Oct 272017
 
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Salvador Dalí White calm 1936

 

It’s been a while since we last heard from longtime friend of the Automatic Earth Dr. Nelson Lebo III, New Englander living in Wanganui, New Zealand. Nelson has written a fine collection of articles on this site through the years.

Of course I thought, when I first saw this piece in my mailbox, that he would have written about New Zealand’s new prime minister, Labour’s 37-year-young Jacinda Ardern, whose first action in her new job will be to prevent foreigners from buying existing homes in her country. It’ll be interesting to see how she intends to do so while remaining inside the Trans Pacific Partnership -TPP- agreement.

Radio New Zealand has a portrait in which she says ‘I Want The Government … To Bring Kindness Back’. And obviously my first thought was: wait till you meet Donald Trump. But it would be misleading to put the lack of kindness in politics on his shoulders. There’s too much blood on too many hands.

But Nelson didn’t address her this time. I hope he will soon. Instead, and I should have known, he writes about Koyaanisqatsi, life out of balance. When I wrote The Koyaanisqatsi Economy a month ago, he said he had been thinking of the same theme.

Nelson named his article “Pura Vida trumps Koyaanisqatsi”, but I thought his emphasis on volatility is too important to not be the headline. Especially given that volatility in financial markets is at a -near- record low, while it appears blatantly obvious that this not reflect the ‘real world’ at all.

Nelson’s summary of the real world: “..hurricanes, mass shootings, hurricanes, opioid epidemics, hurricanes, people sleeping in cars, hurricanes, rising suicide rates, hurricanes, and children dying from cold damp homes..”

If that doesn’t spell volatility, what does? Forget about financial markets reflecting anything real anymore. Thanks to central banks, markets are fiddling while Rome burns.

Heeeeeere’s … Nelson:

 

 

Dr. Nelson Lebo III: Volatility is the new normal – that’s the message I gave a local Rotary Club when I spoke to members four or five years ago. I had been told beforehand the group was “worldly” and specifically instructed in the invitation to challenge them with my presentation. As a weekly columnist in the city’s paper – the Wanganui Chronicle – I was widely known for my positions on wealth inequality, climate change, and debt, as well as a wide range of practical approaches to address these issues.

Around that time it was clear that a post-GFC new normal was functioning worldwide and many writers were using the term. By then The Spirit Level (Pickett & Wilkinson, 2009) had been widely read and widely praised for its documentation of the relationship between wealth and income inequality and social problems. Additionally, peer reviewed research based on decades worth of data had shown there was a quantitatively measurable increase in extreme weather events: more big storms and more big droughts.

I thought my audience would be well on board.

Judging from the response that day, however, the brief I had been given was misguided and most club members were neither expecting nor wanting a presentation that challenged the dominant paradigm of infinite growth without consequences no matter how factual. As a mid-week midday meeting with New Zealand ‘fush ‘n chups’ on the menu the message that the-world-as-you-know-it-has-changed-forever was a bit heavy for people on their lunch break.

The response that day was, of course, perfectly ‘normal’. Almost no adult human seeks out new and different worldviews. On the contrary, we are far more inclined to cling to outdated ones, à la “Make America Great Again” than to acknowledge changing realities.

Social media allows us to reverberate in echo chambers of our own beliefs where we know we’re right because the echo told us so. Social science researchers have told us this for decades. The Internet just makes it worse and more obvious.

I’ve been writing about Trump, doubling-down and the post-truth world for two years now, and if anything I am more certain of the point I’ve been trying to make: most people are irrational. Seems there’s now a Nobel Laureate who has been arguing the same for decades. Behavioral economist Richard Thaler was recently awarded a Nobel for his study of the psychology of economics, which seeks to understand how we are irrational and the impact on traditional economic theories that have failed time and again (think 2008 Global Financial Crisis) because they don’t sufficiently incorporate human factors. (Remember Greenspan’s admission?)

In no way do I intend to single out the Wanganui Rotarians, but rather use this example as illustrative for what my community, nation, and the entire world face: volatility made worse by inertia. In other words, the longer we choose to ignore inconvenient truths the greater will be their negative impacts.

This situation usually manifests in the form of tipping points . Malcolm Gladwell defined a tipping point in his debut book of the same name as “the moment of critical mass, the threshold, the boiling point.” Everything looks fine with the economy and the climate…until it’s not. And by ‘not fine’ we are talking really NOT FINE à la Greece, Puerto Rico, Houston, etc.

Tipping points is volatility on steroids. Brace yourselves.

Well-informed leaders from President Obama to Pope Francis agree the greatest threats facing humanity are climate change and wealth inequality. I’ve written extensively about both for many years yet neither appears to get much traction locally or globally. Our ‘leaders’ ignore these issues at all of our peril because the result of each is increasing volatility in many forms: social, economic, financial, political, and an increasing incidence of extreme weather events.

Volatility is not good for social order, and where I live is a perfect example of the canary in the coalmine: a coastal, river city with high levels of inequality. It’s a tipping point waiting to happen.

Some readers may remember the 1982 film by Godfrey Reggio called Koyaanisqatsi, named using a Hopi term meaning “chaotic life” or “life out of balance.” The film is unnerving, as is much of what comes via news media these days: hurricanes, mass shootings, hurricanes, opioid epidemics, hurricanes, people sleeping in cars, hurricanes, rising suicide rates, hurricanes, and children dying from cold damp homes. And then there’s Myanmar: When Buddhists become the aggressors, you know the world is well and truly out of balance.

Okay, so the world is out of balance. What can be done about it?

Our solution to imbalance, as any regular reader of our blog knows, is called “Eco-Thrifty.” This approach to design and to life is about living better on less. Seems we have good company along these lines in the form of Costa Rica, the small Central American nation that regularly tops the Happy Planet Index published by the New Economics Foundation.

Despite per capita income one quarter that of New Zealand (ranked 38th of 140) and one fifth that of the US (108th of 140) Costa Rica matches many Scandinavian countries in terms of equality, wellbeing, life expectancy and ecological impact.

As Jason Hickel of the Guardian recently put it, “Costa Rica proves that rich countries could theoretically ease their consumption by half or more while maintaining or even increasing their human development indicators.”

“The opposite of growth isn’t austerity, or depression, or voluntary poverty. It is sharing what we already have, so we won’t need to plunder the earth for more.”

Sharing is at the heart of the permaculture ethics, where it is joined by caring for the environment and caring for people. Although we practice permaculture on our farm and in our community, we’re not dogmatic about it. What drives the eco-thrifty bus is resilience accompanied by regeneration.

Resilience, in this context, is the ability to withstand a pulse. It does not happen by accident. It can be designed, built and managed. Resilience only matters 0.0001% of the time, but when it matters it really matters. Resilient homes stand up to earthquakes and hurricanes. Resilient farms stand up to major rain events and extended droughts. Resilient communities withstand economic downturns and ‘natural disasters’.

Regeneration, in this context, is about getting better, stronger, more resilient over time. Regenerative farms grow food while building soil fertility, reducing erosion, storing carbon, managing storm water, and increasing biological diversity. Regenerative communities reduce crime, domestic violence, drug abuse, and suicide rates while keeping wealth and resources circulating locally. They improve quality of life while shrinking energy use, pollution and wealth inequality.

From these perspectives Costa Rica is a good, albeit imperfect, case study. It is, however, about the best example we can find and has the data to show long-term consistently high quality of life.

Pura Vida trumps Koyaanisqatsi.

 

 

Oct 092017
 
 October 9, 2017  Posted by at 2:08 pm Finance Tagged with: , , , , , , , ,  2 Responses »
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Fan Ho In Paris 1953

 

 

Update: I never did this before, but now I think I must: change the title of an article. “Minsky and Volatility” isn’t nearly as good as “The S&P Is A Bloated Corpse”. Simple, really. The URL will be the same as before

 

 

According to Hyman Minsky, economic stability is not only inevitably followed by instability, it inevitably creates it. Complacent humans being what they are. If he’s right, and would anyone dare doubt it, we’re in for that mushroom cloud on the financial horizon. We know that because market volatility, as measured for instance by the VIX, the Chicago Board Options Exchange (CBOE)’s volatility index, is scraping the depths of the Mariana trench.

Two separate articles at Zero Hedge this weekend, one by NorthmanTrader.com and one by LPLResearch.com, address the issue: it is time to be afraid and wake up. And that is not just true for investors or traders, it’s true for ‘everyone out there’ perhaps even more. Central bank policies, QE and ultra low rates, have distorted the financial system to such an extent -ostensibly in an attempt to save it- that the depressed, compressed volatility these policies have created can only come back to life with a vengeance.

Feel free to picture zombies and/or loss of heartbeat as much as you want; it’s all true. Financial markets haven’t been functioning for years, and there have been no investors either, only gamblers and profiteers, as savers and pensioners have been drawn and quartered. Central bankers have eradicated price discovery, nobody knows what anything is really worth anymore, be it stocks, bonds, housing, gold, bitcoin, you name it.

If you make interest rates ‘magically’ disappear anyone can spend any amount of money on anything they fancy buying. And it’s not just traders and investors either. Scores of people think: look, I can buy a house, others think they can buy a bigger house, many will get into stocks and/or bonds, because prices just keep going up. Even savers and pensioners are drawn into the central bank Ponzi, often in an effort to make up for what they lose when their accumulated wealth no longer pays them any returns. Shoeshine boys are dishing out market tips.

Crypto may or may not be a new tulip, but many Silicon Valley start-ups -increasingly funded by crypto ICO’s- certainly are. There’s so much money sloshing around nobody can tell, or even cares, whether they are actually worth a penny. It’s all based on gossip multiplied by the idea that they will be smart enough to get out in time in case things go awry.

 

People mistakenly think that a market’s heartbeat can be found in for instance rising stock prices, the Dow, the S&P. But that’s simply not true. The S&P is a bloated corpse increasingly filling up with gases that will eventually cause it to explode, with guts and blood and body parts and fluids flying all around.

The US stock market’s heartbeat manifests itself in volatility, and the overall economy’s heartbeat in interest rates. Rising and falling volatility and interest rates is how we know whether a market is in good health, or even alive at all. They are its vital signs.

That follows straight from Minsky. Ultra-low rates and ultra-low volatility, especially if they last for a longer period of time, are signs of trouble. The markets the central banks’ $20+ trillion QE and ZIRP have created are bloated corpses that no longer have a heartbeat. They are zombies. But markets, unlike natural bodies, won’t die, they can’t. They will instead rise from their graves and take over Wall Street, the City, and then everyone else’s street.

Bernanke, Yellen, Draghi and Kuroda are sorcerer’s apprentices and Dr. Frankensteins, who have created walking dead monsters they have no control over. But the monsters won’t turn on them personally; that’s the tragedy here as much as it is the reason why they have worked their sorcery. They themselves won’t go bankrupt, other will. No skin in the game.

Enough with the metaphors. First, here’s NorthmanTrader:

 

Flatliners

In the movie Flatliners aspiring medical doctors tried to unlock the mysteries of death by, well, killing themselves. It was meant to be a controlled death of course, to flat line on the heart rate monitor for a few minutes to find out what wonders where to be found “on the other side” only to then return safe & sound thanks to medical intervention. Well, they soon found out the other side wasn’t everything it was cracked up to be and the main character soon got regular beatings as the sins of his past came back to haunt him.

In my view markets find themselves in a very similar script. The promise of investor nirvana where the pains of real life no longer matter. If you only pay attention to the record highs headlines it all looks rather fantastical these days. [..] any trader staring at the tape knows that we find ourselves in the most compressed price environment in history. This is not normal, there’s no heartbeat:

As I’m writing this I’m fully aware I may be viewed as the bear who cried wolf. After all I’ve been outlining structural risk factors for a while and markets have moved past my technical risk zones of 2450-2500 and most recently 2530. That’s what bubbles do. They blow past anyone’s expectations, they make believers of the unbelievers, make bears look like idiots and the most reckless look like geniuses. But an extreme market that only becomes more extreme is not any less extreme, it is just more extreme. As no risk is apparent these extremes are then dismissed as the new normal. Yet momentum driven price appreciation has absolutely zero predictive value of future price appreciation, it only appears as such at the time.

We find ourselves in a very unique point in history and in a world dominated by false narratives. It is a challenge to keep an analytical grip on reality, but I’ll try to tie a few threads together here to put everything in a macro context. Firstly the underlying base reality: Free money, easy money, whatever you want to call it, permeates everything we see in financial markets. Indeed I would argue price appreciation has been paid for with unprecedented and, in my view, unsustainable volatility compression. A couple of charts really highlight this. Most clearly perhaps is the precise trend line tagging we can observe in the correlated picture of price appreciation and volatility compression since the February 2016 lows:

The $VIX’s corollary, the inverse $XIV, embarked on an explosive near one way journey since the US election coinciding with over $2 trillion central bank intervention in just the first 9 months of 2017:

And it has continued to this day and just made another all time high this past week on a massive negative divergence. It is the magnitude of this volatility compression that explains the current trading environment we find ourselves in.

 

[..] Debt expansion at low rates continues to sustain the illusion of real prosperity for the 90%:

 

And then LPLResearch with another indicator that goes to show we’re dealing with a zombie here: stock prices are not moving, either up or down. Or rather, they’re moving up all the time, but in too small increments. Yeah, like that bloated corpse.

 

Where Did All the Big Moves Go?

There have only been eight moves of at least 1% for the S&P 500 Index so far this year—the least since 13 in 1995. The all-time record was an incredible three in 1963. What about a big move? The last time the S&P 500 moved at least 4% was nearly six years ago. In fact, the S&P 500 had four consecutive days with 4% (or greater) changes in August 2011. Other than 2008 and the crash of ’87, that is the only other time since the Great Depression to see four consecutive 4% changes. That isn’t anything like today’s action.

As the chart below shows, so far in 2017, big moves have been nonexistent; and even 1% changes have been rare. Per Ryan Detrick, Senior Market Strategist, “If you had forecast that the 11 months after the 2016 U.S. presidential election would be one of the least volatile periods ever, you would be in the minority. Then again, the last time we saw a streak of calm like this was the year after John F. Kennedy was assassinated in November 1963. Once again proving that the market rarely does what the masses expect and usually surprises us.”

You want a heartbeat. That tells you if a body or a market is alive, healthy, functioning. We don’t have one. We haven’t for years. But we will again. Natural bodies can tend towards equilibrium, i.e. death. Markets cannot. They’re doomed to flatline, and then to always come back from near death experiences. They tend to do so in violent ways though. When volatility at last returns, so will price discovery. It won’t be pretty.

 

 

Sep 282017
 
 September 28, 2017  Posted by at 8:38 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Juan Gris Man in the café 1912

 

The Illusion of Prosperity (Lebowitz)
Trump Tax Plan Economic Outcomes Likely Disappointing (Roberts)
The Top 1% Of Americans Now Control 38% Of The Wealth (CNBC)
This Chart Defines the 21st Century Economy (CHS)
China’s Traders Have an Excuse to Take the Rest of Year Off
China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)
Debt Boom In India And China Threatens New Financial Crisis – WEF (Tel.)
Japan Downgrade Risk Seen Rising as Default Swaps Climb (BBG)
JPMorgan Ordered To Pay Over $4 Billion To Widow And Family (ZH)
The Courage to Normalize Monetary Policy (Stephen Roach)
German Finance Minister Wolfgang Schäuble To Be Bundestag Speaker (G.)

 

 

The future wants its future back.

The Illusion of Prosperity (Lebowitz)

For the last 50 years, the consumer, that means you and me, have been the most powerful force driving the U.S. economy. Household spending now accounts for almost 70% of economic growth, about 10% more than it did in 1971. Household spending in the U.S. is also approximately 10-15% higher than most other developed nations. Currently, U.S. economic growth is anemic and still suffering from the after-shocks of the financial crisis. Importantly, much of that weakness is the result of growing stress on consumers. Using the compelling graph below and the data behind it, we can illustrate why the U.S. economy and consumers are struggling.

The blue line on the graph above marks the difference between median disposable income (income less taxes) and the median cost of living. A positive number indicates people at the median made more than their costs of living. In other words, their income exceeds the costs of things like food, housing, and insurance and they have money left over to spend or save. This is often referred to as “having disposable income.” If the number in the above calculation is negative, income is not enough to cover essential expenses. From at least 1959 to 1971, the blue line above was positive and trending higher. The consumer was in great shape. In 1971 the trend reversed in part due to President Nixon’s actions to remove the U.S. dollar from the gold standard.

Unbeknownst to many at the time, that decision allowed the U.S. government to run consistent trade and fiscal deficits while its citizens were able to take on more debt. Other than rampant inflation, there were no immediate consequences. In 1971, following this historic action, the blue line began to trend lower. By 1990, the median U.S. citizen had less disposable income than the median cost of living; i.e., the blue line turned negative. This trend lower has continued ever since. The 2008 financial crisis proved to be a tipping point where the burden of debt was too much for many consumers to handle. Since 2008 the negative trend in the blue line has further steepened. You might be thinking, if incomes were less than our standard of living, why did it feel like our standard of living remained stable? One word – DEBT.

Read more …

Lance has a lot of detail in his assessment. Worth a read.

Trump Tax Plan Economic Outcomes Likely Disappointing (Roberts)

Do not misunderstand me. Tax rates CAN make a difference in the short run particularly when coming out of a recession as it frees up capital for productive investment at a time when recovering economic growth and pent-up demand require it. However, in the long run, it is the direction and trend of economic growth that drives employment. The reason I say “direction and trend” is because, as you will see by the vertical blue dashed line, beginning in 1980, both the direction and trend of economic growth in the United States changed for the worse. Furthermore, as I noted previously, Reagan’s tax cuts were timely due to the economic, fiscal, and valuation backdrop which is diametrically opposed to the situation today.

“Importantly, as has been stated, the proposed tax cut by President-elect Trump will be the largest since Ronald Reagan. However, in order to make valid assumptions on the potential impact of the tax cut on the economy, earnings and the markets, we need to review the differences between the Reagan and Trump eras.

[..] Of course, as noted, rising debt levels is the real impediment to longer-term increases in economic growth. When 75% of your current Federal Budget goes to entitlements and debt service, there is little left over for the expansion of the economic growth. The tailwinds enjoyed by Reagan are now headwinds for Trump as the economic “boom” of the 80’s and 90’s was really not much more than a debt-driven illusion that has now come home to roost. Senator Pat Toomey, a Pennsylvania Republican who sits on the finance committee, said he was confident that a growing economy would pay for the tax cuts and that the plan was fiscally responsible. “This tax plan will be deficit reducing,”

The belief that tax cuts will eventually become revenue neutral due to expanded economic growth is a fallacy. As the CRFB noted: “Given today’s record-high levels of national debt, the country cannot afford a deficit-financed tax cut. Tax reform that adds to the debt is likely to slow, rather than improve, long-term economic growth.” The problem with the claims that tax cuts reduce the deficit is that there is NO evidence to support the claim. The increases in deficit spending to supplant weaker economic growth has been apparent with larger deficits leading to further weakness in economic growth. In fact, ever since Reagan first lowered taxes in the ’80’s both GDP growth and the deficit have only headed in one direction – lower.

Read more …

The economy lost its balance. It will tip over.

The Top 1% Of Americans Now Control 38% Of The Wealth (CNBC)

America’s top 1% now control 38.6% of the nation’s wealth, a historic high, according to a new Federal Reserve Report. The Federal Reserve’s Surveys of Consumer Finance shows that Americans throughout the income and wealth ladder posted gains between 2013 and 2016. But the wealthy gained the most, driven largely by gains in the stock market and asset values. The top 1% saw their share of wealth rise to 38.6% in 2016 from 36.3% in 2013. The next highest nine% of families fell slightly, and the share of wealth held by the bottom 90% of Americans has been falling steadily for 25 years, hitting 22.8% in 2016 from 33.2% in 1989. The top income earners also saw the biggest gains. The top 1% saw their share of income rise to a new high of 23.8% from 20.3% in 2013. The income shares of the bottom 90% fell to 49.7% in 2016.

Read more …

I smell danger.

This Chart Defines the 21st Century Economy (CHS)

One chart defines the 21st century economy and thus its socio-political system: the chart of soaring wealth/income inequality. This chart doesn’t show a modest widening in the gap between the super-wealthy (top 1/10th of 1%) and everyone else: there is a veritable Grand Canyon between the super-wealthy and everyone else, a gap that is recent in origin. Notice that the majority of all income growth now accrues to the the very apex of the wealth-power pyramid. This is not mere chance, it is the only possible output of our financial system. This is stunning indictment of our socio-political system, for this sort of fast-increasing concentration of income, wealth and power in the hands of the very few at the top can only occur in a financial-political system which is optimized to concentrate income, wealth and power at the top of the apex.

[..] the elephant in the room few are willing to mention much less discuss is financialization, the siphoning off of most of the economy’s gains by those few with the power to borrow and leverage vast sums of capital to buy income streams–a dynamic that greatly enriches the rentier class which has unique access to central bank and private-sector bank credit and leverage. Apologists seek to explain away this soaring concentration of wealth as the inevitable result of some secular trend that we’re powerless to rein in, as if the process that drives this concentration of wealth and power wasn’t political and financial. There is nothing inevitable about such vast, fast-rising income-wealth inequality; it is the only possible output of our financial and pay-to-play political system.

Read more …

China just took two giant steps back from being a functioning economy.

China’s Traders Have an Excuse to Take the Rest of Year Off

Financial markets in the world’s second-largest economy are set to turn listless in the fourth quarter as party officials keep a lid on volatility around a seminal Communist Party gathering. That’s the finding of Bloomberg surveys of market participants. The benchmark Shanghai Composite Index is projected to end the year 0.3% higher than Wednesday’s close. The yuan will be at 6.64 per dollar, unchanged from the current level, while the 10-year sovereign bond yield is expected to slip to 3.59% from 3.63%. “I don’t expect any big swings,” said Ken Chen, Shanghai-based analyst with KGI Securities Co. “Regulators would want to ensure the markets are stable for the 19th Party Congress.”

Authorities have stressed the need for stability in the lead-up to what will be China’s most important political event in years. The twice-a-decade party congress, which starts on Oct. 18, is expected to replace about half of China’s top leadership and shape President Xi Jinping’s influence into the next decade. The China Securities Regulatory Commission has ordered local brokerages to mitigate risks and ensure stable markets before and during the event, people familiar with the matter have said. The CSRC has also banned brokerage bosses from taking holidays or leaving the country from Oct. 11 until the congress ends, according to the people.

Read more …

Why that forced low volatility is so dangerous. No price discovery.

China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)

Young Chinese like Eli Mai, a sales manager in Guangzhou, and Wendy Wang, an executive in Shenzhen, are borrowing as much money as possible to buy boomtown flats even though they cannot afford the repayments. Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s. Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years. City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.

“Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said. “Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.” The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means. The build-up of household and other debt in China has also sparked widespread concern about the health of the world’s second largest economy.

[..] Mai and Wang have been playing it fast and loose to deal with their debts. Mai has lent 600,000 of the 800,000 yuan he got from a bank after using his first flat as collateral to a money shark promising an annualised return of 20 per cent. Wang gave the bank fake documents showing her monthly income was 18,000 yuan – about 1.6 times her actual salary. It did not ask any questions. Neither see any problem, because the value of their underlying assets, the flats, have risen. The value of Mai’s two flats rose from 3.8 million yuan last year to 6.4 million yuan last month, while the value of Wang’s unit is now 2.93 million yuan, up from 2.6 million yuan. “I think I made a smart and successful decision to leverage debt,” Mai said.

Read more …

Watch India.

Debt Boom In India And China Threatens New Financial Crisis – WEF (Tel.)

Banks across the world are more vulnerable to a crisis now than they were in the build up to the credit crunch, the World Economic Forum has warned. Bad loans in India have more than doubled in the past two years, while in China’s financial system “business credit is building up similarly to the United States pre-crisis, and could be a new source of vulnerability.” China’s credit boom has been the subject of several warnings from global finance groups and regulators in recent months. Last week the Bank of International Settlements warned that higher interest rates in the US could have a knock on effect in the world’s second-largest economy, forcing rates higher in China, making the debt mountain more expensive to maintain and hitting the economy hard.

Britain, the US and other developed economies have taken major steps to shore up their banking systems as they were at the heart of the financial crisis, but the global financial system as a whole faces new and growing risks. Other parts of the financial system are taking risks instead, such as fund managers in the so-called shadow banking sector. The eurozone banks have still not fully recovered from the crash either. “In general, there is still too much debt in parts of the private sector, and top global banks are still ‘too big to fail’,” the WEF’s Global Competitiveness Report said. “The largest 30 banks hold almost $43 trillion in assets, compared to less than $30 trillion in 2006, and concentration is continuing to increase in the US, China, and some European countries. “In Europe, banks are still grappling with the consequences of 10 years of low growth and the enduring non-performance of loans in many countries.”

Read more …

Abe’s power gamble.

Japan Downgrade Risk Seen Rising as Default Swaps Climb (BBG)

Japan’s credit rating could be in the cross hairs after Prime Minister Shinzo Abe indicated the nation may abandon its goal of covering key expenditures through taxes. The cost of insuring Japan’s government debt against default rose to a 15-month high on Tuesday, with policy uncertainty adding to concerns about tensions with North Korea. On Monday, Abe said he would dissolve parliament later this week and he’d pay for economic measures with funds from a consumption-tax increase originally intended to rein in the nation’s swollen debt. Japanese government bonds extended declines Wednesday after S&P Global Ratings said it expects “material” fiscal deficits to continue through 2020.

S&P’s ratings assume fiscal improvements will be gradual over the next few years, sovereign analyst Craig Michaels said. “The prospect for extra revenue to be spent rather than being used to pay down Japan’s debt is a factor of higher bond yields,” said Shuichi Ohsaki, chief rates strategist for Japan at Bank of America Merrill Lynch. “There also appears to be some speculation that such a policy move will lead to a sovereign downgrade.” Yield on Japan’s five-year note added 2.5 basis points to minus 0.090% Wednesday, which would be the steepest increase since March 9. The benchmark 10-year yield climbed 2.5 basis points to 0.055%, a level unseen since early August.

The challenges in meeting the long-standing objective of achieving a primary balance surplus, add to concerns about Japan’s debt load, which is the world’s heaviest. Getting to that goal would allow the government to pay for programs including social security and public works projects from tax revenue, rather than through new debt financing. Abe is betting he can crush a weak opposition in next month’s election, which he has framed in part as a vote on his plans to use revenue from the upcoming consumption-tax hike to fund an $18 billion economic package aimed at tackling the challenges of an aging society.

Read more …

It’s the mob. One question. Who’s going to end up paying?

JPMorgan Ordered To Pay Over $4 Billion To Widow And Family (ZH)

A Dallas jury ordered JPMorgan Chase to pay more than $4 billion in damages for mishandling the estate of a former American Airlines executive. Jo Hopper and two stepchildren won a probate court verdict over claims that JPMorgan mismanaged the administration of the estate of Max Hopper, who was described as an airline technology innovator by the family’s law firm. The bank, which was hired by the family in 2010 to independently administer the estate of Hopper, was found in breach of its fiduciary duties and contract. In total, JP Morgan Chase was ordered to pay at least $4 billion in punitive damages, approximately $4.7 million in actual damages, and $5 million in attorney fees.

The six-person jury, which deliberated a little more than four hours starting Monday night and returned its verdict at approximately 12:15 a.m. Tuesday, found that the bank committed fraud, breached its fiduciary duty and broke a fee agreement, according to court papers. “The nation’s largest bank horribly mistreated me and this verdict provides protection to others from being mistreated by banks that think they’re too powerful to be held accountable,” said Hopper in a statement. “The country’s largest bank, people we are supposed to trust with our livelihood, abused my family and me out of sheer ineptitude and greed. I’m blessed that I have the resources to hold JP Morgan accountable so other widows who don’t have the same resources will be better protected in the future.” “Surviving stage 4 lymphoma cancer was easier than dealing with this bank and its estate administration,” Mrs. Hopper added.

Max Hopper, who pioneered the SABRE reservation system for the airline, died in 2010 with assets of more than $19 million but without a will and testament, according to the statement. JPMorgan was hired as an administrator to divvy up the assets among family members. “Instead of independently and impartially collecting and dividing the estate’s assets, the bank took years to release basic interests in art, home furnishings, jewelry, and notably, Mr. Hopper’s collection of 6,700 golf putters and 900 bottles of wine,” the family’s lawyers said in the statement. “Some of the interests in the assets were not released for more than five years.”

The bank’s incompetence caused more than just unacceptably long timelines; bank representatives failed to meet financial deadlines for the assets under their control. In at least one instance, stock options were allowed to expire. In others, Mrs. Hopper’s wishes to sell certain stock were ignored. The resulting losses, the jury found, resulted in actual damages and mental anguish suffered by Mrs. Hopper. With respect to Mr. Hopper’s adult children, the jury found that they lost potential inheritance in excess of $3 million when the Bank chose to pay its lawyers’ legal fees out of the estate account to defend claims against the Bank for violating its fiduciary duty.

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“A world in recovery”, Stephen?

The Courage to Normalize Monetary Policy (Stephen Roach)

Central banks’ unconventional monetary policies – namely, zero interest rates and massive asset purchases – were put in place in the depths of the 2008-2009 financial crisis. It was an emergency operation, to say the least. With their traditional policy tools all but exhausted, the authorities had to be exceptionally creative in confronting the collapse in financial markets and a looming implosion of the real economy. Central banks, it seemed, had no choice but to opt for the massive liquidity injections known as “quantitative easing.” This strategy did arrest the free-fall in markets. But it did little to spur meaningful economic recovery. The G7 economies (the United States, Japan, Canada, Germany, the United Kingdom, France, and Italy) have collectively grown at just a 1.8% average annual rate over the 2010-2017 post-crisis period.

That is far short of the 3.2% average rebound recorded over comparable eight-year intervals during the two recoveries of the 1980s and the 1990s. Unfortunately, central bankers misread the efficacy of their post-2008 policy actions. They acted as if the strategy that helped end the crisis could achieve the same traction in fostering a cyclical rebound in the real economy. In fact, they doubled down on the cocktail of zero policy rates and balance-sheet expansion. And what a bet it was. According to the Bank for International Settlements, central banks’ combined asset holdings in the major advanced economies (the US, the eurozone, and Japan) expanded by $8.3 trillion over the past nine years, from $4.6 trillion in 2008 to $12.9 trillion in early 2017. Yet this massive balance-sheet expansion has had little to show for it.

Over the same nine-year period, nominal GDP in these economies increased by just $2.1 trillion. That implies a $6.2 trillion injection of excess liquidity – the difference between the growth in central bank assets and nominal GDP – that was not absorbed by the real economy and has, instead been sloshing around in global financial markets, distorting asset prices across the risk spectrum. Normalization is all about a long-overdue unwinding of those distortions. Fully ten years after the onset of the Great Financial Crisis, it seems more than appropriate to move the levers of monetary policy off their emergency settings. A world in recovery – no matter how anemic that recovery may be – does not require a crisis-like approach to monetary policy. Monetary authorities have only grudgingly accepted this. Today’s generation of central bankers is almost religious in its commitment to inflation targeting – even in today’s inflationless world. While the pendulum has swung from squeezing out excess inflation to avoiding deflation, price stability remains the sine qua non in central banking circles.

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Chaos looms in Germany. Merkel will be forced to accept a FinMin she doesn’t want. Greece will be squeezed even more. And Italy, Spain etc.

German Finance Minister Wolfgang Schäuble To Be Bundestag Speaker (G.)

Wolfgang Schäuble, a man revered and reviled in equal measure for his tenacious austerity economics, is to relinquish his powerful role as Germany’s finance minister and instead become the speaker of the parliament, his party has announced. Schäuble, 75, was asked to take on the role by the chancellor, Angela Merkel, who is keen on someone with authority and experience to steer future debate in the Bundestag after the success in Sunday’s election of the rightwing radical Alternative für Deutschland (AfD). The AfD is due to take up 94 seats in the house, having secured 12.6% of the vote, and its leadership has pledged to shake up the debating culture in the Bundestag, making it considerably rowdier than the calm and consensus-based mood that has characterised it in the past.

The role of speaker has been empty since Norbert Lammert, a veteran CDU MP, recently announced he would retire at the end of the last parliamentary term. In terms of protocol it ranks second only to that of federal president, and ahead of the chancellor, but in reality it is considerably less powerful than his current post. Schäuble, a lawyer by training, is the longest-serving MP in the Bundestag, having been elected in 1972. Once one of Merkel’s staunchest rivals, he has since become one of her closest confidantes as well as the most experienced and high-profile minister in her cabinet. He has been finance minister since 2009 and is held in high regard in Germany, particularly by the conservative base, who revere him for acting in Germany’s interests as the dogged protector of austerity economics in the eurozone.

He is also admired at home for his insistence – some would say obsession – with a balanced budget or the “black zero”. Germany today has a record budget surplus. But elsewhere he is a hugely controversial figure, particularly in Greece and in Ireland, where he has often faced criticism for his handling of the euro crisis that has dominated almost his entire time as finance minister. Schäuble has yet to respond to the reports of his new appointment, but it was confirmed on Wednesday afternoon by Volker Kauder, the chairman of the CDU parliamentary bloc.

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Sep 142017
 
 September 14, 2017  Posted by at 9:30 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Edward Hopper Chop Suey 1929

 

Top Democrats Announce Deal With Trump To Protect ‘Dreamers’ (MW)
Fed Balance Sheet Reduction Will Reduce Funds Sent To Treasury (BI)
“You Should Take the Fed at Their Word” (WS)
“Markets Have Always Been Wrong” – Jamie Dimon (ZH)
10% of Global GDP Is Stashed In Tax Havens (BI)
Did You Know Housing Gets Counted Twice In GDP? (Murray)
The Real Earnings of Men (WS)
China’s Steel Mills Run at Full Tilt as Output Hits New Peak (BBG)
China’s Economy Cools Again (BBG)
US Senate Rejects Bid To Repeal War Authorizations (R.)
Has the NYT Gone Collectively Mad? (Robert Parry)
Crisis Brings Sea Change To Greek Housing Market (K.)
More Austerity May Be Ahead (K.)

 

 

They dine together, close a deal, and then can’t wait to tell entirely different stories to the press. But Trump has forced them into action.

Top Democrats Announce Deal With Trump To Protect ‘Dreamers’ (MW)

Top Democratic leaders said Wednesday night that they had reached a compromise agreement with President Donald Trump to enact protections for the children of undocumented immigrants in exchange for increased border security measures that do not include funding for a wall — which the White House then disputed. “We had a very productive meeting at the White House with the president,” read a joint statement from Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi. “The discussions focused on DACA. We agreed to enshrine the protections of DACA into law quickly, and to work out a package of border security, excluding the wall, that’s acceptable to both sides.” But shortly after that statement, White House press secretary Sarah Huckabee Sanders disputed that border-wall funding was off the table. “Excluding the wall was certainly not agreed to,” she said.

Schumer, of New York, and Pelosi, of California, had dinner with Trump at the White House on Wednesday night. It was apparently the second bipartisan agreement between Democrats and Trump in the past week, after last week’s surprise deal that provided funding for Hurricane Harvey relief and extended the debt ceiling for three months, much to Republicans’ chagrin. Extending protections for the Deferred Action for Childhood Arrivals program, which were rescinded by the Trump administration last week, is a top priority for Democrats and many Republican lawmakers. Without new legislation, the 690,000 children of undocumented immigrants — so-called “Dreamers” — enrolled in the program could face deportation as their status expires over the next two years. Trump had said he may “revisit” the issue of Dreamers in six months if Congress didn’t act.

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It’s like driving into a dark and wet dead end alley.

Fed Balance Sheet Reduction Will Reduce Funds Sent To Treasury (BI)

The Federal Reserve is not expected to raise interest rates again until at least December, and even that increase is now in doubt given low inflation and high political uncertainty in the United States. That doesn’t mean the central bank has no plans to tighten monetary policy, however. Officials are widely expected to announce the start of a gradual reduction of the Fed’s $4.4 trillion balance sheet, which more than quintupled in response to the Great Recession and financial crisis of 2007-2009. Policymakers are hoping the shrinkage, which they intend to accomplish by ceasing reinvestments of maturing bonds back into the central bank’s portfolio, will have minimal market impact. But a previous episode in 2013 known as the “taper tantrum,” when bond yields spiked sharply higher at the mere mention of a possible end to the Fed’s bond-buying program, offers a cautionary tale.

Regardless of immediate market impact, there will be a longer term effect on the government budget, currently the subject of heated debate, that most investors and politicians are ignoring. That’s because the Fed’s bond-buying program, in addition to lowering the government’s borrowing costs at a time when weak economic activity called for bigger budget deficits, created a stream of yearly returns of nearly $100 billion for the Federal Reserve which it then siphoned back to the Treasury. Sometimes these are referred to as the Fed’s “profits,” but that is a deceptive way of describing what is in effect an intra-government transaction. “As assets under management drop, so too will revenue on that portfolio. This will be a lost revenue source for the Treasury that will raise deficits and add to the Treasury’s financing” costs, writes Societe Generale Economist Stephen Gallagher in a research note to clients.

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Downward volatility.

“You Should Take the Fed at Their Word” (WS)

The markets have been brushing off the Fed and have done the opposite of what the Fed has set out to accomplish. The Fed wants to tighten financial conditions. It’s worried about asset prices. It’s worried that these inflated assets which are used as collateral by the banks, pose a danger to financial stability. It has mentioned several inflated asset classes by name, including commercial real estate, which backs $4 trillion in loans heavily concentrated at regional banks. And yet, markets have loosened financial conditions since the Fed started its tightening cycle in earnest last December. Markets are hiding behind “low” inflation, when the Fed is focused on asset prices. So longer-term yields have been falling even as short-term yields have moved up in line with the Fed’s target rate, and thus the yield curve has flattened.

The dollar has been falling. Equities have been soaring to new highs. And companies, if they’re big enough, are able to get funding for the riskiest projects at stunningly low rates. “I think there is maybe too much confidence that the Fed is not really going to do too much more on interest rates, that we’ll have one or two more rate hikes and that’s it,” Brian Coulton, chief economist for Fitch Ratings, told Reuters on Tuesday. Market participants are expecting “just one or two interest rate increases a year” despite the Fed’s stated expectation of seeing long-run interest rates at around 3.0%. “When the Fed says they’re going to engage in a gradual rate of interest rate increases, they mean three or four rate hikes every year and we think that’s what they’re going to do,” Coulton said. “We think that you should take them at their word and it may even be a little faster than that.”

This disconnect between market expectations and the Fed’s stated intentions could create volatility in fixed-income markets when markets finally catch up, he said. Volatility, when it’s used in this sense, always means downward volatility: a sudden downward adjustment in prices and spiking yields – a painful experience for the coddled bond market with big consequences for the stock market. “We think they’re going to be … getting more worried about some of the negative consequences of QE, the fact that it encourages risk taking and may create some issues for the banks,” he said. And he expects – this is “more of a personal view,” he said – that the Fed will continue with the rate hikes, or even accelerate them, even if consumer price inflation remains low.

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“There’s low volatility until they’re highly volatile.” Sounds like Minsky.

“Markets Have Always Been Wrong” – Jamie Dimon (ZH)

Oh, listen, markets are markets. There’s low volatility until they’re highly volatile. The stock market is high until it goes low. Markets therefore have always been wrong. And I think people are making mistakes. I can give you reasons why it might be low. We’ve had this fairly consistent, coherent, consistent growth. But forget the geopolitical noise and stuff like that. We’re chugging along, 2%. Europe is doing 2%. Russia – I mean, Japan is doing 1.5%, China’s doing their 6%. You know, earnings are doing okay. We’ve had a fairly benign economic environment. That’s a reason. I can give you another reason is that the Central Banks of the world that bought $12 trillion of securities. 12 trillion. Since they started doing QE. And that’s only just the U.S. That’s an awful lot of security purchases that might – in all things be equal, and remember things are never all equal – can reduce volatility.

And there may be other sides that are known. And once other sides happen, watch out. Then volatility goes way up. They’ll say they’re a genius, they figured out when it’s going to happened. I don’t guess on which kind of volatility. Like I said, we do a business. And we have to manage the volatility.” [..] The hurricanes are irrelevant. I wouldn’t have any policy matter as a function of hurricanes. Going to reduce GDP in the short run, they’ll probably increase it after that. I’ll let the economists figure it out. But almost a $20 trillion economy, that isn’t a reason to change monetary policy. It will create a lot of noise in the numbers, but I wouldn’t overreact to that. Advice, it’s very sympathetic. We’re doing – just so you know, we’re going to do a lot for affordable housing, get these people in these states 20,000 people in Florida, 6,000 in Houston. Most of the banks are waiving fees, delaying loan payments, offering special services for your employees and stuff like that.”

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Saw the graph before. Greece is the big one here.

10% of Global GDP Is Stashed In Tax Havens (BI)

The Panama Papers and other major leaks from offshore tax havens have helped shed light on just how much money the world’s wealthiest people are parking in untaxed obscurity, away from the authorities and, importantly, economic researchers. This new evidence has helped economists gain greater insight into just how steep disparities between the rich and the poor have become, because having actual data on offshore holdings tends to widen wealth gaps considerably. Three of these researchers have teamed up on two important papers that offer a more in-depth look at what the world’s worst tax-evading and -avoiding nations are, and they find that the existence of tax havens makes inequality much worse than it appears with standard, publicly available economic data.

“The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few % of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies,” Annette Alstadsæter at the Norwegian University of Life Sciences, Niels Johannesen of the University of Copenhagen, and Gabriel Zucman of the University of California at Berkeley write in the first of the two articles. Global gross domestic product is about $75.6 trillion, according to World Bank figures. They then apply these estimates to build revised series of top wealth shares in 10 countries accounting for nearly half of world GDP. “Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively,” the authors write. “It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore.”

About 60% of the wealth of Russia’s richest households is held offshore, the economists estimate. “More broadly, offshore wealth is likely to have major implications for the concentration of wealth in many of the world’s developing countries, hence for the world distribution of income and wealth.” “These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world,” they continue. They say that despite lip service to transparency, “very little has been achieved” in recent years. “With the exception of Switzerland, no major financial center publishes 18 comprehensive statistics on the amount of foreign wealth managed by its banks.”

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GDP is a lousy measure.

Did You Know Housing Gets Counted Twice In GDP? (Murray)

Your car gets counted once in GDP when it is built, not when it is driven. Your clothes, your bicycle, your furniture, all get counted once when they are manufactured, and not again when they are worn, ridden, or sat on. But homes are counted twice: Once when they are constructed, and again when they are occupied. The argument to include both housing construction (as a new capital investment good) and housing occupancy (as a consumption good) arises from a conceptual trick at the heart of national accounting. That trick is to separate out two types of ‘final’ goods when adding up the ‘value-added’ in the economy, which is what GDP does. One good is a consumption good. These are goods (and services) that households consume, like clothes, food, entertainment, and so forth. All the value added at intermediate stages in the production chain of these goods can be captured by looking only at the final retail value of the goods.

That value represents the total value-added across the economy to produce that good. The other type of good is an investment good. This is a good that lasts a long time and contributes to future production. A new rail line, for example, is classified a new investment good, and the value of its production is counted in GDP, even though households don’t get any value from it until it is used to run trains. Once the rail line is being used to run trains, the value of those travel services is also counted in GDP as a consumption good, which will include within it the value contribution of the rail line itself. Thus there is a type of double-counting when it comes to investment goods — you count them when they are made, and you count them again when they are used to make consumption goods.

This is intentional. The production of investment goods is a large share of GDP — between 20 and 40% in most countries. By ignoring this production, which is also the more volatile part of production over the business cycle, GDP loses much of its value as a measure of how economically active a country is. The construction of new homes is, therefore, an investment good, which gets counted in GDP. But then the occupancy of these same homes gets counted gain as a consumption ‘home rental’ good each period after. This applies to the 70% of households (in Australia at least) who own their own home, not just the renters. Although they don’t pay themselves rent to occupy their home, GDP is calculated as if they do by ‘imputing’ the rent that homeowners would have to pay themselves if they instead rented their home.

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” On this inflation-adjusted basis, men had earned more than that in 1972″
..

The Real Earnings of Men (WS)

For women who were working full-time year-round, median earnings (income obtained only from working) rose 0.7% on an inflation-adjusted basis from a year ago to $48,328, continuing well-deserved increases over the data series going back to 1960. The female-to-male earnings ratio hit a new record of 80.5%, after steady increases, up from the 60%-range, where it had been between 1960 and 1982. And while that may still be inadequate, and while more progress needs to be made for women in the workforce, it was nevertheless the good news.

Men in the workforce haven’t been so lucky. They have experienced the brunt of the wage repression over the past four decades, obtained in part via inflation, where wages inch up, but not quite enough to keep up with the Fed-engineered loss of purchasing power of the dollar. Median earnings for men who worked full-time year-round fell 0.4% in 2016, adjusted for inflation, to $51,640. On this inflation-adjusted basis, men had earned more than that in 1972 ($52,361). And it’s down 4.4% from the earnings peak in 1973 ($54,030). This translates into 44 years of real earnings decline:

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Just in time for the Party Congress. What a lucky coincidence!

China’s Steel Mills Run at Full Tilt as Output Hits New Peak (BBG)

Steel production in China chalked up a fresh monthly record as mills in the world’s top supplier increase output to profit from a rally in prices to six-year highs before government-ordered pollution curbs are implemented. Crude steel output climbed to 74.59 million metric tons last month, surpassing the previous peak of 74.02 million in July, and up from 68.57 million in August 2016, according to the statistics bureau Thursday. While that’s an all-time high for the month, daily output was less than the record in June. Production surged 5.6% to 566.4 million tons in the first eight months, also a record. Steel prices have been supercharged this year in the country that accounts for half of global output. A crackdown on illegal mills shuttered some supply, boosting the remaining producers, while demand has been underpinned by significant state-backed stimulus.

Investors are also eyeing signals that the government will press ahead with anti-pollution curbs over winter. “Steel mills have boosted output as profit margins are good,” said Helen Lau at Argonaut Securities in Hong Kong. “Production cuts won’t set in until September or October, so steelmakers are churning out as much as they can in the meantime.” Spot reinforcement bar in China, a benchmark product used in construction, hit 4,396 yuan a ton early this month, the highest level since October 2011. Prices have gained 30% this year. Steel output may drop in coming months as Asia’s top economy presses ahead with supply-side reforms. Hebei province, the center of China’s mammoth steel industry, has plans that’ll allow for winter output cuts of as much as 50% to reduce pollution. Citigroup Inc. has estimated daily production could shrink 8% because of the environmental crackdown.

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But wait! Same source, same day, opposite views.

China’s Economy Cools Again (BBG)

The pace of China’s economic expansion unexpectedly cooled further last month after a lackluster July, as factory output, investment and retail sales all slowed. • Industrial output rose 6.0% from a year earlier in August, versus a median projection of 6.6% and July’s 6.4%. That’s the slowest pace this year • Retail sales expanded 10.1% from a year earlier, versus a projection of 10.5% and 10.4% in July, also the slowest reading in 2017 • Fixed-asset investment in urban areas rose 7.8% in the first eight months of the year over the same period in 2016, compared with a forecast 8.2% rise. That’s the slowest since 1999.

The continued cooling of the world’s second-largest economy suggests that efforts to rein in credit expansion and reduce excess capacity are hitting home ahead of the key 19th Party Congress in October. Still, producer-price inflation and a manufacturing sentiment gauge both exceeded estimates earlier this month, signaling some resilience. The Shanghai Composite Index reversed earlier gains to fall 0.4%. “Today’s data shows that the economy clearly already peaked in the first half of this year,” said Larry Hu at Macquarie in Hong Kong. “Recently both property and exports are slowing down and that’s why the whole economy is slowing.” “Regulatory tightening in the financial sector is putting a squeeze on highly indebted firms reliant on shadow bank financing,” said Frederic Neumann at HSBC in Hong Kong.

“And officials are unlikely to take their foot off the regulatory brakes any time soon. Growth therefore looks set to weaken further into year end, as regulators step up their campaign to rein in shadow banking.” “That’s still on track to a gradual moderation,” Chang Jian, chief China economist at Barclays in Hong Kong, said in a Bloomberg Television interview. “The government has been closing capacity, especially those that don’t meet environmental standards, and enforcement this year has been much stricter in the run-up to the 19th Party Congress.”

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An empire built on war.

US Senate Rejects Bid To Repeal War Authorizations (R.)

The U.S. Senate rejected an amendment on Wednesday that would have forced the repeal of war resolutions used as the legal basis for U.S. military actions in Iraq, Afghanistan and against extremists in Syria and other countries. The Senate voted 61 to 36 to kill the measure, which six months after it became law would have put an end to authorizations for the use of military force (AUMF) passed in 2001 and 2002. The legislation was offered by Republican Senator Rand Paul as an amendment to a must-pass annual defense policy bill, which lawmakers are using as a vehicle to gain a greater say in national security policy. Paul’s measure was aimed at asserting the constitutional right of Congress to approve military action, rather than the president.

Some of the other amendments address issues such as sanctions on North Korea and President Donald Trump’s ban on transgender troops in the military. Many members of Congress are concerned the 2001 AUMF, passed days after the Sept. 11 attacks to authorize the fight against al Qaeda and affiliates, has been used too broadly as the legal basis for a wide range of military action in too many countries. The majority of support for the amendment came from Democrats, who joined Paul in arguing that it is long past time for Congress to debate a new authorization for the use of force. “We should oppose unauthorized, undeclared, unconstitutional war. At this particular time, there are no limits on war,” Paul said.

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Not really. They’re just chasing illusions.

Has the NYT Gone Collectively Mad? (Robert Parry)

For those of us who have taught journalism or worked as editors, a sign that an article is the product of sloppy or dishonest journalism is that a key point will be declared as flat fact when it is unproven or a point in serious dispute – and it then becomes the foundation for other claims, building a story like a high-rise constructed on sand. This use of speculation as fact is something to guard against particularly in the work of inexperienced or opinionated reporters. But what happens when this sort of unprofessional work tops page one of The New York Times one day as a major “investigative” article and reemerges the next day in even more strident form as a major Times editorial? Are we dealing then with an inept journalist who got carried away with his thesis or are we facing institutional corruption or even a collective madness driven by ideological fervor?

What is stunning about the lede story in last Friday’s print edition of The New York Times is that it offers no real evidence to support its provocative claim that – as the headline states – “To Sway Vote, Russia Used Army of Fake Americans” or its subhead: “Flooding Twitter and Facebook, Impostors Helped Fuel Anger in Polarized U.S.” In the old days, this wildly speculative article, which spills over three pages, would have earned an F in a J-school class or gotten a rookie reporter a stern rebuke from a senior editor. But now such unprofessionalism is highlighted by The New York Times, which boasts that it is the standard-setter of American journalism, the nation’s “newspaper of record.” In this case, it allows reporter Scott Shane to introduce his thesis by citing some Internet accounts that apparently used fake identities, but he ties none of them to the Russian government.

Acting like he has minimal familiarity with the Internet – yes, a lot of people do use fake identities – Shane builds his case on the assumption that accounts that cited references to purloined Democratic emails must be somehow from an agent or a bot connected to the Kremlin. For instance, Shane cites the fake identity of “Melvin Redick,” who suggested on June 8, 2016, that people visit DCLeaks which, a few days earlier, had posted some emails from prominent Americans, which Shane states as fact – not allegation – were “stolen … by Russian hackers.” Shane then adds, also as flat fact, that “The site’s phony promoters were in the vanguard of a cyberarmy of counterfeit Facebook and Twitter accounts, a legion of Russian-controlled impostors whose operations are still being unraveled.”

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See my article yesterday.

Crisis Brings Sea Change To Greek Housing Market (K.)

“What we are experiencing is the end of the era of home ownership in Greece as households can no longer save to buy property,” says Nikos Hatzitsolis, chief executive at real estate firm CB Richard Ellis-Axies, underscoring the fundamental changes that the crisis has triggered in the Greek property market. This change, the experts explain, is not just evident in the case of those just flying the nest who wouldn’t be in any position to own their home anyway unless it was given to them by their family, but also existing homeowners who are opting to leave their property and rent it out or sell it. “Around 70% of homeowners are becoming renters because they choose to sell their property to pay off debts such as mortgages, late taxes or credit card debt,” says Lefteris Potamianos, vice president of the Athens-Attica Estate Agents Association.

“If any money is left over from the transaction, it is not reinvested in another property, as was the case in the past, but used to rent another home. Basically, the dream of ownership that drove past generations has come to an end.” A significant%age of homeowners choosing to rent out their home and lease a different property for themselves also consists of young people who see their accommodation requirements increasing, due to the birth of a child for example, or want to live in an area with better schools or security. “We are seeing more and more such cases in the property market,” says Potamianos. “Given that sales prices are very low and it is hard to find a buyer, many owners prefer to rent out their property and then rent another for themselves, as getting bank funding for a purchase is incredibly difficult. Some even move around to see which area suits them best. Renting has this flexibility, allowing you to relocate if you’re not happy.”

For the overwhelming majority, however, renting is the only option, as buying is seen as bringing no advantages whatsoever anymore. “Even from a purely economic perspective, it’s not worth owning a home today. In contrast, people who rent avoid all the additional tax costs and are not exposed to the instability of the tax framework for real estate assets, which has become a tool of politics and results in no taxpayer knowing what tomorrow will bring,” explains Hatzitsolis. “Previous generations believed that buying houses was a form of investment. This is no longer the case, as we’re seeing a completely different mentality in younger people.”

The expert also draws attention to the cases of people who are stuck with their properties. “I know an owner who inherited a house in [the upscale Athenian suburb of] Ekali and has to pay 80,000 euros a year in property tax,” he recounts. “At best, the house could fetch 50,000 euros a year in rent, which means that this man has to cover losses of 30,000 euros every year, something that is a complete dead end.” This owner has little choice but to sell, says Hatzitsolis, adding that such cases also explain why an increasing number of people are refusing their inheritances.

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Europe won’t rest until they have created their very own Somalia.

More Austerity May Be Ahead (K.)

Greek authorities will honor their commitments as laid out in the latest loan deal with international creditors, even if this results in the need for additional austerity measures next year, a top government official indicated Wednesday. In an unusual show of honesty and realism, the same official suggested that there might not be a “clean exit” for Greece after its third bailout expires next summer but something more restrictive. There are a range of possible scenarios between that of a clean exit, which Prime Minister Alexis Tsipras has heralded, and the prospect of a credit line for Greece, the official said. On the prospect of more austerity next year, the official said he believed that there would not be a big divergence in fiscal targets next year. “If there is, we’ll see what happens, but were are committed to a target of 3.5% of GDP,” the official said, referring to the primary surplus goal set by creditors.

The official also noted that, once a primary surplus target is reached, residual revenue will go toward boosting the Social Solidarity Income program for 2017 for Greeks who have been hardest hit by austerity but also toward paying off state debts to the private sector and to growth programs. Decisions on these matters are expected to be taken following talks with the mission chiefs representing Greece’s foreign lenders, who are expected to travel to Athens next month and to assess the progress of authorities in boosting tax collection and curbing spending. Although Greek officials have underlined the importance of completing the next bailout review by the end of the year, sources suggest that the process might drag into January.

The most important thing, the official noted, is “that we are not part of the problem” when important discussions about the future of the Greek program get under way in the first quarter of next year, touching on the participation (or not) of the IMF in Greece’s third bailout and relief for the country’s debt burden. Greek authorities are concerned about the IMF’s stance opposite Athens. Apart from the Fund’s traditionally tough position on fiscal matters, there are concerns too about its demands for a further recapitalization of Greek banks. The official, however, assumed the stance of the ECB on this issue, noting that there is no need for Greek banks to receive further capital. The official said that Greece planned to tap international bond markets in the next 6-9 months following a successful return in July.

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Aug 282017
 
 August 28, 2017  Posted by at 9:01 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Lou Reed New York City 1966

 

Harvey’s Cost Reaches Catastrophe: Only 15% Of Homes Have Flood Insurance (BBG)
Gasoline Surges, Oil Holds Near $48 as Harvey Shuts Refineries (BBG)
Mammoth Flood Disaster in Houston: More Rain Yet to Come (WU)
The Coming Collapse Of China’s Ponzi Scheme Economy (SCMP)
What’s Driving The Growth In US ‘Shadow Banking’ (CBR)
Volatility Makes a Comeback (Rickards)
YouTube “Economically Censors” Ron Paul (ZH)
Should The Rich Be Taxed More? (G.)
The West’s Wealth Is Based On Slavery. Reparations Should Be Paid (G.)
Danone Sends 5,000 Cows to Siberia in Quest for Cheaper Milk (BBG)

 

 

The real tragedy takes place below the surface. Sort of literally. Much more rain to come.

Harvey’s Cost Reaches Catastrophe: Only 15% Of Homes Have Flood Insurance (BBG)

Hurricane Harvey’s second act across southern Texas is turning into an economic catastrophe – with damages likely to stretch into tens of billions of dollars and an unusually large share of victims lacking adequate insurance, according to early estimates. Harvey’s cost could mount to $24 billion when including the impact of relentless flooding on the labor force, power grid, transportation and other elements that support the region’s energy sector, Chuck Watson, a disaster modeler with Enki Research, said by phone on Sunday. That would place it among the top eight hurricanes to ever strike the U.S. “A historic event is currently unfolding in Texas,” Aon wrote in an alert to clients. “It will take weeks until the full scope and magnitude of the damage is realized,” and already it’s clear that “an abnormally high portion of economic damage caused by flooding will not be covered,” the insurance broker said.

[..] Most people with flood insurance buy policies backed by the federal government’s National Flood Insurance Program. As of April, less than one-sixth of homes in Houston’s Harris County had federal coverage, according to Aon. That would leave more than 1 million homes unprotected in the county. Coverage rates are similar in neighboring areas. Many cars also will be totaled. “A lot of these people are going to be in very serious financial situations,” said Loretta Worters, a spokeswoman for the Insurance Information Institute. “Most people who are living in these areas do not have flood insurance. They may be able to collect some grants from the government, but there are not a lot, usually they’re very limited. There are no-interest to low-interest loans, but you have to pay them back.”

The federal program itself is already struggling with $25 billion of debt. The existing program is set to expire on Sept. 30 and is up for review in Congress, which ends its recess Sept. 5. Costs still will likely soar for insurance companies and their reinsurers, biting into earnings. As Harvey bore down on the coastline Friday, William Blair, a securities firm that tracks the industry, said the storm could theoretically inflict $25 billion of insured losses if it landed as a “large category 3 hurricane.” Policyholder-owned State Farm Mutual Automobile Insurance has the largest share in the market for home coverage in Texas, followed by Allstate, which is publicly traded. William Blair estimated that, in that scenario, Allstate could incur $500 million of pretax catastrophe losses, shaving 89 cents off of earnings per share.

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Most shutdowns so far are precautionary. But…

Gasoline Surges, Oil Holds Near $48 as Harvey Shuts Refineries (BBG)

Gasoline surged to the highest in two years and oil was steady as flooding from Tropical Storm Harvey inundated refining centers along the Texas coast, shutting more than 10% of U.S. fuel-making capacity. Motor fuel prices rose as much as 6.8%, while oil held gains near $48 a barrel. Harvey, the strongest storm to hit the U.S. since 2004, made landfall as a hurricane Friday, flooding cities and shutting plants able to process some 2.26 million barrels of oil a day. Pipelines were closed, potentially stranding some crude in West Texas and starving New York Harbor of gasoline. Gasoline prices are going to continue to rise this week as we expect another three days of rain in the Houston area,” Andy Lipow, president of consultant Lipow Oil in Houston, said by phone.

“With pipeline operators beginning to shut down their crude oil and refined product infrastructure, I expect to see further curtailment of refinery operations. A spike in gasoline and diesel prices will drag up crude oil prices.” Oil has traded this month in the tightest range since February as investors weigh rising global supply against output cuts by members of OPEC and its allies. As Harvey led to widespread flooding, Shell shut its Deer Park plant, while Magellan Midstream suspended its inbound and outbound refined products and crude pipeline transportation services in the Houston area. Gasoline for September delivery climbed as much as 11.33 cents to $1.7799 a gallon on the New York Mercantile Exchange, the highest intraday price for a front-month contract since July 2015.

It traded at $1.7621 at 12:36 p.m. in Hong Kong. West Texas Intermediate oil for October delivery fell 16 cents to $47.71 a barrel after advancing 0.9% on Friday. Brent crude’s premium to WTI widened to the largest in two years with the global benchmark trading at as much as $4.96 above the U.S. marker. Brent for October settlement gained 18 cents, or 0.3%, to $52.59 a barrel on the London-based ICE Futures Europe exchange.

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Waether Underground is probably the best source.

Mammoth Flood Disaster in Houston: More Rain Yet to Come (WU)

Harvey’s winds are expected to remain modest, and it could become a tropical depression at any point, but winds are not the problem here. The NOAA/NWS National Hurricane Center now predicts that Harvey will inch its way into the Gulf of Mexico—though just barely—by Monday night, then arc northeast and make a second landfall just west of Houston on Wednesday. The 12Z GFS and 00Z European model runs agree on a general northward motion for Harvey across eastern Texas, beginning around midweek. At this point it may make little difference whether Harvey stays just inland or moves just offshore, since rainbands would continue to be funneled toward Houston either way. The fine-scale particulars of this outlook may shift over time, but the overall message is consistent: Harvey will be a devastating rainmaking presence in southeast Texas for days to come.

Harvey’s circulation is located in a near-ideal spot for funneling vast amounts of moisture from the Gulf of Mexico toward the upper Texas coast. Here, converging winds at low levels have been concentrating the moisture into north-south-oriented bands of intense thunderstorms with torrential rain. Since Harvey is barely moving, these bands are creeping only slowly eastward as individual cells race north along them—a “training” set-up that is common in major flood events. Mesoscale models, our best guidance for short-term, small-scale behavior of thunderstorms, show little sign of relief for southeast Texas anytime soon. Convection-resolving mesoscale models, which have a tight enough resolution to depict individual thunderstorms, are an invaluable tool in situations like this. The mesoscale nested NAM model predicts that 20” – 30” of additional rainfall is likely through Tuesday across the Houston metro area, with even larger totals at some points.

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Hmm. But what if China manages to unload all its overcapacity on the Belt Road, and makes other countries pay?

The Coming Collapse Of China’s Ponzi Scheme Economy (SCMP)

Friends who have a greater interest than I do in reading the tea leaves in Beijing tell me that the emphasis in relations with Hong Kong from now on will be on one country rather than two systems. I think this phrases things the wrong way. The one country bit was never in issue. What they actually mean to say is that Beijing’s system of state command of the economy will become dominant and Hong Kong’s more freewheeling system will fade away. I don’t think it will happen. In my view human society is so dynamic that no command system can last long in charge of an economy. Attempts at this particular form of hubris inevitably end in either war or financial crisis. For the Soviet Union it was financial crisis. I think the same fate awaits Beijing.

Consider crude steel production, a test-tube example of how command economies get it wrong. In the mainland this stood in June at an all time monthly record of 73 million tonnes, five times the total production in all of Europe. Steel was recently targeted for a reduction in capacity but then a regime of easy money intended to help the industry overcome a difficult period of contraction instead stimulated production. It has happened across the mainland’s rust belt industries. Why is so much steel needed? Simple. It is needed to build more steel mills so as to build more shipyards, ports, railways and bridges so that more ships can be built to carry more iron ore to more ports and thence along more rails and bridges to more steel mills so as to build more shipyards, ports, railways …

What we have here, in short, is a giant Ponzi scheme. In a Ponzi scheme you pay out the winnings of the first entrants with what others later pay into it. As long as it keeps growing everything is fine. When it stops growing it collapses. In this case you justify production with demand based purely on more production. As long as you keep pushing production up everything looks fine. At its peak in 2014 China turned out 30 times more cement than the United States, and the latest production figures are only a smidgen less than 2014’s.

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What do you think? A good sign? It isn’t in China….

What’s Driving The Growth In US ‘Shadow Banking’ (CBR)

In the wake of the 2007–10 financial crisis, there’s been sizeable growth of “shadow banking”— companies without banking charters entering lines of business traditionally associated with deposit-taking banks. Hedge funds that make direct loans to midsize businesses, online mortgage originators, peer-to-peer lending platforms, and payday lenders have all been on the rise. What’s behind this? According to Chicago Booth’s Gregor Matvos, Booth PhD candidate Greg Buchak, Columbia’s Tomasz Piskorski, and Stanford’s Amit Seru, much of the growth is due to regulations that have pushed banks out of traditional lending businesses. The researchers also attribute some growth to online technology that has lowered the barrier to entry in markets where lenders once needed networks of physical branches to have any hope of building business.

The researchers focus on the US residential lending market, the largest consumer loan market in the country—and the market that drew the most attention from regulators after 2008. Between 2007 and 2015, shadow banks nearly tripled their market share, from 14% to 38%. They gained the most in the Federal Housing Administration (FHA) mortgage market, which serves lower-quality borrowers and is where shadow banks’ share rose from 20% to 75%. Traditional banks retreated from sectors of the mortgage market where the regulatory burden grew the most, the researchers note. Traditional banks have been particularly hindered by rules that increased monitoring of balance-sheet holdings and constrained what banks could hold in their own accounts.

Their retreat helped shadow banking succeed in the riskier FHA market and in more-traditional, conforming mortgages. The researchers also separated shadow banks into those that did and didn’t originate loans online. During the study period, lenders that originated loans online (fintech lenders) saw market share rise from 4% to 13%—but that remains less than half of the shadow-banking sector.

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Super spikes.

Volatility Makes a Comeback (Rickards)

Volatility has languished near all-time lows for months on end. That’s about to change. For almost a year, one of the most profitable trading strategies has been to sell volatility. Since the election of Donald Trump stocks have been a one-way bet. They almost always go up, and have hit record highs day after day. The strategy of selling volatility has been so profitable that promoters tout it to investors as a source of “steady, low-risk income.” Nothing could be further from the truth. Yes, sellers of volatility have made steady profits the past year. But the strategy is extremely risky and you could lose all of your profits in a single bad day. Think of this strategy as betting your life’s savings on red at a roulette table. If the wheel comes up red, you double your money. But if you keep playing eventually the wheel will come up black and you’ll lose everything.

That’s what it’s like to sell volatility. It feels good for a while, but eventually a black swan appears like the black number on the roulette wheel, and the sellers get wiped out. I focus on the shocks and unexpected events that others don’t see. Right now looks like one of those highly favorable windows when the purchase of volatility is the right move. You could collect huge winnings as the short sellers scramble to cover their bets before they are wiped out completely. The chart below shows a 20-year history of volatility spikes. You can observe long periods of relatively low volatility such as 2004 to 2007, and 2013 to mid-2015, but these are inevitably followed by volatility super-spikes. During these super-spikes the sellers of volatility are crushed, sometimes to the point of bankruptcy because they can’t cover their bets.

The period from mid-2015 to late 2016 saw some brief volatility spikes associated with the Chinese devaluation (August and December 2015), Brexit (June 23, 2016) and the election of Donald Trump (Nov. 8, 2016). But, none of these spikes reached the super-spike levels of 2008 – 2012. In short, we have been on a volatility holiday. Volatility is historically low and has remained so for an unusually long period of time. The sellers of volatility have been collecting “steady income,” yet this is really just a winning streak at the volatility casino. The wheel of fortune is about to turn and luck is about to run out for the sellers. It will soon be time for the buyers of volatility to collect their winnings, big time.

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Sliding scales. One step before large tech is declared utility?!

YouTube “Economically Censors” Ron Paul (ZH)

Former US Congressman Ron Paul has joined a growing list of independent political journalists and commentators who’re being economically punished by YouTube despite producing videos that routinely receive hundreds of thousands of views. In a tweet published Saturday, Wikileaks founder Julian Assange tweeted a screenshot of Paul’s “Liberty Report” page showing that his videos had been labeled “not suitable” for all advertisers by YouTube’s content arbiters. Assange claims that Paul was being punished for speaking out about President Donald Trump’s decision to increase the number of US troops in Afghanistan, after Paul published a video on the subject earlier this week. The notion that YouTube would want to economically punish a former US Congressman for sharing his views on US foreign policy – a topic that he is unequivocally qualified to speak about – is absurd.

Furthermore, the “review requested” marking on one of Paul’s videos reveals that they were initially flagged by users before YouTube’s moderators confirmed that the videos were unsuitable for a broad audience. Other political commentators who’ve been censored by YouTube include Paul Joseph Watson and Tim Black – both ostensibly for sharing political views that differ from the mainstream neo-liberal ideology favored by the Silicon Valley elite. Last week, Google – another Alphabet Inc. company – briefly banned Salil Mehta, an adjunct professor at Columbia and Georgetown who teaches probability and data science, from using its service, freezing his accounts without providing an explanation. He was later allowed to return to the service. Conservative journalist Lauren Southern spoke out about YouTube’s drive to stifle politically divergent journalists and commentators during an interview with the Daily Caller.

“I think it would be insane to suggest there’s not an active effort to censor conservative and independent views,” said Southern. “Considering most of Silicon Valley participate in the censorship of alleged ‘hate speech,’ diversity hiring and inclusivity committees. Their entire model is based around a far left outline. There’s no merit hiring, there’s no support of free speech and there certainly is not an equal representation of political views at these companies.” Of course, Google isn’t the only Silicon Valley company that’s enamored with censorship. Facebook has promised to eradicate “fake news,” which, by its definition, includes political content that falls outside of the mainstream. Still, economically punishing a former US Congressman and medical doctor is a new low in Silicon Valley’s campaign to stamp out dissent.

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The most prosperous times of our societies coincide with the highest tax levels for the rich.

Should The Rich Be Taxed More? (G.)

The past four decades have been extremely kind to those at the top. They have seen their incomes grow faster than the rest of the population and hold a far bigger share of wealth in the form of property and financial investments than the rest of the population. Over the years a bigger slice of national income has gone to capital at the expense of labour, and the rich have been the beneficiaries of that, because they are more likely to own shares and expensive houses. The trend has been particularly strong in the US, where labour’s share of income has fallen from a recent peak of 57% at the end of Bill Clinton’s presidency to 53% by 2015. The Gini coefficient – a measure of inequality – has been steadily rising since 1970 and is now at levels normally seen in developing rather than advanced economies.

Hatgioannides, Karanassou and Sala seek to take account of these profound changes in the distribution of income and wealth. They do so by dividing the average income tax rate of a particular slice of the US population by the%age of national income commanded by that same group and by their share of wealth. They then look at whether by this measure – the fiscal inequality coefficient – the US tax system has become more or less progressive over time. The findings show quite clearly that it has become less progressive. In terms of income, the poorest 99% of the US population paid nine times as much income tax as the richest 1%, both when John F Kennedy was president in the early 1960s and when Ronald Reagan beat Jimmy Carter in the 1980 race for the White House. By 2014, they paid 21 times as much.

Similarly, the bottom 99.9% in the US paid 28 times as much tax as the elite 0.1% in the early 1960s and the early 1980s, but by 2014 they were paying 76 times as much. The same trend applies – although it is not pronounced – when income tax is divided by the share of wealth. The bottom 99% paid 22 times as much income tax as the wealthiest 1% in 1980 but were paying 47 times as much in 2014. The bottom 99.9% paid 58 times as much income tax as the top 0.1% before the onset of Reaganomics; by 2014 they were paying 175 times as much. [..] As the authors note, since 1980, economic policy making has been dominated by the idea that deregulation, less generous welfare and tax cuts will stimulate higher investment, higher productivity, higher growth and higher living standards for all. None of this has occurred and, what’s more, the social mobility in the decades after the second world war has been thrown into reverse. The great American dream – the notion that anybody can strike it rich – is dead.

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They won’t be.

The West’s Wealth Is Based On Slavery. Reparations Should Be Paid (G.)

Malcolm X explained that “if you stick a knife in my back nine inches and pull it out six inches, that’s not progress. If you pull it all the way out, that’s not progress. The progress comes from healing the wound that the blow made”. Instead of attempting to fix the damage, we are completely unable to progress on issues of equality because countries such as Britain “won’t even admit the knife is there”. It is the height of delusion to think that the impact of slavery ended with emancipation, or that empire was absolved by the charade of independence being bestowed on the former colonies.

[..]It is not just governments that owe a debt; some of the biggest institutions and corporations built their wealth on slavery. Lloyds of London is one of Britain’s most successful companies and its roots lie in insuring the merchant trade in the 17th century. The fact that this was the slave trade has already led to civil action being taken by African Americans in New York. The church, many of the biggest banks, much of the ironworks industry and port cities gorged themselves on the profits from human flesh. It is clear that it would be just to pay reparations, and it is also possible to calculate the amount that Britain and other nations owe. A lot of work has been done in the United States to determine the damages owed to African Americans. The figure owed comes to far more than the “forty acres and a mule” that were promised to some African Americans who fought in the civil war.

The latest calculations from researchers estimates that for unpaid labour, taking into account interest and inflation, African Americans are owed anywhere between $5.9tn and $14.2tn. It would not be prohibitively complicated to work out the debts owed by the western powers, or the companies that enriched themselves off exploitation. The obviousness of the issue is such that a federation of Caribbean countries (Caricom) is now demanding reparations, as is the Movement for Black Lives in America and Pan-Afrikan Reparations Coalition in Europe. In many ways the calls for reparatory justice do not take go far enough. Caricom includes a demand to cancel third world debt, and the Movement for Black Lives for free tuition for African Americans.

Both of these are examples of removing the knife from our backs, rather than healing the wound. Third world debt was an unjust mechanism for maintaining colonial economic control and; allowing free access to a deeply problematic school system will not eradicate the impacts of centuries of oppression. In order to have racial justice we need to hit the reset button and have the west account for the wealth stolen and devastation caused. Nothing short of a massive transfer of wealth from the developed to the underdeveloped world, and to the descendants of slavery and colonialism in the west, can heal the deep wounds inflicted.

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Cows to Qatar, cown to SIberia: the new backpackers?!

Danone Sends 5,000 Cows to Siberia in Quest for Cheaper Milk (BBG)

President Vladimir Putin’s ban on European Union cheese imports has driven up milk prices in Russia by so much that French yogurt maker Danone is transporting almost 5,000 cows to a farm in Siberia to ensure it has an affordable supply. The Holstein cows are traveling as many as 2,800 miles (4,500 kilometers) in trucks from the Netherlands and Germany, boosting the herd on a farm near the city of Tyumen, according to Charlie Cappetti, head of Danone’s Russian unit. That should protect the company from the increase in raw milk prices, which are up 14% this year, he said. “Milk prices have been going up steadily,” Cappetti said in an interview in Moscow. “That puts products such as yogurt under pressure.” While the French dairy company doesn’t normally invest in agriculture, it made an exception for Russia.

After Putin’s ban on dairy imports took hold in 2014, demand for milk surged as local cheesemakers rushed to replace French camembert and Italian pecorino. That has exacerbated the inflationary effects of the ruble’s weakness. Danone invested in the 60-hectare (150-acre) farm with local producer Damate, Cappetti said. The first cows started to provide milk for Danone in May, and a final shipment of cattle is due to arrive in September. “We hope that Russian milk inflation will slow down next year,” the executive said. The difference between supply and demand is narrowing as new milk is coming to the market, including from the Siberian farm. While easing milk inflation may help the Russian dairy market rebound in volume terms, Danone isn’t expecting a fast economic recovery in the country, according to Cappetti. Sales in Russia have been growing in line with inflation in the first half and should rise in 2018, he said.

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May 282017
 
 May 28, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Fred Stein Little Italy New York 1943

 

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)
New Home Prices Are Over 50% Higher In Canada Than The US (BD)
Low Volatility Is Market’s Most Significant Danger (BBG)
Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)
Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)
We’re Dealing With a New Type of War Lie (Swanson)
Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)
Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)
US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)
10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

 

 

It’ll take Europe a while to recover from Trump.

Trump Tells ‘Confidants’ US Will Leave Paris Climate Deal (R.)

U.S. President Donald Trump has told “confidants,” including the head of the Environmental Protection Agency Scott Pruitt, that he plans to leave a landmark international agreement on climate change, Axios news outlet reported on Saturday, citing three sources with direct knowledge. On Saturday, Trump said in a Twitter post he would make a decision on whether to support the Paris climate deal next week. A source who has been in contact with people involved in the decision told Reuters a couple of meetings were planned with chief executives of energy companies and big corporations and others about the climate agreement ahead of Trump’s expected announcement later in the week. It was unclear whether those meetings would still take place.

“I will make my final decision on the Paris Accord next week!” he tweeted on the final day of a G7 summit in Italy at which he refused to bow to pressure from allies to back the landmark 2015 agreement. The summit of G7 wealthy nations pitted Trump against the leaders of Germany, France, Britain, Italy, Canada and Japan on several issues, with European diplomats frustrated at having to revisit questions they had hoped were long settled. [..] Although he tweeted that he would make a decision next week, his apparent reluctance to embrace the first legally binding global climate deal that was signed by 195 countries clearly annoyed German Chancellor Angela Merkel. “The entire discussion about climate was very difficult, if not to say very dissatisfying,” she told reporters. “There are no indications whether the United States will stay in the Paris Agreement or not.”

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Is optimism your friend?

New Home Prices Are Over 50% Higher In Canada Than The US (BD)

The price of new homes is quickly diverging in Canada and the US. Data from the Canadian Housing and Mortgage Corporation (CMHC) show that new homes are selling for substantially more than the same time last year. Meanwhile south of the border, data from the US Bureau of Census show that new home prices are on the decline. This has lead to an even wider gap between the average price of a new home in Canada and the US. The price of a new home across Canada is up for the second month in a row. The average sale price in April was CA$751,881 (US$559,123). This represents an 11% increase from the same time last year, when measured in Canadian dollars. When compared in US dollars, that increase drops to a much more conservative 2.64%. Even after factoring in the loonie’s decreased buying power in Canada, new home prices still climbed.

American new home builders aren’t seeing such steep climbs in sale prices. Actually, they aren’t seeing climbs at all. The average price of a new home in the US was CA$495,271 (US$368,300). This represents a 3% decline from the same time last year, when measured in US dollars. In Canadian dollars, this was a 0.49% decline from the same time last year. Both forms of measurement show declining home prices in the US, curious since their economy is in a much better state than Canada right now. New homes are trading at substantially higher values in Canada than the US in April. The average new home in April 2017 was 51% higher in Canada than the US. The same time last year, prices in Canada were only 36% higher. It appears in a post-crash United States, new home buyers are taking much more conservative strides. In a hasn’t-crashed-in-decades Canada, new home buyers are optimistic about future values.

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When markets don’t function, i.e. there is no price discovery, why would there be volatility?

Low Volatility Is Market’s Most Significant Danger (BBG)

Of all the dangers in the world of finance, the enduring low level of market volatility is the most significant. How quiet is quiet? Recently, the six-month realized volatility for the S&P 500 dipped to 6.7 percent, lower than even the period leading up to the financial crisis of 2008-09. During the mid-’90s, volatility was as low as it is now, but the size, complexity and interlinkages of financial market exposures were far less significant. Now, fluctuations are severely muted, and thus send a false signal of safety to both investors and policy makers who misread the calm as an “all clear” sign, dismissing the events above as insufficiently relevant. The result is an inability to appreciate how quickly market conditions can change, especially as trading strategies that capitalize on quiet markets become vulnerable to unwind, serving to amplify a risk-off event.

[..] There is an important debate in markets now about the causes of low realized volatility. A decline in the correlation among stocks, a global economy on more stable footing and a decline in perceptions of systemic risk (a euro-zone unraveling, for example) are among the factors. We should appreciate the importance of money flows as well. According to ETF.com, the exchange-traded fund industry is on pace for $500 billion in new asset growth in 2017. These vehicles can provide cheap, liquid access to market risk exposures. They simply put the money received to work in passive fashion, without evaluating the risk/return trade-off. The flows themselves are a factor in the positive returns and the low volatility that, in turn, attract additional flows.

What results is a dangerous circularity. Recall the period of wonderful outcomes preceding the financial crisis. The demand for housing spurred price appreciation, which enabled mortgage credit to be supplied at increasingly generous terms. The most suspect credit cannot default if the value of the collateral keeps appreciating and, as a result, the supply of credit keeps expanding. The fear of missing out is also supremely powerful. The conservative individual becomes less so when he or she sees a neighbor flipping houses with success. Similarly, the conservative lender is forced to compete with more aggressive suppliers of credit. For lenders, not being accommodative enough during the go-go years can amount to an existential business question.

Today’s risks differ meaningfully from those of a decade ago. However, the excess amount of capital chasing opportunity at increasingly aggressive terms is similar. The competition to put money to work, then, like now, results in low volatility. Investors are in danger of misinterpreting this tranquility as conveying safety when crowded positioning is resulting in more, not less, risk. While spending money on hedging is especially difficult in a seemingly benign environment, investors should be actively vigilant to market risks, devoting time to an action plan that helps protect portfolio wealth against the inevitable return of volatility.

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Different polls have very different numbers.

Jeremy Corbyn Within Striking Distance Of No. 10 (Mirror)

In the first week of the General Election campaign our ComRes poll for the Sunday Mirror gave Theresa May a magic 50% of the vote. She looked unstoppable. Today’s ComRes poll shows Jeremy Corbyn has narrowed her lead to 12 points , six points up on two weeks ago. As the man who invented the Swingometer says he’s never seen swings like it. If the PM goes into polling day on June 8th with this kind of lead she would not be unhappy. It would give her an overall majority of 62. Not the landslide she wished for perhaps, but with enough MPs to get her own way every time. But we are still 11 days from polling day – and on present form that’s enough for Mr Corbyn to pick up another 12 points. And that puts him in striking distance of No10. Our survey puts the Conservatives on 46%, Labour on 34% and the Lib Dems down two points on 8%.

Ukip are unchanged in fourth place at 5%. But the most striking findings are that the Labour leader’s personal ratings are up in every category while Mrs May’s are down in all but one. Mrs May’s Dementia Tax on the elderly and her U-turn over how to pay for it has clearly boomeranged. The Manchester bombing appears to have had little effect on voting intention. Mrs May is still way ahead of Mr Corbyn as being best to deal with terrorism. But she’s five points down on two weeks ago. Only a fifth of voters say she is most likely to protect elderly people dependent on social care while Mr Corbyn scores 43%. Curiously the mess she made of the Dementia Tax has not damaged her among voters aged 65 plus with nearly seven in ten saying they will still vote for her. But Mr Corbyn is ahead in every age group until pollsters get to those 44 or older.

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“..what comes next will be an era in which there is a new order..”

Fourth Turning’s Neil Howe: We Are In The 1930s, “Winter Is Coming” (Mauldin)

From the Balkans to the US, walls are going up, not down, according to demographer and The Fourth Turning author Neil Howe. Speaking to a packed crowd at Mauldin Economics’ Strategic Investment Conference in Orlando, Howe said we are reliving many of the same trends and changes of the 1930s. “Worldwide, people are losing trust in institutions,” he said. “Trust in the military, small business, and police is still there. But trust in democracies, media, and politicians is dropping.” When was the last time we saw these changes and the rise of right-wing populism?” he asked. “The 1930s.” Howe’s statement is borne out of a June 2016 Gallup poll. When poll takers were asked how much confidence they had in institutions in American society, the results were troubling.

Just 15% said they had a “great deal” of confidence in the US Supreme Court. Banks trailed behind at 11%, followed by the criminal justice system (9%), newspapers (8%), and big business (6%). Meanwhile, just 16% expressed a “great deal” of confidence in the presidency, with that number plummeting to 3% for Congress. In his keynote, Howe shared his forecasting logic: “My method is to step back and realize one thing: There is something we know about the world in 20 years’ time. The people who live there will be all of us, 20 years older and playing a different role. I call this ‘looking along the generational diagonal.’ The critical thing to remember about the current crisis period is that what comes next will be an era in which there is a new order.

According to the Strauss-Howe generational theory, as this new order takes root, individualism declines and institutions are strengthened. “History is seasonal, and winter is coming,” Howe has said. But after winter, comes spring. As the American Revolution was followed by calm, as the Civil War was followed by reconstruction and a gilded age, and as the Great Depression and World War II were followed by an age of peace and prosperity, so too will this crisis period be followed by a calm, stable era. It’s simply a matter of time.

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Russiagate.

We’re Dealing With a New Type of War Lie (Swanson)

The “Russian interference in the 2016 United States elections” even exists as a factual event in Wikipedia, not as an allegation or a theory. But the factual nature of it is not so much asserted as brushed aside. Former CIA Director John Brennan, in the same Congressional testimony in which he took the principled stand “I don’t do evidence,” testified that “the fact that the Russians tried to influence resources and authority and power, and the fact that the Russians tried to influence that election so that the will of the American people was not going to be realized by that election, I find outrageous and something that we need to, with every last ounce of devotion to this country, resist and try to act to prevent further instances of that.” He provided no evidence. Activists have even planned “demonstrations to call for urgent investigations into Russian interference in the US election.”

They declare that “every day we learn more about the role Russian state-led hacking and information warfare played in the 2016 election.” (March for Truth.) Belief that Russia helped put Trump in the White House is steadily rising in the U.S. public. Anything commonly referred to as fact will gain credibility. People will assume that at some point someone actually established that it was a fact. Keeping the story in the news without evidence are articles about polling, about the opinions of celebrities, and about all kinds of tangentially related scandals, their investigations, and obstruction thereof. Most of the substance of most of the articles that lead off with reference to the “Russian influence on the election” is about White House officials having some sort of connections to the Russian government, or Russian businesses, or just Russians.

It’s as if an investigation of Iraqi WMD claims focused on Blackwater murders or whether Scooter Libby had taken lessons in Arabic, or whether the photo of Saddam Hussein and Donald Rumsfeld shaking hands was taken by an Iraqi. A general trend away from empirical evidence has been extensively noted and discussed. There is no more public evidence that Seth Rich (a Democratic National Committee staffer who was murdered last year) leaked Democratic emails than there is that the Russian government stole them. Yet both claims have passionate believers. Still, the claims about Russia are unique in their wide proliferation, broad acceptance, and status as something to be constantly referred to as though already established, constantly augmented by other Russia-related stories that add nothing to the central claim. This phenomenon, in my view, is as dangerous as any lies and fabrications coming out of the racist right.

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Blackwater 2.0

Private Mercenary Firm Targeted Dakota Access Pipeline Movement (IC)

A shadowy international mercenary and security firm known as TigerSwan targeted the movement opposed to the Dakota Access Pipeline with military-style counterterrorism measures, collaborating closely with police in at least five states, according to internal documents obtained by The Intercept. The documents provide the first detailed picture of how TigerSwan, which originated as a U.S. military and State Department contractor helping to execute the global war on terror, worked at the behest of its client Energy Transfer Partners, the company building the Dakota Access Pipeline, to respond to the indigenous-led movement that sought to stop the project. Internal TigerSwan communications describe the movement as “an ideologically driven insurgency with a strong religious component” and compare the anti-pipeline water protectors to jihadist fighters.

One report, dated February 27, 2017, states that since the movement “generally followed the jihadist insurgency model while active, we can expect the individuals who fought for and supported it to follow a post-insurgency model after its collapse.” Drawing comparisons with post-Soviet Afghanistan, the report warns, “While we can expect to see the continued spread of the anti-DAPL diaspora … aggressive intelligence preparation of the battlefield and active coordination between intelligence and security elements are now a proven method of defeating pipeline insurgencies.” More than 100 internal documents leaked to The Intercept by a TigerSwan contractor, as well as a set of over 1,000 documents obtained via public records requests, reveal that TigerSwan spearheaded a multifaceted private security operation characterized by sweeping and invasive surveillance of protesters.

As policing continues to be militarized and state legislatures around the country pass laws criminalizing protest, the fact that a private security firm retained by a Fortune 500 oil and gas company coordinated its efforts with local, state, and federal law enforcement to undermine the protest movement has profoundly anti-democratic implications. The leaked materials not only highlight TigerSwan’s militaristic approach to protecting its client’s interests but also the company’s profit-driven imperative to portray the nonviolent water protector movement as unpredictable and menacing enough to justify the continued need for extraordinary security measures. Energy Transfer Partners has continued to retain TigerSwan long after most of the anti-pipeline campers left North Dakota, and the most recent TigerSwan reports emphasize the threat of growing activism around other pipeline projects across the country.

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Not much use talking to Erdogan. He needs his strongman image to much at home.

Once-in-a-Generation Hopes Of Cyprus Reunification Appear To Be Dashed (G.)

The best hope yet of reuniting war-partitioned Cyprus has been dashed after reconciliation attempts were brought to an abrupt halt following two years of intense negotiations. The optimism engendered by talks seen as a once-in-a-generation opportunity to unite the Mediterranean island ended when the United Nations special envoy, Espen Barth Eide, announced that he was terminating negotiation efforts. “Without a prospect for common ground, there is no basis for continuing this shuttle diplomacy,” the Norwegian former foreign minister said in a short statement. Eide now enters the long list of diplomats who, for the best part of 50 years, have attempted to solve one of the world’s most intractable diplomatic disputes.

Split between the majority population of Greeks in the south and Turks in the north, Cyprus has been divided since 1974 when Ankara ordered troops to invade the island in response to an Athens-organised coup to unite it with Greece. In Nicos Anastasiades and Mustafa Akinci – the respective leaders of the island’s Greek and Turkish communities – the two sides had found men who were not only moderate and born in the same town – Limassol – but willing to make the sort of concessions necessary to find a solution. Both had got to the point of poring over maps outlining territorial adjustments in a envisaged bi-zonal, bi-communal federation. In January, the first international conference on Cyprus was held at the UN headquarters in Geneva with representatives from Greece, Turkey and Britain – the island’s three guarantor powers.

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Hundreds of people are collateral damage.

US-Led Syria Strikes Kill Scores Of Relatives Of IS Fighters (AFP)

Dozens of relatives of Islamic State group fighters were killed Friday in Syria in US-led strikes, regime or Russian raids, after the UN urged nations striking the jihadists to protect civilians. Raids by the US-led coalition have pounded IS positions across Iraq and Syria since the jihadist group claimed responsibility for the devastating bombing of a concert in Manchester on Monday. Scores of civilians, many of them families of IS members, have been killed in bombing raids in recent days on the eastern Syrian town of Mayadeen, held by IS since 2014. Early Friday, at least 80 relatives of IS fighters were killed in US-led coalition bombardment, according to the Syrian Observatory for Human Rights.

“The toll includes 33 children. They were families seeking refuge in the town’s municipal building,” said Observatory head Rami Abdel Rahman. “This is the highest toll for relatives of IS members in Syria,” he told AFP. Coalition strikes on the town killed 37 civilians on Thursday night after 15 had been killed on Wednesday, according to the Britain-based Observatory. The US military on Friday confirmed that it had struck “near Mayadeen” on May 25 and 26, but said it was “still assessing the results of those strikes”, according to Pentagon spokesman Eric Pahon. The US military insists that it takes every precaution to avoid hitting civilians, but the United Nations on Friday urged parties bombing IS to do more.

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No moral values left: “The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.“

10,000 Migrants Rescued, Dozens Drown Between Italy And Libya This Week (AFP)

Nearly 10,000 migrants were rescued off the coasts of Italy and Libya this week, as the leaders of G7 gathered for a summit coincidentally held in Sicily. And at least 54 people have drowned in the Mediterranean since Tuesday. Large-scale rescue efforts off the Italian coast on Friday saved 2,200 migrants who risked their lives traveling in unworthy sea vessels to reach Italy. Italian coastguard and commercial boats delivered those rescued to reception centers in Italy. A further 1,200 people were rescued by Libyan ships and taken to Tripoli or Zawiya. Some 6,400 migrants were rescued from the Mediterranean between Tuesday and Thursday. The Italian coastguard also discovered another 10 bodies, bringing to 54 the total number of officially registered deaths this week, officials told AFP.

The biggest tragedy occurred on Wednesday, when 35 migrants drowned, including at least 10 children, after they fell off an overloaded vessel that was hit by a huge wave while being rescued by an aid boat. At least 1,400 people have drowned so far this year trying to make the perilous journey across the sea to Italy, according to UN figures, while more than 50,000 migrants reached Italian coasts, most of them through Libya. Italy has on numerous occasions said that it barely has enough resources to deal with the migrant influx from Libya. The situation has become an EU-wide concern in recent years, with Brussels facing mounting pressure from human rights groups over its handling of the migrant crisis in the Mediterranean.

G7 leaders, who met in Sicily, discussed providing greater assistance to African countries to persuade migrants to stay at home rather than make the dangerous journey across the Mediterranean. However, no concrete plan of action was agreed upon at the end of the two-day summit in Taormina. The G7 only managed to “reaffirm the sovereign rights of states to control their own borders and set clear limits on net migration levels.”

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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.

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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.

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Mar 132017
 
 March 13, 2017  Posted by at 9:23 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle March 13 2017
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DPC The Mammoth Oak at Pass Christian, Mississippi 1900

 

The Ides of March Could Be A Critical Turning Point For The Stock Market (MW)
The US As The “Cleanest Dirty Shirt” (Snider)
A Third Of American Families Have ‘Roller Coaster’ Finances (MW)
US Interest Rate Rise To Deepen Developing Countries’ Debt Crisis (G.)
The Issue Is The Leverage And Instability Of The System (Rickards)
Who Bleeds When the Wolves Bite? (CNBC)
When It Comes to Wall Street, Preet Bharara Is No Hero (PP)
China’s Economic Miracle Is Over (Friedman)
Iceland Exits Capital Controls Eight Years After Banking Crash (BBG)
Steve Keen Is In The House (YT)
We Will All Need A Stiff Drink To Swallow Hammond’s Austerity (G.)
No Proof Russia Disrupts UK Democracy, But They Can – Boris Johnson (RT)
Brussels Keeping 2015 Emergency Grexit Plan Locked Away (K.)
Fukushima Evacuees Face ‘Forced’ Return As Subsidies Withdrawn (G.)
Police Raid Athens Squats, Detain Dozens Of Refugees (K.)
What Would You Do To Keep Your Children Alive? (I’Cept)

 

 

The Fed, the debt ceiling and the Dutch election. All this Wednesday, March 15.

The Ides of March (Latin: Idus Martiae, Late Latin: Idus Martii) is a day on the Roman calendar that corresponds to 15 March. It was marked by several religious observances and became notorious as the date of the assassination of Julius Caesar in 44 BC..

The Ides of March Could Be A Critical Turning Point For The Stock Market (MW)

As much as Julius Caesar’s assassination on the Ides of March signaled an inflection point in Roman history, March 15 may also mark a watershed moment for the U.S. stock market with the Federal Reserve poised to seek closure to its loose monetary policy regime. “The coming week has the potential to be huge for trading opportunities,” said Colin Cieszynski, chief market strategist at CMC Markets, in a note. “Everything centers around the Ides of March…with a number of key developments coming out both on [March] 15 and 16.” The Fed’s monetary policy decision on Wednesday will take center stage with markets nearly 100% certain of a rate increase following solid February jobs data. The focus will be on the Fed’s statement rather than the decision itself.

“The commentary will help determine how many more hikes the market has to get used to and then when it has to start preparing,” said Bob Pavlik at Boston Private Wealth. If the central bank strikes a hawkish tone, it could trigger a selloff in the market although Pavlik expects Fed Chairwoman Janet Yellen to keep her comments positive to avoid upsetting the market. Still, investors should keep in mind is that this is the third hike in the current tightening cycle, and history is working against the market. Since 1971, stocks have fallen an average of 2.2% on the third hike over the following three months, said Tom Lee at Fundstrat Global Advisors. To be sure, there are always exceptions. Stocks rose sharply in the following three months after the Fed hiked for a third time in both June 1984 and September 2004, he said.

Most analysts agree that stocks have largely priced in a rate hike of 25 basis points. But there are still bargains to be found in automobile, semiconductors, consumer finance and insurance sectors, which are cheap but benefit from a hawkish Fed, according to Bank of America Merrill Lynch. Aside from the Fed, eight other central banks are scheduled to meet next week, including the Bank of Japan and the Bank of England, providing a quick insight into whether other countries will adjust their policies in response to the Fed. Meanwhile, Trump is expected to present his preliminary budget request to the Congress on Thursday, outlining his administration’s priorities. It will serve as a critical test for whether the euphoria that propelled stocks to record territory in anticipation of tax reforms and ramped up fiscal spending under President Donald Trump is warranted.

The S&P 500 has risen 4.5% and the Dow Jones Industrial Average DJIA has gained 5.3% in the first 50 days since Trump took office, the best ever for a GOP president. However, if Trump’s budget proposal fails to meet the market’s expectations, it could spark a major unwinding in positions, leading to a sharp drop in prices. “Thursday could be the day the instant speed of markets crashes into the glacial speed of government,” said Cieszynski.

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Boy, what a bubble this is turning into.

The US As The “Cleanest Dirty Shirt” (Snider)

It is surely one of the primary reasons why many if not most people have so much trouble accepting the trouble the economy is in. With record high stock prices leading to record levels of household net worth, it seems utterly inconsistent to claim those facts against a US economic depression. Weakness might be more easily believed as some overseas problem, leading to only ideas of decoupling or the US as the “cleanest dirty shirt” – the US economy has problems, but how bad can they be? Yet, despite asset price levels and even record debt, all those prove is just how disconnected those places have become from what used to be an efficient way to redistribute financial resources.

According to the Fed’s Z1 report, Household net worth climbed by $2 trillion in Q4 alone to $92.8 trillion. That is a 69% increase from the low in Q1 2009, even though Final Sales to Domestic Purchasers have grown by just 30% in that same time. The wealth effect is dead, or, more specifically, it never was.

From the view of net worth, the increase to record debt levels seems manageable. From the more appropriate view of income and economy, it does not, even though US debt levels have grown more slowly post-crisis. That would mean debt is partway between assets and economy, sort of splitting the difference of what monetary policy believes and what it, at best, “achieved.”

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The Great Volatility.

A Third Of American Families Have ‘Roller Coaster’ Finances (MW)

When it comes to making money, consistency may be almost as important as quantity. Families that had large fluctuations in their incomes — even when it was a 25% gain — were more likely than those with stable incomes to say they wouldn’t be able to come up with $2,000 for an unexpected need, according to a study by Pew Charitable Trusts released this week. The study looked at “income volatility” among more than 5,600 families the term for a year-over-year change in annual income of 25% or more, between 2014 and 2015. “Volatility in general, regardless of the direction, is very disruptive to families,” said Erin Currier, the director of Pew’s financial security and mobility project, who called that volatility “a roller coaster” for many Americans. “It makes it harder for them to plan.”

More than a third of those households surveyed experienced these large changes in their incomes from 2014 to 2015, Pew found. That number has been fairly consistent over time, Currier said. Households of various incomes see major dips and drops, but since volatility is measured as a percentage change in income, those with lower incomes had the lowest threshold for qualifying as having volatile incomes, Pew’s report says. In fact, there were more households in the years Pew studied that saw a gain in their incomes than those who saw dips, which is probably less surprising given that the economy was growing in those years and many families were finally getting back on their feet after the Great Recession.

Roller coaster finances are more common than many people realize. A quarter of people saw their incomes rise or drop by 30% or more, according to an analysis of 27 million Chase bank accounts between 2013 and 2014 by the J.P. Morgan Chase Institute JPM, -0.32% a J.P. Morgan Chase think tank. Those fluctuations were about the same, regardless of account holders’ incomes. One problem: Although income and spending both change, they don’t always change in the same direction, which can create budgeting problems. Put bluntly, some people keep spending even when they and their families experience a reversal of fortune.

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Been warning about this for a long time. It could get completely out of hand. Much of it is private debt.

US Interest Rate Rise To Deepen Developing Countries’ Debt Crisis (G.)

Developing countries are struggling with steep rises in their debt payments after being hit by a double whammy of lower commodity prices and a stronger dollar, with more pain to come once the US central bank raises interest rates this week, campaigners warn. The Jubilee Debt Campaign said that some of the world’s poorest countries have seen the cost of repaying their debts – as a proportion of government revenue – hit the highest level for a decade. Government coffers have been depleted by lower revenues from commodity exports and the size of dollar-denominated debts has risen as the US currency has strengthened.

The dollar has risen more than 6% against a basket of other big currencies over the past six months as investors anticipate that big spending plans by President Donald Trump will boost US growth and that the US Federal Reserve will follow up December’s interest rate rise with more increases this year. After the latest US jobs numbers on Friday beat expectations, a rate rise from the Fed’s policymakers when they meet this Wednesday is seen as imminent among investors. That would further increase the cost of debt payments for poor countries, which have taken out big loans in recent years from western countries where interest rates have been low, said the Jubilee Debt Campaign.

Tim Jones, economist at the campaign group, warned the rising cost of debt payments was putting developing countries under extra strain just when they needed to be spending more money at home to meet the UN sustainable development targets – a series of goals for human development intended to be achieved by 2030. “The rapid increase in debt payments in many countries comes after a boom in lending, a fall in commodity prices, the rising value of the US dollar and now increasing dollar interest rates,” said Jones. He warned there was a danger that loans from the IMF and other lenders would be used to bail out “reckless lenders” who were at risk of not getting repayments from crisis-hit countries. That would lead to year of economic stagnation, just as in debt-laden Greece, Jones added. “Instead, reckless lenders should be made to shoulder some of the costs of recent economic shocks by accepting lower payments,” he said.

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Has been for may years.

The Issue Is The Leverage And Instability Of The System (Rickards)

[..] expectations of a Fed rate hike March 15 are now near 100% based on surveys of economists and fed funds futures contracts. Markets are looking at things like business cycle indicators, but that’s not what the Fed is watching these days. The Fed is desperate to raise rates before the next recession (so they can cut them again) and will take every opportunity to do so. But as I’ve said before, the Fed is getting ready to raise into weakness. It may soon have to reverse course. My view is that the Fed will raise rates 0.25% every other meeting (March, June, September and December) until 2019 unless one of three events happens — a stock market crash, job losses or deflation. But right now the stock market is booming, job creation is strong and inflation is emerging. So none of the usual speed bumps is in place. The coast is clear for a rate hike this Wednesday.

But growth is being financed with debt, which has now reached epic proportions. A lot of money has been printed since 2007, but debt has expanded much faster. The debt bubble can be seen at the personal, corporate and sovereign levels. If the debt bubble bursts, things can get very messy. In a liquidity crisis, investors who think they have “money” (in the form of stocks, bonds, real estate, etc.) suddenly realize that those investments are not money at all — they’re just assets. When investors all sell their assets at once to get their money back, markets crash and the panic feeds on itself. What would it take to set off this kind of panic? In a super-highly leveraged system, the answer is: Not much. It could be anything: a high-profile bankruptcy, a failed deal, a bad headline, a geopolitical crisis, a natural disaster and so on. This issue is not the catalyst; the issue is the leverage and instability of the system.

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Bit curious coming from a judge, but good title.

Who Bleeds When the Wolves Bite? (CNBC)

The question posed was, “Who Bleeds When the Wolves Bite?” It’s the title of an evocative paper written by Leo Strine, the chief justice of the Delaware Supreme Court. By wolves, he means hedge funds, and his answer, found within a 113-page paper set to be published next month in the Yale Law Review, is that average American investors are the ones getting bit by the existing corporate-governance system. While little known in circles outside the highest ranks of corporate America, Strine’s voice is among one of the most powerful in the business community. That’s because two-thirds of American companies are legally based in Delaware, meaning corporate litigation often takes place in that state, so his opinions on such topics can hold tremendous sway.

Strine’s paper is one of the strongest repudiations to date of hedge-fund activism — or what critics of the industry describe as the practice of investors with major stock holdings aggressively forcing companies into changes that will quickly pump up stock prices, often without regard for those same companies’ long-term health. Strine looks at what he calls a “flesh and blood” perspective on how hedge funds, and specifically hedge-fund activists, are harmful to typical American investors. He calls regular Americans “human investors,” distinguishing from the “wolf packs” of hedge funds. Human investors are those who invest in the capital markets and save for events like retirement or college for their children, according to Strine. Strine’s main argument is that the “current corporate governance system … gives the most voice and the most power to those whose perspectives and incentives are least aligned with that of ordinary Americans.”

Strine’s critics — largely hedge funds and hedge fund advisers — privately criticized the paper, arguing that a justice should not be on the record condemning a group of people who tend to litigate in his court and the lower Delaware courts. Additionally, they say his paper does not offer much in the way of prescriptions for how to fix what he sees as a flawed system. They declined to be quoted, fearing retribution from Strine.

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A history lesson.

When It Comes to Wall Street, Preet Bharara Is No Hero (PP)

After his election in 1968, President Richard Nixon asked Robert Morgenthau, the US Attorney for the Southern District of New York, to resign. Morgenthau refused to leave voluntarily, saying it degraded the office to treat it as a patronage position. Nixon’s move precipitated a political crisis. The president named a replacement. Powerful politicians lined up to support Morgenthau. Morgenthau had taken on mobsters and power brokers. He had repeatedly prosecuted Roy Cohn, the sleazy New York lawyer who had been Senator Joe McCarthy’s right-hand man. (One of Cohn’s clients and protégés was a young New York City real estate developer named Donald Trump.) When Cohn complained that Morgenthau had a vendetta against him, Morgenthau replied, “A man is not immune from prosecution merely because a United States Attorney happens not to like him.”

Morgenthau carried that confrontational attitude to the world of business. He pioneered the Southern District’s approach to corporate crime. When his prosecutors took on corporate fraud, they did not reach settlements that called for fines, the current fashion these days. They filed criminal charges against the executives responsible. Before Morgenthau, the Department of Justice focused on two-bit corporate misdeeds—Ponzi schemes and boiler room operations. Morgenthau changed that. His prosecutors went after CEOs and their enablers—the accountants and lawyers who abetted the frauds or looked the other way. “How do you justify prosecuting a nineteen-year old who sells drugs on a street corner when you say it’s too complicated to go after the people who move the money?” he once asked. Morgenthau’s years as United States Attorney were followed by political success. He was elected New York County District Attorney in 1974, the first of seven consecutive terms for that office.

There are parallels between Morgenthau, and Preet Bharara, the U.S. attorney for the Southern District who was fired by President Trump this weekend. Like Morgenthau, the 48-year old Bharara leaves the office of US Attorney for the Southern District celebrated for taking on corrupt and powerful politicians. Bharara prosecuted two of the infamous “three men in a room” who ran New York state: Sheldon Silver, the Democratic speaker of the assembly and Dean Skelos, the Republican Senate majority leader. He won convictions of a startling array of local politicians, carrying on the work of the Moreland Commission, an ethics inquiry created and then dismissed by New York’s Gov. Andrew Cuomo. (This weekend, Bharara cryptically tweeted that “I know what the Moreland Commission must have felt like,” a suggestion that he was fired as he was pursuing cases pointed at Trump or his allies.)

But the record shows that Bharara was much less aggressive when it came to confronting Wall Street’s misdeeds. President Obama appointed Bharara in 2009, amid the wreckage of the worst financial crisis since the Great Depression. He inherited ongoing investigations into the collapse, including a probe against Lehman Brothers. He also inherited something he and his young charges found more alluring: insider-trading cases against hedge fund managers. His office focused obsessively on those. At one point, the Southern District racked up a record of 85-0 in those cases. (Appeals courts would later throw out two prominent convictions, infuriating him and dealing blows to several other cases.)

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I know it’s George Friedman, but he’s right.

China’s Economic Miracle Is Over (Friedman)

Sustained double-digit economic growth is possible when you begin with a wrecked economy. In Japan’s case, the country was recovering from World War II. China was recovering from Mao Zedong’s policies. Simply by getting back to work an economy will surge. If the damage from which the economy is recovering is great enough, that surge can last a generation. But extrapolating growth rates by a society that is merely fixing the obvious results of national catastrophes is irrational. The more mature an economy, the more the damage has been repaired and the harder it is to sustain extraordinary growth rates. The idea that China was going to economically dominate the world was as dubious as the idea in the 1980s that Japan would. Japan, however, could have dominated if its growth rate had continued. Since that was impossible, the fantasy evaporates — and with it, the overheated expectations of the world.

In 2008, China was hit by a double tsunami. First, the financial crisis plunged its customers into a recession followed by extended stagnation, and the appetite for Chinese goods contracted. Second, China’s competitive advantage was cost, and they now had lower-cost competitors. China’s deepest fear was unemployment, and the country’s interior remained impoverished. If exports plunged and unemployment rose, the Chinese would face both a social and political threat of massive inequality. It would face an army of the unemployed on the coast. This combination is precisely what gave rise to the Communist Party in the 1920s, which the Party today fully understands. So, a solution was proposed that entailed massive lending to keep non-competitive businesses operating and wages paid. That resulted in even greater inefficiency and made Chinese exports even less competitive.

The Chinese surge had another result. China’s success with boosting low-cost goods in advanced economies resulted in an investment boom by Westerners in China. Investors prospered during the surge, but it was at the cost of damaging the economies of China’s customers in two ways. First, low-cost goods undermined businesses in the consuming country. Second, investment capital flowed out of the consuming countries and into China. That inevitably had political repercussions. The combination of post-2008 stagnation and China’s urgent attempts to maintain exports by keeping its currency low and utilize irrational banking created a political backlash when China could least endure it — which is now.

China has a massive industrial system linked to the appetites of the United States and Europe. It is losing competitive advantage at the same time that political systems in some of these countries are generating new barriers to Chinese exports. There is talk of increasing China’s domestic demand, but China is a vast and poor country, and iPads are expensive. It will be a long time before the Chinese economy generates enough demand to consume what its industrial system can produce.

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Greece has had capital controls for only 18 months or so.

Iceland Exits Capital Controls Eight Years After Banking Crash (BBG)

Iceland is back. The government at a hastily called press conference on Sunday in Reykjavik announced that effective Tuesday it will lift almost all of the remaining capital controls, allowing its citizens, corporations and pension funds full access to the global capital markets. The move ends an eight-year struggle to clean up after the 2008 banking collapse, which triggered the worst recession in more than six decades and enveloped the north Atlantic island of 340,000 people in political turmoil. Prime Minister Bjarni Benediktsson said this final step will “create more trust in the Icelandic economy,” with the most significant move being the removal of a requirement for businesses to return foreign exchange. “That will make direct foreign investment easier,” he said in an interview after the press conference.

The controls are being lifted as Iceland is booming, helped by a record surge in tourism. The economy is even at risk of overheating with money flowing back into the economy as the controls have been eased in steps. The economy last year surged 7.2%, driven by household spending and investments. Unemployment is down at about 3% and inflation is under control. The krona has rallied about 18% against the euro over the past year, in part as traders have been attracted to the nation’s higher interest rates. The government hopes these next moves will ease pressure on the currency to appreciate, according to Benediktsson. “We don’t have any exact hints as to what comes next,” he said. While pension funds have taken full use of exemptions that were granted in the past years, the public hasn’t rushed to invest abroad after other controls were eased, he said.

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In Britain, at least Steve gets invited. What good it will do is another matter.

Steve Keen Is In The House (YT)

This talk on whether we can avoid another financial crisis, and what caused the last one, was arranged by New City Agenda and held in a committee room of the House of Commons. I cover what caused the crisis (credit), why mainstream economics erroneously ignores credit, and the empirical data showing which countries face continued stagnation, and which countries face a future private debt crisis.

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Alcohol and politics?!

We Will All Need A Stiff Drink To Swallow Hammond’s Austerity (G.)

Yes, the Conservative party that for a long time believed the state had no role to play in industrial policy is now rediscovering the wheel – but has dismissed Michael Heseltine, who did not need to rediscover it. And the Treasury is placing great emphasis on the importance of “productivity” – ie the supply side of the economy – to provide the future growth on which higher living standards and tax revenues ultimately depend.

For the uncomfortable truth, underlined by the Office for Budgetary Responsibility, the Institute for Fiscal Studies and the Resolution Foundation last week, is that, after a splurge of consumer spending largely financed by borrowing, the outlook for real incomes is pretty bleak – indeed, there are already signs of a slowdown, and the OECD is forecasting economic growth this year of a mere 1.6%. And the OBR’s post-Brexit forecasts are frightening. But austerity in the public sector is set to continue. Let no one be in doubt: this was a policy choice on the part of George Osborne in 2010, and it is a policy choice now. Underlying it all is the Conservative party’s obsession with shrinking the size of the state and minimising the so called “tax burden” – a “burden” which helps to ensure we have decent hospitals, schools and infrastructure generally.

There can be little doubt that, on his own terms, the decision of Chancellor Lawson in the 1988 budget to bring the top rate of income tax down from 60% to 40%, and the basic rate from 27% to 25%, was what is known in the trade as a “game changer”. Total taxation as a proportion of national income has been around 34% in recent years. But when the economy is operating close to capacity, as the OBR believes it now is, in a decent society the ratio of taxation to national income should be considerably higher – even close to 40% – in order to provide decent public services. For all their conciliatory talk, May and Hammond are pursuing Osborne’s austerity policies. Meanwhile, although for all his efforts Osborne failed to achieve anything like a budget surplus for the nation, he has managed – while capitalising on the lecture circuit upon his experience in office – to achieve a healthy budget surplus for himself. Some people are shameless.

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Lame and empty.

No Proof Russia Disrupts UK Democracy, But They Can – Boris Johnson (RT)

Russia is planning to use “all sorts of dirty tricks” to meddle in the political life of European countries, British Foreign Secretary Boris Johnson warned, though he admitted there is “no evidence” that Moscow is actually involved in anything of the kind. “We have no evidence the Russians are actually involved in trying to undermine our democratic processes,” Johnson told British ITV’s Peston on Sunday show. “But what we do have is plenty of evidence that the Russians are capable of doing that,” he insisted adding that Russians “have been up to all sorts of dirty tricks.” Remarkably, Johnson made these statements just weeks before his visit to Russia, during which he will meet with his Russian counterpart, Sergey Lavrov. His visit would be the first made to Moscow by a British Foreign Minister in five years.

When asked what the UK’s approach to Russia should be now, he said that Britain needs to take “a twin-track approach” towards Russia. “As the prime minister has said, we’ve got to engage but we have to beware,” Johnson stated. Despite constantly saying there was solid proof that Russia had meddled in the affairs of other countries, such as by bringing down French TV stations and interfering in US elections, he failed to provide any concrete evidence to back his accusations. Johnson also implicated that Russia was involved in the situation in Montenegro, where a group of Serbian nationalists was arrested in October of 2016 suspected of planning to carry out armed attacks on the day of the country’s parliamentary elections.

The British Telegraph newspaper later reported that the group was sponsored and controlled by the Russian intelligence officers and had actually tried to stage a coup targeting its Prime Minister Milo Djukanovic with “the support and blessing” of Moscow. However, the paper’s report turned out to be based mostly on the assumptions of unidentified sources and Montenegrin Special Prosecutor for Organized Crime, Milivoje Katnic, confirmed that, despite the participation of several suspected “nationalists from Russia,” there was no “evidence that the state of Russia is involved in any sense.”

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Democracy, Transparency, EU.

Brussels Keeping 2015 Emergency Grexit Plan Locked Away (K.)

European Economic and Monetary Affairs Commissioner Pierre Moscovici has turned down a request from former Greek minister Anna Diamantopoulou for Brussels to make public the emergency plan it drafted in the summer of 2015 for the possibility of a Greek exit from the eurozone. Diamantopoulou, who also served as a European commissioner between 1999 and 2004, wrote to Moscovici earlier this year following a revival of Grexit speculation and asked for the plan to be published so Greeks could be aware of the dangers involved. However, Moscovici suggested in his response, which Diamantopoulou received a few days ago, that publishing the draft would simply fuel damaging speculation and would not be in the public interest as it would endanger financial, monetary and economic stability in Greece.

He also said that the document contains some highly sensitive issues. Parts of the plan, which is said to include emergency humanitarian aid for Greece, were discussed at the College of Commissioners in Brussels a few days before the July 5 referendum in 2015. “In our view, the public interest is best served when citizens know the whole truth about issues that affect their future,” Diamantopoulou, who now heads the Diktyo think tank, told Kathimerini. “When knowledge is absent, speculation, fear and populism flourish and we are left to watch the support for the euro wane day by day, while that for the drachma rises.”

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Japan’s leaders don’t admit failure easily.

Fukushima Evacuees Face ‘Forced’ Return As Subsidies Withdrawn (G.)

Thousands of people who fled the meltdown at the Fukushima Daiichi nuclear power plant six years ago will soon lose their housing subsidies, forcing some to consider returning despite lingering concerns over radiation in their former neighbourhoods. The measure, condemned by campaigners as a violation of the evacuees’ right to live in a safe environment, will affect an estimated 27,000 people who were not living inside the mandatory evacuation zone imposed after Fukushima became the scene of the worst nuclear accident in Japanese history. The meltdown in three reactors occurred after a magnitude-9 earthquake on 11 March 2011 triggered a powerful tsunami that killed almost 19,000 people along Japan’s north-east coast and knocked out the plant’s backup cooling system.

As a “voluntary” evacuee, Noriko Matsumoto is among those who will have their subsidies withdrawn at the end of this month, forcing them to make a near-impossible choice: move back to homes they believe are unsafe, or face financial hardship as they struggle on living in nuclear limbo. “Many of the other evacuees I know are in the same position,” Matsumoto said at the launch of Unequal Impact, a Greenpeace Japan report on human rights abuses affecting women and children among the 160,000 people who initially fled from areas near the plant. As of last month, almost 80,000 were still displaced. Matsumoto said: “They would still have to contend with high radiation if they returned, but the government is forcing them to go back by withdrawing housing assistance – that’s tantamount to a crime.”

At the time of the incident, Matsumoto was living with her husband and their two daughters in the city of Koriyama, 43 miles (70km) west of the stricken facility, well outside the area where tens of thousands of people were ordered to leave. Matsumoto initially stayed put, but three months later, with her youngest daughter, then aged 12, having nosebleeds, stomach ache and diarrhoea, she left her husband behind and took their children to Kanagawa prefecture, more than 150 miles south of Fukushima. She said: “The government is playing down the effects of radiation exposure … Yet people who don’t return to places like Koriyama after this month will be left to fend for themselves. They will become internally displaced people. We feel like we’ve been abandoned by our government.”

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They should help them, not detain. For what purpose, send them to Turkey?

Police Raid Athens Squats, Detain Dozens Of Refugees (K.)

Police raided squats in central Athens early on Monday, reclaiming properties and detaining dozens of undocumented migrants. In the first raid, officers entered a building on Alkiviadou Street which has been occupied since February. They transferred 120 migrants from the premises to the Aliens Bureau on Petrou Ralli Street. Police subsequently raided a building in Zografou which has been occupied by members of anti-establishment groups since 2012. Noone was in the building at the time of the raid but they started returning while police were on the premises and seven people were taken to the Athens police headquarters. Riot police units were stationed outside the squat buildings to prevent their reoccupation.

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Refugee issues will keep growing until we help rebuild their countries, and work for stability instead of collateral damage control.

What Would You Do To Keep Your Children Alive? (I’Cept)

Women and children from Central America began arriving at the U.S.-Mexico border in unprecedented numbers during the summer of 2014. Referring to the “urgent humanitarian situation,” President Barack Obama called on Congress to build new detention centers, hire new immigration judges, and increase border surveillance as tens of thousands of unaccompanied children were detained by U.S. immigration officials. At the same time, the United States backed a Mexican government initiative to increase patrols, detentions, and deportations along Mexico’s southern border. The idea was to stop Central Americans from getting into Mexico, let alone the United States. But the gang violence, kidnappings, and extortion sending families fleeing from the “Northern Triangle” comprising El Salvador, Honduras, and Guatemala hasn’t stopped.


People illegally cross the Suchiate River on the Mexico-Guatemala border – Alice Proujansky

The area has the highest murder rate in the world outside a war zone, and people are still coming to Mexico. Only now, as photographer Alice Proujansky documents, they are taking new routes and facing new dangers. “Entire families arrive with little more than backpacks,” Proujansky said. “Women and children are particularly vulnerable: increased enforcement on freight trains has driven migrants to ride buses and walk on isolated routes where they face robbery, assault, and sexual violence.”

Proujansky spent time with families who were hoping to receive asylum from Mexico. There are no reliable figures on how many people cross the border with Guatemala each year, which is still porous despite increased patrols. But between 2014 and the summer of 2016, Mexico detained 425,000 migrants, according to an analysis of government statistics by the Washington Office on Latin America, or WOLA, a human rights advocacy group. In that same time, only 2,900 people received asylum. Last year, there were some 8,700 applicants, of whom 2,800 have so far received protection. (In 2014, Mexico’s refugee agency had just 15 people to screen thousands of applications.)


Alice Proujansky

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Oct 072016
 
 October 7, 2016  Posted by at 7:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle October 7 2016
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G. G. Bain Katherine Stinson, “the flying schoolgirl,” Sheepshead Bay Speedway, Brooklyn 1918

IMF, Global Finance Leaders Fret Over Populist Backlash (R.)
Donald Trump Makes History With Zero Major Newspaper Endorsements (Yahoo)
The Great Debt Unwind: US Business Bankruptcies Soar 38% (WS)
Pound Falls 10% In ‘Insane’ Asian Trading Mystery (G.)
California Overtakes UK To Become ‘World’s Fifth Largest Economy (Ind.)
China’s Housing Boom Looks a Lot Like Last Year’s Stocks Bubble (BBG)
Deutsche Bank Mismarked 37 Deals Like Monte Dei Paschi’s (BBG)
14 US Senators Call for Criminal Investigation of Wells Fargo (AP)
Liar Loans Surge in Australia’s Red-Hot Housing Bubble (WS)
Risk and Volatility Cannot be Extinguished (CH Smith)
USA’s Day Of Reckoning – Hidden Secrets Of Money 7 (Mike Maloney)
Why Democracy Rewards Bad People (Mises Inst.)
Marine Le Pen Says EU Responsible For “Monstrous Chaos In Syria” (ZH)
Renzi Must Go If He Loses Italy Referendum, Five Star Rival Says (BBG)
This Greek Grandmother Could Win The Nobel Peace Prize (USA Today)
EU Launches Tough Border Force To Curb Refugee Crisis (AFP)

 

 

Bunch of losers.

IMF, Global Finance Leaders Fret Over Populist Backlash (R.)

World finance leaders on Thursday decried a growing populist backlash against globalization and pledged to take steps to ensure trade and economic integration benefited more people currently left behind. Their comments at the start of the IMF and World Bank fall meetings signaled frustration with persistently low growth rates and the surge of public anger over free trade and other pillars of the global economic system. The meetings are the first since Britain voted in June to leave the EU and U.S. billionaire Donald Trump secured the Republican presidential nomination with a campaign that attacked trade deals.

“More and more, people don’t trust their elites. They don’t trust their economic leaders, and they don’t trust their political leaders,” German Finance Minister Wolfgang Schaeuble said during an IMF panel discussion in Washington. “In the UK, everyone from the elites told the people, ‘don’t vote for a Brexit.’ But they did.” Schaeuble said Germany was trying to “hold Europe together” in the face of rising nationalism, and failure to do so would bode poorly for global economic cooperation. Last week, the World Trade Organization slashed its global trade volume growth forecast to the slowest pace since 2007, saying it expected it to rise just 1.7% this year, down from the 2.8% it forecast in April.

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Propaganda works. Until it doesn’t.

Donald Trump Makes History With Zero Major Newspaper Endorsements (Yahoo)

With just a little over a month until election day, Donald Trump has racked up zero major newspaper endorsements, a first for any major party nominee in American history. While newspaper endorsements don’t necessarily change voters’ minds, this year’s barrage of anti-Trump endorsements could actually move the needle come November, experts say. “It’s significant,” Jack Pitney, professor of government at California’s Claremont McKenna College, told TheWrap. “The cumulative effect of all these defections could have an impact on moderate Republicans.” Some conservative papers, which have endorsed Republicans for decades, are now breaking with tradition to endorse Hillary Clinton or, at the very least, urge their readers not to vote for Trump.

Several have taken a stand even at the expense of losing subscribers at a time when newspapers are barely staying afloat. Some papers have received death threats. But for a growing number of newspaper editorial boards, staying on the sidelines is no longer an option. The Dallas Morning News, which has endorsed every Republican nominee since 1940, was so appalled by the idea of a President Trump that it introduced its Clinton endorsement with this caveat: “We don’t come to this decision easily. This newspaper has not recommended a Democrat for the nation’s highest office since before World War II — if you’re counting, that’s more than 75 years and nearly 20 elections.”

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But today’s jobs report will be a big ray of sunshine. It’s election time, don’t you know.

The Great Debt Unwind: US Business Bankruptcies Soar 38% (WS)

Something funny happened on the way to the bank: In August, commercial and industrial loans outstanding at all banks in the US fell for the first time month-to-month since October 2010, which had marked the end of the collapse of credit during the Financial Crisis. In October 2008, the absolute peak of the prior credit bubble, there were $1.59 trillion commercial and industrial loans outstanding. As the Great Recession chewed into the economy, C&I loans plunged. Many of them were cleansed from bank balance sheets via charge-offs. But then the Fed decided what the US needed was more debt to fix the problem of too much debt, thus kicking off what would become the greatest credit bubble in US history. By July 2016, C&I loans had surged to $2.064 trillion, 30% above their prior bubble peak.

But in August, something stopped working: C&I loans actually fell 0.3% to $2.058 trillion, according to the Federal Reserve Board of Governors. That translates into an annualized decline of 3.8%, after an uninterrupted six-year spree of often double-digit annualized increases. Note that first month-to-month dip since October 2010. [..] The ugliest credit stories in terms of bonds, according to Standard & Poor’s Distress Ratio, are the doom-and-gloom categories of “Energy” and “Metals, Mining, and Steel.” Next down the line are two consumer-facing industries: brick-and-mortar retailers and restaurants.

But these metrics by credit ratings agencies are based on companies that are big enough to be rated by the ratings agencies and that are able to borrow in the capital markets by issuing bonds. The 18.9 million small businesses in the US and many of the 182,000 medium size businesses don’t qualify for that special treatment. They can only borrow from banks and other sources. And they’re not included in those metrics. But when they go bankrupt, they are included in the overall commercial bankruptcy numbers, and those numbers are getting uglier by the month. In September, US commercial bankruptcy filings soared 38% from a year ago to 3,072, the 11th month in a row of year-over-year increases, according to the American Bankruptcy Institute.

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Just a fat finger, or…? Most of the loss has been recuperated.

Pound Falls 10% In ‘Insane’ Asian Trading Mystery (G.)

A “fat finger” error by a trader or computerised chain reaction was thought responsible as the pound plunged to a new three-decade low during “insane” early trading in Asia on Friday – adding to the huge losses sterling had already suffered amid speculation that Britain is heading for a “hard Brexit”. The pound fell almost 10% at one point to US$1.1378, prompting confusion among traders who were struggling to identify any news or market event that could have been to blame. As the currency recovered to around $1.2415 there was speculation a technical glitch or human error had sparked a rash of computer-driven orders.

“What we had was insane – call it flash crash but the move of this magnitude really tells you how low the currency can really go,” said Naeem Aslam, chief market analyst of Think Markets, in a note. “Hard Brexit has haunted the sterling.” [..] The pound has fallen 13% against the dollar since Britain voted in late May to leave the EU, with its losses accelerated after Theresa May announced on Sunday that she would trigger Article 50 by next March, a move that would begin Britain’s formal exit from the EU. Sean Callow, senior currency strategist at Westpac, noted that sterling had been “on a precipice” since May’s declaration in a speech at the Conservative party conference. “I think we’ve underestimated how many people had money positions for a very wishy-washy Brexit, or even none,” he said.

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Falling pound meets bragging rights.

California Overtakes UK To Become ‘World’s Fifth Largest Economy (Ind.)

Kevin de Leon, the leader of the California Senate, has said the state of California is now the fifth largest economy in the world after UK’s vote to leave the EU. His comments came a day after the pound sterling hit a new 31-year low against the dollar as on-going fears over the consequences of a “hard” Brexit spooked traders. Speaking at an event celebrating the tenth anniversary of the California Global Warming solution Act, de Leon said: “As of this morning California is officially the 5th largest economy in the world. “We have created more jobs than the other top two job creators in the US, Florida and Texas, combined,” he added.

Economists tend to be wary of comparing the relative size of economies using volatile market exchange rates, generally preferring to use a Purchasing Power Parity measure which adjusts for differences in local purchasing power. However, according to the US Bureau of Economic Analysis, California’s GDP in 2015 was $2.46 trillion. This compares to a GDP of $2.36 trillion for the UK in 2016, at the current currency exchange rate of $1.27. In June, the state of California’s GDP surpassed France to become the sixth largest in the world on this measure.

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China can only go from bubble to bubble, or the game is up.

China’s Housing Boom Looks a Lot Like Last Year’s Stocks Bubble (BBG)

Tai Hui is experiencing deja vu. China’s surge in home prices reminds JPMorgan Asset Management’s chief Asia market strategist of last year’s stock market mania. Spiraling leverage and implicit state support are among the common denominators, he says. Shanghai property values jumped 31% in August from a year earlier, the latest data show. In 2015, a 60% rally in the city’s equities through June 12 was followed by a $5 trillion rout. Deutsche Bank warned last month that China’s housing market is in a bubble, while Goldman Sachs said this week it sees growing risks across the real estate industry. Home prices started to take off last year in the wake of the stock market crash after the governments eased curbs on property purchases.

In recent days, cities including Shenzhen have started re-imposing restrictions. “It’s similar to the equity market where if you let things loose, it just runs like a stallion,” said Hui. “And then you have to really rein it back, then it’s like an ice bucket challenge. So you go through this extreme heat and cold. That’s not particularly good for the economy because then you’re going through very aggressive investment cycles.” [..] Home prices started to climb after China eased mortgage policies and down-payment requirements in March 2015 to arrest what was then a slide in prices. New curbs, such as higher deposits to limits on the number of homes people can buy, are proving ineffective given the easy access homebuyers have to leverage, said Wee May Ling at Henderson Global Investors.

Medium and long-term new loans, mostly mortgages, totaled 529 billion yuan ($79 billion) in August, while aggregate financing jumped to 1.47 trillion yuan, helping fuel a 39% jump in property sales by value in the first eight months. Private investment in fixed assets, meanwhile, stalled at 2.1% for a second straight month in the January through August period, matching a record low. While HSBC says the overall level of China’s household debt remains low, Deutsche Bank said it sees “clear sign of a bubble” in property – one that will end in a major correction in two years’ time. Just like last year’s equity boom, China is using credit growth to boost the economy, Zhiwei Zhang, chief China economist at Deutsche Bank, wrote in a report on Sept. 28.

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It’s like Tony Soprano is running the banking system.

Deutsche Bank Mismarked 37 Deals Like Monte Dei Paschi’s (BBG)

Deutsche Bank, indicted for colluding with Banca Monte dei Paschi di Siena to conceal the Italian lender’s losses, mismarked the transaction and dozens of others on its own books, according to an audit commissioned by Germany’s regulator. Executives at Deutsche Bank arranged 103 similar deals with a total value of €10.5 billion ($11.8 billion) for 30 clients, according to the audit, a copy of which was seen by Bloomberg. The lender, Germany’s largest, adjusted the accounting of 37 of those trades in 2013, in addition to Monte Paschi’s, changing them from loans that had been kept off the books to derivatives, the audit said. The widespread use of a transaction that’s now the subject of a criminal case highlights the lender’s appetite for complexity at a time when the bank was expanding its fixed-income empire.

While Deutsche Bank has since cut risky assets and eliminated thousands of jobs to bolster capital, mounting legal costs have become a source of increasing concern to investors, driving shares to a record low. “Very complex deals prevent the market and regulators from properly understanding the state of a bank’s balance sheet, inhibiting proper regulatory monitoring and distorting market discipline,” said Emilios Avgouleas at the University of Edinburgh. The audit found that while Monte Paschi was the only client that used a transaction to “window dress” its books, Deutsche Bank didn’t correctly account for similar deals with banks from Italy to Indonesia made between 2008 and 2010. The report also said senior executives didn’t properly authorize the Monte Paschi trade, dubbed Santorini, or adequately review the transaction after receiving a subpoena from the U.S. Federal Reserve in 2012.

[..] Deutsche Bank and six current and former managers, including Michele Faissola, who oversaw global rates at the time, and Ivor Dunbar, former co-head of global capital markets, were indicted in a Milan court on Oct. 1 for the 2008 Monte Paschi transaction. Both were top deputies to former Deutsche Bank co-Chief Executive Officer Anshu Jain, and all three have left the company.

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What’s needed is a comprehensive investigation of the whole system. But by all means, start with Wells Fargo and Deutsche.

14 US Senators Call for Criminal Investigation of Wells Fargo (AP)

Fourteen senators are calling on the Justice Department to open a criminal investigation of Wells Fargo executives after revelations that bank employees opened millions of fake banks and credit card accounts. A bank teller who steals bills from a cash drawer is likely to face charges, the senators said in a statement, but “an executive who oversees a massive fraud that implicates thousands of bank employees and costs customers millions of dollars can walk away with a hefty retirement package and millions in the bank.” House and Senate hearings last month with Wells Fargo CEO John Stumpf “raised serious questions” that point to possible wrongdoing by Stumpf and other high-ranking executive, said the senators, all but one of them Democrats.

U.S. and California regulators have fined San Francisco-based Wells Fargo $185 million, saying bank employees trying to meet aggressive sales targets opened up to 2 million fake deposit and credit card accounts in customers’ names. Regulators said employees issued and activated debit cards and signed people up for online banking without permission. The abuses are said to have gone on for years, unchecked by senior management. In their letter, the senators urged Attorney General Loretta Lynch to hold Wells Fargo accountable as a corporation and also prosecute individual executives who may have broken the law. “Every time the Department of Justice settles a case of corporate fraud without holding individuals accountable, it reinforces the notion that the wealthy and powerful have purchased a higher class of justice for themselves,” the senators said.

The letter was led by Democratic Sen. Mazie Hirono of Hawaii and signed by 12 other Democrats, including Sens. Elizabeth Warren of Massachusetts, Jeff Merkley of Oregon and Patrick Leahy of Vermont. Warren and Merkley serve on the Senate Banking Committee, while Leahy is senior Democrat on the Judiciary Committee.

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Well, that’s a surprise!

Liar Loans Surge in Australia’s Red-Hot Housing Bubble (WS)

UBS Securities Australia reported today that about 28% of Australian mortgages issued in 2015 and 2016 are what we in the US have come to call “liar loans,” which played a big role in the housing boom and the collapse and subsequent bailout of the global financial system. Reality is the last phase of a housing bubble needs liar loans to keep going because buyers have to reach beyond their limits, and the only way to do this is lie now, or miss out forever on buying a home. Evidence that home buyers are lying about income, assets, expenses, and other things on their mortgage applications has been surfacing for a while, along with fears that this would eventually lead to a “Mortgage Meltdown.” The US-style mortgage fraud would be a “Nuclear Bomb” to Australia’s banks.

Hedge funds are betting on this meltdown by shorting the big four banks. But everyone else wants these bank stocks that dominate the Australian stock exchange to rise. They’re in everyone’s portfolio. And they’re all doing what they can to turn shorting the banks into a widow-maker trade. To get “hard evidence,” UBS Securities Australia and UBS Evidence Lab surveyed 1,228 Australians who’d taken out a residential mortgage in 2015 or 2016. Participants, who remained anonymous, were asked 63 questions. The survey was broad based, covering all states and territories in Australia. Given the size of the sample and broad spread of respondents we believe the results are representative of Australian mortgage borrowers. Conclusions based on the total sample have a potential sampling error of just ±2.71% at a 95% confidence level.

The resulting report, “Mortgages – Time for the Truth?” found that 28% of the respondents admitted that they’d lied on their mortgage application: • 21% claimed their applications were “mostly factual and accurate.” • 5% stated they were “partially factual and accurate”• 2% “would rather not say.” How many of these liar-loan applicants lied on the survey to hide their lies on the mortgage application? We don’t know. But the actual percentage of liar loans could even be higher, given the propensity of liar-loan applicants – just my hunch – to lie on surveys to cover their tracks.

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Fractals, swaps and central banks.

Risk and Volatility Cannot be Extinguished (CH Smith)

[..] while modern portfolio management is statistically based (all those “standard deviations” you always see referenced in quantitative analyses), the markets behave fractally. Fractals are known as the geometry of chaos, for they describe how seemingly stable systems can quickly, and unpredictably, degrade into chaos. But as Mandelbrot explains, “100-year floods” actually occur with startling regularity in all markets. Put another way: you cannot disappear all risk with fancy statistical models and credit default swaps, etc., that offload the risk onto others, i.e. counterparties. In other words, all you’re really doing is masking the risk-you’re not eliminating it. And in hiding the real risk, you are lulling the market participants into a pernicious choice architecture in which their willingness to take riskier and riskier actions is rewarded and encouraged, while caution is punished.

This is the Paradox of Risk: by masking risk behind assurances that the Fed has your back, the Federal Reserve is encouraging unwary investors to increase their exposure to risk without even being aware of the dangers. I covered the perverse consequences of believing risk can be “managed away to near-zero” in my book An Unconventional Guide to Investing in Troubled Times. This is how you get a total systemic collapse of the entire choice architecture. And by this I mean not just the financial markets, but the backstop provided by central banks. In a system that is now highly correlated to central bank policies, the idea that some counterparty will cover your losses is illusory. This is magical thinking: that when the system implodes, the counterparties will magically escape the highly correlated collapse.

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Mike is one of the few people who understands the importance of money velocity -and deflation- the way the Automatic Earth has talked about it for a long time. We’ve been in touch off and on for many years now, lots of mutual respect. I’m not focused so much on the ‘crisis as opportunity’ story though, since in my view it leaves too many people behind.

USA’s Day Of Reckoning – Hidden Secrets Of Money 7 (Mike Maloney)

History shows that once or twice in a generation a global crisis comes along that radically devastates people’s way of life. A fundamental shift so big and drastic and overwhelming that it destroys their standard of living and impacts every area of their lives. We are about to experience one of those events… As Mike Maloney outlines in his brand new episode of the Hidden Secrets of Money, that next major event is deflation. And the culprit will be a relatively obscure monetary term that will impact virtually every area of your life: money velocity. You may not know exactly what money velocity means, but we will all soon experience it firsthand. In fact, money velocity will be the culprit of not just deflation, but the resulting inflation—and maybe hyperinflation—that will immediately follow.

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Not applicable to all forms of democracy, but as I’ve often said, our systems self-select for sociopaths.

Why Democracy Rewards Bad People (Mises Inst.)

One of the most widely accepted propositions among political economists is the following: Every monopoly is bad from the viewpoint of consumers. Monopoly is understood in its classical sense to be an exclusive privilege granted to a single producer of a commodity or service, i.e., as the absence of free entry into a particular line of production. In other words, only one agency, A, may produce a given good, x. Any such monopolist is bad for consumers because, shielded from potential new entrants into his area of production, the price of the monopolist’s product x will be higher and the quality of x lower than otherwise. This elementary truth has frequently been invoked as an argument in favor of democratic government as opposed to classical, monarchical or princely government.

This is because under democracy entry into the governmental apparatus is free – anyone can become prime minister or president – whereas under monarchy it is restricted to the king and his heir. However, this argument in favor of democracy is fatally flawed. Free entry is not always good. Free entry and competition in the production of goods is good, but free competition in the production of bads is not. Free entry into the business of torturing and killing innocents, or free competition in counterfeiting or swindling, for instance, is not good; it is worse than bad. So what sort of “business” is government? Answer: it is not a customary producer of goods sold to voluntary consumers. Rather, it is a “business” engaged in theft and expropriation — by means of taxes and counterfeiting — and the fencing of stolen goods.

Hence, free entry into government does not improve something good. Indeed, it makes matters worse than bad, i.e., it improves evil. Since man is as man is, in every society people who covet others’ property exist. Some people are more afflicted by this sentiment than others, but individuals usually learn not to act on such feelings or even feel ashamed for entertaining them. Generally only a few individuals are unable to successfully suppress their desire for others’ property, and they are treated as criminals by their fellow men and repressed by the threat of physical punishment. Under princely government, only one single person – the prince – can legally act on the desire for another man’s property, and it is this which makes him a potential danger and a “bad.”

However, a prince is restricted in his redistributive desires because all members of society have learned to regard the taking and redistributing of another man’s property as shameful and immoral. Accordingly, they watch a prince’s every action with utmost suspicion. In distinct contrast, by opening entry into government, anyone is permitted to freely express his desire for others’ property. What formerly was regarded as immoral and accordingly was suppressed is now considered a legitimate sentiment. Everyone may openly covet everyone else’s property in the name of democracy; and everyone may act on this desire for another’s property, provided that he finds entrance into government. Hence, under democracy everyone becomes a threat.

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As referenced quite lost here before: it’s an uncomfortable feeling if the far right is the only voice to speak the truth. But make no mistake: it speaks loud and clear to the failure of the entire rest of the political system.

Marine Le Pen Says EU Responsible For “Monstrous Chaos In Syria” (ZH)

With the proxy war in Syria escalating dramatically on a day by day basis, with ideological support for the warring powers split along West vs Russia (and China) lines, one particular outlier in the “western world” emerged overnight when Marine Le Pen, leader of France’s National Front party and the frontrunner for the role of president in near year’s French elections, accused the EU of being responsible for the ongoing chaos in Syria. She added that Europe has been too busy trying to overthrow Assad while Russia was actually fighting terrorists.

“You’ve done everything to bring down the government of Syria, throwing the country into a terrible civil war, while accusing Russia which is actually fighting Islamic State. Your responsibility could not be concealed”, she said speaking at the European Parliament plenary session in Strasbourg on Wednesday. “You cannot hide your responsibility […] for plunging this part of the world into an absolutely monstrous chaos,” Le Pen said, alleging that policies advocated by both the United States and the EU had contributed to the state Syria is currently in, as well as neighboring Iraq.

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Brussels is getting very nervous about this: “If he manages to supplant Renzi he plans to hold his own referendum – on Italian membership of the euro area..”

Renzi Must Go If He Loses Italy Referendum, Five Star Rival Says (BBG)

Italian Prime Minister Matteo Renzi cannot wriggle out of his pledge to quit if he loses the country’s referendum on constitutional reform, his main rival said. Luigi Di Maio, a leader of the anti-establishment Five-Star Movement and deputy-speaker of the lower house, said Italy will have to hold elections “as soon as possible” if Renzi’s plans for reform are rejected by voters on Dec. 4. “I am sure that Italians will ask him to maintain that promise despite the fact he has changed his mind,” Di Maio said in an interview at Bloomberg’s Rome office on Wednesday. “If Italians vote “No,” Renzi must keep the promise.” The premier has repeatedly pledged to step down if he loses the referendum which he says is central to his plans to make Italy work again after years of stagnation.

Still, he has backtracked somewhat in recent interviews as surveys show the “No” camp edging ahead and investors concerns mounting. The 30-year-old from near Naples is already described as “prime minister-in-waiting” by newspapers like Corriere della Sera with Five-Star neck-and-neck with Renzi’s Democratic Party in opinion polls. If he manages to supplant Renzi he plans to hold his own referendum – on Italian membership of the euro area. “I’d also like to see a European referendum on the euro, to see other countries starting to talk about it,” Di Maio said. “I know this is very difficult but I don’t think the Europe we know today will be the one we will face when we’re in government in a couple of years’ time.”

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Bless these people, win or no win. They need no prize, simply do what must be done. And in Greece, there’s so much that must be done.

This Greek Grandmother Could Win The Nobel Peace Prize (USA Today)

Emilia Kamvysi is not the typical Nobel Peace Prize candidate. The 86-year-old is not a politician, activist or lawyer. Her days are simple and slow. Like other Greek retirees on the island of Lesbos off the Turkish coast, she cooks for her children and grandchildren, watches the evening news and sits on the bench with her neighbors gazing at the sea. Then her life changed. Along with two neighbors -aged 89 and 85- Kamvysi was sitting on a bench in February, helping out a Syrian refugee mother by feeding her child with a bottle. The photo went viral, and she and the two other grannies in the photo became symbols of Greek generosity toward the migrants who have fled to Europe in recent years.

Soon after, a group of Greek lawmakers, academics and others nominated the grandmother as well as Greek fisherman Stratis Valiamos and actress Susan Sarandon. A second nomination included the grandmother and local agencies. Both cited their humanitarian efforts for the refugees. This Friday, Kamvysi and her granny-corps will find out whether she’ll become an official laureate. “I wish that Greece wins this prize, not just me,” Kamvysi said, pledging if she wins to give her share of the $1.2 million prize to the decaying Greek healthcare system. She lives well enough now on a $360-per-month farmer’s-pension, she said. “What am I going to do with it anyway?” she asked. “There are many people that helped the refugees — the fishermen, the volunteers. It wasn’t just us. Those poor babies, escaping war and drowning in the waters. It’s such a shame. We’re all crying in the village whenever there’s a shipwreck.”

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The exact opposite of the grandmothers helping refugees. Military force against people fleeing military force.

EU Launches Tough Border Force To Curb Refugee Crisis (AFP)

The EU launched its beefed-up border force Thursday in a rare show of unity by the squabbling bloc as it seeks to tackle its worst migration crisis since World War II. EU officials inaugurated the new task force at the Kapitan Andreevo checkpoint on the Bulgarian-Turkish border, the main land frontier for migrants seeking to enter the bloc and avoid the dangerous Mediterranean sea crossing. The European Border and Coast Guard Agency (EBCG) will have at its disposal some 1,500 officers from 19 member states who can be swiftly mobilised in case of an emergency, like a sudden surge of migrants. Brussels hopes the revamped agency will not just increase security, but also help heal the huge rifts that have emerged between member states clashing over the EU’s refugee policies.

The long-term goal is to lift border controls inside the bloc and fully restore the passport-free Schengen Zone. “The new agency is stronger and better equipped to tackle migration and security challenges,” EBCG director Fabrice Leggeri said at the launch. The force will also conduct stress tests at the bloc’s external borders to “identify vulnerabilities before a crisis hits”, he added. EU Migration Commissioner Dimitris Avramopoulos hailed the launch as a “historical day for the European Union”. “From now onwards, the external EU border of one member state is the external border of all member states – both legally and operationally,” he said. “Countries like Bulgaria, Greece and Italy are still under pressure, but they are not alone.”

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Aug 042016
 
 August 4, 2016  Posted by at 8:04 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 4 2016
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G.G. Bain New York, suffragettes on way to Boston 1913

Is Deutsche as Dangerous to Financial Stability as Citigroup in 2008? (M2)
Pound Volatility Gauge Climbs as Traders Brace for BOE Rate Cut (BBG)
Britain Faces A Nasty Shock When The Global Energy Cycle Turns (AEP)
Cash Handouts Are Best Way To Boost Growth, Say Economists (G.)
Shock At The ATM: 1000s Of Supplementary Greek Pensions Cut By 21%-46% (KTG)
EU Trade Policy ‘Close To Death’ If Canada Deal Fails (Politico)
Reality of BC’s Foreign Buyers Tax Begins To Bite, Deals Collapsing (FP)
Morgan Stanley Discloses $3.21 Billion Italian Swaps Claim (BBG)
Tesla Loses $293 Million as Deliveries Fall Short, Expenses Rise (WSJ)
We’re Not Out of the Woods Yet (STA)
Justice Department Officials Objected to US Cash Payment to Iran (WSJ)
Julian Assange: The Untold Story Of An Epic Struggle For Justice (Pilger)
Court Throws Out Terrorism Conviction In Canada, Cites Police Entrapment (I’Cept)
Italy Adopts ‘Beautiful’ New Law To Slash Food Waste (BBC)

 

 

Martens and Martens. “..a year ago, Deutsche Bank’s stock closed at $34.88. Its share price at the open this morning was $12.56, a loss of 64% in one year’s time. But from June 1 of 2007, Deutsche Bank has lost a whopping 90% of its share value, right on par with Citigroup.”

Is Deutsche as Dangerous to Financial Stability as Citigroup in 2008? (M2)

Deutsche Bank is starting to resemble the financial basket case that Citigroup became in 2008, leading to Citigroup’s partial ownership by the U.S. government for a time and the bank requiring the largest taxpayer bailout in U.S. financial history. Citigroup’s teetering condition and its interconnectedness to other mega banks played a critical role in the Wall Street crash and collapse of the U.S. economy. That Deutsche Bank (which is highly interconnected to other major Wall Street banks and locked and loaded with tens of trillions of dollars in derivatives) is now showing the same kind of stresses as Citigroup back in 2008, raises the obvious question about just how effectively the Obama administration has reined in systemic financial risk after six years of reassurances that Dodd-Frank financial reform was getting the job done.

On this date a year ago, Deutsche Bank’s stock closed at $34.88. Its share price at the open this morning on the New York Stock Exchange was $12.56, a loss of 64% in one year’s time. But from June 1 of 2007, prior to the onset of the financial crisis, Deutsche Bank has lost a whopping 90% of its share value, right on par with Citigroup. As of this morning’s open, Deutsche Bank has a measly $17.32 billion in equity capital versus a portfolio of derivatives amounting to just shy of $50 trillion notional (face amount) as of December 31, 2015.


Systemic Risk Among Deutsche Bank and Global Systemically Important Banks (Source: IMF: “The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.”)

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Carney’s expected to announce desperate measures today.

Pound Volatility Gauge Climbs as Traders Brace for BOE Rate Cut (BBG)

A measure of overnight potential price swings for the pound against the dollar approached the highest closing level since Britain voted to leave the European Union in June as traders braced for the Bank of England’s policy decision Thursday, which most economists forecast will bring the first interest-rate cut in seven years. Sterling fell versus all but one of its 16 major peers as swaps pricing showed a 100% chance of a rate cut. While all except two of 52 analysts in a Bloomberg survey forecast a reduction, there are a suite of other measures, including an expansion of its bond-purchase program, which the BOE may adopt to tackle a Brexit-induced fallout which are more difficult to predict.

Some economists said they would not rule out the possibility that the BOE will keep its powder dry at this meeting, as it did in July, while awaiting a clearer economic picture. “There is quite a lot of speculation regarding what the BOE might do today, so the short-term volatility is to be expected,” said Mark Dowding, a London-based partner and money manager at BlueBay Asset Management. “We doubt the BOE would be opposed to the idea of the pound falling further as it would support the growth outlook, which is deteriorating markedly. We see the pound falling to $1.20 or lower by the end of the year.”

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Yes, Britain’s in for a bind. But energy is not Ambrose’s strong suit.

Britain Faces A Nasty Shock When The Global Energy Cycle Turns (AEP)

Britain’s energy industry is dying. While the US is striving for self-sufficiency in fuel and power as a primary goal of strategic security in a dangerous world, this country has acted with strange insouciance. We have let matters drift for so long that half of our nuclear reactors will be phased out over the next nine years with nothing ready to replace them. North Sea oil and gas is a spent reserve. Britain’s dependency on imported fuels and electricity has jumped from 17pc to 46pc since 2000. Energy is becoming a corrosive element in Britain’s current account deficit, now 6.9pc of GDP, and the scale of vulnerability has been masked by the slump in world energy prices. When the global fossil cycle turns – inevitable, given the $400 investment freeze in oil and gas projects over the last two years – Britain will face a national energy ‘margin call’.

The confluence of Brexit, a new government, and the review of the Hinkley Point nuclear plant have suddenly thrown open the debate on how the UK should power its economy. It is a dangerous moment, but also giddily fluid. As a summer exercise, I will float a few thoughts on how to seize this chance, open to suggestions from Telegraph readers for better ideas. My heterodox mix will satisfy nobody: it includes fracking a l’outrance, micro-nuclear and molten-salt reactors, more off-shore wind, a Norwegian-style push for electric vehicles by 2030, and a grand plan for carbon capture and storage to take advantage of Britain’s unique competitive advantage in this field and revitalize Northern industries.

There is no shortage of funds. Britain can borrow at 1.47pc for half a century, and it should do so without compunction as an investment stimulus to carry the country through the post-Brexit storm. Oil and gas fracking does not require public money anyway. Britain’s shale industry is already poised to drill, so that is where I will begin today.

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Including Steve Keen, David Graeber.

Cash Handouts Are Best Way To Boost Growth, Say Economists (G.)

Direct cash handouts to households would be a better way of boosting Britain’s flagging economy than the interest-rate cuts expected from the Bank of England on Thursday, according to a group of progressive economists. In a letter to the chancellor, 35 economists have urged Philip Hammond to ditch the approach that has been followed by the government since the recession of 2008-09 and give the Bank the right to try more radical options. The letter, to be printed in Thursday’s Guardian, suggests that the Bank should be allowed to create money to fund key infrastructure projects. Alternatively, the group says the Bank could pay for tax cuts or direct payments to households.

The letter states: “A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.” Threadneedle Street would need approval from the Treasury to adopt what the US economist Milton Friedman once described as “helicopter drops” of money on to the economy as a means of removing the threat of deflation. The nine members of the Bank’s monetary policy committee (MPC) will announce at midday how they plan to respond to the economic shock caused by the decision to leave the EU in the 23 June referendum.

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The rape of Greece continues.

Shock At The ATM: 1000s Of Supplementary Greek Pensions Cut By 21%-46% (KTG)

It was certainly a shock for thousands of Greek pensioners: beginning of August they saw their supplementary pensions to have undergone cuts from 21% up to 46%. Affected are 311,680 pensioners receiving pensions from 11 pension funds. The 3. bailout and the Pensions Reforms provided that if the sum of main and supplementary pension exceeds €1,300 gross, the supplementary pension has to be cut. The second wave of cuts to be implemented as of September will affect another 924,345 pensioners belonging to other pension funds.

The Pension Reforms ended up in throwing all pensioners in one bag and have them ‘share’ the available pension funds, although this is –first of all- “unfair” for the pensioners of the private sector. They have been loyally paying their social security contributions all through their work life, while the pensioners of the public sector have been paying much less and thus receiving disproportionately much more. Public servants who massively left service with early retirement of 25 years in 2010, they ended up receiving a pension amount equal to their salary – although it should have been much lower. Yes, it is unfair. And this is what I hear from more and more people form the private sector.

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100,000 TTiP protesters in Germany yesterday?!

EU Trade Policy ‘Close To Death’ If Canada Deal Fails (Politico)

One of the EU’s most senior officials has warned that the bloc’s trade policy will be “close to death” if it cannot ratify a landmark agreement with Canada. The alarm sounded by Jean-Luc Demarty, director-general for trade, is a sign of growing concern in Brussels that the European Commission is losing control over one of its core competencies in the face of surging public opposition to free trade. In a frustrating blow to the Commission, the member countries last month wrested the approval process for the trade deal with Canada away from Brussels. The accord will now require approval in Europe’s 38 national and regional parliaments, raising the specter of delays and even vetoes in assemblies ranging from Wallonia to Romania.

Demarty delivered his stark warning at the EU’s trade policy committee ahead of the summer break, according to people present at the confidential meeting. Most diplomats expect the Canadian deal to win the qualified majority required for provisional application at the Council. Notes from the July 15 meeting, seen by POLITICO on Monday, showed that Demarty warned that EU trade policy would have a “big credibility problem” if it could not ratify the deal. He then added that it would be “close to death.” Two other diplomats confirmed the remarks and added that this was now typical of Demarty’s tone on the subject. One observed that Demarty seemed “helpless.”

Traditionally, trade has been the blue-riband portfolio in Brussels, with national governments surrendering all of their powers to negotiate trade deals and impose tariffs to the Commission. But Brussels suffered a significant setback on July 5 when France and Germany unexpectedly insisted that a trade deal with Canada would have to be ratified by the EU’s 38 national and regional assemblies. That has left the Commission scrambling to rescue the deal and preserve its status as the biggest force in global trade.

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It’s healthy when bubbles burst. But painful too for some.

Reality of BC’s Foreign Buyers Tax Begins To Bite, Deals Collapsing (FP)

Realtors and lawyers desperate to get in under the deadline filed a record-setting 15,000 property transfer applications on Thursday and Friday, the last business days before B.C.’s punishing new 15-per-cent tax on foreign property buyers went into effect. More than 9,200 transactions were filed on Friday, breaking the 2007-2008 record of more than 8,400 in a single day, according to the B.C. Land Title and Survey Authority. It also reported over 5,800 transactions on Thursday, representing nearly as many deals registered at month’s end in April. The demand was so heavy that it crashed the land titles office’s electronic filing service on both days, the authority said.

Now, as a new dawn breaks in Metro Vancouver’s real estate market, realty companies and real estate boards are reporting the first anecdotes of deals falling through as foreign buyers forfeited deposits on binding deals rather than pay the new tax. And they report evidence of local buyers withdrawing offers in expectation that the market will soften. Elton Ash, executive vice-president of Re/Max Western Region, said it is too early to accurately quantify how many deals fell apart, but he’s heard from realtors in some of the company’s 30 Metro Vancouver offices of cases where foreign buyers who couldn’t rearrange previously negotiated closing dates have already walked away.

[..] Jonathan Cooper, vice-president of operations at MacDonald Realty, expects many cases to go to court because deposits are held in trust by realtors and usually can’t be released without a court order. “I think the next chapters in this story are going to be written by lawyers,” Cooper said. “There are going to be cases for sellers trying to get the deposit out of trust and maybe suing the buyer for specific performance trying to get them to complete, and/or for damages if they are not able to find a buyer at a similar price point.”

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“Across Italy, cities faced with shrinking income and rising expenses bought swaps from U.S. firms to cut short-term interest costs..”

Morgan Stanley Discloses $3.21 Billion Italian Swaps Claim (BBG)

Morgan Stanley said an Italian prosecutor may seek as much as €2.88 billion ($3.21 billion) over allegations that derivatives the investment bank sold more than a decade ago were improper and unfairly unwound. Italy’s Court of Accounts, the country’s state auditor, sent Morgan Stanley the proposed claim over derivatives created from 1999 through 2005 and terminated by 2012, the New York-based bank said Wednesday in a quarterly regulatory filing. Italy had paid Morgan Stanley $3.4 billion to unwind interest-rate swaps and options that had backfired, as it was cheaper than renewing the contracts, Bloomberg reported in 2012.

Mark Lake, a Morgan Stanley spokesman, said the proposed claim is groundless and that the bank will defend itself vigorously. Wall Street has been accused of duping municipalities with sophisticated and complex instruments. Some banks pitched the derivatives transactions as a way to save on borrowing expenses, but many ended up being costly for their government customers. Across Italy, cities faced with shrinking income and rising expenses bought swaps from U.S. firms to cut short-term interest costs, putting them at risk of paying more in the long run.

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Wonder when this bubble will burst. Tesla rides ‘green waves’ in more than one way.

Tesla Loses $293 Million as Deliveries Fall Short, Expenses Rise (WSJ)

Tesla Motors’s loss widened in the second quarter amid higher costs, but the company stuck to an ambitious plan that calls for building nearly 80,000 cars in 2016 and pulling forward a cheaper sedan aimed at the mass market. The Silicon Valley electric car maker’s report follows a tumultuous period capped by a traffic fatality related to the company’s semiautonomous Autopilot system. Regulators also dinged the company’s practice of having certain buyers sign nondisclosure agreements and the company faced continued questions about the quality of its Model X sport-utility vehicle.

Tesla, long known as a company that moves faster than traditional auto makers, plowed forward during the quarter. It announced its intention to combine with SolarCity Corp., which shares with Tesla Elon Musk as chairman. On Monday, the Tesla announced a firm deal with SolarCity valued at $2.6 billion.

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“..the next leg down in oil prices could be far more disruptive than most investors expect and it may not take much to trigger a major financial event.”

We’re Not Out of the Woods Yet (STA)

The risk of a global shock appears to be rising once again as (1) oil prices fall back into the $30s and (2) modestly improving US economic growth strengthens the case for a rising dollar. In addition to a likely revival in US rate hike expectations, growing foreign demand for US cash flows, or the prospect for more central bank easing abroad (both of which could drive the dollar higher), the world economy may already be nearing another breaking point as foreign central bank assets held at the Federal Reserve continue to fall on a year-over-year basis. Every time this measure has fallen below zero in the last fifty years, it has coincided with a major global event.

My suspicion is that oil producing countries (who officially flipped from current account surplus into current account deficit in 2015) are liquidating their US dollar assets to manage government budget shortfalls. With that in mind, the next leg down in oil prices could be far more disruptive than most investors expect and it may not take much to trigger a major financial event. We’re not aggressively betting on a crisis, but my colleagues and I on the STA Investment Committee continue to run conservative portfolios with an underweight to equities, and a focus on yield-oriented assets (like corporate bonds and preferred stocks) and defensive assets (like cash, gold, managed futures, and long-dated US Treasuries) while we wait for quality assets to go on sale.

If you’ve been paying attention to global markets this year, you are probably still scratching your head as to what fundamentally changed in early February. What pulled us back from the edge of a global crisis and set the stage for one of the most powerful reflations (ex earnings) in recent memory? What caused corporate credit spreads to collapse, crude oil to bottom, and the S&P 500 to scream higher? And, most importantly, is this a sustainable new trend? Or an epic bear trap? As regular FWIW readers may remember, I offered a hypothesis in mid-March – arguing that major central banks had begun to quietly intervene in foreign exchange markets – and I laid out a vision for 2016 as long as policy elites were able to keep the trade-weighted US dollar in a “goldilocks” trading range.

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Ronald Reagan Returns.

Justice Department Officials Objected to US Cash Payment to Iran (WSJ)

Senior Justice Department officials objected to sending a plane loaded with cash to Tehran at the same time that Iran released four imprisoned Americans, but their objections were overruled by the State Department, according to people familiar with the discussions. After announcing the release of the Americans in January, President Barack Obama also said the U.S. would pay $1.7 billion to Iran to settle a failed arms deal dating back to 1979. What wasn’t disclosed then was that the first payment would be $400 million in cash, flown in at the same time, as The Wall Street Journal reported Tuesday.

The timing and manner of the payment raised alarms at the Justice Department, according to those familiar with the discussions. “People knew what it was going to look like, and there was concern the Iranians probably did consider it a ransom payment,’’ said one of the people. The disclosures reignited a political furor over the Iran deal in Washington that could complicate White House efforts to fortify it before Mr. Obama’s term ends. Three top Republicans who have been feuding in recent weeks—presidential candidate Donald Trump, Sen. John McCain and House Speaker Paul Ryan—were united Wednesday in blasting the Obama administration.

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Excellent expose by John Pilger.

Julian Assange: The Untold Story Of An Epic Struggle For Justice (Pilger)

The siege of Knightsbridge is both an emblem of gross injustice and a gruelling farce. For three years, a police cordon around the Ecuadorean embassy in London has served no purpose other than to flaunt the power of the state. It has cost £12 million. The quarry is an Australian charged with no crime, a refugee whose only security is the room given him by a brave South American country. His “crime” is to have initiated a wave of truth-telling in an era of lies, cynicism and war. The persecution of Julian Assange is about to flare again as it enters a dangerous stage. From August 20, three quarters of the Swedish prosecutor’s case against Assange regarding sexual misconduct in 2010 will disappear as the statute of limitations expires.

At the same time Washington’s obsession with Assange and WikiLeaks has intensified. Indeed, it is vindictive American power that offers the greatest threat – as Chelsea Manning and those still held in Guantanamo can attest. The Americans are pursuing Assange because WikiLeaks exposed their epic crimes in Afghanistan and Iraq: the wholesale killing of tens of thousands of civilians, which they covered up, and their contempt for sovereignty and international law, as demonstrated vividly in their leaked diplomatic cables. WikiLeaks continues to expose criminal activity by the US, having just published top secret US intercepts – US spies’ reports detailing private phone calls of the presidents of France and Germany, and other senior officials, relating to internal European political and economic affairs.

None of this is illegal under the US Constitution. As a presidential candidate in 2008, Barack Obama, a professor of constitutional law, lauded whistleblowers as “part of a healthy democracy [and they]must be protected from reprisal”. In 2012, the campaign to re-elect President Barack Obama boasted on its website that he had prosecuted more whistleblowers in his first term than all other US presidents combined.

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The details are stunning, but at the same time familiar.

Court Throws Out Terrorism Conviction In Canada, Cites Police Entrapment (I’Cept)

Sting operations — in which an undercover agent or informant provides the means and opportunity to lure otherwise incapable people into committing a crime — have represented the default tactic for counterterrorism prosecutions since the 9/11 attacks. Critics believe these stings amount to entrapment. Human Rights Watch, for instance, argues that law enforcement authorities in the U.S. have overstepped their role by “effectively participating in developing terrorism plots.” Nonetheless, U.S. courts have rejected entrapment defenses, no matter how hapless the defendants. In Canada, however, the legal standing of counterterrorism stings has suddenly shifted.

Last week, a high-ranking judge in British Columbia stayed the convictions of two alleged terrorists, ruling that they had been “skillfully manipulated” and entrapped by an elaborate sting operation organized by the Royal Canadian Mounted Police. “The specter of the defendants serving a life sentence for a crime that the police manufactured by exploiting their vulnerabilities, by instilling fear that they would be killed if they backed out, and by quashing all doubts they had in the religious justifications for the crime, is offensive to our concept of fundamental justice,” the judge wrote. “Simply put, the world has enough terrorists. We do not need the police to create more out of marginalized people who have neither the capacity nor sufficient motivation to do it themselves.”

This is the first time that a counterterrorism sting — whose tactics were developed by the FBI through modifying those of undercover drug stings — has been thrown out of court whole cloth in Canada or the U.S. Supreme Court Justice Catherine J. Bruce was ruling in the case of John Nuttall and his common-law wife, Amanda Korody, two drug addicts who lived on the streets in British Columbia. As part of sting operation in which the RCMP paid at least 200 officers a total of more than $900,000 Canadian in overtime, law-enforcement agents encouraged the couple to place pressure-cooker bombs at the British Columbia parliament building on Canada Day 2013. As in FBI counterterrorism stings, RCMP provided Nuttall and Korody with everything they needed to become terrorists.

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Can we adopt this throughout the world please?

Italy Adopts ‘Beautiful’ New Law To Slash Food Waste (BBC)

Italy has passed into law a raft of new measures to try to reduce the mountain of food wasted in the country each year. The bill – backed by 181 Senators, with two against and 16 abstaining – aims to cut waste one million tonnes from the estimated five million it wastes each year. It has been heralded as “one of the most beautiful and practical legacies” of the Expo Milano 2015 international exhibition – which focused on tackling hunger and food waste worldwide – by Agriculture Minister Maurizio Martina. According to ministers, food waste costs Italy’s business and households more than €12bn per year. Studies suggest it could amount to more than 1% of GDP.

The problem is by no means confined to Italy. The UN Food and Agricultural Organisation (FAO) estimates that some one third of food may be wasted worldwide – a figure which rises to some 40% in Europe. “The food currently wasted in Europe could feed 200 million people,” the FAO says. It’s not the first time Italy has acted decisively over issues of hunger and food. Three months ago, its highest court ruled that stealing small amounts of food to stave off hunger was not a crime.

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