Apr 032017
 
 April 3, 2017  Posted by at 9:35 am Finance Tagged with: , , , , , , , ,  1 Response »


Paul Wolff Frankfurt Opera House 1934

 

‘Buy Property In Sydney And You’re ‘Pretty Well Set For Life’ (WS)
Sydney Property Prices Rise Almost 20% In Past 12 Months (G.)
Australia Sticks With Blunt Instruments To Battle Housing Bubble (R.)
A ‘Sleeping Beast’ In The Markets Is About To Be Unleashed – SocGen (BI)
Commercial Real Estate Is The Next ”Big Short” (F.)
Euro Is A ‘Knife In The Ribs’ Of The French Says Le Pen (R.)
ECB Leads The Cure For Euro-Pessimism (CNBC)
Scotland Yard Examines Allegations Of Saudi War Crimes In Yemen (G.)
Greek Households Spend €40 Less Per Month On Supermarket Purchases (KTG)
Greece To Accelerate Return Of Migrants To Turkey As Arrivals Pick Up (K.)

 

 

“Once you are in the Sydney housing market, you are pretty well set then for the rest of your life.”

‘Buy Property In Sydney And You’re ‘Pretty Well Set For Life’ (WS)

How far can a desperate government go to keep the whole overleveraged edifice of a housing bubble from tumbling down and doing God-knows-what to the economy and the banks? Australia is trying to find out. The housing bubble in Sydney and Melbourne, by now among the top in the world, is taking on grotesque proportions, not only in price increases, but also in political pronouncements. So much of the economy depends on this bubble that no politician can imagine bringing it down to earth. Prices for all types of homes in Sydney jumped 19% in March year-over-year, according to CoreLogic, with houses up nearly 20% and “units” (we’d call them condos) up 15%. Sydney’s home prices have nearly doubled since 2008. In Melbourne, overall home prices jumped 16%, with houses up 17%, and condos up 5%. The index for all dwellings in Canberra and Hobart also rose in the double-digits.

In Adelaide and Brisbane, prices rose in the mid-single digits. Perth and Darwin showed declines in the 4.5% range. The CoreLogic index is not based on sales pairs, such as the Case-Shiller index in the US, or on median prices, but on its own “hedonic methodology,” which, like the other two methods, has plenty of critics. The government has its own Residential Property Price Indexes. The latest edition, released on March 21, was for Q4 2016, so a little slow. Based on the median price, the index for Sydney jumped 10.3% and for Melbourne 10.8%. Real estate is highly leveraged, and household debt is at an all-time high. Wages even in Sydney haven’t risen at the same pace. So the inevitable is beginning to happen. Affordability becomes a political issue, and delinquencies become a financial issue.

[..] On February 24, Anthony Roberts, New South Wales Minister for Planning and Housing, was speaking at the launch of a 690-unit apartment development at Olympic Park, a suburb of Sydney, heaping praise on the developer for having committed to offer 60 units first to first-time buyers. A new policy on housing affordability would be announced in the “very near future,” Roberts said. But as a first step, he threw in an incentive for first-time buyers. Instead of the normal 10% down payment, they’d only need to make 5%. “This is the beginning, this is the start,” he said. And in hyping the Sydney housing market and the importance of getting in now or be priced out forever, he also said this: “This is about fairness, and this is about enabling people to get into the Sydney housing market. Once you are in the Sydney housing market, you are pretty well set then for the rest of your life.

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Get out while you can.

Sydney Property Prices Rise Almost 20% In Past 12 Months (G.)

Sydney property prices have increased by almost 20% in just 12 months, putting the city at the front of a nationwide trend that has seen dwelling values increase by 12.9% on average. Sydney house values soared by 19.65% in the past year, and unit values increased by 15.27%. New data from CoreLogic, released on Monday, shows house values in Melbourne (up 17.15%), Canberra (13.64%), and Hobart (11.05%) have followed Sydney’s rapid rise. Only homes in Perth (-4.68%) and Darwin (-4.41%) have bucked the trend, slipping backwards over the past year. CoreLogic’s five capital city aggregate – which includes Sydney, Melbourne, Brisbane and the Gold Coast, Adelaide and Perth – shows prices for houses and units rose 12.9% on average last year.

But the news comes as the ratings agency Moody’s warned an increasing number of borrowers have fallen behind on their mortgage and car repayments, saying more borrowers are set to join them amid rising underemployment, record-low wages growth and a more difficult housing market. On Monday, Moody’s said delinquencies for prime residential mortgage-backed securities increased to 1.61% in January, from 1.57% in December, while 30-day delinquencies for car loan asset-backed securities rose to 1.80%, from 1.54% over the same period. “Weaker economic conditions in states reliant on the mining industry, rising underemployment, weak wages growth and less favourable housing market conditions will drive delinquencies higher,” vice president and senior analyst Alena Chen said on Monday.

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More like no instruments at all: “..limit new interest-only loans to 30% of total new mortgage lending..”

Australia Sticks With Blunt Instruments To Battle Housing Bubble (R.)

In their struggle to cool red-hot property prices in Australia’s big cities, authorities are ratcheting up measures that could dent the whole market but avoiding more targeted steps that have had some success in New Zealand and China. Australian regulators first focused on reining in investment loans nationally in 2015, by imposing an annual limit of 10% on how much banks could expand their investor loan book. Those steps worked for a while, but the heat is on again in Sydney, where prices are rising almost 20% a year, having more than doubled since 2008, and Melbourne, where the pace is over 15%, according to property consultant Core Logic.

That and all-time high household debt prompted the Australian Prudential Regulatory Authority (APRA) to move again on Friday, asking banks to limit new interest-only loans to 30% of total new mortgage lending, from 40% now, and promising a lot of “monitoring”, “scrutinizing” and “observing”. Industry players doubt that will do the trick. “I personally don’t think this will have a material impact,” said Simon Orbell at mortgage broker Smartmove, as prices kept rising even though it was already a tough lending market. “Maybe more needs to be done,” he added. [..] There has been market speculation that the Reserve Bank of Australia will be forced to hike interest rates, a yet blunter instrument, though record low inflation and weak wages growth make that an unattractive option. There is also political resistance to measures that could make prices actually fall, with two thirds of households owning their homes.

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Too much uncertainty to unleash it.

A ‘Sleeping Beast’ In The Markets Is About To Be Unleashed – SocGen (BI)

The bond market has been quiet. Too quiet in fact. That’s about to change, says Societe Generale’s fixed income team led by Vincent Chaigneau. “Spring is likely to be more threatening for bond investors as US data improves, political risk in Europe ebbs and investors refocus on a slow central bank exits,” the team wrote in a note to clients on Thursday. The note is titled “The Sleeping Beast.” In the wake of the U.S. Presidential election, traders priced in the prospect that Donald Trump’s agenda of a protectionist trade policy, cutting taxes, rolling back regulations, and massive infrastructure would bring back inflation to the United States. Reflecting this, the yield on 10-year Treasurys rallied more than 80 basis points, reaching a high of 2.64%, in the weeks following the election.

But for the last few months, the yield has been trapped in a tight 35 basis point range as traders take a wait-and-see approach in regards to Trump’s ability to execute his proposed agenda. “We expect that to reverse in spring, especially if Trump proves a little more effective in pushing his agenda through Congress,” Societe Generale wrote. “Treasuries too present some seasonal patterns: the average of the past five years shows the 10yT reaching a low around mid-April before bearish forces start to take over.”

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America turns on the mall.

Commercial Real Estate Is The Next ”Big Short” (F.)

A small but growing group of hedge funds are positioning themselves to profit from the collapse of the real estate market. Sounds like 2007, right? It’s actually happening right now. But this time, hedge funds (along with Deutsche Bank and Morgan Stanley) aren’t targeting subprime mortgages—they’re going after commercial real estate. It’s no secret retailers and malls have been struggling for years, but it looks like the perfect storm is set to hit them in 2017. Bearish bets against commercial loans jumped 50% year-over-year in February—and with problems piling up for malls, it’s no wonder. Around $3.5 billion in retail loans were liquidated in 2016. Investment firm Gapstow Capital said losses on mall loans have been “meaningfully higher than in other areas.” This is because malls are reliant on retailers like Macy’s, J.C. Penny and Sears. Unfortunately for these landlords, their tenants’ businesses are failing, which brings us to…

As a result of falling sales, retailers are shutting up shop at a rate that has not been seen since the 2008 financial crisis.

…and they plan to close hundreds more over the coming years, which is very bad news for malls. Most malls are dependent on one or more of these big retailers. When anchor stores close, it reduces foot traffic, and that hurts other retailers. This begins a cycle of blight, leading other tenants to leave. Alder Hill (a hedge fund started by associates of billionaire David Tepper) is bearish on commercial loans and expects 2017 to be a “tipping point.” Morningstar Credit Ratings estimates roughly 40% of the loans due this year won’t be paid. This comes at a bad time for the industry. Commercial real estate prices have been on a tear since 2009, but with vacancies rising, prices have stagnated.

This, coupled with new rules that came into effect in December (which force banks to hold at least 5% of the loans they make on their books), has caused loan growth to stall. As a result, leading retail analyst Jan Rogers Kniffen expects around one-third of American malls to close in the coming years. So, what are the implications of this commercial collapse?

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But the French love the euro. Hard sell.

Euro Is A ‘Knife In The Ribs’ Of The French Says Le Pen (R.)

French presidential candidate Marine Le Pen told a political rally on Sunday that the euro currency which she wants France to ditch was like a knife in the ribs of the French people. The leader of the eurosceptic and anti-immigrant National Front (FN) also told the rally in the city of Bordeaux that the forthcoming election for president could herald a “change in civilization”. Encouraged by the unexpected election of Donald Trump in the United States and by Britain’s vote to leave the European Union, Le Pen hopes to profit from a similar populist momentum in France, though opinion polls suggest she will lose the May 7 run-off. “We are at the mercy of a currency adapted to Germany and not to our economy. The euro is mostly a knife stuck in our ribs to make us go where others want us to go,” Le Pen said to loud cheers and applause.

Reiterating her anti-globalization and anti-immigration views, she declared: “We do not want France to be open to all commercial and human flows, without protection and borders.” A government under Le Pen’s presidency would take France out of the euro zone and bring back a national currency, hold a referendum on its EU membership and slap taxes on imports and on companies hiring foreigners. Le Pen says she would curb migration, expel all illegal migrants and restrict certain rights now available to all residents, including free education, to French citizens. She hit out at her two main opponents in the French election, independent centrist Emmanuel Macron and conservative candidate Francois Fillon, saying they belonged to “the same system” “The system is panicking because it sees people are waking up,” she said.

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Draghi slays austerity?

ECB Leads The Cure For Euro-Pessimism (CNBC)

The euro-sclerosis and the euro-pessimism are only a few of the old neologisms that got a new lease on life thanks to “reformers” and “crisis managers” who devastated the euro area economy with their – take a deep breath – “austerity growth model,” consisting of deep public spending cuts, tax hikes, jobs-destroying structural reforms and a monetary policy that should look the other way. Predictably, the area’s economy took it on the chin and went down for the count, with millions of lives destroyed by soaring poverty and destitution – until the ECB stepped in to provide the antidote to that cruel nostrum and to begin a long process of healing and recovery.

The ECB’s intervention eventually stiffened the spines, and gave some oxygen, to scared and disoriented political leaders in France, Italy, Spain and Portugal – exactly one-half of the euro area’s GDP – who abandoned the fiscal madness and structural destruction to latch on to the life jacket thrown at them by their lender of last resort. The economic recovery we see now is a result of that policy mix. At 1.7%, the euro area growth last year matched the pace of the U.S. economy and seems poised for further gains in the months ahead. The ECB-driven recovery was also reflected in steadily rising asset values. As of last Friday, the euro area equity prices (Euro Stoxx 50 in dollar terms) were 17.3% above their year-earlier level, with nearly half of that increase (7.6%) recorded since the beginning of this year.

[..] France is the next political test with the first round of elections on April 23. Again, anybody betting against the euro and the EU will lose big. According to the French media, voters are largely indifferent toward the presidential candidates, but the economy is improving and low credit costs have unleashed a real estate boom that’s triggering solid consumer spending. The French are also great fans of the euro: An opinion poll published last Tuesday (March 25) shows that 75% of the French like the European currency, and half of them are pleased with the EU, although they believe that some of their neighbors were greater beneficiaries of the whole project. The French, of course, have Germany in mind. They are looking at Germany’s huge trade surpluses and the industrial takeover by the world-beating manufacturing companies across the Rhine.

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It should be investigating British war crimes.

Scotland Yard Examines Allegations Of Saudi War Crimes In Yemen (G.)

Scotland Yard is examining allegations of war crimes by Saudi Arabia in Yemen, the Guardian can reveal, triggering a possible diplomatic row with Britain on the eve of Theresa May’s visit to the Arab state. The Metropolitan police confirmed that their war crimes unit was assessing whether criminal prosecutions could be brought over Saudi Arabia’s devastating aerial campaign in Yemen. The force’s SO15 counter-terrorism unit revealed to a London human rights lawyer that it had launched a “scoping exercise” into the claims before Maj Gen Ahmed al-Asiri’s visit to the capital last week. The revelation comes as May plans to underline Britain’s close relationship with the Saudi royal family on her visit to the Arab state this week, in which tackling the terror threat from Islamic State will be a key factor.

Speaking in advance of the trip, in which she will also visit Jordan, the prime minister said she wanted to “herald a further intensification in relations between our countries and deepen true strategic partnerships”. She argued that the intelligence relationship with Saudi Arabia had been critical, potentially saving hundreds of lives in the UK, and claimed there were huge possibilities for closer trade links as the UK moves towards leaving the European Union. May plans to stress the need for collaboration in the wake of the Westminster terror attack, while also pledging humanitarian support to Jordan to help it handle the huge volumes of refugees displaced by the Syrian conflict.

But the trip comes under the shadow of a war in Yemen that has killed more than 10,000 civilians and displaced more than 3 million people. The Saudi-led coalition has been accused of killing thousands of civilians and triggering a humanitarian catastrophe in one of the region’s poorest countries. The UK, which along with the US supports the Saudis against the Houthis, has been urged to reconsider its arms exports to Saudi Arabia in light of the bloody air campaign.

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Austerity kills people and economies.

Greek Households Spend €40 Less Per Month On Supermarket Purchases (KTG)

A significant decrease of 13% has been recorded in the amount Greek households spend for daily purchases at the country’s supermarkets. This is the logical consequence caused by low wages, high unemployment rates and increased direct and indirect taxes. Factors that have lead to impoverishment of large groups of the Greek society. Worth mentioning are the extra charges (special consumption fees) imposed as of 1.1.2017 in a variety of supermarket products like coffee. Greek households spend monthly forty euros less for their shopping at the supermarket than in the previous year. The average monthly expenditure of households at the supermarket amounts to 274 euros from 310 last year.

According to research conducted by the Economic University of Athens, the expenditure decrease has been confirmed also by the turnover of the supermarkets. The decrease in sales was 10% in January 2017. The was a slight increase of 2.9% in February, but a serious decline of 15% in March. 63% of respondents said they buy fewer products. 45.8% said they restricted to what is necessary. At the same time, 54.4% said that buy cheaper products especially following a market investigation and that they chase discount offers and products of private label. 81.5% said that they compare prices before they decide which product they will pick up from the supermarket shelf.

99.2% of consumers stated that they do research before going to the supermarket, they know in advance what to buy and they avoid impulse purchases. 38% of respondents said that they would make fewer purchases in 2017, 5% that they will increase their purchases. 57% estimate that their purchases will remain unchanged. The average expenditure per supermarket visit remains almost unchanged. Expenditure in 2017 is at an average of €50.4 euros. It was at 49.5 euros in 2016. However, the frequency of visits has declined down to 6.8 visits per month from 8.5 visits last year.

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Yes, it can still get worse.

Greece To Accelerate Return Of Migrants To Turkey As Arrivals Pick Up (K.)

As the inflow of undocumented migrants to the islands of the eastern Aegean rises with the improving weather, the government is planning action to ease the pressure on increasingly overcrowded reception centers. In the coming days, Migration Minister Yiannis Mouzalas is expected to issue a circular, banning migrants who appeal against a rejection of their application for political asylum from a voluntary repatriation scheme being run by the International Organization for Migration (IOM). Meanwhile police on the islands are boosting efforts to locate and detain migrants who face deportation to Turkey in line with an agreement signed last year between Ankara and Brussels.

Last week, a new detention center opened on Kos, the function of which will be to detain migrants facing deportation. Others awaiting the outcome of asylum applications or inclusion in the IOM’s repatriation scheme are to remain in the island’s main reception center. A similar “closed” center for migrants awaiting deportation is operating on Lesvos. However, police face a problem on Chios, which has seen arrivals from Turkey intensify in recent days, and where local residents vehemently oppose the creation of such a center. A police official told Kathimerini that the main police precinct on the island is already full of migrants and there are no other facilities to accommodate new arrivals. “We don’t know what to do,” he said.

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Aug 192016
 
 August 19, 2016  Posted by at 9:51 am Finance Tagged with: , , , , , , , , ,  2 Responses »


Walker Evans Waterfront in New Orleans. French market sidewalk scene 1935

Paul Singer: Market ‘Breakdown’ To Be ‘Sudden, Intense, And Large’ (CNBC)
Vancouver Housing Market Implodes: Average Price Plunges 20% In 1 Month (ZH)
UK’s £8.8 Trillion Wealth Owes Much to Housing (BBG)
Moody’s Lowers Outlook On Australia Banks To Negative (R.)
China’s Secret Lists of Zombie Borrowers Leave Banks in the Dark (BBG)
As China Shrinks, Mongolia Has an Epic Economic Meltdown (BBG)
Stiglitz: The Euro Is On Course To Fail (Economist)
The Subtle Tyranny of Blockchain (Thomas)
It’s Time to Abolish the DEA and America’s “War on Drugs” Gulag (CHS)
The US Is Promoting War Crimes In Yemen (G.)
Greek Coast Guard Rescues Dozens Of Migrants Stuck On Islet (AP)
The Fishermen of Lesbos (Hakai)

 

 

“Experience doesn’t count for much, and extreme confidence may be fatal.”

Paul Singer: Market ‘Breakdown’ To Be ‘Sudden, Intense, And Large’ (CNBC)

In a bleak new letter to investors, Paul Singer’s Elliott Management warns that the bond market is “broken” and that when the central bank actions of recent years no longer ward off a market downturn, the subsequent loss of confidence could be severe. The fund’s recent investor letter, which covers the second quarter, notes that Elliott’s managers are currently seeing “what is in many ways the most peculiar period we have faced in 39 years.” Too much power has been ceded to central banks, the letter adds, the value of money has been debased, inflation is probably inevitable, and when it happens, it could be swift and impossible to tamp down.

Elliott is a $28 billion fund founded in 1977 by Singer, now its president. The fund is up more than 6% for the year through July, according to an investor. Given the persistence of low or negative yields on government and other bonds and the continued stampede to buy them nonetheless, today’s environment marks “the biggest bond bubble in world history,” and “the global bond market is broken,” the investor letter states. The letter discusses, at some length, the oddity of an investor mentality that flies to an asset class regarded as a “safe haven” even when there are low or nonexistent returns attached to it and no guarantee that current conditions will persist.

In one wry aside, the letter suggests a safety warning be attached to the $12 trillion government bond market now trading at negative yields: “Hold such instruments at your own risk; danger of serious injury or death to your capital!” Trading in this market is particularly difficult, it adds. “Everyone is in the dark,” Elliott notes. “Experience doesn’t count for much, and extreme confidence may be fatal.” Moreover, “the ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense, and large.”

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Coming soon to a theater near you. Denmark, Holland, Australia, New Zealand, UK, the list is long.

Vancouver Housing Market Implodes: Average Price Plunges 20% In 1 Month (ZH)

It appears that the Vancouver housing market has slammed shut. Which is hardly a surprise: virtually everyone saw it coming, the only question was when. Eilers says he’s been warning of a real estate slow-down for at least a year due to the region’s unsustainable and unsupportable prices. West Vancouver, where he does a large part of his business, had a benchmark detached home price of almost $3.4 million in July according to the Real Estate Board of Greater Vancouver. “The market in West Van is up 450 per cent since 2001. So is everyone making 600 per cent more income than they were so they can pay their taxes and buy their houses? Of course not. So how is this inflation been financed? By off-shore money and record debt.”

Precisely what we said at the start of the year when we first heard horror stories about Chinese buyers paying cash, sight unseen, for any and every local luxury, and not so luxury home. It appears that it is not just the 15% luxury tax implemented on on July 25 that has burst the bubble: according to Eilers sales were dropping even before the tax. According to the data, July was another slow month in West Vancouver with only 44 sales, down from 80 in 2015. June saw 74 sales, also down from 102 the year before. The pattern has left the market “devastated”, Eilers adds. While it may be too early to make a definitive conclusion, after all while earlier this month, the REBGV released its statistics for the month of July, saying the data showed the market had slowed down to “normal levels”, there was still no official August data available, and thus no actual indication of the slowdown.

Fortunately for buyers, real-time data proves otherwise. Zolo, a Canadian real estate brokerage, keeps track of MLS home sales in real-time and reports prices as an average rather than the “benchmark price” used by the REBGV. It currently shows a major correction underway in most Metro Vancouver markets. According to the website, the City of Vancouver currently has an average home price of $1.1 million, down 20.7% over the last 28 days and down 24.5% over the last three months. The average detached home is $2.6 million, down 7% compared to three months ago.

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What a bubble looks like. This is going to be painful. Re: Vancouver.

UK’s £8.8 Trillion Wealth Owes Much to Housing (BBG)

The total net worth of the U.K. at the end of 2015 was £8.8 trillion ($11.6 trillion), the Office for National Statistics said in London on Thursday. Much of the £493 billion jump from a year earlier came from the £355 billion increase in the value dwellings. The data also showed the U.K. was ahead of other G-7 countries in terms of growth of non-financial assets in 2014.

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More housing shock, more pain to come. “The strong price appreciation of residential real estate has been driving an increase in household debt to a record high..”

Moody’s Lowers Outlook On Australia Banks To Negative (R.)

Moody’s has lowered its outlook on Australia’s banks to negative from stable, warning of sluggish profit growth due to slow wage increases, record-low interest rates, strong lending competition and rising household debt. The agency said the banks, whose credit ratings are among the highest in the world, could be hurt by an increase in problem loans among mining companies and households in mining-dependent states. Moody’s action came after S&P in July also placed major Australian banks’ AA- ratings on negative outlook, in a signal that a downgrade was possible. Both agencies rate the banks one rung below the highest, triple-A, investment grade. A downgrade would make financing more expensive for banks at a time when regulators want them to put aside more cash to weather any repeat of the global financial crisis.

Australia’s highly profitable “Big Four” banks – National Australia Bank, ANZ Banking Group, Westpac and Commonwealth Bank – emerged from the financial crisis relatively unscathed but are facing questions over their capital levels, slowing earnings growth and rising bad debts. “The outlook change reflects Moody’s expectation of a more challenging operating environment for banks in Australia for the remainder of 2016 and beyond,” Frank Mirenzi, a vice president and senior analyst at Moody’s, said in a statement. He noted that profit growth could slow and asset quality decline, and make banks and consumers more vulnerable to economic shocks. “The strong price appreciation of residential real estate has been driving an increase in household debt to a record high,” Mirenzi noted.

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China would collapse if not for the shadow banks. It’s fully addicted.

China’s Secret Lists of Zombie Borrowers Leave Banks in the Dark (BBG)

There’s a list Ni Baixiang, head of Industrial & Commercial Bank of China’s Jiangxi branch, would love to get his hands on. Commonly referred to as the “zombie list,” it’s compiled by Jiangxi regional authorities and holds the names of the most deadbeat of borrowers: state-owned companies deemed too weak to survive and destined to be wound down. In short, the kind of enterprises banks already weighed down by rising bad loans want to steer well clear of. Only, neither Ni nor his competitors in Jiangxi are allowed to know who they are. “They won’t tell us because if we know, we’ll lose confidence,” Ni, whose bank is China’s largest, told reporters after a press briefing in Beijing earlier this month.

Ni’s dilemma underscores the challenge China faces as it tries to stem a tide of bad loans while carrying out an orderly restructuring of a state corporate sector burdened by overcapacity and bloated bureaucracies. Several provincial governments are withholding information on zombie borrowers from banks for fear that they’ll cut off financing immediately, according to officials who asked not to be identified. In several provinces, government-compiled lists of zombie companies are also kept secret from local banking regulators, the people said, asking not to be named discussing sensitive information. Knowing which state-owned companies get the “zombie” designation can be crucial for bankers because authorities ultimately decide whether they’ll fail, and local officials often meddle in banks’ lending decisions.

An economy growing at the slowest pace in a quarter century is adding urgency to President Xi Jinping’s push to steer China away from the investment-led model it’s relied on in the past. A key part of that is restructuring industries saddled with overcapacity, such as steel, cement and coal. McKinsey estimates that shedding surplus industrial capacity could add $5.6 trillion to the economy between now and 2030.

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China’s making up the numbers it goes along, but here’s how we find out how it’s really doing.

As China Shrinks, Mongolia Has an Epic Economic Meltdown (BBG)

Back in 2008, Mongolia honored its revered national hero Genghis Khan with an enormous, stainless steel statue on the bank of the Tuul River about a half-hour’s drive outside of the capital of Ulaanbaatar. The 13th century conqueror’s name graces the capital’s international airport and his image is also plastered on the tugrik, the local currency. Right now, Khans aren’t getting much respect. The government, having burned through much of its foreign currency reserves, faces a crushing debt burden and is having trouble meeting its civil service payroll. On Thursday, the central bank hiked its benchmark interest rate by a remarkable 4.5 percentage points to 15% to prop up the tugrik, the world’s worst performing currency in August.

Mongolia, a mineral-rich and landlocked $12 billion economy bordering Russia and China, is staring at a full-blown balance of payments crisis. It’s caused barely a ripple in global financial markets, but the nation’s economic meltdown offers instructive lessons to far bigger resource-reliant economies like Brazil, Venezuela, Russia and Saudi Arabia. This is an economy that gives new meaning to what economists call the resource curse. An overabundance of natural resources can result in lopsided economic growth, government waste and boom-bust cycles that can leave a country’s finances in tatters. “Mongolia should be much richer than it is,” said Lutz Roehmeyer, a money manager at Landesbank Berlin Investment. “There is nowhere else in the world where it is so easy to dig up resources without any problems and sell the commodities to China with such low transportation costs.”

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It’s way too late to save the euro.

Stiglitz: The Euro Is On Course To Fail (Economist)

Those in search of an antidote to the anxieties that arise from Britain’s vote to leave the European Union should avoid the latest book from Joseph Stiglitz. Its subject is the euro, which has hitherto been the main font of fears for Europe and (his analysis suggests) will soon be once again. It is a meaty subject, suited to a big-name economist. Mr Stiglitz has won a Nobel prize, served as a feather-ruffling chief economist for the World Bank and written several books with a fair claim to prescience, notably, “Globalisation and Its Discontents”, published in 2002. The main argument of his new book is that, on its current course, the euro is certain to fail—and indeed, that it was fatally flawed from birth.

It entails a fixed exchange rate and a single interest rate for its members, which means countries must forgo the option to devalue in times of economic weakness. To make up for that loss, the euro’s architects should have created institutions, such as jointly issued bonds, mutual backing of bank deposits and a common fund for unemployment insurance, so the costs of righting each economy are shared. Instead the burden falls on individual countries through austerity policies, such as tax rises and wage cuts. The results have been ugliest in Greece, where national income has shrunk by a quarter since 2007 and where the unemployment rate is 24%. There is still time to put in place better policies, thinks Mr Stiglitz. But an amicable divorce would be preferable to the current situation, which puts the considerable achievement of European integration at risk.

A good chunk of the book is taken up with a critique of policymakers’ efforts to address the euro crisis. Mr Stiglitz rightly takes issue with the blame-the-victim analysis of the euro’s failings that is commonly heard in Germany. The persistent trade surpluses of Germany and the vast deficits of boomtime Spain, Portugal and Greece are two sides of the same coin. Indeed, in a world short of aggregate demand, German thrift is the bigger failing, argues Mr Stiglitz. He favours the remedy, first proposed by John Maynard Keynes, of forcing creditor countries to adjust by taxing their trade surpluses.

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“In any protocol, everyone has to act the same. But in a blockchain like Ethereum, everyone has to think the same.”

The Subtle Tyranny of Blockchain (Thomas)

The past months have become a new chapter in the evolution of blockchain technology. Ethereum’s fork in the wake of the DAO hacks. Bitcoin’s almost-fork in the wake of the (still unresolved) block size debate. All of this is leading to the growing frustration and even disillusionment of key figures in the crypto-currency community. I left the Bitcoin community in 2012 for very similar reasons. In 2011, I was part of the group that helped Gavin Andresen design the Pay-to-Script-Hash (P2SH) feature. The design wasn’t very complex, it was backwards-compatible and provided crucial building blocks for improving Bitcoin’s security and performance. Unfortunately, getting it deployed turned out to be very political.

It was easy to extrapolate from this change to more advanced functionality still on the roadmap and get depressed about our chances to make important progress in the future. As the Bitcoin price rose, the number of stakeholders expanded and the amount of money at stake increasingly dominated the technical discussion. With this context in mind, the recent situation with Ethereum is not surprising in the slightest. As a blockchain grows, the larger and highly vested userbase becomes more and more difficult to shepard. When combined with time pressure (i.e. the 27-day DAO split creation period), something had to give. There wasn’t enough time to get the sort of buy-in and preparation needed to safely hardfork a system like Ethereum.

At the root of the difficulty in updating blockchains is the need to maintain shared state. In any protocol, everyone has to act the same. But in a blockchain like Ethereum, everyone has to think the same. Everyone’s memory (also known as “state” in computer science terms) has to be exactly the same and evolve according to the same rules. Shared state adds tremendous complexity and that has a big impact on developers: Blockchains are a pain to work with. Everyone who has done it knows what I’m talking about. The fact that blockchain has been largely ignored by major tech companies and embraced by the financial industry is partly because that industry has a relatively high tolerance for arcane and complex systems.

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To once again quote Michael Moore: You can’t declare war on a noun.

It’s Time to Abolish the DEA and America’s “War on Drugs” Gulag (CHS)

It’s difficult to pick the most destructive of America’s many senseless, futile and tragically needless wars, but the “War on Drugs” is near the top of the list.Prohibition of mind-altering substances has not just failed–it has failed spectacularly, and generated extremely destructive and counterproductive consequences. What was the result of the Prohibition of alcohol in the 1920s? Prohibition instantly criminalized 40+% of the adult populace and created hugely profitable criminal organizations. What was the result of the “War on Drugs”? This modern-day Prohibition instantly criminalized large swaths of the adult populace and created hugely profitable criminal organizations. If you want to increase drug use, criminalize innocent citizens and spawn gargantuan criminal organizations, then by all means declare “war” via Prohibition.

The results of Prohibition/War on Drugs are so visibly perverse and so destructive that the entire enterprise is sickeningly Orwellian. The well-paid apologists for Prohibition/War on Drugs claim that imprisoning millions of people “helps” them avoid drugs. If you think being tossed in prison for a few years “helps” people, then step right up and accept a fiver (5-year sentence) in an American prison, which is essentially a factory that produces one product: people damaged by imprisonment, deprived of their full citizenship, hobbled by a felony conviction–ex-con beneficiaries of years of tutorials by hardened criminals. This is as Orwellian as the Vietnam War’s famous “It became necessary to destroy the town to save it.”

If you think throwing millions of people in prison “helps” them or society, you are either insane or you’re making a living in the gulag or our sick system of “justice”. If you don’t think America has a “War on Drugs” Gulag, please glance at this chart of Americans in jail and prison – many for drug-related offenses:

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“..inside Yemen this is not perceived to be a Saudi bombing campaign, this is a US bombing campaign..”

The US Is Promoting War Crimes In Yemen (G.)

Saudi Arabia resumed its appalling war in Yemen last week and has already killed dozens more civilians, destroyed a school full of children and leveled a hospital full of sick and injured people. The campaign of indiscriminate killing – though let’s call it what it is: a war crime – has now been going on for almost a year and a half. And the United States bears a large part of the responsibility. This US-backed war is not just a case of the Obama administration sitting idly by while its close ally goes on a destructive spree of historic proportions. The government is actively selling the Saudis billions of dollars of weaponry. They’re re-supplying planes engaged in the bombing runs and providing “intelligence” for the targets that Saudi Arabia is hitting.

Put simply, the US is quite literally funding a humanitarian catastrophe that, by some measures, is larger than the crisis in Syria. As the New York Times editorial board wrote this week: “Experts say the coalition would be grounded if Washington withheld its support.” Yet all we’ve heard is crickets. High-ranking Obama administration officials are hardly ever asked about the crisis. Cable television news has almost universally ignored it. Both the Clinton and Trump presidential campaigns have been totally silent on this issue despite their constant arguing over who would be better at “stopping terrorism”. Beyond the grotesque killing of civilians, it’s clear at this point that the Saudis’ bombing campaign has also boosted al-Qaida in the Arabian Peninsula (Aqap) to a level which Reuters described as “stronger and richer” than anytime in its 20-year history.

Jake Tapper commendably broke the television news blackout about Yemen on his CNN show on Wednesday. Senator Chris Murphy of Connecticut, one of the very few elected representatives talking about the crisis, told Tapper that “it’s wild to me” that the Congress isn’t debating the “unauthorized” war in Yemen. The Saudis “could not do it without the United States”, he said. “We have made the decision to go to war in Yemen” – against Saudi Arabia’s enemies, not ours – without any debate. “If you talk to Yemenis, they will tell you that inside Yemen this is not perceived to be a Saudi bombing campaign, this is a US bombing campaign,” Murphy continued. “What’s happening is we are helping to radicalize the the Yemeni population against the United States.”

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Not from Turkey. Lybia is more likely.

Greek Coast Guard Rescues Dozens Of Migrants Stuck On Islet (AP)

Greece’s coast guard rescued dozens of migrants Friday whose boat ran aground on a deserted islet off the coast of southwestern Greece, hundreds of miles from the usual entry point of migrants into the European Union nation. The boat carrying about 70 people ran aground overnight on the tiny islet of Sapientza, off the southwestern tip of the Peloponnese, the coast guard said. The vast majority of migrants reach Greece’s eastern Aegean islands a few miles from the Turkish coast.

Coast guard vessels picked up the migrants Friday morning, ferrying them to the mainland where they were to be registered. It was not immediately clear what type of boat they had been on, where they had set sail from or where they had been sailing to. Separately, government figures showed 261 migrants or refugees arrived on Greek islands in the 24 hours from Thursday morning to Friday morning – a jump compared to recent figures, which had ranged from a few dozen to about 150 per day. Of those who arrived in the last 24 hours, the vast majority – 139 people – reached the eastern Aegean island of Lesvos. The rest arrived on Chios, Samos, Leros and Karpathos.

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Endearing.

The Fishermen of Lesbos (Hakai)

The Greek island of Lesbos is at the forefront of the refugee crisis as boatload after boatload of men, women, and children fleeing conflict in Syria, Iraq, Afghanistan, and elsewhere arrive on its shores. While citizen volunteers, NGOs, and governments claim much of the spotlight for rescue and recovery efforts, local people—especially those most experienced on the water—play a vital role, even at risk to their livelihoods and, perhaps, personal health. Greek video journalist Nikolia Apostolou introduces us to Lesbos fishermen on the front lines.

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