NYSE stocks hit new 52-week lows last week than new 52-week highs, he notes. In a nutshell: Run. OK, so, it is always easy to criticize. Husssman, a professional economist and well-known Wall Street figure, has been here before. He’s been warning about stock-market valuations for several years. He’s in that camp that the permabulls, wrongly, call “permabears.” He’s been wrong — or, perhaps, just very early — many times. But he was, notably, also correct and prescient about both the 2000 and 2008 crashes before they happened, when few others were. Opinions, of course, are free. But facts are sacred. And more than a few are suggesting caution. According to the World Bank, the total U.S. stock market is now valued at more than 150% of annual GDP. That is way above historic norms, and about the same as it was at the market extreme of 2000.

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Where are Americans going to meet now? Online?

Wall Street Has Found Its Next Big Short in US Credit Market: Malls (BBG)

Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall. It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago. Like the run-up to the housing debacle, a small but growing group of firms are positioning to profit from a collapse that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators. With bad news piling up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities are growing.

In recent weeks, firms such as Alder Hill Management – an outfit started by protégés of hedge-fund billionaire David Tepper – have ramped up wagers against the bonds, which have held up far better than the shares of beaten-down retailers. By one measure, short positions on two of the riskiest slices of CMBS surged to $5.3 billion last month – a 50% jump from a year ago. “Loss severities on mall loans have been meaningfully higher than other areas,” said Michael Yannell at Gapstow Capital, which invests in hedge funds that specialize in structured credit. Nobody is suggesting there’s a bubble brewing in retail-backed mortgages that is anywhere as big as subprime home loans, or that the scope of the potential fallout is comparable.

After all, the bearish bets are just a tiny fraction of the $365 billion CMBS market. And there’s also no guarantee the positions, which can be costly to maintain, will pay off any time soon. Many malls may continue to limp along, earning just enough from tenants to pay their loans. But more and more, bears are convinced the inevitable death of retail will lead to big losses as defaults start piling up. The trade itself is similar to those that Michael Burry and Steve Eisman made against the housing market before the financial crisis, made famous by the book and movie “The Big Short.” Often called credit protection, buyers of the contracts are paid for CMBS losses that occur when malls and shopping centers fall behind on their loans. In return, they pay monthly premiums to the seller (usually a bank) as long as they hold the position. This year, traders bought a net $985 million contracts that target the two riskiest types of CMBS. That’s more than five times the purchases in the prior three months.

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Run! Hide!

Fed, In Shift, May Move To Faster Pace Of Rate Hikes (R.)

The Federal Reserve, which has struggled to stoke inflation since the financial crisis and up until now raised rates less frequently than it and markets expected, may be about to hit the accelerator on rate hikes. On Wednesday, the U.S. central bank is almost universally expected to raise its benchmark interest rates, a move that just a few weeks ago was viewed by the markets as unlikely. And with inflation showing signs of perking up, Fed policymakers may signal there could be more than the three rate rises they have forecast for this year. “They do not have as much room to be patient as they did before,” said Tim Duy, an economics professor at the University of Oregon, who expects Fed policymakers to lift their rate forecasts this week.

Policymakers have their eyes on achieving full employment and 2-percent inflation. The faster the economy approaches those goals, Duy said, the quicker the Fed will want to tighten policy to avoid getting behind the curve. “That’s an acceleration in the dots,” he said, referring to forecasts published by the Fed that show policymakers’ individual rate-hike forecasts as dots on a chart. The economy already appears closer to its goals than the Fed had expected in December, the last time it released forecasts. The jobless rate, at 4.7%, is below what policymakers see as the long-run norm, and inflation, at 1.7%, is already in the range they had expected by year end. As Fed policymakers prepare to raise rates this week for the second time in three months, the inflation terrain they face looks steeper than it has been since the financial crisis when one of the central bank’s policy aims was to generate inflation.

There are signs of more inflation globally, the dollar is pushing down less on U.S. prices, domestic inflation expectations have picked up and Friday’s closely watched monthly jobs report showed wages rising 2.8% year-on-year in February, with payrolls rising a sturdy 235,000. The Fed’s preferred inflation measure, the so-called core PCE price index, recorded its biggest monthly increase in five years in January and was up 1.7% year-on-year after a similar gain in December. Most Fed policymakers say such data gives them increasing confidence that inflation will eventually reach the Fed’s goal after years of undershooting.

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“..the bureaucrats have apparently decided to sabotage what they undoubtedly believe to be the usurper in the White House.”

The Mystery of the Treasury’s Disappearing Cash (Stockman)

As of October 24, the U.S. Treasury was flush with $435 billion of cash. That was because the department’s bureaucrats had been issuing debt hand-over-fist and piling up a cash hoard, apparently, for the period after March 15, 2017 when President Hillary Clinton would need to coax another debt ceiling increase out of Congress. Needless to say, Hillary was unexpectedly (and thankfully) retired to Chappaqua, New York. But the less discussed surprise is that the U.S. Treasury’s cash hoard has virtually disappeared in the run-up to the March 15 expiration of the debt ceiling holiday. That’s right. As of the Daily Treasury Statement (DTS) for March 7, the cash balance was down to just $88 billion — meaning that $347 billion of cash has flown out the door since October 24.

And I find that on March 8 alone the Treasury consumed another $22 billion of cash — bringing the balance down to $66 billion! To be sure, there has been no heist at the Treasury Building — other than the normal larceny that is the stock-in-trade of the Imperial City. What’s different this time around is that the bureaucrats have apparently decided to sabotage what they undoubtedly believe to be the usurper in the White House. To this end, they’ve been draining Trump’s bank account rather than borrowing the money to pay Uncle Sam’s monumental bills. This has especially been the case since the January 20 inauguration. The net Federal debt on March 7 was $19.802 trillion — up $237 billion since January 20th. But that’s not the half of it. During that same 47 day period, the Treasury bureaucrats took the opportunity to pay-down $57 billion of maturing treasury bills and notes by tapping its cash hoard.

In all, they drained $294 billion from the Donald’s bank account during that brief period — or about $6.4 billion per day. You wouldn’t be entirely wrong to conclude that even Putin’s alleged world class hackers couldn’t have accomplished such a feat. At this point I could don my tin foil hat because this massive cash drain was clearly deliberate. Last year, for example, during the same 47 day period, the operating deficit was even slightly larger — $253 billion. But the Treasury funded that mainly by new borrowings of $157 billion, which covered 62% of the shortfall. Its cash balance was still $223 billion on March 7. Again, that cash balance is just $66 billion right now. Moreover, the Trump Administration has only a few business days until its credit card expires on March 15 — so it’s also way too late for an eleventh hour borrowing spree to replenish its depleted cash account. (Besides that, I’m predicting a very dangerous market event will start on the 15th.)

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Not that we can’t make it even worse.

Countries With National Health Insurance Spend Less, Live Longer Than US (M&B)

We see health as a basic human right. Every society should provide medical care for its citizens at the level it can afford. And, while the United States has made some progress in improving access to care, the results do not justify the costs. So, while we agree with President Trump’s statement that the U.S. health care system should be cheaper, better and universal, the question is how to get there. In this post, we start by setting the stage: where matters stand today and why they are unacceptable. This leads us to the real question: where can and should we go? As economists, we are genuinely partial to market-based solutions that allow individuals to make tradeoffs between quality and price, while competition pushes suppliers to contain costs.

But, in the case of health care, we are skeptical that such a solution can be made workable. This leads us to propose a gradual lowering of the age at which people become eligible for Medicare, while promoting supplier competition. Before getting to the details of our proposal, we begin with striking evidence of the inefficiency of the U.S. health care system. The following chart (from OurWorldInData.org) displays life expectancy at birth on the vertical axis against real health expenditure per capita on the horizontal axis. The point is that the U.S. line in red lies well below the cost-performance frontier established by a range of advanced economies (and some emerging economies, too). Put differently, the United States spends more per person but gets less for its money.


Life Expectancy and Health Expenditure per capita, 1970-2014

It really doesn’t matter how you measure U.S. health care outlays, you will come away with the same conclusion: the U.S. system is extremely inefficient compared to that of other countries. Today, for example, health expenditures account for more than 17% of U.S. GDP. This is more than twice the average of the share in the 42 other countries shown in the figure, and more than 40% higher than the next highest (which happens to be Sweden at 12%).

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“..considering the Trump administration is directly sending American troops to fight in Syrian territory, perhaps the various rebel groups on the ground have outlived their usefulness..”

Rand Paul, Tulsi Gabbard Introduce Bill To Stop The US Arming Terrorists (TAM)

According to a press release released Friday by the office of Rep. Tulsi Gabbard, Sen. Rand Paul has introduced their bill, the Stop Arming Terrorists Act, in the U.S. Senate. The bipartisan legislation (H.R.608 and S.532) aims to prohibit any federal agency from using taxpayer dollars to provide weapons, cash, intelligence, or any support to al-Qaeda, ISIS, and other terrorist groups. It would also prohibit the government from funneling money and weapons through other countries that are directly or indirectly supporting terrorists.

Gabbard said: “For years, the U.S. government has been supporting armed militant groups working directly with and often under the command of terrorist groups like ISIS and al-Qaeda in their fight to overthrow the Syrian government. Rather than spending trillions of dollars on regime change wars in the Middle East, we should be focused on defeating terrorist groups like ISIS and al-Qaeda, and using our resources to invest in rebuilding our communities here at home.” [..] “The fact that American taxpayer dollars are being used to strengthen the very terrorist groups we should be focused on defeating should alarm every Member of Congress and every American. We call on our colleagues and the Administration to join us in passing this legislation.

Rand Paul provided much-needed support for the bill, stating: “One of the unintended consequences of nation-building and open-ended intervention is American funds and weapons benefiting those who hate us. This legislation will strengthen our foreign policy, enhance our national security, and safeguard our resources.” The legislation is currently co-sponsored by Reps. John Conyers (D-MI); Scott Perry (R-PA); Peter Welch (D-VT; Tom Garrett (R-VA); Thomas Massie (R-KY); Barbara Lee (D-CA); Walter Jones (R-NC); Ted Yoho (R-FL); and Paul Gosar (R-AZ). It is endorsed by Progressive Democrats of America (PDA), Veterans for Peace, and the U.S. Peace Council.

One of Trump’s campaign narratives that resonated deeply with his voter base was an anti-radical Islam agenda, which separated him from Clinton’s campaign as he vowed to “bomb the shit” out of ISIS-controlled oil fields. However, his voter base may or may not be somewhat disillusioned now given that he just approved an arms sale to Saudi Arabia that was so controversial it was even blocked by Obama, a president who made a literal killing from arms sales to the oil-rich kingdom (ISIS adheres to Saudi Arabia’s twisted form of Wahhabist philosophy). In the context of recent events, whether or not the Trump administration will get fully behind Gabbard’s bill remains to be seen. But considering the Trump administration is directly sending American troops to fight in Syrian territory, perhaps the various rebel groups on the ground have outlived their usefulness and the bill will be allowed to proceed unimpeded.

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“The first hurdle for the lawsuits will be proving “standing,” which means finding someone who has been harmed by the policy. With so many exemptions, legal experts have said it might be hard to find individuals who would have a right to sue..”

Several States Jointly Sue To Block Trump’s Revised Travel Ban (R.)

A group of states renewed their effort on Monday to block President Donald Trump’s revised temporary ban on refugees and travelers from several Muslim-majority countries, arguing that his executive order is the same as the first one that was halted by federal courts. Court papers filed by the state of Washington and joined by California, Maryland, Massachusetts, New York and Oregon asked a judge to stop the March 6 order from taking effect on Thursday. An amended complaint said the order was similar to the original Jan. 27 directive because it “will cause severe and immediate harms to the States, including our residents, our colleges and universities, our healthcare providers, and our businesses.” A Department of Justice spokeswoman said it was reviewing the complaint and would respond to the court.

A more sweeping ban implemented hastily in January caused chaos and protests at airports. The March order by contrast gave 10 days’ notice to travelers and immigration officials. Last month, U.S. District Judge James Robart in Seattle halted the first travel ban after Washington state sued, claiming the order was discriminatory and violated the U.S. Constitution. Robart’s order was upheld by the 9th U.S. Circuit Court of Appeals. Trump revised his order to overcome some of the legal hurdles by including exemptions for legal permanent residents and existing visa holders and taking Iraq off the list of countries covered. The new order still halts citizens of Iran, Libya, Syria, Somalia, Sudan and Yemen from entering the United States for 90 days but has explicit waivers for various categories of immigrants with ties to the country.

[..] The first hurdle for the lawsuits will be proving “standing,” which means finding someone who has been harmed by the policy. With so many exemptions, legal experts have said it might be hard to find individuals who would have a right to sue, in the eyes of a court. To overcome this challenge, the states filed more than 70 declarations of people affected by the order including tech businesses Amazon and Expedia, which said that restricting travel hurts their revenues and their ability to recruit employees. Universities and medical centers that rely on foreign doctors also weighed in, as did religious organizations and individual residents, including U.S. citizens, with stories about separated families.

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That’s the whole idea.

Shadow Banking Has Made China’s Credit Markets More Complex And Opaque (BI)

A research note from Goldman Sachs highlights how large, complex and opaque China’s credit market has become over the last decade. In a report called Mapping China’s Credit, analysts Kenneth Ho and Claire Cui write that the rise in China’s total debt started with a RMB 4 trillion ($AU770 billion) stimulus package in 2009 to counter the global financial crisis. Since late 2008, debt to GDP (excluding financial debt) has risen from 158% to 262%. Including financial debt bumps the figure up to 289%. The rise in China’s debt to GDP follows a similar increase in America, where last week bond fund manager Bill Gross discussed the risks associated with the US debt to GDP ratio, which sits at around 350%. The analysts note they’re struggling to break down and make sense of the country’s credit market.

“Given the development of the shadow banking sector, and the introduction of a number of retail investment channels such as wealth management products, it has become much more difficult to analyse and monitor China’s credit growth,” they say. In 2006, 85% of China’s credit was supplied by bank loans (offset by deposits). According to Ho and Cui’s estimates, the share of credit from bank loans has reduced to 53%. In its place, approximately 31% of debt is now supplied through bond and securities markets, and 16% through the shadow banking sector (more on that later). Ho and Cui write that as China’s debt pool has grown, larger state-related companies have seen a significant increase in leverage through traditional loans from state-affiliated banks. In addition, however, a decrease in domestic interest rates has encouraged smaller companies and individual investors to shift savings away from bank deposits.

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“The Democrats reduced themselves to a gang of sadistic neo-Maoists seeking to eradicate anything that resembles free expression..”

The Pause That Refreshes (Jim Kunstler)

Let’s take a breather from more consequential money matters at hand midweek to consider the tending moods of our time and place — while a blizzard howls outside the window, and nervous Federal Reserve officials pace the grim halls of the Eccles Building. It is clear by now that we have four corners of American politics these days: the utterly lost and delusional Democratic party; the feckless Republicans; the permanent Deep State of bureaucratic foot-soldiers and errand boys; and Trump, the Golem-King of the Coming Greatness. Wherefore, and what the fuck, you might ask. The Democrats reduced themselves to a gang of sadistic neo-Maoists seeking to eradicate anything that resembles free expression across the land in the name of social justice.

Coercion has been their coin of the realm, and especially in the realm of ideas where “diversity” means stepping on your opponent’s neck until he pretends to agree with your Newspeak brand of grad school neologisms and “inclusion” means welcome if you’re just like us. I say Maoists because just like Mao’s “Red Guard” of rampaging students in 1966, their mission is to “correct” the thinking of those who might dare to oppose the established leader. Only in this case, that established leader happened to lose the sure-thing election and the party finds itself unbelievably out-of-power and suddenly purposeless, like a termite mound without a queen, the workers and soldiers fleeing the power center in an hysteria of lost identity.

They regrouped briefly after the election debacle to fight an imaginary adversary, Russia, the phantom ghost-bear, who supposedly stepped on their termite mound and killed the queen, but, strangely, no actual evidence was ever found of the ghost-bear’s paw-print. And ever since that fact was starkly revealed by former NSA chief James Clapper on NBC’s Meet the Press, the Russia hallucination has vanished from page one of the party’s media outlets — though, in an interesting last gasp of striving correctitude, Monday’s New York Times features a front page story detailing Georgetown University’s hateful traffic in the slave trade two centuries ago. That should suffice to shut the wicked place down for once and for all!

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What does it say that only one small island can get it right?

Iceland’s Recovery Shows Benefits Of Letting Over-Reaching Banks Go Bust (Tel.)

It looks set to be a week packed with big financial milestones. In the US, the Federal Reserve will raise interest rates, putting the country on a path towards getting back to a normal price for money. In the Netherlands, a tense election may deal the fragile eurozone another blow. In this country, Theresa May could finally trigger Article 50, starting the process of taking the UK out of the European Union. The most significant event, however, as is so often the case, may well be something that hardly anyone is paying attention to. On Sunday, Iceland ended capital controls, finally returning its economy to normal after a catastrophic banking collapse back in 2008 and 2009. Why does that matter? Because Iceland was the one country that defied the global consensus and did not bail out its bankers.

True, there was shock to the system. But it was relatively short, and once the pain was dealt with, the country has bounced back stronger than ever. There is, surely, a lesson in that. It might well be better just to let banks go to the wall. Next time around, we should follow Iceland’s example. The crash of 2008 hit every country in the world. And yet none was quite so completely destroyed as Iceland. A tiny country, home to just 323,000 people, with cod fishing and tourism as its two major industries, it deregulated its finance sector and went on a wild lending spree. Its banks started bulking up in a way that might have made Royal Bank of Scotland’s Fred Goodwin start to wonder if his foot wasn’t pressed too hard on the accelerator. When confidence collapsed, those banks were done for.

In every other country in the world, the conventional wisdom dictated the financiers had to be bailed out. The alternative was catastrophe. Cash machines would stop working, trade would grind to a halt, and output would collapse. It would be the 1930s all over again. The state had no option but to dig deep, and pay whatever it took to keep the financial sector alive. But Iceland did not have that option. Its banks had run up debts of $86bn, an impossible sum for an economy with a GDP of $13bn in 2009. Even Gordon Brown, in full “saving the world’” mode, might have baulked at taking on liabilities of that scale. Iceland did the only thing it could do under the circumstances. It let its banks go bust: as British depositors quickly found out to their cost.

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Much more to come. See my article yesterday, Caesar, Turkey and the Ides of March

Merkel Calls Erdogan Attack ‘Absurd’ as Tensions Escalate (BBG)

Chancellor Angela Merkel derided as “clearly absurd” Turkish President Recep Tayyip Erdogan’s accusation that Germany supports terrorism, as Ankara announced retaliatory measures against the Dutch government amid escalating tensions with Europe. After Erdogan excoriated Merkel’s government for “openly giving support to terrorist organizations” on Monday, the Turkish government announced it would block the Dutch ambassador from re-entering the country. Erdogan has blasted European leaders, including accusing Germany of using “Nazi practices,” after a string of rallies by Turkish ministers on European soil were canceled. “The chancellor has no intention of participating in a competition of provocations” with Erdogan, her chief spokesman, Steffen Seibert, said in an emailed statement on Monday. “She’s not going to join in with that. The accusations are clearly absurd.”

Erdogan is seeking votes from Turkish expatriates in a referendum next month on constitutional changes that would make the presidency his country’s highest authority. He has lashed out at the EU and risked deepening tensions, particularly with Merkel. In an interview on Monday, he said Merkel’s government “mercilessly” supported groups such as the Kurdish PKK group, which has waged a separatist war with the Turkish military for more than three decades. “I don’t want to put all EU countries in the same basket, but some of them can’t stand Turkey’s rise, primarily Germany,” Erdogan told A Haber television. The standoff came to a head over the weekend when the Dutch government prevented Turkish ministers from participating in referendum campaign rallies. Some 3 million Turks outside their country can vote, though fewer than half of them did so in the last general election in 2015.

Merkel struck an unusually strident tone earlier this month, slamming Erdogan for trivializing World War II-era crimes by using a Nazi comparison to censure Germany for canceling ministers’ appearances. Such a tone “can’t be justified,” Merkel said March 6 after Erdogan’s previous outburst. European leaders have been vocal in their disapproval of the referendum, saying the executive-centered system that Erdogan is planning to introduce will concentrate power in the president’s hands at the expense of democracy in a NATO member state and EU membership applicant.

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The fight’s only just starting.

UK Parliament Passes Brexit Bill And Opens Way To Triggering Article 50 (G.)

Theresa May’s Brexit bill has cleared all its hurdles in the Houses of Parliament, opening the way for the prime minister to trigger article 50 by the end of March. Peers accepted the supremacy of the House of Commons late on Monday night after MPs overturned amendments aimed at guaranteeing the rights of EU citizens in the UK and giving parliament a “meaningful vote” on the final Brexit deal. The decision came after a short period of so-called “ping pong” when the legislation bounced between the two houses of parliament as a result of disagreement over the issues. The outcome means the government has achieved its ambition of passing a “straightforward” two-line bill that is confined simply to the question of whether ministers can trigger article 50 and start the formal Brexit process.

It had been widely predicted in recent days that May would fire the starting gun on Tuesday, immediately after the vote, but sources quashed speculation of quick action and instead suggested she will wait until the final week of March. MPs voted down the amendment on EU nationals’ rights by 335 to 287, a majority of 48, with peers later accepting the decision by 274 to 135. The second amendment on whether to hold a meaningful final vote on any deal after the conclusion of Brexit talks was voted down by 331 to 286, a majority of 45, in the Commons. The Lords then accepted that decision by 274 to 118, with Labour leader Lady Smith telling the Guardian that continuing to oppose the government would be playing politics because MPs would not be persuaded to change their minds.

“If I thought there was a foot in the door or a glimmer of hope that we could change this bill, I would fight it tooth and nail, but it doesn’t seem to be the case,” she said. But the decision led to tensions between Labour and the Lib Dems, whose leader, Tim Farron, hit out at the main opposition. “Labour had the chance to block Theresa May’s hard Brexit, but chose to sit on their hands. Tonight there will be families fearful that they are going to be torn apart and feeling they are no longer welcome in Britain. Shame on the government for using people as chips in a casino, and shame on Labour for letting them,” he said.

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We can be independent, but you can not.

Theresa May Rejects Scotland’s Demand For New Independence Vote (G.)

Theresa May has faced down Nicola Sturgeon’s demand for a second referendum on Scottish independence, accusing the SNP leader of “tunnel vision” and rejecting her timetable for a second vote. The prime minister said that the Scottish leader’s plan to hold a second referendum between the autumn of 2018 and spring 2019 represented the “worst possible timing,” setting the Conservative government on a collision course with the administration in Holyrood. The first minister’s intervention had been timed a day ahead of when May had been predicted to trigger article 50, but No 10 later indicated that it would not serve notice to leave the EU until the end of the month. The confirmation of the later date, in the aftermath of the speech, fuelled speculation the prime minister had been unnerved by Sturgeon.

Buoyed by three successive opinion polls putting support for independence at nearly 50/50, Sturgeon said that she had been left with little choice than to offer the Scottish people, who voted to remain in the EU, a choice at the end of the negotiations of a “hard Brexit” or living in an independent Scotland. “The UK government has not moved even an inch in pursuit of compromise and agreement. Our efforts at compromise have instead been met with a brick wall of intransigence,” the first minister said, claiming that any pretence of a partnership of equal nations was all but dead. Downing Street denied that it had ever planned to fire the starting gun on Brexit this week, but critics pointed out that ministers had failed to deny the widespread suggestion in media reports over the weekend. The Guardian understands that May will now wait until the final week of March to begin the process, avoiding a clash with the Dutch elections and the anniversary of the Rome Treaty, and giving the government time to seek consensus in different parts of the country.

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This should be so obvious, and implemented in law everywhere. It already is in France.

‘1st In Canada’ Supermarket Donation Plan Aids Food Banks, Tackles Waste (G.)

Supermarkets in Quebec will now be able to donate their unsold produce, meat and baked goods to local food banks in a program – described as the first of its kind in Canada – that also aims to keep millions of kilograms of fresh food out of landfills. The Supermarket Recovery Program launched in 2013 as a two-year pilot project. Developed by the Montreal-based food bank Moisson Montréal, the goal was to tackle the twin issues of rising food bank usage in the province and the staggering amount of edible food being regularly sent to landfills. Provincial officials said the pilot – which last year saw 177 supermarkets donate more than 2.5m kg of food that would have otherwise been discarded – would now begin expanding across the province.

“The idea behind it is: ‘Hey, we’ve got enough food in Quebec to feed everybody, let’s not be throwing things out,’” Sam Watts, of Montreal’s Welcome Hall Mission, which offers several programs for people in need, told Global News on Friday. “Let’s be recuperating what we can recuperate and let’s make sure we get it to people who need it.” Recent years have seen food bank usage surge across Canada, with children making up just over a third of the 900,000 people who rely on the country’s food banks each month. In Quebec, the number of users has soared by nearly 35% since 2008, to about 172,000 people per month.

The program’s main challenge was in developing a system that would allow products such as meat and frozen foods to be easily collected from grocers and quickly redistributed, said Watts. “There is enough food in the province of Quebec to feed everybody who needs food. Our challenge has always been around management and distribution,” he added. “Supermarkets couldn’t accommodate individual food banks coming to them one by one by one.” More than 600 grocery stores across the province are expected to take part in the program, diverting as many as 8m kg of food per year.

Read more …

Austerity. Germans can now buy Greek homes on the cheap. Insane.

Stock Of Properties Conceded To The Greek State Or Confiscated Grows (G.)

The austerity measures introduced by the government are forcing thousands of taxpayers to hand over inherited property to the state as they are unable to cover the taxation it would entail. The number of state properties grew further last year due to thousands of confiscations that reached a new high. According to data presented recently by Alpha Astika Akinita, real estate confiscations increased by 73 percent last year from 2015, reaching up to 10,500 properties. The fate of those properties remains unknown as the state’s auction programs are fairly limited. For instance, one auction program for 24 properties is currently ongoing. The precise number of properties that the state has amassed is unknown, though it is certain they are depreciating by the day, which will make finding buyers more difficult.

Financial hardship has forced many Greeks to concede their real estate assets to the state in order to pay taxes or other obligations. Thousands of taxpayers are unable to pay the inheritance tax, while others who cannot enter the 12-tranche payment program are forced to concede their properties to the state. Worse, the law dictates that any difference between the obligations due and the value of the asset conceded should not be returned to the taxpayer. The government had announced it would change that law, but nothing has happened to date. Property market professionals estimate that the upsurge in forfeiture of inherited property will continue unabated in the near future as the factors that have generated the phenomenon, such as high unemployment, the Single Property Tax (ENFIA) etc, remain in place.

Read more …

Sep 122016
 
 September 12, 2016  Posted by at 8:52 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »
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Harris&Ewing WSS (War Savings Stamps) poster, Washington DC 1917


Clinton Health Another Landmine for Suddenly Vulnerable Markets (BBG)
Asia Stocks, Bonds Sell-Off In Central Bank Anxiety Attack (R.)
Global Stocks Sink With Bonds, Commodities as Fed Angst Builds (BBG)
A ‘Perfect Storm’ In Stocks Is Coming, And Nothing Can Stop It (CNBC)
Goldman: We’ve Reached ‘Maximum’ Bullishness; Bad News for US Stocks (BBG)
Governments May Boost Fiscal Stimulus As Central Banks Step Back (CNBC)
Oil Prices Fall As US Drillers Add New Rigs, Long Positions Are Cut (R.)
Woes at Italy’s Biggest Bank Reverberate in Europe (WSJ)
Where Have The Jobs Gone? Australians Grapple With Less Work, Low Pay (R.)
EU/IMF Rift On Greek Debt Is Hurting Country, Says Tsipras (R.)
It’ll Take More Than Hanjin’s Crisis To Fix Shipping’s Overcapacity (CNBC)
Low-Income US Teens Often Forced To Trade Sex For Food (G.)

 

 

Markets are in for a huge US election shock. An apt question Mish asked: what was she doing running around in public with a potentially highly contagious disease? More on this later.

Clinton Health Another Landmine for Suddenly Vulnerable Markets (BBG)

Investors nursing wounds after the worst selloff in three months for equity and debt markets got another stress to ponder after concerns over Hillary Clinton’s health flared anew. The 68-year-old Democratic presidential nominee, whose polling edge over Donald Trump has soothed traders who fear ruptures to U.S. policy and see virtue in political gridlock, is suffering from pneumonia and became overheated and dehydrated during a Sept. 11 commemoration Sunday, forcing her to leave abruptly, her doctor said. Clinton was prescribed antibiotics and advised to modify her schedule so she can rest.

Volatility is already resurfacing in markets that had purred along for two months inured to everything from politics to weakening global growth, with the S&P 500 Index getting jarred Friday out of its tightest trading range ever in a selloff that erased about $500 billion of share value. While investors and analysts were reluctant to speculate on Clinton’s health, they said expectations she will prevail in November have been a factor in the calm and predicted the scrutiny will intensify. “If we found out that there was something catastrophic about her health it obviously would matter, but you have to be very careful about extrapolating shorter-term news,” Jonathan Golub at RBC Capital Markets in New York, said by phone.

“What we do know is we have two candidates around 70 years old and in reality it must be brutal running around the world for two years.” Speculation central banks are losing their taste for extra stimulus on Friday tore through the blanket of tranquility that has enveloped global markets. The S&P 500, global equities and emerging-market assets tumbled at least 2 percent in the biggest drop since Britain voted to secede from the European Union. The yield on the 10-year Treasury note jumped to the highest since June and the dollar almost erased a weekly slide.

Read more …

It’s Brainard day. From Friday: “..investors recoiled over news that the central bank’s most dovish official, Governor Lael Brainard, will be delivering a previously unannounced speech Monday..”

Asia Stocks, Bonds Sell-Off In Central Bank Anxiety Attack (R.)

Asian shares suffered their sharpest setback since June on Monday as investors were rattled by rising bond yields and talk the Federal Reserve might be serious about lifting U.S. interest rates as early as next week. Reports that the Bank of Japan was considering ways to steepen the Japanese yield curve, along with worries that central banks more generally were running short of fresh stimulus options, also hit sovereign debt and risk appetite globally. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.4%, pulling away from a 13-month peak. It was the largest daily drop since the frenzy caused by Britain’s vote in late June to leave the European Union. On a technical basis the index had been overbought in recent sessions, leaving it vulnerable to a pullback.

Shanghai followed with a fall of 2%, while Australian stocks sank 2.2%. The Nikkei 225 lost 1.9% as the safe haven yen firmed and selling in bonds drove yields on 20-year JGBs to the highest since March. Traders were unsure how the BOJ would try to steepen the yield curve if it goes down that path at a policy review later this month, but markets are worried that tapering of its buying in long-dated bonds could be among the options. EMini futures for the S&P 500, traded in Chicago during Asian hours, swung 0.6% lower, though Treasuries were finding safe-haven demand. Some Fed members have been trying to convince markets that the September meeting would be “live” for a hike, even though futures only imply a one-in-four chance of a move.

No less than three Fed officials are expected to speak later in the day, including board member and noted dove Lael Brainard. Any hint of hawkishness would likely further pressure bonds and equities.

Read more …

Angst alright.

Global Stocks Sink With Bonds, Commodities as Fed Angst Builds (BBG)

Global selloffs in stocks and bonds resumed Monday, while commodities slumped amid concern central banks in the world’s biggest economies are questioning the benefits of loose monetary policy. Shares in Europe and Asia dropped by the most since the aftermath of Brexit, and futures foreshadowed declines in U.S. equities. Portugese debt led losses among euro-area bonds, while yields in Australia and New Zealand climbed to their highest levels of the quarter. Oil sank to about $45 a barrel as nickel tumbled the most in four weeks. The yen strengthened and South Korea’s won tumbled. Financial markets have been jolted out of a period of calm by an uptick in concern over the outlook for central bank policies.

Federal Reserve Bank of Boston President Eric Rosengren spurred bets on an interest-rate hike on Friday, saying the U.S. economy could overheat should policy makers wait too long to tighten. The comments came a day after European Central Bank chief Mario Draghi surprised markets by playing down the prospect of further stimulus. The S&P 500 slumped 2.5% Friday, breaking out of a range that hadn’t seen it move more than 1% in either direction for 43 days. “Central banks are reluctant to add additional stimulus and that’s causing a lot of concern,” Niv Dagan, executive director at Peak Asset Management in Melbourne, told Bloomberg Radio. “We expect additional downside in the near term. You want to wait and see and remain cautious,” he said.

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“..I wouldn’t be surprised that we see some kind of repeat as we had towards the end of last year into January-February, which was something close to a 12% correction.”

A ‘Perfect Storm’ In Stocks Is Coming, And Nothing Can Stop It (CNBC)

A sharp stock market pullback is imminent, according to David Rosenberg, chief economist and strategist at Gluskin Sheff. On Friday, stocks were hammered by fears the Federal Reserve might hike rates sooner than expected, sending the S&P 500 index and the Dow Jones industrial average into a tailspin. According to Rosenberg, there’s more trouble ahead. “You have a perfect storm here if you get something like a Fed rate hike into the next several months,” Rosenberg said Thursday on CNBC’s “Futures Now. “The problem is that the market is not priced for it. I wouldn’t be surprised that we see some kind of repeat as we had towards the end of last year into January-February, which was something close to a 12% correction.”

Rosenberg, who has been named to the U.S. Institutional Investor All-America All Star Team several times in his career, doesn’t think the shake-up can be avoided. His reasoning doesn’t just include a potential Fed rate hike. He also takes into account a more richly valued stock market, signs of investor complacency and a sluggish U.S. economy. “We entered into the third quarter with momentum and a lot of hope, and now we’re exiting the third quarter,” he said. “And, let’s face it: The last five or six [economic] numbers have been really soft,” he contended. “The problem now, looking at where the market is priced, you’ve got cycle high multiples, you’ve got a lot of hedge funds in the futures options market that have been chasing performance here up to the price highs, and it doesn’t take much in the way of any sort of near-term adverse news to cause the market to correct.”

Read more …

“Where to Invest Now: None of the Above.”

Goldman: We’ve Reached ‘Maximum’ Bullishness; Bad News for US Stocks (BBG)

U.S. stocks have climbed many walls of worry as they marched to fresh all-time highs in 2016. But the market calm that characterized the summer also propelled investor enthusiasm to extremely elevated levels, according to Goldman Sachs Group Inc., which bodes ill for the near-term performance of equities. Goldman’s sentiment indicator, which tracks S&P 500 futures positioning, now stands at 100 – its maximum level. Readings above 90 or below 10 are contrarian indicators that are “significant in predicting future returns,” writes Chief U.S. Equity Strategist David Kostin in a note titled “Where to Invest Now: None of the Above.” This degree of enthusiasm “points to a 2% near-term S&P 500 fall,” he said.

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AKA: After central banks fail, governments have a go. But they are equally clueless.

Governments May Boost Fiscal Stimulus As Central Banks Step Back (CNBC)

Central banks have done bulk of the heavy lifting to boost growth since the global financial crisis, but economists now were expecting fiscal spending will get some life. Analysts and central bankers alike have talked up the benefits recently of letting the sun shine in on government spending after years of an austerity drumbeat amid an anaemic global recovery from the financial crisis. “Numerous central bankers, including Mario Draghi, have stressed that monetary policy alone cannot get the world out of its current malaise,” noted Andrew Kenningham, senior global economist at Capital Economics, in a note Wednesday.

“The U.S. Treasury Secretary, Jacob Lew, even claimed ahead of the G-20 summit in China last weekend that the U.S. had won the argument in favour of ‘growth rather than austerity’ and that this had prompted a policy shift by many G-20 governments.” That was in part due to the effects of long-running easing efforts by central banks, Kenningham noted. Many sovereigns have seen their bond yields turn negative, while smaller government budget deficits have reduced debt sustainability concerns, he said. “With global growth still lacklustre, monetary policy seemingly ineffective and government bond yields unprecedentedly low, the case for fiscal stimulus has become more compelling,” Kenningham said. “Partly as a result, we now expect advanced economies overall to benefit from a small fiscal boost in the next couple of years.”

Read more …

Oil is no longer an industry, it’s a gambling den.

Oil Prices Fall As US Drillers Add New Rigs, Long Positions Are Cut (R.)

Crude prices fell over 1.5% on Monday after U.S. oil drillers added rigs to look for new production as producers adapt to cheaper crude, with speculators cutting positions betting on further price rises. Brent crude futures were trading at $47.29 per barrel at 0200 GMT (10:00 p.m. EDT), down 72 cents, or 1.5%, from their last settlement. U.S. West Texas Intermediate futures were down 80 cents, or 1.74%, at $45.08 a barrel. Traders said the price falls on Monday and Friday were a result of increasing oil drilling activity in the United States, which indicated that producers can operate profitably around current levels.

“Each dollar is being used far more efficiently and, as a result, $50 oil appears much more palatable,” Barclays bank said in a note to clients. U.S. drillers added oil rigs for a tenth week in the past 11, according to a Baker Hughes rig count report on Friday. It was the longest streak without rig cuts since 2011. Speculative oil traders also became less confident of higher oil prices, cutting their net long U.S. crude futures and options positions for a second consecutive week last week, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. Oil’s near 5%price decline since Sept. 8 partly reverses a 10% rally early in the month, which was fueled by speculation that oil exporters could cap production.

Read more …

“Monte dei Paschi presented a plan in July to sell €28 billion of bad loans at 27% of face value. That has effectively set a new benchmark for the pricing of Italian bad loans..” But UniCredit expects to lose just 10%? Since UniCredit attributes a higher value to its bad loans, a sale of €20 billion of loans would force it to take €2 billion in write-downs…

Woes at Italy’s Biggest Bank Reverberate in Europe (WSJ)

For UniCredit, the summer of discontent for Italy’s banks looks likely to stretch well into the fall—and possibly beyond. UniCredit, Italy’s largest lender by assets, emerged as one of the weakest big banks in Europe in July’s stress tests, showcasing the failure of its attempts to respond to rock-bottom interest rates and a huge pile of bad loans. Now, as Jean-Pierre Mustier, the bank’s new CEO, readies a big-bang plan to revive UniCredit’s fortunes, he faces a series of unpalatable choices: Aggressive action to cut the bank’s €80 billion ($89.9 billion) in bad loans—the largest of any European bank—would force the Milanese bank to raise billions in fresh capital, while an asset sale could help bolster its capital position but would hurt already thin profit.

Meanwhile, the travails of Italy’s No. 3 lender, Banca Monte dei Paschi di Siena, promise to only complicate Mr. Mustier’s job. On Thursday, Monte dei Paschi said its CEO, Fabrizio Viola, had agreed with the bank’s board to resign, in a surprise move that came as that bank works on a plan to shed €28 billion in bad loans. Troubles at UniCredit, which has a vast business in Germany and Eastern Europe, could threaten not only Italy’s ailing economy but also the continent’s already fragile financial stability. Brexit has upended Europe’s status quo, making the financial system more sensitive to shocks. Investors are watching UniCredit closely, as they expect its fate to affect both Italy and potentially other lenders on the continent.

[..] A major move to unload bad loans, perhaps as much as €20 billion, “will be key for a rerating of the stock,” said Vicenzo Longo at IG Markets. However, Monte dei Paschi presented a plan in July to sell €28 billion of bad loans at 27% of face value. That has effectively set a new benchmark for the pricing of Italian bad loans. Since UniCredit attributes a higher value to its bad loans, a sale of €20 billion of loans would force it to take €2 billion in write-downs…

Read more …

Quality vs quantity. If it can hide reality in the US, it can do so in Oz.

Where Have The Jobs Gone? Australians Grapple With Less Work, Low Pay (R.)

While the unemployment rate in Australia has been relatively stable, at 5.7% in July, there is a historically high underemployment rate – people who want to work more – of 8.5%. Combined, the measures lead to an underutilisation rate of 14.2%, much higher than during the global financial crisis and a worrying trend for the Reserve Bank of Australia (RBA). That spare capacity in the labor market limits the ability of workers to push for pay rises, and feeds through to muted demand and confidence. If this trend persists, the RBA could be forced to lower rates again after already easing twice this year. Indeed, wages growth is already at record lows while inflation is likely to remain below the central bank’s target band of 2-3% until 2018.

“For that to turn around you need to see a pick-up in domestic demand,” said Gareth Aird, senior economist at Commonwealth Bank. “We have cash rates down to 1.5% and we’re still not seeing a pick-up in wages or inflation. We probably need to see a pick-up in investment in order to see full-time employment materially lift.” For policymakers – unable to do much in the face of slow global demand – the low business investment is a particularly worrying phenomenon, especially as the end of the mining boom and a slowdown in major trading partner China leave corporate managers leery about spending on new projects. Indeed, latest data showed business investment tumbled in the June quarter as miners continued to cut back while spending plans slipped 9%.

Read more …

The Troika enjoys its stranglehold on an entire people.

EU/IMF Rift On Greek Debt Is Hurting Country, Says Tsipras (R.)

A rift between the IMF and the EU on how to address Greece’s debt crisis is damaging for the country, Prime Minister Alexis Tsipras said on Sunday. “I would say that what is creating conditions of delay in regaining trust of markets and investors … is the constant clash and disagreement between the IMF and European institutions,” Tsipras told a news conference in the northern city of Thessaloniki. The IMF has yet to decide whether to participate in a third international bailout Greece signed up to in mid-2015, saying it is not convinced its debt is sustainable. The country’s current debt to GDP ratio exceeds 170% of national output, the highest in the eurozone. Tsipras said disagreements between the EU and the IMF was preventing timely participation of the country in the quantitative easing program of the ECB. “A country which has made such harsh adjustment cannot wait much more… It is entitled to a fair regulation of the debt issue. The Greek problem is a European problem,” Tsipras said.

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No-one’s ever considered that trade was a bubble?!

It’ll Take More Than Hanjin’s Crisis To Fix Shipping’s Overcapacity (CNBC)

The crisis surrounding Hanjin Shipping has rocked the industry, but even more shipping lines could find themselves in trouble thanks to the huge amount of overcapacity in the industry, warns the CEO of a logistics company. Hanjin, which had around 3% of market share in shipping, filed for court receivership at the end of August, which has meant that its ships have been denied access to ports and, in some cases, have been seized. One result of Hanjin’s troubles is that shipping rates have spiked. Prices for shipments between Asia and the U.S. have risen 50% through September, according to data from Freightos, an online shipping rate marketplace. However, this is likely to prove temporary, as prices will fluctuate and currently empty container slots are brought into use, the company added.

Not only have shipping rates risen, but companies which were using Hanjin have received charges from some ports, according to Philip Damas, director for supply chain advisors at Drewry. “Some ports have imposed surcharges on exporters and importers who used Hanjin as a carrier and are waiting for their products in the destination port to cover the port costs unpaid by Hanjin. This is also increasing exporters’ costs,” he told CNBC in an email. Hanjin has been a shock to the system, but a glut in the number of ships carrying goods around the world is still an issue, warns Dr. Zvi Schreiber, CEO of Freightos, an online logistics marketplace. “There has been a significant overcapacity, which is why rates have been so low and that’s why Hanjin went bankrupt in the first place, but it’s not clear if that’s enough..”

Read more …

A curious article on a curious report. I don’t quite know what to make of it.

Low-Income US Teens Often Forced To Trade Sex For Food (G.)

Teenagers in America are resorting to sex work because they cannot afford food, according to a study that suggests widespread hunger in the world’s wealthiest country. Focus groups in all 10 communities analysed by the Urban Institute, a Washington-based thinktank, described girls “selling their body” or “sex for money” as a strategy to make ends meet. Boys desperate for food were said to go to extremes such as shoplifting and selling drugs. The findings raise questions over the legacy of Bill Clinton’s landmark welfare-reform legislation 20 years ago as well as the spending priorities of Congress and the impact of slow wage growth. Evidence of teenage girls turning to “transactional dating” with older men is likely to cause particular alarm.

“I’ve been doing research in low-income communities for a long time, and I’ve written extensively about the experiences of women in high poverty communities and the risk of sexual exploitation, but this was new,” said Susan Popkin, a senior fellow at the Urban Institute and lead author of the report, Impossible Choices. “Even for me, who has been paying attention to this and has heard women tell their stories for a long time, the extent to which we were hearing about food being related to this vulnerability was new and shocking to me, and the level of desperation that it implies was really shocking to me. It’s a situation I think is just getting worse over time.”

The qualitative study, carried out in partnership with the food banks network Feeding America, created two focus groups – one male, one female – in each of 10 poor communities across the US. The locations included big cities such as Chicago, Los Angeles and Washington and rural North Carolina and eastern Oregon. A total of 193 participants aged 13 to 18 took part and were allowed to remain anonymous. Their testimony paints a picture of teenagers – often overlooked by policymakers focused on children aged zero to five – missing meals, making sacrifices and going hungry, with worrying long-term consequences. Popkin said: “We heard the same story everywhere, a really disturbing picture about hunger and food insecurity affecting the wellbeing of some of the most vulnerable young people.”

Read more …

Dec 122014
 
 December 12, 2014  Posted by at 11:59 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 12 2014
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Jack Delano Atchison, Topeka & Santa Fe train at Emporia, Kansas Mar 1943


IEA Warns On Social Unrest As It Cuts 2015 Oil Demand Growth Forecast (CNBC)
Oil Drops Below $60 After Saudis Question Need to Cut (Bloomberg)
Oil Pressure Could Sock It To Stocks (CNBC)
Fed Bubble Bursts in $550 Billion of Energy Debt (Bloomberg)
Oil Bust Contagion Spreads to Wall Street and the Banks (WolfStreet)
Ruble Consolation Gets Putin Record Oil Income (Bloomberg)
This Has Never Happened Before Without A Drop In Stock Prices (Napier via ZH)
France Drifts Into Deflation As ECB ‘Pea-Shooter’ Falls Short (AEP)
WTF Chart Of The Day: Explaining The Surge In US Retail Sales (Zero Hedge)
China’s Slowdown Deepens as Factory Output Growth Wanes (Bloomberg)
China Tells Banks To Step Up Lending To Lift Flagging Growth (Reuters)
Skepticism Jumps in Options as VIX Rises 70% in Four Days (Bloomberg)
NY Regulator Probing Barclays And Deutsche Over Forex Algorithms (FT)
US House Narrowly Passes Spending Bill, Averts Government Shutdown (Reuters)
US Prosecutors Face New Fallout From Insider Trading Ruling (Reuters)
Welcome To The UK: DIY Burials And Payday Loans For Kids (CNBC)
Crystal Ball: Top 10 Economic Predictions For 2015 (CNBC)
These Are Lies The New York Times Wants You To Believe About Russia (Salon)
Full Scale Of Plastic In The World’s Oceans Revealed For First Time (Guardian)

“Venezuela needs to fill a capital shortfall of around $29 billion next year ..” “.. a currency devaluation would not do much to alleviate the pain. “This is a country really facing a perfect storm.”

IEA Warns On Social Unrest As It Cuts 2015 Oil Demand Growth Forecast (CNBC)

Weak demand and oversupply in oil markets raise the risk of global social instability and the potential for financial defaults, the International Energy Agency (IEA) warned on Friday, as it cut its forecasts for global oil demand growth in 2015. The report came as oil prices slid to new multi-year lows, with Brent crude hitting a 5.5-year low of $63.33 a barrel on Friday. “Continued price declines would for some countries and companies make an already difficult situation even worse,” the IEA said in its new monthly report. Global oil inventories are projected to build by around 300 million barrels in the first half of 2015 in the absence of any disruption, the group said. It estimated that stocks in major global economies could start to “bump” against storage capacity limits.

“The resulting downward price pressure would raise the risk of social instability or financial difficulties if producers found it difficult to pay back debt,” it said. Singling out Russia and Venezuela, the IEA said that further price drops would heighten the financial risks to “highly leveraged” producers, and countries that are heavily dependent on oil revenues. It warned on the threat to international financial stability should the situation in Russia deteriorate to the point of a default. Bond yields and the cost of insuring Russia against a default have risen in recent weeks amid fears over falling oil prices and intensifying sanctions from the West. Oil the country’s biggest export – is crucial for its economy, and influence in the world.

“Lower oil prices significantly dent potential export revenues in net oil exporting countries, slashing their income streams and in turn denting demand,” it said. “In particularly cash strapped economies, such as Venezuela and Russia, this impact is likely to be magnified as the risk of default escalates,” it said, adding that Venezuela’s capital Caracas was currently struggling to make bond payments, fund social programs and pay debts to oil partners. Venezuela needs to fill a capital shortfall of around $29 billion next year, according to Bradford Jones at hedge fund Sagil Capital. He told CNBC Friday that the country was facing a number of very tough decisions and believed a currency devaluation would not do much to alleviate the pain. “This is a country really facing a perfect storm,” he said.

Read more …

“When you see a persistent trend like this you can be sure there are a lot of investors caught on the wrong side ..”

Oil Drops Below $60 After Saudis Question Need to Cut (Bloomberg)

Benchmark U.S. oil prices dropped below $60 a barrel for the first time since July 2009 as Saudi Arabia questioned the need to cut output, signaling its priority is defending market share. West Texas Intermediate crude slid 1.6% in New York. The market will correct itself, according to Saudi Arabian Oil Minister Ali Al-Naimi. Global demand for crude from the Organization of Petroleum Exporting Countries will drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003, the group predicted yesterday. Oil’s collapse into a bear market has been exacerbated as Saudi Arabia, Iraq and Kuwait, OPEC’s three largest members, offered the deepest discounts on exports to Asia in at least six years. The group decided against reducing its output quota at a meeting last month, letting prices drop to a level that may slow U.S. production that’s surged to the highest level in more than three decades.

“The path of least resistance is lower,” Mike Wittner, head of oil research at Societe Generale in New York, said by phone. “This week we’ve had the Saudis cut prices to Asia, OPEC reduced the call on its crude and al-Naimi reiterated that they aren’t cutting output and letting the market do its work. They all reinforce the bearish message.” WTI for January delivery dropped 99 cents to close at $59.95 a barrel on the New York Mercantile Exchange. It was the lowest settlement since July 14, 2009. Total volume was 14% above the 100-day average for the time of day. The U.S. benchmark is down 39% this year. [..] “When you see a persistent trend like this you can be sure there are a lot of investors caught on the wrong side,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion, said by phone. “They are looking for any glimmer of green as an opportunity to get out of positions. Any moves higher will be of short duration.”

Read more …

“It’s (oil) actually much weaker than the futures markets indicate. [..] The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel. Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent ..”

Oil Pressure Could Sock It To Stocks (CNBC)

With crude sliding through the key $60 level, oil pressure could stay on stocks Friday. West Texas Intermediate futures for January closed at $59.95 per barrel, the first sub-$60 settle since July 2009. The $60 level, however, opens the door to the much bigger, $50-per-barrel level. Besides oil, traders will be watching the producer price index Friday morning, and it’s expected to be off 0.1% with the fall in energy. Consumer sentiment is also expected at 10 a.m. EST. Consumers stepped up and spent in November, as evidenced in the 0.7% gain in that month’s retail sales Thursday. That better mood should show up in consumer sentiment. Stocks on Thursday gave up sizeable gains after oil reversed course and fell through $60. Traders also were nervously watching the progress of a spending bill in Washington, which was delayed. The Dow was up 63 at 17,596, wiping out much of a 225-point intraday gain.

“Oil has pretty much spooked people,” said Daniel Greenhaus, chief global strategist at BTIG. “There just isn’t a bid. With everything in energy and the oil price collapsing as it is, who is going to step in and be a buyer now? The answer is nobody.” Oil continued to slide in after-hours trading. “The selling appears to have accelerated a little bit after the close with really no bullish news in sight,” said Andrew Lipow, president of Lipow Associates. WTI futures temporarily fell below $59 in late trading. “The big level is going to be $50 now in terms of psychological support. Much as $100 is on the upside,” said John Kilduff of Again Capital. Oil stands a good chance of getting there too. Tom Kloza, founder and analyst at Oil Price Information Service, said the market could bottom for the winter in about 30 days, but then it will be up to whatever OPEC does. The cartel in November voted to keep its production unchanged in an effort to hold market share.

“It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza. “The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel. Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday. “In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.

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A portrait of a bloodbath.

Fed Bubble Bursts in $550 Billion of Energy Debt (Bloomberg)

The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt. Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to 8% next year. “Anything that becomes a mania – it ends badly,” said Tim Gramatovich, chief investment officer of Peritus Asset Management. “And this is a mania.”

The Fed’s decision to keep benchmark interest rates at record lows for six years has encouraged investors to funnel cash into speculative-grade securities to generate returns, raising concern that risks were being overlooked. A report from Moody’s Investors Service this week found that investor protections in corporate debt are at an all-time low, while average yields on junk bonds were recently lower than what investment-grade companies were paying before the credit crisis. Borrowing costs for energy companies have skyrocketed in the past six months as West Texas Intermediate crude, the U.S. benchmark, has dropped 44% to $60.46 a barrel since reaching this year’s peak of $107.26 in June.

Yields on junk-rated energy bonds climbed to a more-than-five-year high of 9.5% this week from 5.7% in June, according to Bank of America Merrill Lynch index data. At least three energy-related borrowers, including C&J Energy Services, postponed financings this month as sentiment soured. “It’s been super cheap” for energy companies to obtain financing over the past five years, said Brian Gibbons, a senior analyst for oil and gas at CreditSights in New York. Now, companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines, he said.

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“Six years of the Fed’s easy money policies purposefully forced even conservative investors to either lose money to inflation or venture way out on the risk curve. So they ventured out, many of them without knowing it because it happened out of view inside their bond funds. And they funded the fracking boom and the offshore drilling boom, and the entire oil revolution in America ..”

Oil Bust Contagion Spreads to Wall Street and the Banks (WolfStreet)

Oil swooned again on Wednesday, with the benchmark West Texas Intermediate closing at $60.94. And on Thursday, WTI dropped below $60, currently trading at $59.18. It’s down 43% since June. Yesterday, OPEC forecast that demand for its oil would further decline to 28.9 million barrels a day next year, after having decided over Thanksgiving to stick to its 30 million barrel a day production ceiling, rather than cutting it. It thus forecast that there would be on OPEC’s side alone 1.1 million barrels a day in excess supply. Hours later, the US Energy Information Administration reported that oil inventories in the US had risen by 1.5 million barrels in the latest week, while analysts had expected a decline of about 3 million barrels. So the bloodletting continues: the Energy Select Sector ETF is down 26% since June; S&P International Energy Sector ETF is down 34% since July; and the Oil & Gas Equipment & Services ETF is down 46% since July.

Goodrich Petroleum, in its desperation, announced it is exploring strategic options for its Eagle Ford Shale assets in the first half next year. It would also slash capital expenditures to less than $200 million for 2015, from $375 million for 2014. Liquidity for Goodrich is drying up. Its stock is down 88% since June. They all got hit. And in the junk-bond market, investors are grappling with the real meaning of “junk.” Sabine Oil & Gas’ $350 million in junk bonds still traded above par in September before going into an epic collapse starting on November 25 that culminated on Wednesday, when they lost nearly a third of their remaining value to land at 49 cents on the dollar. In early May, when the price of oil could still only rise, Sabine agreed to acquire troubled Forest Oil Corporation, now a penny stock. The deal is expected to close in December.

But just before Thanksgiving, when no one in the US was supposed to pay attention, Sabine’s bonds began to collapse as it seeped out that Wells Fargo and Barclays could lose a big chunk of money on a $850-million “bridge loan” they’d issued to Sabine to help fund the merger. A bridge loan to nowhere: investors interested in buying it have evaporated. The banks are either stuck with this thing, or they’ll have to take a huge loss selling it. Bankers have told the Financial Times that the loan might sell for 60 cents on the dollar. But that was back in November before the bottom fell out entirely. As so many times in these deals, there is a private equity angle to the story: PE firm First Reserve owns nearly all of Sabine and leveraged it up to the hilt. [..]

Six years of the Fed’s easy money policies purposefully forced even conservative investors to either lose money to inflation or venture way out on the risk curve. So they ventured out, many of them without knowing it because it happened out of view inside their bond funds. And they funded the fracking boom and the offshore drilling boom, and the entire oil revolution in America, no questions asked.

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Makes it look less awful.

Ruble Consolation Gets Putin Record Oil Income (Bloomberg)

While Russia’s plunging currency is becoming a growing concern for policy makers in Moscow, the benefits for the Treasury are swelling as it receives more and more rubles for each dollar of oil export revenue. The CHART OF THE DAY shows that Brent crude sold for an average 3,759 rubles a barrel this year, the most on record, even after the mean dollar price of $101.74 dropped to the lowest since 2010. Russia’s fiscal accounts are benefiting from this year’s more than 40% decline in the ruble as it kept pace with a similar slide in oil, which is priced in dollars.

The government’s budget surplus is 1.27 trillion rubles ($23 billion) through November, compared with 600 billion rubles in the same period last year and 789 billion rubles in 2012, according to Finance Ministry data. It was 1.34 trillion in 2011. “A weak ruble is good for the government budget,” Dmitry Postolenko, a money manager at Kapital Asset Management in Moscow, said Dec. 10 by e-mail. “It’s in the government’s interest to let the ruble devalue but it should do it in a way that will not lead to a panic among Russians who keep money in rubles.”

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” The consensus, it would seem, views this deflationary move as one without tears. With US equities trading at 27X CAPE , that’s one hell of a bet!!”

This Has Never Happened Before Without A Drop In Stock Prices (Napier via ZH)

The Solid Ground has long flagged the importance of falling inflation expectations when nominal interest rates are so low. The Fed cannot lower nominal rates, so its control over real rates of interest rests entirely with its ability to create actual inflation or manage inflation. After five and a half years of QE, inflation expectations are very near their lows. Over the next five years investors now expect inflation to average just below 1.3%. This level of expected inflation has always previously been associated with a decline in US equity prices. There have been no exceptions until today.

THE PROWLER: Which force is currently depressing the corporations share of GDP? It is a question worth asking, because if such suppression lifts then the corporates share of GDP can go higher and, the likelihood is, share prices will go with it. While most questions in finance are difficult to answer this one is really easy because nobody and nothing is depressing the corporations share of GDP. The usual suspects for depriving the corporation of higher profits — labour, creditors and the state — are all “quiescent”, to use a word favoured by the man formerly known as ‘The Maestro’. Indeed, these forces are so quiescent that most equity investors consider them to be demons which have been slain.

THE SLEEPING TIGER: There is nothing in the historical record to equate dormancy with death when it comes to the future path of wages, interest rates or corporate taxation. For the equity bulls who choose to believe in the prolonged dormancy of labour, creditors and the state, all at the same time, history has a very clear warning that there is another potent force which can drive mean reversion of corporate profits and equity valuations – deflation. [..]

BOOM! Ultimately, just such a shock would come to many places if China tired of the monetary tightening implicit in its link to the world’s strongest currency, the USD. At some stage China will need to relax the monetary reins and this will be virtually impossible if it is tethered to a rising USD. The 1994 devaluation of the RMB wreaked havoc with the finances of China’s competitors and a similar, in fact even more powerful, dynamic is evident today. A devaluation of the RMB would thus be another trigger for a credit crisis. The consensus, it would seem, views this deflationary move as one without tears. With US equities trading at 27X CAPE , that’s one hell of a bet!!

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“The ECB is presiding over a deflationary disaster. They need to act fast and aggressively or else markets will start to attack Italian debt.” Well, and Greece, and Spain etc. Perhaps even France this time. The vigilantes played European whack-a-mole before.

France Drifts Into Deflation As ECB ‘Pea-Shooter’ Falls Short (AEP)

France is sliding into a deflationary vortex as manufacturers slash prices to keep market share, intensifying pressure on the European Central Bank to take drastic action before it is too late. The French statistics agency INSEE said core inflation fell to -0.2pc in November from a year earlier, the first time it has turned negative since modern data began. The measure strips out energy costs and is designed to “observe deeper trends” in the economy. The price goes far beyond falling oil costs and is the clearest evidence to date that the eurozone’s second biggest economy is succumbing to powerful deflationary forces. Headline inflation is still 0.3pc but is expected to plummet over the next three months. French broker Natixis said all key measures were likely to be negative by early next year.

Eurostat data show prices have fallen since April in Germany, France, Italy, Spain, Holland, Belgium, Portugal, Greece and the Baltic states, as well as in Poland, Romania and Bulgaria outside the EMU bloc. Marchel Alexandrovich, from Jefferies, said the number of goods in the eurozone’s price basket now falling has reached a record 34pc. “Eurozone deflation is now inevitable. There is no way around it,” said Andrew Roberts, at RBS. “We think yields on German 10-year Bunds will fall to 0.42pc next year.” “The ECB is presiding over a deflationary disaster. They need to act fast and aggressively or else markets will start to attack Italian debt. Italy’s nominal GDP is falling faster than their borrowing costs and that is pushing them towards a debt spiral,” he added. The Bank of Italy’s governor, Ignazio Visco, said any further falls in prices at this stage could have “extremely grave consequences for economies with very high public debt levels, such as Italy”.

The trade-weighted exchange rate of the euro has risen by 2pc over the past two months as the rouble plummets and currencies buckle across the emerging market nexus, despite the ECB’s efforts to talk it down. This is a form of monetary tightening. The German-led hawks at the ECB are running out of excuses for opposing quantitative easing after demand for the ECB’s second auction of cheap four-year loans (TLTROs) fell short of expectations. “The TLTRO is a peashooter rather than a bazooka,” said Nick Kounis, at ABN Amro.
Lenders took up just €129.8bn of fresh credit, far less than €270bn of old loans due to be repaid. This means that the ECB’s balance will continue to contract – rather than expanding by €1 trillion as intended – unless it embraces full-blown QE.

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Holiday seasonal adjustment?!

WTF Chart Of The Day: Explaining The Surge In US Retail Sales (Zero Hedge)

Confused at how such awesome retail sales headlines can lead to the kind of weakness we are seeing in stocks now that Lending Club’s IPO has started trading? Wondering why bonds are now lower in yield on the day in the face of ‘proof’ that the US consumer is back? Wonder no more, as STA Wealth Management’s Lance Roberts points out, November’s seasonal adjustment for retail sales was – drum roll please – the 3rd largest on record… so maybe, just maybe, the ‘market’ is seeing through that pure riggedness, wondering about the huge surge in continuing claims, and agog at the blowout in credit spreads and collapse in crude… Seriously?!! The 3rd largest November seasonal adjustment on record… why? and remember retail sales only beat by 0.1ppt!

Speechless, yet? Well look at this…

Rigged much?

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“.. factory production will continue to slow in the first quarter of next year, while a gauge of manufacturing activity will fall below the 50 expansion-contraction line ..”

China’s Slowdown Deepens as Factory Output Growth Wanes (Bloomberg)

China’s economy slowed in November as factory shutdowns exacerbated weaker demand, raising pressure on the central bank to add further stimulus. Bloomberg’s gross domestic product tracker came in at 6.78% year-on-year in November, down from 6.91% in October and a fourth month below 7%, according to a preliminary reading. Factory production rose 7.2% from a year earlier, retail sales gained 11.7%, and investment in fixed assets expanded 15.8% in January through November from a year earlier, official data showed. The government ordered some factories to close in Beijing and surrounding provinces during the Asia-Pacific Economic Cooperation forum in early November to curb pollution. China’s central bank cut benchmark interest rates last month as a property slump weighs on the world’s second-biggest economy.

“The major reason for the slowdown is weak demand,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “Both external and internal demand are relatively weak.” Ding said he expects factory production will continue to slow in the first quarter of next year, while a gauge of manufacturing activity will fall below the 50 expansion-contraction line, prompting the central bank to cut banks’ required reserve ratios. “The data adds to evidence of weakness in China’s economy,” Bloomberg’s Beijing-based economist Tom Orlik wrote in a note. “The People’s Bank of China’s hands may be tied by the speculative surge on the mainland’s equity markets. Fear of adding further fuel to the fire appears to have constrained the PB0C to return to targeted measures, at least temporarily.”

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“The amount of new loans issued by Chinese banks fell by more than a third in October.”

China Tells Banks To Step Up Lending To Lift Flagging Growth (Reuters)

China has told its banks to lend more in the final months of 2014 and relaxed enforcement of loan-to-deposit ratios to expand credit, sources told Reuters, as Beijing prepares to release data that could confirm the relentless slowing of its economy. Figures on inflation, imports and fiscal spending in November have already undershot expectations since the People’s Bank of China (PBOC) sprang a surprise interest rate cut on Nov. 21, raising fears that the bid to boost lending could foreshadow more weak figures on industrial activity for the month, due on Friday, and on lending, due in the next few days. “I wouldn’t be surprised by that at all,” said Andrew Polk, resident economist for the Conference Board in Beijing. “It seems pretty clear activity is continuing to weaken throughout this fourth quarter.” Two sources with knowledge of the matter said China’s central bank increased the annual new loan target to 10 trillion yuan($1.62 trillion) for 2014, up from what Chinese media have said was a previous target of 9.5 trillion yuan.

Banks have disbursed 8.23 trillion yuan of loans between January and October, so they will have to quicken the pace in the last two months if they are to meet the new target. If upcoming data also proves worse than expected, some analysts say the PBOC could cut banks’ reserve requirement ratio (RRR) as soon as this weekend, allowing them to further increase lending. Bank lending is a crucial part of China’s monetary policy as the government instructs commercial banks, most of which are directly or indirectly controlled by the state, how much to lend and when to lend each year. The amount of new loans issued by Chinese banks fell by more than a third in October. “If credit supply is increased, it will certainly help economic growth in the first quarter,” said Chang Chun Hua, an economist at Nomura in Hong Kong. “If this is true, it shows that the government is quite concerned about growth.”

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Inevitable.

Skepticism Jumps in Options as VIX Rises 70% in Four Days (Bloomberg)

Options traders aren’t buying the stock market’s message. While the Standard & Poor’s 500 Index posted its first gain of the week on Dec. 11, rising 0.5%, the Chicago Board Options Exchange Volatility Index also jumped, climbing 8.4% to cap its biggest four-day advance since 2011. The two gauges, one measuring share prices and the other anxiety among traders, only move in unison about 20% of the time. Investors watching oil plunge day after day are growing concerned the decline will destabilize financial markets and that’s boosting demand for hedges, according to Bob Doll, the chief equity strategist at Nuveen Asset Management. Gains in the VIX picked up after House Minority Leader Nancy Pelosi said Republicans lack the votes to pass a $1.1 trillion U.S. spending bill and urged fellow Democrats to force removal of some banking and campaign-finance provisions.

“I’d put oil front and center,” Doll said by phone. “We’ve had a move from $100 to $60, and if that had happened over a year or two that’s one thing, but this has been so much so fast that it creates higher uncertainty, which creates higher volatility, and that’s the reason you’re seeing people buy protection.” The S&P 500 and VIX haven’t posted a bigger lockstep advance since at least 2000, according to data compiled by Bloomberg. They’ve both gained on the same day on only 22 other times this year, the data show.

U.S. stocks rebounded from the worst day in eight weeks as an improvement in retail sales helped overshadow a drop in West Texas Intermediate crude below $60. The S&P 500 rose 0.5% at 4 p.m. in New York, paring an earlier rally of 1.5%. “It is unusual to see stocks rally like they did and premiums rise on the same day,” Jared Woodard, a New York-based equity derivatives strategist at BGC Partners LP, said by phone. “When the index gave back a lot of these gains you saw more demand for put protection. As stocks reversed a bit, people thought there may be another leg down.”

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“The probe into the possible use of algorithms is one of the reasons why DFS, led by Benjamin Lawsky, declined to participate in a broad forex settlement with banks.”

NY Regulator Probing Barclays And Deutsche Over Forex Algorithms (FT)

New York’s top banking regulator is investigating whether Barclays and Deutsche Bank used algorithms to manipulate foreign exchange rates, which could increase the penalties they face, a person familiar with the probe said. The state’s Department of Financial Services is reviewing whether the use of computer algorithms in bank currency trading platforms suggests a systemic problem at the lenders, as opposed to wrongdoing by several rogue traders, the person said. If the algorithms are seen as a bank-wide issue, DFS could seek to impose bigger penalties, the person added. The probe into the possible use of algorithms is one of the reasons why DFS, led by Benjamin Lawsky, declined to participate in a broad forex settlement with banks.

In November, UBS, Citigroup, JPMorgan Chase, HSBC, Royal Bank of Scotland and Bank of America were fined more than $4bn for their role in a forex rate-rigging scandal. The UK’s Financial Conduct Authority and the US’s Commodity Futures Trading Commission were part of that settlement. But the US Department of Justice and DFS did not participate and their investigations are ongoing. The DOJ’s probe includes the six banks that were part of the broad settlement, and the investigation is expected to result in large penalties and criminal findings. DFS is investigating about a dozen banks in its forex probe. Deutsche said it had “received requests for information from regulatory authorities that are investigating trading in the foreign exchange market. The bank is co-operating with those investigations, and will take disciplinary action with regards to individuals if merited.”

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“.. both Obama and JPMorgan chief executive Jamie Dimon were calling Democrats to support it. “It is very strange, very strange that the two of them would be working for the support of this bill ..”

US House Narrowly Passes Spending Bill, Averts Government Shutdown (Reuters)

The U.S. House of Representatives averted a government shutdown on Thursday, narrowly passing a $1.1 trillion spending bill despite strenuous Democratic objections to controversial financial provisions. The vote followed a long day of drama and discord on Capitol Hill that highlighted fraying Democratic unity and featured an uneasy alliance between President Barack Obama and House Speaker John Boehner, enemies in past budget battles but on the same side this time in pushing for passage. A vote on the measure was delayed for hours after Democrats revolted against provisions to roll back part of the Dodd-Frank financial reform law and allow more big money political donations, while conservative Republicans objected because the measure did not block funds for Obama’s immigration order.

Democrats said Republican leaders, flexing their new political muscle after big wins in the midterm elections that will give them control of both chambers of Congress next year, had gone too far in trying to roll back Dodd-Frank. “We have enough votes to show them never to do this again,” Democratic House Leader Nancy Pelosi told members of her party, behind closed doors, according to a source in the room. Some Democrats also demanded the removal of a provision that allows a massive increase in individual contributions to national political parties for federal elections, potentially up to $777,600 a year.

The debate pitted Obama against Pelosi, one of his most loyal allies in Congress, as Obama and his administration waged a last-ditch campaign to persuade Democrats to set aside their objections, arguing that if it failed, the party would get a worse spending deal next year under Republican control. The effort to save the bill angered some Democrats, who complained that both Obama and JPMorgan chief executive Jamie Dimon were calling Democrats to support it. “It is very strange, very strange that the two of them would be working for the support of this bill,” said Representative Maxine Waters, the top Democrat on the House Financial Services Committee. In the 219-206 vote, 67 Republicans rejected the spending bill, largely because it failed to take action to stop Obama’s executive immigration order. But that was offset by 57 Democrats who voted in favor.

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“The three-judge panel not only found that prosecutors needed to prove a trader knew that the original source of non-public information has received a benefit in exchange for the tip, but also narrowed what actually constituted such a benefit.”

US Prosecutors Face New Fallout From Insider Trading Ruling (Reuters)

U.S. prosecutors, already smarting from an appeals court ruling that weakens their ability to crack down on future insider trading, on Thursday faced widening fallout from the decision as some existing cases threatened to unravel. Lawyers for some defendants hinted they might seek to withdraw guilty pleas, and a Manhattan federal judge questioned if four such pleas were affected. The moves were the latest repercussions from the 2nd U.S. Circuit Court of Appeals finding that prosecutors presented insufficient evidence to convict Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors. Speaking at a conference, U.S. Securities and Exchange Commission Chair Mary Jo White said Thursday “there is no question it’s a significant decision,” adding her agency was reviewing the Wednesday ruling, which she called “overly narrow.”

Some defendants who cooperated and pleaded guilty in the prosecution of Newman and Chiasson are now considering taking the extraordinary step of withdrawing their pleas, two lawyers said Thursday. The three-judge panel not only found that prosecutors needed to prove a trader knew that the original source of non-public information has received a benefit in exchange for the tip, but also narrowed what actually constituted such a benefit. In several such cases, the defendants were tipped based on information they received third- or fourth-hand, rather than straight from the source, which made it tougher to prove their awareness that source had obtained something tangible in return. The ruling threatens to challenge a broad insider trading crackdown underway since 2009 under Manhattan U.S. Attorney Preet Bharara, whose office during his tenure has secured 82 other convictions.

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As another headline today at the Guardian says: “UK standard of living rises to fourth highest in EU”.

Welcome To The UK: DIY Burials And Payday Loans For Kids (CNBC)

The tight financial conditions faced by Brits were highlighted again this week with reports on how cash-strapped young people are using payday loans and impoverished relatives are burying their loved ones at home. One in eight young people say they have borrowed money from lending firms, according to a new report released Thursday by the U.K. children’s charity Action for Children. The report interviewed 1,058 people in focus groups between the ages of 12 and 18 and found that 41% of those that had borrowed had done so with payday loan providers. The charity also found that store cards are also be used more and more, with over a third of the young people saying they had used them. Its anecdotal evidence suggested that young people were using the debt to replace household goods, set up their first home or to keep up with their friends.

“Baffling financial jargon and a lack of knowledge will dramatically create a vicious circle of debt, increasing the risk of mental health problems and unemployment,” said Tony Hawkhead, the chief executive of Action for Children, in Thursday’s report. Payday loan companies have been heavily criticized by policymakers in the U.K. for the four-figure interest rates they tie to cash advances. Regulators have moved to introduce new rules to cap charges and these firms have made changes to their lending criteria in response. The companies stress they have strict rules on who can receive loans, with the minimum age being 18 years. However the breakdown within Thursday’s study shows that minors are receiving these loans with 46% of the 12-year-old respondents saying they had borrowed money from a payday lender.

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Take your pick. Much more of this to come in the weeks ahead.

Crystal Ball: Top 10 Economic Predictions For 2015 (CNBC)

The global economy muddled along this year, with the resurgence in the U.S. economy helping to offset slowing growth in Europe, Japan and China. So, where does this leave the world economy in 2015? “Positive fundamentals are in place for the momentum in the global economy to improve during 2015,” said Nariman Behraves, Chief Economist at IHS, which expects global growth to pick up to 3% from an estimated 2.7% this year.

IHS outlined its top 10 economic predictions that make up its global outlook:
1. U.S. economy will power ahead
2. Euro zone’s struggle to continue
3. Japan to emerge from recession
4. China will keep slowing
5. EMs: a mixed bag
6. Commodities slide to extend
7. Disinflation threat
8. Fed will be the first to hike rates
9. Dollar will remain king
10. Perennial downside risks easing

The global recovery has been plagued by a multitude of “curses” during the past few years, including high public- and private-sector debt levels that have necessitated deleveraging by households corporates and governments, says IHS. But these obstacles to growth are easing in some countries, notably the U.S and U.K., which explains their better-than-average performance.

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Strong piece from Patrick Smith, former Asia bureau chief of the Herald Tribune.

These Are Lies The New York Times Wants You To Believe About Russia (Salon)

You can look at the Russian economy two ways now and you should. So let’s: It is an important moment in the destruction of something and the construction of something else, and we had better be clear just what in both cases. The world we live in changes shape as we speak. Truth No. 1: Russians are besieged. Sanctions the West has insisted on prosecuting in response to the Ukraine crisis — Washington in the lead, the Europeans reluctant followers — are hitting hard, let there be no question. Oil prices are at astonishing lows, probably if not yet provably manipulated by top operatives in the diplomatic and political spheres.

Truth No. 2: Russians are hot. With an energetic activism just as astonishing as the oil prices, Russian officials, President Putin in the very visible lead but with platoons of technocrats behind him, are forging an extensive network of South-South relationships — East-East, if you prefer — that are something very new under the sun. Some of us were banging on about South-South trade and diplomatic unity as far back as the 1970s; I have anticipated the arriving reality since the early years of this century. But I would never have predicted the pace of events as we have them before us. Stunning. Holiday surprise: There is a Truth No. 3 and it is this: Truth No. 1, the siege of the Russian economy, is proving a significant catalyst in the advance of Truth No. 2, the creative response of a nation under ever-mounting pressure.

Timothy Snyder, the Yale professor whose nitwittery on the Ukraine crisis is simply nonpareil (and praise heaven he has gone quiet), exclaimed some months ago that Putin is threatening to undermine the entire postwar order. I replied in this space the following week, Gee, if only it were so. Already it seems to be. But miss this not: Russia is advancing this world-historical turn with a considerable assist from its adversaries in the West, not alone. For all the pseuds who pretend to know Schumpeter but know only one thing, the creative destruction bit, how is this as a prime example of the phenom? Details in a sec, but this thought first: We are all bound to pay close attention to these events because they matter to everyone, whether this is yet obvious or not. Probably in our lifetimes — and I had it further out until recently — we will begin to inhabit a different planet.

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We deserve all we’ve got coming.

Full Scale Of Plastic In The World’s Oceans Revealed For First Time (Guardian)

More than five trillion pieces of plastic, collectively weighing nearly 269,000 tonnes, are floating in the world’s oceans, causing damage throughout the food chain, new research has found. Data collected by scientists from the US, France, Chile, Australia and New Zealand suggests a minimum of 5.25tn plastic particles in the oceans, most of them “micro plastics” measuring less than 5mm. The volume of plastic pieces, largely deriving from products such as food and drink packaging and clothing, was calculated from data taken from 24 expeditions over a six-year period to 2013. The research, published in the journal PLOS One, is the first study to look at plastics of all sizes in the world’s oceans.

Large pieces of plastic can strangle animals such as seals, while smaller pieces are ingested by fish and then fed up the food chain, all the way to humans. This is problematic due to the chemicals contained within plastics, as well as the pollutants that plastic attract once they are in the marine environment. “We saw turtles that ate plastic bags and fish that ingested fishing lines,” said Julia Reisser, a researcher based at the University of Western Australia. “But there are also chemical impacts. When plastic gets into the water it acts like a magnet for oily pollutants. “Bigger fish eat the little fish and then they end up on our plates. It’s hard to tell how much pollution is being ingested but certainly plastics are providing some of it.”

The researchers collected small plastic fragments in nets, while larger pieces were observed from boats. The northern and southern sections of the Pacific and Atlantic oceans were surveyed, as well as the Indian ocean, the coast of Australia and the Bay of Bengal. The vast amount of plastic, weighing 268,940 tonnes, includes everything from plastic bags to fishing gear debris. While spread out around the globe, much of this rubbish accumulates in five large ocean gyres, which are circular currents that churn up plastics in a set area. Each of the major oceans have plastic-filled gyres, including the well-known ‘great Pacific garbage patch’ that covers an area roughly equivalent to Texas.

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