Aug 062018
 
 August 6, 2018  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , , ,  


Vasily Polenov Étretat 1874

 

Stock Market Manias of the Past vs the Echo Bubble (Tenebrarum)
US Bond Market Takes Looming Treasuries Deluge In Stride (R.)
America 10 Years After The Financial Crisis (NYMag)
Nassim Taleb: ‘No One Who Caused The Crisis Paid Any Price’ (ST)
Fears Of A ‘Car-Crash Brexit’ Make Life Difficult For Mark Carney (G.)
Rich, Reckless Brexit Zealots Are Fighting A New Class War (G.)
Saudi Expels Canadian Envoy, Recalls Its Own Over ‘Interference’ (AFP)
Chinese State Media Slams Trump For ‘Extortion’ In Trade Dispute (R.)
Wells Fargo Blames Computer Glitch For Customers Losing Homes (Hill)
Russian Gas Is A Problem For Germany (R.)

 

 

Buybacks prop up ever weaker stocks.

Stock Market Manias of the Past vs the Echo Bubble (Tenebrarum)

The diverging performance of major US stock market indexes which has been in place since the late January peak in DJIA and SPX has become even more extreme in recent months. In terms of duration and extent it is one of the most pronounced such divergences in history. It also happens to be accompanied by weakening market internals, some of the most extreme sentiment and positioning readings ever seen and an ever more hostile monetary backdrop. The above combination is consistent with a market close to a major peak – although one must always keep in mind that divergences can become even more pronounced – as was for instance demonstrated on occasion of the technology sector blow-off in late 1999 – 2000.

Along similar lines, extremes in valuations can persist for a very long time as well and reach previously unimaginable levels. The Nikkei of the late 1980s is a pertinent example for this. Incidentally, the current stock buyback craze is highly reminiscent of the 1980s Japanese financial engineering method known as keiretsu or zaibatsu, as it invites the very same rationalizations. We recall vividly that it was argued in the 1980s that despite their obscene overvaluation, Japanese stocks could “never decline” because Japanese companies would prop up each other’s stocks. Today we often read or hear that overvalued US stocks cannot possibly decline because companies will keep propping up their own stocks with buybacks.

Of course this propping up of stock prices occurs amid a rather concerning deterioration in median corporate balance sheet strength, as corporate debt has exploded into the blue yonder (just as it did in Japan in the late 1980s). The fact that an unprecedented number of companies is a single notch downgrade away from a junk rating should give sleepless nights to fixed income and stock market investors alike – as should the oncoming “wall of maturities”. A giant wall of junk bond maturities is looming in the not to distant future. Unless investors remain in a mood to refinance all comers, this threatens to provide us with a spot of “interesting times”. Something tells us that “QT” could turn into a bit of a party pooper as the “Great Wall” approaches.

It should also be mentioned that past stock market peaks as a rule coincided with record highs in buybacks. This indicates that record highs in buybacks are mainly a contrarian indicator rather than a datum providing comfort at extreme points. Of course, what actually represents an “extreme point” can only ever be known with certainty in hindsight, as extremes tend to shift over time – particularly in a fiat money system in which the supply of money and credit can be expanded willy-nilly. What can be stated with certainty is only whether the markets are entering what we would call dangerous territory.

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But the Fed is retreating.

US Bond Market Takes Looming Treasuries Deluge In Stride (R.)

U.S. government debt supply will likely continue to boom, but bond market investors seem to be taking it in stride. The Treasury Department is having to sell more debt to finance the government’s ballooning deficit, stemming from the massive federal tax overhaul in December and the spending deal passed in February. Still, bond yields have remained in a narrow range, suggesting investors may not be fretting about the swelling debt supply. “There will be no relief from supply especially from bills going into October,” said Tom Simons, money market strategist at Jefferies & Co in New York. Supply is expected to run high at least until the Treasury provides updated forecasts on its borrowing needs, next due in November – and might even accelerate further.

This week, the Treasury will sell $34 billion in three-year notes, with $26 billion in 10-year debt on Wednesday and $18 billion in 30-year bonds on Thursday. It will also auction $51 billion in three-month bills and $45 billion in six-month bills, together with an expected $65 billion in one-month bills. The supply will fall short of a record week of $294 billion set in March but continues a trend higher since February. Analysts, who said the market would have no trouble digesting this week’s offerings, see the government as becoming increasingly dependent on private investors for cash as the Fed further reduces its bond holdings. The goal is to shrink a balance sheet that had grown to more than $4 trillion from three massive rounds of asset purchases to combat the previous recession.

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“That loose civic concept known as the American Dream [..] has been shattered.”

America 10 Years After The Financial Crisis (NYMag)

If you were standing in the smoldering ashes of 9/11 trying to peer into the future, you might have been overjoyed to discover this happy snapshot of 2018: There has been no subsequent major terrorist attack on America from Al Qaeda or its heirs. American troops are not committed en masse to any ground war. American workers are enjoying a blissful 4 percent unemployment rate. The investment class and humble 401(k) holders alike are beneficiaries of a rising GDP and booming stock market that, as measured by the Dow, is up some 250 percent since its September 10, 2001, close. The most admired person in America, according to Gallup, is the nation’s first African-American president, a man no one had heard of and a phenomenon no one could have imagined at the century’s dawn. Comedy, the one art whose currency is laughter, is the culture’s greatest growth industry. What’s not to like?

Plenty, as it turns out. The mood in America is arguably as dark as it has ever been in the modern era. The birthrate is at a record low, and the suicide rate is at a 30-year high; mass shootings and opioid overdoses are ubiquitous. In the aftermath of 9/11, the initial shock and horror soon gave way to a semblance of national unity in support of a president whose electoral legitimacy had been bitterly contested only a year earlier. Today’s America is instead marked by fear and despair more akin to what followed the crash of 1929, when unprecedented millions of Americans lost their jobs and homes after the implosion of businesses ranging in scale from big banks to family farms.

It’s not hard to pinpoint the dawn of this deep gloom: It arrived in September 2008, when the collapse of Lehman Brothers kicked off the Great Recession that proved to be a more lasting existential threat to America than the terrorist attack of seven Septembers earlier. The shadow it would cast is so dark that a decade later, even our current run of ostensible prosperity and peace does not mitigate the one conviction that still unites all Americans: Everything in the country is broken. Not just Washington, which failed to prevent the financial catastrophe and has done little to protect us from the next, but also race relations, health care, education, institutional religion, law enforcement, the physical infrastructure, the news media, the bedrock virtues of civility and community. Nearly everything has turned to crap, it seems, except Peak TV (for those who can afford it).

That loose civic concept known as the American Dream — initially popularized during the Great Depression by the historian James Truslow Adams in his Epic of America — has been shattered. No longer is lip service paid to the credo, however sentimental, that a vast country, for all its racial and sectarian divides, might somewhere in its DNA have a shared core of values that could pull it out of any mess. Dead and buried as well is the companion assumption that over the long term a rising economic tide would lift all Americans in equal measure. When that tide pulled back in 2008 to reveal the ruins underneath, the country got an indelible picture of just how much inequality had been banked by the top one percent over decades, how many false promises to the other 99 percent had been broken, and how many central American institutions, whether governmental, financial, or corporate, had betrayed the trust the public had placed in them. And when we went down, we took much of the West with us. The American Kool-Aid we’d exported since the Marshall Plan, that limitless faith in progress and profits, had been exposed as a cruel illusion.

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“If anything, banks today are even more on government support.”

Nassim Taleb: ‘No One Who Caused The Crisis Paid Any Price’ (ST)

A year or so after the 2008 crisis, Nassim Taleb, a financial trader turned bestselling author, was called to Washington to talk to a commission that was compiling a report on what went wrong. Taleb, after all, had predicted the crisis with eerie prescience in his 2007 book The Black Swan, which talked about the underappreciated “tail risks” faced by the global economy. “They heckled me for about two or three hours on technicalities,” he recalls. “But not a single one of my points was in the report. Bunch of f****** bureaucrats. No wonder people voted for Donald Trump.” Taleb believes we have learnt nothing from the crisis. “Not only did people not get why it happened,” he says, “but the moral hazard in the system actually increased.”

The problem, in Taleb’s view, is what he calls a “Bob Rubin trade”. In the build-up to the crash, Robert Rubin, a former Treasury secretary under Bill Clinton, spent years advising the investment bank Citigroup, eventually becoming its chairman. After the crash happened, he resigned and walked away having made tens of millions. “What’s most depressing is that nobody who was involved in causing the crisis paid any price for it,” Taleb says. “America’s debt is now trillions higher because people transferred risk to the state, owing to mistakes made by individuals.” The crisis highlighted the licence to take risk that banks had, knowing the government would step in if things went wrong.

“People realised that, hey, you can do that with impunity,” Taleb says. “If anything, banks today are even more on government support.” He does identify one bright spot. “Some people have realised there was a problem,” he says. “There is an immense amount of disgruntlement by people who see this point, on the left in Europe and on the right in America. “So you have what is mislabelled ‘populism’ as a first-order reaction, which may be correct or incorrect. But at least some people are starting to see these methods are bullshit.”

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Yet another variation of Brexit.

Fears Of A ‘Car-Crash Brexit’ Make Life Difficult For Mark Carney (G.)

There may be times when Mark Carney regrets extending his stint at the Bank of England by an extra year. Had things gone as originally planned, Carney would have handed over the keys to Threadneedle Street a month ago and someone else would have had the task of steering the economy through what is certain to be a fiendishly tricky period. That would be the case even without Brexit. The UK economy has recovered more slowly and more unevenly than Carney envisaged when he took over at the Bank from Mervyn King in 2013. It was only last week that the Bank’s monetary policy committee felt confident enough to raise interest rates above the 0.5% emergency level that they reached in March 2009.

But Brexit is taking up half the governor’s time and it is clear that he is starting to get concerned. Certainly, his remarks when questioned on the BBC Today programme on Friday were blunt. With just eight months to go before Britain leaves the European Union, the risk of a no-deal Brexit is “uncomfortably high”. There was a time when such plain speaking from the governor of the Bank of England would have raised a few eyebrows in Downing Street. Not now. The line since the cabinet signed up to Theresa May’s soft Brexit plan is that the government has made all the concessions it can, and that means unless Brussels gives something in return there is a danger of chaos next March.

So the prime minister would not have been troubled when Carney said that a no-deal Brexit would be “highly undesirable” and something all parties should seek to avoid, because that’s the official Whitehall line. There will be no complaints if the governor continues to stress the importance of London as a source of low-cost capital for European governments and companies.

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Britain reveals what it really is.

Rich, Reckless Brexit Zealots Are Fighting A New Class War (G.)

We now know it beyond doubt: however we leave the European Union, the result is likely to be damage that Britain is in no position to absorb. Job losses are certain. A stack of Brexit impact reports from local authorities obtained last week by Sky News identified a catalogue of dire consequences, from farms in Shetland that could be plunged into impossible losses, through social care services in East Sussex already being hit by labour shortages, to the M26 being turned into a giant lorry park. With his characteristic emollience, the trade secretary, Liam Fox, says a no-deal Brexit is now more likely than a negotiated deal; Jeremy Hunt reckons we could fall off the came cliff-edge “by accident”, and reports about stockpiled food and medicines attest to the awfulness of any such prospect.

March 2019, then, could well mark a watershed point in a drawn-out disaster. But so, in a different way, could somehow nullifying the result of the referendum and staying put. It would be comforting to think that what George Orwell called “the gentleness of the English civilisation” would mean that an overturning of 2016’s outcome would be grudgingly swallowed by the vast majority of leave voters, but I would not be so sure. Ukip is back in the polls, and has newly strengthened links to the far right. A couple of weeks ago, I was in Boston in Lincolnshire, the town whose 75.6% vote for Brexit made it the most leave-supporting place in the UK. Many of the people I spoke to were already convinced that Brexit was doomed, and full of talk of betrayal.

Some of what I heard was undeniably ugly, though much of it was based on an undeniable set of facts. People were asked to make a decision, and they did. The referendum was the one meaningful political event in millions of voters’ lifetimes, and we were all assured that its result would be respected. Whatever the noise about a second referendum, this is the fundamental reason why the likelihood of Brexit interrupted remains dim.

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Our best friends.

Saudi Expels Canadian Envoy, Recalls Its Own Over ‘Interference’ (AFP)

Saudi Arabia said Monday it was expelling the Canadian ambassador and had recalled its envoy while freezing all new trade, in protest at Ottawa’s vigorous calls for the release of jailed activists. The kingdom gave the Canadian ambassador 24 hours to leave the country, in an abrupt rupture of relations over what it slammed as “interference” in its internal affairs. The move, which underscores a newly aggressive foreign policy led by Crown Prince Mohammed bin Salman, comes after Canada demanded the immediate release of human rights campaigners swept up in a new crackdown. “The Canadian position is an overt and blatant interference in the internal affairs of the kingdom of Saudi Arabia,” the Saudi foreign ministry tweeted.

“The kingdom announces that it is recalling its ambassador to Canada for consultation. We consider the Canadian ambassador to the kingdom persona non grata and order him to leave within the next 24 hours.” The ministry also announced “the freezing of all new trade and investment transactions with Canada while retaining its right to take further action”. Canada last week said it was “gravely concerned” over a new wave of arrests of women and human rights campaigners in the kingdom, including award-winning gender rights activist Samar Badawi. Samar was arrested along with fellow campaigner Nassima al-Sadah last week, the latest victims of what Human Rights Watch called an “unprecedented government crackdown on the women’s rights movement”.

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“street fighter-style deceitful drama of extortion and intimidation”.

Chinese State Media Slams Trump For ‘Extortion’ In Trade Dispute (R.)

Chinese state media on Monday lashed out at U.S. President Donald Trump’s trade policies in an unusually personal attack, even as they sought to reassure investors about the health of China’s economy as growth concerns roiled its financial markets. China’s strictly controlled news outlets have frequently rebuked the United States and the Trump administration as the trade conflict has escalated, but they have largely refrained from specifically targeting Trump.

The latest criticism from the overseas edition of the ruling Communist Party’s People’s Daily newspaper singled out Trump, saying he was starring in his own “street fighter-style deceitful drama of extortion and intimidation”. Trump’s desire for others to play along with his drama is “wishful thinking”, a commentary on the paper’s front page said, arguing that the United States had escalated trade friction with China and turned international trade into a “zero-sum game”. “Governing a country is not like doing business,” the paper said, adding that Trump’s actions imperiled the national credibility of the United States.

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So buy them new ones. But seriously, can anyone explain how Wells Fargo is still in business?

Wells Fargo Blames Computer Glitch For Customers Losing Homes (Hill)

Wells Fargo is blaming a computer glitch for more than 400 customers losing their homes between 2010 and 2015. The bank revealed in regulatory filings last week that the technological error resulted in 625 customers being denied loan modifications, and about 400 costumers having their houses foreclosed on, CNN Money reported on Friday. The filing says the bank has set aside $8 million to compensate the affected customers, it added. Wells Fargo apologized for the error and said in a statement that it is “providing remediation” to customers whose mortgages were affected, according to CNN.

The Treasury Department set up a program in 2009 to help Americans struggling to pay their mortgages, offering them the opportunity to apply for loan modifications, the network noted, adding that the computer error rejected applications from 625 Wells Fargo customers. A bank spokesperson told CNN that there is “not a clear, direct cause and effect relationship” between the error and foreclosures, but said some customers who were denied loan modifications lost their homes. Multiple government agencies are also probing Wells Fargo for its financing of low-income housing developments, Reuters reported. The embattled bank last week agreed to pay more than $2 billion to settle allegations related to offering subprime mortgages in the years before the 2008 financial crisis.

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Russia hysteria all over.

Russian Gas Is A Problem For Germany (R.)

For decades, the Friendship pipeline has delivered oil from Russia to Europe, heating German homes even in the darkest days of the Cold War. But a new pipeline that will carry gas direct from Russia under the Baltic Sea to Germany is doing rather less for friendship, driving a wedge between Germany and its allies and giving Chancellor Angela Merkel a headache. For U.S. President Donald Trump, Nord Stream 2 is a “horrific” pipeline that will increase Germany’s dependence on Russian energy. Ukraine, fighting Russian-backed separatists, fears the new pipeline will allow Moscow to cut it out of the lucrative and strategically crucial gas transit business.

It comes at an awkward time for Merkel. With the fraying of the transatlantic alliance and an assertive Russia and China, she has acknowledged that Germany must take more of a political leadership role in Europe. “The global order is under pressure,” Merkel said last month. “That’s a challenge for us … Germany’s responsibility is growing; Germany has more work to do.” In April she accepted for the first time that there were “political considerations” to Nord Stream 2, a project she had until then described as a commercial venture. Most European countries want Germany to do more to project European influence and protect eastern neighbors that are nervous of Russian encroachment.

But letting Russia sell gas to Germany while avoiding Ukraine does the opposite, depriving Kiev of transit revenues and making it, Poland and the Baltic states more vulnerable to cuts in gas supplies. “The price would be an even greater loss of trust from the Baltics, Poland and Ukraine,” said Roderich Kiesewetter, a Merkel ally on the parliamentary foreign affairs committee. “We Germans always say that holding the West together is our ‘center of gravity’, but the Russian approach has succeeded in dragging Germany, at least in terms of energy policy, out of this western solidarity.”

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Apr 212018
 
 April 21, 2018  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , , , ,  


James McNeill Whistler Morning Glories 1869

 

A US Recession Ahead? Fed Policymakers Say Not To Worry (R.)
If Treasuries Reach 3%, That Would Be Big (BBG)
Kim Jong-Un Halts Nuclear & Missile Tests, Shuts Down Testing Site (RT)
DNC Sues Russia, Trump, Wikileaks For Conspiring To Hurt Hillary in 2016 (ZH)
DNC Lawsuit Against WikiLeaks a Serious Threat to Press Freedom (IC)
Trump To “Counter” DNC Lawsuit (ZH)
Comey Memos Probed By DOJ For Classified Info Leaks (ZH)
Wells Fargo’s $1 Billion Pact Gives U.S. Power to Fire Managers (BBG)
IMF’s Thomsen Proposes Broadening Greek Tax Base (K.)
Windrush: When Even Legal Residents Face Deportation (Atlantic)

 

 

The illusion of control. Watch the hand.

A US Recession Ahead? Fed Policymakers Say Not To Worry (R.)

As the gap between short- and long-term borrowing costs hovers near its lowest in more than 10 years, speculation has risen over whether the so-called yield curve is signaling that a recession could be around the corner. Not to worry, two influential Federal Reserve policymakers said on Friday. Another, whose views are typically outside the mainstream at the Fed, disagreed. Growth prospects look pretty strong, which is why the Fed is raising short-term interest rates, the two sanguine policymakers explained. Those rate hikes, they said, are in and of themselves acting to flatten the yield curve. In addition, they argued, the curve will likely steepen as the U.S. government runs a bigger deficit and issues more debt.

The calming comments, from the New York Fed’s incoming chief John Williams and from Chicago Fed President Charles Evans in back-to-back but separate appearances, appeared calculated to allay concern about a potential slowdown ahead. “The yield curve is not nearly as much of a concern as I might have pointed to a couple months ago,” Evans said in Chicago after a speech, in response to a reporter’s question. Williams, who will leave his current job as San Francisco Fed president in June to take over at the New York Fed, also said he expects the Fed’s shrinking balance sheet will help steepen the curve by putting upward pressure on longer-term rates.

In January the U.S. Congress passed a budget deal that boosts U.S. government spending, following a December tax package that slashes corporate tax rates. Both changes are expected to lead to an increase in government borrowing in coming years. The Fed policymakers reason that a bigger supply of debt should put downward pressure on Treasury prices and deliver a corresponding lift to yields. “We’ve got more fiscal debt in train in the U.S. That has to be funded,” and will likely push up long rates and steepen the yield curve, Evans said. At their March meeting, Fed officials “generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards,” according to the meeting minutes.

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Where the Fed loses control.

If Treasuries Reach 3%, That Would Be Big (BBG)

The global bond market’s primary benchmark, the 10-year U.S. Treasury yield, is knocking on the door of 3 percent, a level it hasn’t topped in more than four years. That’s more than just a nice round number. Higher yields make the burden of everything from mortgages to student loans and car payments even heavier. Some market gurus see it as a turning point with effects that could be felt for years — and not just in bonds. With the Federal Reserve signaling interest rates are going up even more, investors in riskier assets like stocks and high-yield debt are left to wonder if this is how their post-recession party ends.

1. What’s so important about yield? A bond’s yield is a measure of the return an investor can expect from buying it. It’s determined by the bond’s interest rate and the price paid for it. For instance, buying a security that pays a fixed 2 percent (the “coupon”) at face value (known as “par”) results in a yield of 2 percent. Buying it at a cheaper price would raise the yield for the investor, while paying a premium would reduce the overall yield. (Maybe the most confusing aspect of the bond market to outsiders is the inverse relationship between price and yield.)

2. How do you determine the benchmark 10-year yield?In the $14.9 trillion Treasuries market, the benchmark is based on the most recently auctioned 10-year security (known as the “on-the-run”). It’s the best measure because it tends to have a price close to par and a coupon close to the current yield. On Friday, the 10-year yield closed at 2.96 percent.

3. Why are yields going up?The Fed is raising its short-term lending rate as the U.S. economy strengthens, after holding it near-zero in the wake of the financial crisis. The three rate hikes last year pushed up two- and five-year Treasury yields in particular, but they’ve also affected 10-year yields as central bankers expect more boosts this year. Another reason: inflation is showing signs of picking up, which erodes the value of bonds’ fixed payments and leads investors to demand higher yields.

4. Why is 3 percent a milestone?Since 2011, it’s been touched only twice, briefly, in 2013 and early 2014, before a bond bull market drove yields to record lows. But 3 percent has also been cited by prominent fixed-income investors like Jeffrey Gundlach at DoubleLine Capital and Scott Minerd at Guggenheim Partners as critical to determining whether the three-decade bull market in bonds is at an end. In the mind of analysts who look at market patterns, once the yield breaks much beyond the 3.05 percent, to levels last reached in 2011, that threshold could flip to a floor from a ceiling.

5. Why does it matter?The 10-year Treasury yield is a global benchmark for borrowing costs. Corporations will have to pay more to issue debt, which they’ve done cheaply in recent years. So will state and local governments, which could jeopardize investments in public infrastructure. Homeowners will face higher mortgage rates (or lose out on refinancing at a lower cost). Taking out loans for cars or college could also become more expensive.

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A Nobel Peace Prize.

Kim Jong-Un Halts Nuclear & Missile Tests, Shuts Down Testing Site (RT)

North Korea’s nuclear and ballistic missile programs have allowed it to secure strategic stability and peace, so there is no need for additional missile and nuclear tests anymore, Kim Jong-un has proclaimed. “From April 21, 2018, nuclear tests and intercontinental ballistic missile tests will be discontinued,” the Korean Central News Agency cited Kim as saying at a plenary meeting of the central committee of the ruling Worker’s Party of Korea (WPK). Furthermore, since North Korea’s nuclear test center has “completed” its mission, it “will be discarded in order to ensure the transparency of the nuclear test suspension,” KCNA reported.

Announcing the new course, the ruling party has declared that North Korea “will never use nuclear weapons, unless there is nuclear threat or nuclear provocation to our country, and in no case we will proliferate nuclear weapons and nuclear technology.” In the announcement, North Korea noted that the “suspension of nuclear testing is an important process for global nuclear disarmament.” Therefore, North Korea is willing to join international denuclearization efforts. North Korea’s last major missile test took place on November 29. Pyongyang announced at the time that it had tested a new type of intercontinental ballistic missile known as the Hwasong-15 that could reach the entire continental United States.

US President Donald Trump, who has traded insults and threats with Kim since taking office, tweeted that the latest decision by Pyongyang is “good news for North Korea and the world,” calling it “big progress.” China has also hailed the move, expressing hope that Pyongyang will continue towards the path of denuclearization and “political settlement” on the Korean Peninsula. “Denuclearization of the peninsula and lasting peace in the region are in line with the common interests of the people of the peninsula,” the Chinese Foreign Ministry said in a statement on Saturday.

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Have they really thought this through?

DNC Sues Russia, Trump, Wikileaks For Conspiring To Hurt Hillary in 2016 (ZH)

Did The Democrats’ “The Russians did it” narrative just jump the shark? The Washingtoin Post reports that The Democratic National Committee filed a multimillion-dollar lawsuit Friday against the Russian government, the Trump campaign and the WikiLeaks organization alleging a far-reaching conspiracy to disrupt the 2016 campaign and tilt the election to Donald Trump. The lawsuit alleges that in addition to the Russian Federation, the General Staff of the Armed Forces of the Russian Federation, Wikileaks and Guccifer 2.0, top Trump campaign officials, including Donald Trump Jr, Roger Stone, Jared Kushner, Paul Manafort and pretty much everyone else who has been mentioned in the same paragraph as Trump….

… conspired with the Russian government and its military spy agency to hurt Democratic presidential nominee Hillary Clinton and help Trump by hacking the computer networks of the Democratic Party and disseminating stolen material found there. [..] The suit filed today seeks millions of dollars in compensation to offset damage it claims the party suffered from the hacks. The DNC argues that the cyberattack undermined its ability to communicate with voters, collect donations and operate effectively as its employees faced personal harassment and, in some cases, death threats.

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And Julian Assange is not allowed to see this. Let alone defend himself. A pattern in his life.

DNC Lawsuit Against WikiLeaks a Serious Threat to Press Freedom (IC)

The Democratic National Committee (DNC) filed a lawsuit this afternoon in a Manhattan federal court against the Russian Government, the Trump campaign and various individuals it alleges participated in the plot to hack its email servers and disseminate the contents as part of the 2016 election. The DNC also sued WikiLeaks for its role in publishing the hacked materials, though it does not allege that WikiLeaks participated in the hacking or even knew in advance about it; its sole role, according to the DNC’s lawsuit, was publishing the hacked emails.

The DNC’s suit, as it pertains to WikiLeaks, poses a grave threat to press freedom. The theory of the suit – that WikiLeaks is liable for damages it caused when it “willfully and intentionally disclosed” the DNC’s communications (paragraph 183) – would mean that any media outlet that publishes misappropriated documents or emails (exactly what media outlets quite often do) could be sued by the entity or person about which they are reporting, or even theoretically prosecuted for it, or that any media outlet releasing an internal campaign memo is guilty of “economic espionage” (paragraph 170).

It is extremely common for media outlets to publish or report on materials that are stolen, hacked, or otherwise obtained in violation of the law. In October, 2016 – one month before the election – someone mailed a copy of Donald Trump’s 1995 tax returns to the New York Times, which published parts of it even though it is illegal to disclose someone’s tax returns without the taxpayer’s permission; in March, 2017, MSNBC’s Rachel Maddow did the same thing with Trump’s 2005 tax returns.

In April, 2016, the Washington Post obtained and published a confidential internal memo from the Trump campaign. Media outlets constantly publish private companies’ internal documents. Just three weeks ago, BuzzFeed obtained and published a secret Facebook memo outlining the company’s internal business strategies, the contents of which were covered by most major media outlets. Some of the most important stories in contemporary journalism have come from media outlets obtaining and publishing materials that were taken without authorization or even in violation of the law. Both the New York Times and Washington Post published thousands of pages from the top secret Pentagon Papers after Daniel Ellsberg took them without authorization from the Pentagon – and they won the right to publish them in the U.S. Supreme Court.

The Guardian and the Washington Post won the 2014 Pulitzer Prize for Public Service for publishing and reporting on huge numbers of top secret documents taken by Edward Snowden from the NSA. The Guardian, the New York Times, and numerous papers from around the world broke multiple stories by publishing classified classified documents downloaded by Chelsea Manning without authorization and sent to WikiLeaks. In 2016, more than 100 newspapers from around the world published and reported on millions of private financial documents known as the “Panama Papers,” which were taken without authorization from one of the world’s biggest offshore law firms and revealed the personal finances of people around the world.

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Did the DNC see this coming, and is that why they sued first?

Trump To “Counter” DNC Lawsuit (ZH)

President Trump is eager to go head-to-head with the DNC which filed a multimillion-dollar lawsuit on Friday against several parties, including the Russian government, the Trump campaign and the WikiLeaks organization – alleging a “far-reaching conspiracy to disrupt the 2016 campaign and tilt the election to Donald Trump.” Hours after the Washington Post broke the news of the lawsuit, Trump tweeted “Just heard the Campaign was sued by the Obstructionist Democrats. This can be good news in that we will now counter for the DNC server that they refused to give to the FBI,” referring to the DNC email breach. Trump also mentioned “the Debbie Wasserman Schultz Servers and Documents held by the Pakistani mystery man and Clinton Emails.”

The “Pakistani mystery man” is a clear reference to former DNC CHair Debbie Wasserman Schultz’s longtime IT employee and personal friend, Imran Awan – whose father, claims a Daily Caller source, transferred a USB drive to the former head of a Pakistani intelligence agency – Rehman Malik. Malik denies the charge. Of note, the DNC would not allow the FBI to inspect their servers which were supposedly hacked by the Russians – instead relying on private security firm Crowdstrike. Meanwhile, the “Wasserman Schultz Servers” Trump mentions is likely in reference to the stolen House Democratic Caucus server – which Imran Awan had been funneling information onto when it disappeared shortly after the House Inspector General concluded that the server may have been “used for nefarious purposes.”

Imran Awan, his wife Hina Alvi and several other associates ran IT operations for at least 60 Congressional Democrats over the past decade, along with the House Democratic Caucus – giving them access to emails and computer data from around 800 lawmakers and staffers – including the highly classified materials reviewed by the House Intelligence Committee.

Napolitano: He was arrested for some financial crime – that’s the tip of the iceberg. The real allegation against him is that he had access to the emails of every member of congress and he sold what he found in there. What did he sell, and to whom did he sell it? That’s what the FBI wants to know. This may be a very, very serious national security situation.

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“..all of Comey’s memos – all of them, were classified at the time they were written, and they remain classified.”

Comey Memos Probed By DOJ For Classified Info Leaks (ZH)

The Department of Justice (DOJ) inspector general is now conducting an investigation into classification issues concerning the “Comey memos” leaked to the New York Times by former FBI Director James Comey. Sources tell the Wall St. Journal that at least two of the memos which Comey leaked to his “good friend,” Columbia Law Professor Daniel Richman, contained information that officials now consider classified – prompting the review by the Office of the Inspector General, headed by Michael Horowitz. “Of those two memos, Mr. Comey himself redacted elements of one that he knew to be classified to protect secrets before he handed the documents over to his friend. He determined at the time that another memo contained no classified information, but after he left the Federal Bureau of Investigation, bureau officials upgraded it to “confidential,” the lowest level of classification.” -WSJ

Comey told Congressional investigators that he considered the memos to be personal rather than government documents. The memos – leaked through Richman, were a major catalyst in Deputy Attorney General Rod Rosenstein’s decision to appoint former FBI Director Robert Mueller as special counsel to investigate Russian interference in the 2016 US election. While Richman told CNN “No memo was given to me that was marked ‘classified,’ and James Comey told Congressional investigators he tried to “write it in such a way that I don’t include anything that would trigger a classification,” it appears the FBI’s chief FOIA officer disagrees.

We previously reported that Senator Chuck Grassley (R-IA) said four of the 7 Comey memos he reviewed were “marked classified” at the “Secret” or “Confidential” level – however in January the FBI’s chief FOIA officer reportedly told Judicial Watch – in a signed declaration, that every single Comey memo was classified at the time. “We have a sworn declaration from David Hardy who is the chief FOIA officer of the FBI that we obtained just in the last few days, and in that sworn declaration, Mr. Hardy says that all of Comey’s memos – all of them, were classified at the time they were written, and they remain classified.” -Chris Farrell, Judicial Watch

Therefore, Farrell points out, Comey mishandled national defense information when he “knowingly and willfully” leaked them to his friend at Columbia University. It’s also mishandling of national defense information, which is a crime. So it’s clear that Mr. Comey not only authored those documents, but then knowingly and willfully leaked them to persons unauthorized, which is in and of itself a national security crime. Mr. Comey should have been read his rights back on June 8th when he testified before the Senate. Farrell told Lou Dobbs “Recently retired and active duty FBI agents have told me – and it’s several of them, they consider Comey to be a dirty cop.”

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“Wells Fargo fined twenty days worth of net income sounds a lot less daunting than $1 billion..”

Wells Fargo’s $1 Billion Pact Gives U.S. Power to Fire Managers (BBG)

Wells Fargo’s $1 billion fine won’t close the book on fallout from its consumer scandals. The nation’s third-largest bank submitted to an unprecedented order Friday that would give the Office of the Comptroller of the Currency the right to remove some of the lender’s executives or board members. That comes on top of the penalties Wells Fargo will pay to settle U.S. probes into mistreatment of consumers, the largest sanction of a U.S. bank under President Donald Trump. The OCC said it “reserves the right to take additional supervisory action, including imposing business restrictions and making changes to executive officers or members of the bank’s board of directors.” The agency could also veto potential executive candidates.

The bank will pay $500 million in penalties each to the OCC and the Consumer Financial Protection Bureau, according to a statement Friday. Wells Fargo warned shareholders last week it would soon face a fine of that size, which it will book retroactively in the first quarter. The bank remains under a Federal Reserve penalty that bans growth in total assets. “CEOs who hoped the Trump administration would be universally lenient regulators missed the difference between a dislike for rules that stifle innovation and employment and a dislike for rules against wrongdoing,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

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Squeezing that stone for all he’s worth.

IMF’s Thomsen Proposes Broadening Greek Tax Base (K.)

Poul Thomsen, director of the International Monetary Fund’s European department, on Friday spoke in favor of broadening Greece’s tax base though he stopped short of determining whether the IMF would call for reductions to the tax-free threshold (due to come into effect in January 2020) to apply a year in advance. Speaking in Washington, where the IMF is holding its Spring Meetings, Thomsen said that raising taxes had played a large part in the country’s fiscal adjustment in recent years but that Greece must find a way of meeting fiscal targets that is “growth-friendly.” The IMF will not impose any specific policies, he said but proposed a “discussion” about the timing of tax reforms.

As regards the Fund’s potential role in Greece’s third international bailout, which expires in August, he said at least one bailout review must be carried out before a decision can be made as well as agreement to lighten Greece’s debt. “Time is running short for us to be able to activate the program,” he said. A discussion on debt measures is likely to take place at the next meeting of eurozone finance ministers, scheduled for April 27 in Sofia. Talks there will also focus on a growth plan that the government has presented to bailout auditors. Finance Minister Euclid Tsakalotos on Friday met in Washington with European Economic and Monetary Affairs Commissioner Pierre Moscovici, Eurogroup Chairman Mario Centeno and European Central Bank President Mario Draghi and is to meet Thomsen and IMF chief Christine Lagarde on Saturday.

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If this doesn’t bring down the government, Britain has a whale of a problem. And no excuses. May suddenly offering them money now, after being exposed, is perhaps the worst part of it. You can’t buy off blatant racism with taxpayer money. And those taxpayers should let that be known, very loudly. Or they’re just as guilty.

Windrush: When Even Legal Residents Face Deportation (Atlantic)

In the aftermath of World War II, the British government invited thousands of people from Caribbean countries in the British Commonwealth to immigrate to the United Kingdom and help address the war-torn country’s labor shortages. Now, nearly 70 years later, many of those same people, now elderly, are having their legal status in the country questioned and are facing deportation. Though the deportation threats date as far back as October, the crisis burst into wider view this week after Caribbean diplomats representing a dozen Commonwealth nations chastised the U.K. government publicly. “This is about people saying, as they said 70 years ago, ‘Go back home.’ It is not good enough for people who gave their lives to this country to be treated like this,” Guy Hewitt, the high commissioner from Barbados to the U.K., said at a gathering of the diplomats.

The migrants are known as the “Windrush generation,” named for the HMT Empire Windrush that brought the first group of them to the U.K. in June 1948. Of the half a million people who immigrated to the U.K. from the Commonwealth between then and 1971, an estimated 50,000 lack the proper documentation to prove it. In a meeting with Caribbean leaders on Tuesday, U.K. Prime Minister Theresa May apologized “for any anxiety that has been caused” and promised no deportations would take place. Still, such assurances won’t necessarily convince those who remain skeptical of the U.K.’s strict immigration policies—ones May herself championed when she served as home secretary between 2010 and 2016.

During that time, May sought to meet then-Prime Minister David Cameron’s goal of reducing net immigration to the tens of thousands by making the U.K. a “hostile environment” for illegal immigration. In practice, this meant requiring doctors, employers, landlords, and schools to confirm that those whom they served were in the country legally. “The determination was to go systematically through any interaction people might have with the state, short of putting checkpoints in the road, just to have people’s immigration status checked,” Polly Mackenzie, the director of cross-party think tank Demos and the former policy director to Deputy Prime Minister Nick Clegg, told me. The Windrush generation wasn’t supposed to be part of that calculus—they had immigrated to the country legally and were thereby entitled to public services, including the right to education, healthcare, and social security.

But after the implementation of the “hostile environment” policies in 2012, these individuals suddenly had to prove their right to live and work in the country—a right which was guaranteed to them under the Immigration Act of 1971, though not everyone obtained the documentation to confirm it. This documentation problem arose in part from the fact that so many people belonging to the Windrush generation immigrated to the U.K. as children, often on their parents’ passport. What’s more, the British government didn’t keep records of who was permitted to stay in the country, nor did they issue documentation confirming it. What little records the government did keep, such as the landing cards documenting the arrival dates of Windrush-era immigrants, were discarded in 2010.

For some, the result was catastrophic. In one case, a woman had lived and worked in the U.K. for 50 years before she was wrongfully declared an illegal immigrant and almost forced on a plane to her native Jamaica. In another, a man who had lived in the U.K. for 59 years received a letter that not only informed him of his illegal status in the country, but also offered him “help and support on returning home voluntarily.” Perhaps one of the most severe cases concerned a man who, after living in the U.K. for 44 years, had his cancer treatment through the National Health Service withheld because he couldn’t provide sufficient documentation to prove he lived in the country continuously since immigrating from Jamaica in 1973.

Read more …

Jan 042018
 
 January 4, 2018  Posted by at 10:56 am Finance Tagged with: , , , , , , , , , ,  


Jean-Michel Basquiat Irony of the Negro Policeman 1981

 

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Investors Should ‘Brace For Near-Term Melt-Up – Grantham (MW)
Top Bosses Earn More In 3 Days Than Average Worker In Entire Year (G.)
Security Flaws Put Virtually All Phones, Computers At Risk (R.)
The Microprocessor Security Flaw Explained (BBG)
The CEO of Wells Fargo Might Be in Big, Big Trouble (Dayen)
NYC Apartment Sales Collapse 25% In Q4 As Trump Tax Plan Takes Its Toll (ZH)
Tesla Falls Far Short On Model 3 Deliveries (CNBC)
US Auto Sales Fall for 2nd Year (WS)
UK Thinks EU is Bluffing on No Brexit Deal for Banks (BBG)
UK Opposition Party Grassroots Support Second Brexit Vote (R.)
China Communist Party Paper Bashes Bitcoin (SCMP)
China to Curb Power Supply for Some Bitcoin Miners (BBG)

 

 

Over 50% chance of melt up, with over 90% chance of subsequent melt down of 50% (or more).

Investors Should ‘Brace For Near-Term Melt-Up – Grantham (MW)

Jeremy Grantham, who is credited with calling the 2000 and 2008 downturns, warned investors Wednesday to be prepared for the possibility of a near-term “melt-up” that would likely set the stage for a burst bubble and a stock-market meltdown. In a 13-page note that he emphasized reflected “a very personal view,” the value investor and co-founder and chief investment strategist of Boston-based asset manager GMO compared the present market setup with the run-up to past bubbles, including the 2000 tech boom and the precursor to the 1929 crash. “I recognize on one hand that this is one of the highest-priced markets in U.S. history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market,” Grantham said.

He terms the current market run-up the “possible/probable bubble of 2018-19.” In the note, Grantham emphasizes that bubble calls shouldn’t necessarily rely on price alone. Instead, he puts emphasis on price acceleration, which captures “the importance of a true psychological event of momentum increasing to a frenzy.” Read the note here. Grantham favorably cited an academic paper published last year that concluded that the strongest indicator of a bubble in U.S. and almost all global markets was price acceleration. As for the S&P 500 SPX, +0.64% Grantham says that “just recently, say the last six months, we have been showing a modest acceleration, the base camp, perhaps, for a final possible assault on the peak.

“Exhibit 4 (shown below) represents our quick effort at showing what level of acceleration it might take to make 2018 (and possibly 2019) look like a classic bubble,” he wrote. “A range of nine to 18 months from today and a price rise to around 3,400 to 3,700 on the S&P 500 would show the same 60% gain over 21 months as the least of the other classic bubble events.” [..] • “A melt-up or end-phase of a bubble within the next six months to two years is likely, i.e., over 50%.” • ”If there is a melt-up, then the odds of a subsequent bubble break or meltdown are very, very high, i.e., over 90%. • “If there is a market decline following a melt-up, it is quite likely to be a decline of some 50%.”

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‘Fat Cat Thursday’. Bad idea if you want a functioning economy.

Top Bosses Earn More In 3 Days Than Average Worker In Entire Year (G.)

Bosses of top British companies will have made more money by lunchtime on Thursday than the average UK worker will earn in the entire year, according to an independent analysis of the vast gap in pay between chief executives and everyone else. The chief executives of FTSE 100 companies are paid a median average of £3.45m a year, which works out at 120 times the £28,758 collected by full-time UK workers on average. On an hourly basis the bosses will have earned more in less than three working days than the average employee will pick up this year, leading campaigners to dub the day “Fat Cat Thursday”. Frances O’Grady, the TUC general secretary, said it was outrageous that bosses were picking up “salaries that look like telephone numbers” while workers were “suffering the longest pay squeeze since Napoleonic times”.

The analysis by the Chartered Institute of Personnel and Development (CIPD) and the High Pay Centre shows chief executives of FTSE 100 companies are paid an average of £898 per hour – 256 times what apprentices earn on the minimum wage. Tim Roache, the general secretary of the GMB union, said the pay gap between bosses and workers was “simply obscene”. “Does anyone really think these fat cats deserve 100 times more than the hard-working people who prop up their business empires?” he said. “Workers who have to scrimp and save to feed their families and put a roof over their head – and like most of Britain’s working population will now be feeling the pinch after the festive period?”

Read more …

And it’s not just phones and computers either.

Security Flaws Put Virtually All Phones, Computers At Risk (R.)

One of the bugs is specific to Intel but another affects laptops, desktop computers, smartphones, tablets and internet servers alike. Intel and ARM insisted that the issue was not a design flaw, but it will require users to download a patch and update their operating system to fix. “Phones, PCs, everything are going to have some impact, but it’ll vary from product to product,” Intel CEO Brian Krzanich said in an interview with CNBC Wednesday afternoon. Researchers with Alphabet Inc’s Google Project Zero, in conjunction with academic and industry researchers from several countries, discovered two flaws. The first, called Meltdown, affects Intel chips and lets hackers bypass the hardware barrier between applications run by users and the computer’s memory, potentially letting hackers read a computer’s memory and steal passwords.

The second, called Spectre, affects chips from Intel, AMD and ARM and lets hackers potentially trick otherwise error-free applications into giving up secret information. The researchers said Apple Inc and Microsoft Corp had patches ready for users for desktop computers affected by Meltdown. Microsoft declined to comment and Apple did not immediately return requests for comment. Daniel Gruss, one of the researchers at Graz University of Technology who discovered Meltdown, called it “probably one of the worst CPU bugs ever found” in an interview with Reuters. Gruss said Meltdown was the more serious problem in the short term but could be decisively stopped with software patches. Spectre, the broader bug that applies to nearly all computing devices, is harder for hackers to take advantage of but less easily patched and will be a bigger problem in the long term, he said.

Speaking on CNBC, Intel’s Krzanich said Google researchers told Intel of the flaws “a while ago” and that Intel had been testing fixes that device makers who use its chips will push out next week. Before the problems became public, Google on its blog said Intel and others planned to disclose the issues on Jan. 9. Google said it informed the affected companies about the “Spectre” flaw on June 1, 2017 and reported the “Meltdown” flaw after the first flaw but before July 28, 2017. The flaws were first reported by tech publication The Register. It also reported that the updates to fix the problems could causes Intel chips to operate 5% to 30% more slowly.

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They all use these features. They’re not actually flaws. That makes it hard to repair.

The Microprocessor Security Flaw Explained (BBG)

The weakness uncovered by Google [..] underscores the potential damage wreaked by vulnerabilities in hardware. Complex components, such as microprocessors, can be harder to fix and take longer to design from scratch if flawed. “It’s a big one and it’s a severe one. This gives an attacker capabilities that bypass the common operating system security controls that we’ve relied on for 20 years,” said Jeff Pollard, an analyst at Forrester Research. “There’s big impact on both the consumer and enterprise.” Intel’s stock remained under pressure even after its statement. “We struggle to believe that Intel won’t face some sort of financial liability,” analysts at Sanford C. Bernstein wrote in a note.

[..] Applying the operating system upgrades designed to remedy the flaw could hamper performance, security experts said. The Register reported that slowdowns could be as much as 30% – something Intel said would occur only in extremely unusual circumstances. Computer slowdowns will vary based on the task being performed and for the average user “should not be significant and will be mitigated over time,” Intel said, adding that it has begun providing software to help limit potential exploits. Intel’s efforts to play down the impact resulted in a war of words with AMD. Intel said it’s working with chipmakers including AMD and ARM Holdings, as well as operating system makers to develop an industrywide approach to resolving the issue. AMD was quick to retort, saying, “there is near-zero risk” to its processors because of differences in the way they are designed and built.

The vulnerability doesn’t just affect PCs. All modern microprocessors, including those that run smartphones, are built to essentially guess what functions they’re likely to be asked to run next. By queuing up possible executions in advance, they’re able to crunch data and run software much faster. The problem in this case is that this predictive loading of instructions allows access to data that’s normally cordoned off securely, Intel Vice President Stephen Smith said on a conference call. That means, in theory, that malicious code could find a way to access information that would otherwise be out of reach, such as passwords. “The techniques used to accelerate processors are common to the industry,” said Ian Batten at the University of Birmingham in the U.K. who specializes in computer security. The fix being proposed will definitely result in slower operating times, but reports of slowdowns of 25% to 30% are “worst-case” scenarios, he said.

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Foot meet mouth.

The CEO of Wells Fargo Might Be in Big, Big Trouble (Dayen)

Late last year, Congress scrapped Obama-era rules from the Consumer Financial Protection Bureau that would have banned forced-arbitration clauses in financial contracts. This bill, which President Trump quickly signed, was self-evidently bad for consumers at the time—and if anyone needs further proof of how ridiculous and harmful these clauses are, just look at what Wells Fargo has been up to over the past several months. The mega-bank famously issued at least 3.5 million fake accounts without consumer consent, triggering a $185 million fine to state and federal regulators. The bank aimed to demonstrate sales growth to investors and boost the stock price with bogus numbers, but millions of customers got caught up in the exchange, paying unnecessary fees and taking hits to their credit scores. Scores of defrauded customers sued Wells Fargo in a series of class-action lawsuits.

Wells Fargo then tried to defy metaphysical reality: It moved to block one class-action case in Utah by claiming that the arbitration clause in customer contracts on the real accounts they held at the bank also applied to the fake accounts. By this theory, Wells Fargo customers signed away their legal rights when it came to accounts they didn’t even sign. The Utah plaintiffs fought Wells’s motion to compel arbitration, and rejected a $142 million settlement offer from the bank. While the two sides tangled in court, Wells Fargo CEO Tim Sloan appeared before the Senate Banking Committee on October 3. And when Senator Jon Tester (D-MT) asked Sloan point-blank if Wells Fargo was using arbitration clauses from real accounts and applying them to fake accounts, Sloan said, “There were instances [of that] historically. We’re not doing that today.”

He also committed to not forcing arbitration in fake-accounts cases moving forward. When Senator Chris Van Hollen (D-MD) brought up the Utah case, where Wells Fargo had made motions to compel arbitration just two weeks earlier, Sloan said he wasn’t familiar with it. But lawyers in Utah get C-SPAN. The plaintiffs in the case immediately appealed to the judge and argued that, with his remarks before Congress, Sloan had effectively waived Wells Fargo’s right to compel arbitration. Judge Clark Waddoups promptly scheduled a two-day trial for January 22 on the question. He also allowed the plaintiffs to depose Sloan in conjunction with the trial; that deposition is scheduled for Friday.

This put Sloan in a tight spot. Steven Christensen, attorney for the plaintiffs, told me he had only one question for Sloan: Did he state to Congress that Wells Fargo would waive arbitration claims on fake accounts? If Sloan said yes, the Utah case would go forward; if he said no, Christensen would appeal to Congress to hold him in contempt for lying to the Senate Banking Committee.

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End of an era?!

NYC Apartment Sales Collapse 25% In Q4 As Trump Tax Plan Takes Its Toll (ZH)

Apparently the combination of a massive flood of excess supply in the form of new luxury developments and a Trump tax plan that penalizes people living in expensive cities by capping SALT, mortgage interest and property tax deductions was simply too much for the Manhattan real estate market to ignore in 4Q 2017. As Douglas Elliman points out in their new Q4 2017 Manhattan Market Report, both prices (-9.4%) and volumes (-25.4%) of New York City apartments collapsed sequentially in Q4 as potential buyers took a pause amid the growing uncertainty.

“Sales activity for the Manhattan housing market was at the lowest fourth quarter total in six years. The pace of the fall market noticeably cooled as market participants awaited the housing-related terms of the new federal tax bill. This translated into a decline in year over year closings for the final quarter of the year, although contract volume showed an uptick. There were 2,514 sales to close in the final quarter of the year, down 12.3% from the prior-year quarter. The decline in sales allowed listing inventory to rise after declining year over year for the past few quarters. There were 5,451 listings at the end of the quarter, up 1.1% from the same period a year ago. As a result, the absorption rate, the number of months to sell all inventory at the current rate of sales slowed, rising to 6.5 months from 5.6 months in the year-ago quarter.

Listing discount, the%age difference between the list price at the date of sale and the sales price, was 5.4% up nominally from 5.3% in the prior year quarter as sellers continued to travel farther to meet the buyer on price. Buyers continued to hold firm, forcing sellers to meet them on price. Days on market, the average number of days to sell all apartments that closed during the quarter rose 3.2% to 97 days from 94 days in than the same period last year. New development active listings and resale listings were up 0.7% and 1.2% respectively over the same period. With the nominal rise in supply, there was also a nominal decline in bidding wars, still accounting for 11.7% of all sales in the quarter, down 0.9% from the same period last year.”

 

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Musk keeps hoping people will forget the last batch of bad data when the newest comes in.

Tesla Falls Far Short On Model 3 Deliveries (CNBC)

Tesla is apparently still deep in the circles of production hell. On Wednesday, the electric car maker released delivery numbers for the fourth quarter of 2017 that fell short of many expectations on Wall Street, and once again pushed back production targets on its highly anticipated Model 3 sedan. Tesla shares fell roughly 2% in after-hours trading. “As we continue to focus on quality and efficiency rather than simply pushing for the highest possible volume in the shortest period of time, we expect to have a slightly more gradual ramp through Q1, likely ending the quarter at a weekly rate of about 2,500 Model 3 vehicles,” Tesla said in a release. “We intend to achieve the 5,000 per week milestone by the end of Q2.” In 2017, the company had said it planned to reach a production rate of 5,000 cars per week for the Model 3, but later revised back that target to the end of the first quarter.

Now, Tesla expects to reach the target by the end of the second quarter. Tesla said it made “major progress” toward addressing the “production bottlenecks” the company has blamed for falling so far short of its Model 3 targets. The company said that in the last few days of the quarter it reached a production rate that “extrapolates to over 1,000 Model 3’s per week.” CEO Elon Musk had previously said he expected weekly Model 3 production to be “in the thousands” by the end of 2017. Tesla said it delivered 29,870 vehicles in the fourth quarter of 2017, including 1,550 of its anticipated Model 3 sedan. The electric-car maker also delivered 15,200 Model S sedans, and 13,120 Model X SUVs. That represents a 27% increase over the same quarter in 2016 for both models combined, and a 9% increase over Q3 2017, Tesla’s previous best quarter, the company said.

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The US has enough cars anyway.

US Auto Sales Fall for 2nd Year (WS)

Total new-vehicle sales in the US fell 5.2% year-over-year in December to 1.6 million units. For all of 2017, sales declined by 320,000 vehicles, or 1.8%, to 17.23 million units. It was the first overall decline since the Financial Crisis. Compared to 2015, sales fell by 249,033 vehicles, or 1.4%. These sales are vehicles delivered by dealers to their customers, or delivered by automakers directly to large fleet customers, as reported by Autodata.

For the big three US automakers and some import brands it was the second year in a row of sales declines (two-year percent change from 2015):
GM -2.7%
Ford -1.1%
Fiat Chrysler (FCA) -8.6%
Toyota -2.6%
Hyundai -10.0%
Kia -5.8%
Daimler -1.4%
BMW -12.6%
Mazda -9.3%

The table below shows new-vehicle sales by automaker, sorted by total sales in 2017 (gray column). Automakers with declining sales in 2017 are marked in red. The green column shows the two-year %age change from 2015. Turns out that replacement demand for new vehicles after Hurricane Harvey was strong, but not nearly strong enough to pull out the year for total US auto sales, and what demand there has been will peter out going forward. Car sales plunged 17% year-over-year in December, 10.9% in all of 2017, and 18.1% from 2015. They’ve been left behind by consumers who’re switching to crossovers and SUVs which the industry considers trucks. So truck sales – pickups, SUVs, crossovers, and vans – rose 1.7% in December, 4.3% for the year, and 11.8% compared to 2015.

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They’re not.

UK Thinks EU is Bluffing on No Brexit Deal for Banks (BBG)

Prime Minister Theresa May believes Michel Barnier is bluffing when he says there will be no special deal for financial services, officials said, as the U.K. prepares to negotiate its post-Brexit ties with the European Union. Two senior officials familiar with the matter privately think the EU’s chief Brexit negotiator is faking a hard-line stance in ruling out a deal that would allow banks to continue operating freely across the bloc. Talks have yet to start on Britain’s future trade agreement with the EU but Barnier said last month there was no chance of a deal that replicated the easy access that U.K.-based financial services currently enjoy to the single market. The U.K. officials said the French former commissioner was simply setting out an opening position that did not have backing from the 27 other EU member countries.

They said banks based in London will be fine because businesses operating in the EU will need to maintain access to finance after Brexit. The fate of London’s financial district is urgent for May, who last month agreed to pay a £39 billion ($53 billion) bill to start talks on the nuts and bolts of a transition. With Britain’s departure from the bloc just 14 months away, businesses are counting on a two-year adjustment period. [..] Last month, May said U.K. financial services should be optimistic about Britain’s trade talks, which are due to start in March. She cited Polish Prime Minister Mateusz Morawiecki and Italian Prime Minister Paolo Gentiloni as evidence that other EU leaders are open to Britain carving out a custom-made trading relationship with the bloc that covers services. Yet Barnier insists the U.K. will not be offered anything more than a Canada-style deal, which keeps tariffs to a minimum on goods but does not include trade in services.

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Big 2018 story. But it can’t be spoken out loud.

UK Opposition Party Grassroots Support Second Brexit Vote (R.)

Eight out of 10 grassroots members of Britain’s opposition Labour Party want a referendum on the terms of the country’s exit from the European Union, according to a survey published on Thursday. That is at odds with Labour leader Jeremy Corbyn’s official policy which calls for parliament, not the public, to have the final say on the terms of the deal. It indicates a strong desire among the party’s rank and file members for a chance to demand a rethink on Brexit, or even overturn the outcome of the June 2016 vote to leave the EU. Eighteen months after voting 52 to 48% to withdraw from the EU, Britons remain deeply divided over leaving a bloc which has defined much of the country’s laws, trade policy and international outlook over more than four decades of membership. Theresa May’s Conservative minority government has dismissed the idea of a second referendum.

But ministers have already been forced to give parliament a greater say in the Brexit process than they initially wanted to after members of May’s own party rebelled on the issue in December. Thursday’s survey of attitudes within Britain’s main political parties showed 49% of Labour members definitely wanted a second referendum on the exit deal and a further 29% said they were more in favor of the idea than against it. The poll of more than 4,000 members of political parties was conducted shortly after last June’s national election as part of a three-year academic project by the Mile End Institute at Queen Mary University of London to discover more about people who belong to political parties. It showed even higher demand for a second vote on Brexit among members of the Liberal Democrats and the Scottish National Party. By contrast, only 14% of Conservative Party members wanted a referendum on the exit deal.

Read more …

Bitcoin is a bad fit in a super-centralized society

China Communist Party Paper Bashes Bitcoin (SCMP)

China’s ruling Communist Party mouthpiece lashed out at bitcoin on Wednesday, labelling the volatile cryptocurrency a bubble and a modern-day tulip mania. A People’s Daily commentary written under the name “Wei Liang” said it was an established fact that bitcoin was a bubble. “Irrespective of whether it is assessed on price or value, bitcoin is flooded with froth,” it said. “Its so-called advantages – scarcity, authenticity, strong liquidity, transparency and decentralisation – are only covers for speculation and cannot support its volatile price.” It said bitcoin’s bubbles were created by a combination of hype, mystery, decentralisation and possible insider trading, suggesting that a small group of bitcoin owners were speculating on its price and manipulating general investors.

The commentary compared bitcoin to the seventeenth century mania in which prices for tulip bulbs skyrocketed and then collapsed. It also said there would be more “bubble breaking” in bitcoin after governments around the world tightened regulation. The central government sees bitcoin as a source of risk. It banned domestic cryptocurrency exchanges last year after failing to regulate the fast growth of initial coin offerings, the virtual currency equivalent of an initial public offering. [..] Bitcoin investors are on alert to see whether Beijing will take further action against cryptocurrencies, such as shutting down bitcoin “mines”, the energy-hungry operations that create bitcoin by solving mathematical problems using vast banks of computers.

Read more …

Easy to trace.

China to Curb Power Supply for Some Bitcoin Miners (BBG)

China plans to limit power use by some bitcoin miners, people familiar with the matter said, a potential challenge to an industry whose energy-intensive computer networks enable transactions in the cryptocurrency. The People’s Bank of China outlined the plan Wednesday at a closed-door meeting, according to the people, who asked not to be identified because it wasn’t public. They didn’t detail how authorities plan to enact the curbs. Chinese officials are concerned that bitcoin miners have taken advantage of low power prices in some areas and affected normal electricity use in some cases, the people said. Local officials have been asked to investigate the high consumption associated with the industry, they said. The curbs will also involve other regulators such as the National Development and Reform Commission, which oversees the power supply.

While the proposed restrictions are unlikely to have a noticeable effect on transaction speeds, they highlight global concerns over the growing energy consumption of bitcoin miners. The industry now uses as much electricity as 3.4 million U.S. households, according to the Digiconomist Bitcoin Energy Consumption Index. China is home to many of the world’s largest miners, some of whom have set up around hydroelectric facilities in Sichuan and Yunnan provinces. “This may have contributed to bitcoin coming off its daily highs,” said Craig Erlam, senior market analyst at online trading firm Oanda in London. “Electricity usage certainly appears to be a significant challenge for the cryptocurrency in the years ahead.” Bitcoin, which surged 15-fold last year, pared gains on Wednesday and traded around $14,900 on Thursday.

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Nov 282017
 
 November 28, 2017  Posted by at 9:33 am Finance Tagged with: , , , , , , , ,  


Stanley Kubrick High Wire Act 1948

 

Millennials Will Have Similar Pensions To Baby Boomers – Thinktank (G.)
The Perfect Storm – Of The Coming Market Crisis (Roberts)
Markets Get Wake-Up Call From China’s Post-Congress Deleveraging Moves (R.)
Chance Of US Stock Market Correction Now At 70% – Vanguard (CNBC0
Exit Sign (Jim Kunstler)
Bitcoin Bubble Makes Dot-Com Look Rational (BBG)
London Homes Are Now Less Affordable Than Ever Before (BBG)
£300 Million A Week: The Output Cost Of The Brexit Vote (VoxEU)
The Irish Question May Yet Save Britain From Brexit (G.)
The Fat Cats Have Got Their Claws Into Britain’s Universities (G.)
Prince Harry Can Bring His Foreign Spouse To UK – 1/3 Of Britons Can’t (Ind.)
Wells Fargo Bankers Overcharged Clients For Higher Bonuses (CNBC)
Sao Paulo’s Homeless Seize The City (G.)

 

 

Think tanks will say anything if you pay them enough. But still this is quite the ‘report’. And it’s about Britain of all places!

Millenials will get NO pensions. They may get a UBI when the time comes, but people will have to wake up for that to happen.

Millennials Will Have Similar Pensions To Baby Boomers – Thinktank (G.)

Young adults will have retirement incomes similar to today’s pensioners, according to analysis which rejects widespread pessimism about the financial prospects for millennials. Men in their 40s will suffer a fall in their retirement incomes compared with today’s pensioners, but the generation behind them will see their incomes recover, analysis by the Resolution Foundation found. It said the average pension for a man will be about £310 a week in 2020, taking into account state and private pensions. This will fall to about £285 in the mid 2040s in real terms “before building again to about £300 a week by the end of the 2050s”.

For women, there will be no dip in pension income but a small improvement over time. The thinktank forecasts that average pensions incomes for women, typically lower than those of men because of lower pay and career breaks, will be about £225 a week in 2020, then rising to about £235 by the mid-2030s and staying at that level going forward. The analysis defies the popular view that today’s pensioners are a “golden generation” who benefited from final-salary pensions. It said that while pensioner incomes have risen sharply this century to match or even surpass those of working people, these levels can be broadly maintained in the future. The upbeat assessment is in sharp contrast to other a stream of reports which paint Britain’s pensions as among the worst in the developed world, with young workers facing penury in retirement.

Resolution said “auto enrolment”, the government scheme in which workers are automatically defaulted into paying into a private pension scheme, will be the chief driver behind a recovery in pension income. But the thinktank acknowledged that today’s younger generation are unlikely to build up the housing wealth acquired by baby boomers – people born between the early 1940s and mid-1960s – from the huge increase in house prices, and will not be entitled to a state pension until they are older than the current generation of retirees.

Read more …

Margin calls. Coming soon to a theater near you.

The Perfect Storm – Of The Coming Market Crisis (Roberts)

Of course, as investors begin to get battered by the “volatility and junk bond storms,” the subsequent decline in equity valuations begins to trigger “margin calls.” As the markets decline, there will be a slow realization “this decline” is something more than a “buy the dip” opportunity. As losses mount, the anxiety of those “losses” mounts until individuals seek to “avert further loss” by selling. There are two problems forming. The first is leverage. While investors have been chasing returns in the “can’t lose” market, they have also been piling on leverage in order to increase their return. It is often stated that margin debt is “nothing to worry about” as they are simply a function of market activity and have no bearing on the outcome of the market.

That is a very short-sighted view. By itself, margin debt is inert. Investors can leverage their existing portfolios and increase buying power to participate in rising markets. While “this time could certainly be different,” the reality is that leverage of this magnitude is “gasoline waiting on a match.” When an “event” eventually occurs, it creates a rush to liquidate holdings. The subsequent decline in prices eventually reaches a point which triggers an initial round of margin calls. Since margin debt is a function of the value of the underlying “collateral,” the forced sale of assets will reduce the value of the collateral further triggering further margin calls. Those margin calls will trigger more selling forcing more margin calls, so forth and so on.

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Imposing a 70% loss on creditors sounds like a confidence breaker to me.

Markets Get Wake-Up Call From China’s Post-Congress Deleveraging Moves (R.)

The pace at which Beijing is announcing deleveraging reforms following last month’s Communist Party Congress is a wake-up call for investors in Chinese markets: risk just got real. Sweeping new rules for the asset management industry, a crackdown on micro loans and losses imposed on the creditors of the state-owned Chongqing Iron & Steel are not yet a “Big Bang” of reforms. Some of the measures were well flagged and will only kick in 2019. But they are sending a signal to markets that policymakers are serious about deleveraging, something that has been urged by the INF and ratings agencies for years and flagged as a top priority by President Xi Jinping at the party congress.

Debt markets reacted first, with benchmark 10-year borrowing costs hitting three-year highs above 4% and yield spreads between government and corporate debt widening as policymakers appear more tolerant of defaults. Last week, the debt sell-off spilled over into equities, which saw their worst day in 19 months, and markets have since weakened further. [..] Two weeks ago, the central bank and the top regulators for banking, insurance, securities and foreign exchange announced unified rules covering asset management. The aim was to close loopholes that allow regulatory arbitrage, reduce leverage levels, eliminate the implicit guarantees some financial institutions offer against investment losses and rein in shadow banking.

Last week, a top-level Chinese government body issued an urgent notice to provincial governments urging them to suspend regulatory approval for new internet micro-lenders in a bid to curb household debt, which is currently low but rising rapidly. In the meantime, creditors of Chongqing Iron & Steel took a 70% loss in a debt-to-equity swap restructuring of nearly 40 billion yuan ($6 billion) of debt. [..] Debt-to-equity swaps are complex operations that are harder to undo than a missed bond payment and analysts say the move signals a clear path for tackling high corporate debt levels, which the BIS estimates at 1.6 times the size of the economy. “If you own the wrong stuff you’re in trouble because they are not going to bail you out any more,” said Joshua Crabb at Old Mutual Global Investors.

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Round it off to an even 100%, why don’t you.

Chance Of US Stock Market Correction Now At 70% – Vanguard (CNBC)

Don’t panic, but there is now a 70% chance of a U.S. stock market correction, according to research conducted by fund giant Vanguard Group. There is always the risk of a correction in stocks, but the Vanguard research shows that the current probability is 30% higher than what has been typical over the past six decades. Vanguard, which manages roughly $5 trillion in assets and is a proponent of long-term investing, isn’t sounding the alarm bells to scare investors out of the market. But according to Vanguard’s chief economist Joe Davis, investors do need to be prepared for a significant downturn.

“It’s about having reasonable expectations,” Davis said. “Having a 10% negative return in the U.S. market in a calendar year has happened 40% of the time since 1960. That goes with the territory of being a stock investor.” He added, “It’s unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue.” In its annual economic and investing outlook published last week, Vanguard told investors to expect no better than 4% to 6% returns from stocks in the next five years, its least bullish outlook since the post-financial crisis recovery began. Contributing to that outlook are market indicators that suggest “a little froth” in the market, according to the Vanguard chief economist.

“The risk premium, whether corporate bond spreads or the shape of yield curve, or earnings yields for stocks, have continued to compress,” Davis said. “We’re starting to see, for first time … some measures of expected risk premiums compressed below areas where we think it can be associated with fair value.” Many market participants have worried in recent months about the flattening in the yield curve — the spread between 2-year note yields and 10-year yields — at the lowest level since before the financial crisis. Meanwhile, the spread between junk bond yields and Treasurys recently has moved closer to the level before the financial crash than the long-term historical average.

Read more …

Bitcoin at the water cooler.

Exit Sign (Jim Kunstler)

I’m not so sanguine about Bitcoin’s supposed impregnability, nor about many of its other appealing claims. The Mt. Gox affair of 2014 must be forgotten now, but back then some sharpie hacked 850,000 Bitcoins (valued over $450,000,000) out of the exchange, which was processing almost two-thirds of all the Bitcoin trades in the world. Mt. Gox went out of business. Bitcoin tanked and then traded sideways for three years until (coincidentally?) the Golden Golem of Greatness was elected Leader of the Free World. Hmmmm….. Not many readers understand the first thing about block-chain math, your correspondent among them. But I am aware that the supposed safety of Bitcoin lies in its feature of being an algorithm distributed among a network of computers world-wide, so that it kind of exists everywhere-and-nowhere at the same time, a highly-valued ghost in the techno-industrial meta-machine.

However, the electric energy required for “mining” each Bitcoin — that is, the computations required for updating the block-chain network — is enough to boil almost 2000 liters of water. This is happening world-wide, and a lot of the Bitcoin “mining” is powered by coal-burning electric plants, making it the first Steampunk currency. If Bitcoin were to keep rising to $1,000,000 per unit, as many investors hope and pray, there wouldn’t be enough electric power in the world to keep it going. Pardon me if I seem skeptical about the whole scheme. Even without Bitcoin bringing extra demand onto the scene, America’s electrical grid is already an aging rig of rags and tatters. There are a lot of ways that the service could be interrupted, perhaps for a long time in the case of an electric magnetic pulse (EMP). I’m not convinced that crypto-currencies are beyond the clutches of government, either.

Around the world, in their campaign to digitize all money, there must be a deep interest in either hijiking existing block-chains, or creating official government Bit-monies to seal the deal of total control over financial transactions they seek. Anyway, there are already over 1300 private cryptos and, apparently, a theoretically endless ability to create ever new ones — though the electricity required does seem to be a limiting factor. Maybe governments will shut them down for being energy-hogs. My personal take on the phenomenon is that it represents the high point of techno-narcissism — the idea that technology is now so magical that it over-rides the laws of physics. That, for me, would be the loudest “sell” signal. I’d just hate to be in that rush to the exits. And who knows what kind of rush to other exits it could inspire.

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No problem is you think bitcoin is not a bubble.

Bitcoin Bubble Makes Dot-Com Look Rational (BBG)

Even compared with some extreme bubbles, bitcoins, which continued its climb toward $10,000 Monday afternoon, look bloated. Take dot-com stocks, which were the biggest bubble of the past few decades, and likely the largest in stock market history. At the height of the dot-com stock bubble, the technology-heavy Nasdaq stock index had a price-to-earnings ratio of 175. In the past year, bitcoins have generated transaction fees of nearly $219 million. And at $9,600 a piece, the total value of all bitcoins – their market cap – now tops $155 billion. That gives bitcoins the equivalent of a trailing P/E ratio of 708. That means based on valuation, bitcoins are four times more expensive than dot-com stocks were at the height of their bubble.

Valuation, though, is not what pops bubbles. Supply does. The dot-com bubble, like all bubbles, was driven by the fact that there were relatively few publicly traded internet stocks in the mid-1990s, just as investors were getting excited about them. So prices of the stocks that were public soared. Companies not actually in the internet business added “.com” to their names, or announced a web strategy, and those stocks rose as well. But from 1997 to 2000, there were $44 billion in initial public offerings of new dot-com stocks. Eventually the supply of dot-com companies became large and dubious enough that the bubble burst and the hot air holding up all the stocks rushed out.

The same will happen with bitcoin. The question is when. The combined market value of all digital currencies is just $300 billion. As my colleague David Fickling pointed out, that relatively tiny market cap of bitcoin compared with other asset classes means that a small amount of money coming out of say U.S. stocks, which have a market cap of more than $20 trillion, could send the price of bitcoin soaring. Just a 5 percentage point shift away from gold and into bitcoin could drive the price of the digital currency up by another 33%. But it’s not clear that the people who want the protection of owning gold would be comfortable with bitcoin instead. The percentage of stock investors interested or able to invest their 401(k) in bitcoin is likely small as well, though surely, as in all bubbles, growing.

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Britain is a class society. Might as well have castes.

London Homes Are Now Less Affordable Than Ever Before (BBG)

London homes are less affordable than ever before, despite slowing price growth and government attempts to cut the cost of housing for first-time buyers. It now costs the average Londoner 14.5 times their annual salary to purchase a home, the highest level on record, according to a report Tuesday by researcher Hometrack. Cambridge, Oxford and the English seaside town of Bournemouth also have price-to-earnings ratios in the double digits, the report shows. “Unaffordability in London has reached a record high, despite a material slowdown in the rate of house-price growth over the last year,” Richard Donnell, research director at Hometrack, said in an interview. “The gap between average earnings and house prices in the capital has never been wider.”

Even with the recent slowdown, the average cost of a first home in the U.K. capital is still up 66% since 2012 as supply fails to meet the demand from domestic buyers and overseas investors. Spiraling values have caused the number of younger buyers in the capital to fall, something that Chancellor of the Exchequer Philip Hammond sought to address last week when he abolished stamp duty for first-time buyers of homes worth up to 300,000 pounds ($400,290). London house prices rose an average 3% in the year ending October to 496,000 pounds, less than half the 7.7% growth rate of a year earlier, Hometrack said. The researcher defined London as the 46 boroughs in and around the U.K. capital.

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Not sure a comprehensive study is even possible.

£300 Million A Week: The Output Cost Of The Brexit Vote (VoxEU)

There is huge variation in the estimated cost of Brexit. Most studies forecast that a reduction in trade or a fall in foreign direct investment (FDI) – or both – will reduce output. For instance, HM Treasury (2016) uses a gravity model to assess the economic impact in several scenarios, and concludes that losses could be up to 6% of GDP in the long term. Yet the future relationship between the UK and the EU is highly uncertain (Baldwin 2016). As a result, estimating the cost of Brexit is difficult. Different assumptions about the deal that the UK will lead to different cost estimates.

That’s why we take a different approach in a recent paper (Born et al. 2017). Rather than making set of assumptions which are bound to be controversial, and using them to forecast the economic costs of Brexit, we measure the actual output loss from the UK’s decision to leave the EU. Our approach does not depend on having the right model for the British, the European, or even the global economy. We do not assume a particular Brexit deal, or construct specific scenarios for the outcome of the negotiations. Instead we create a transparent, unbiased, and entirely-data driven ‘Brexit cost tracker’ that relies on synthetic control methods (Abadie and Gardeazabal 2003).

[..] We then use the doppelganger of the pre-Brexit UK economy to quantify the cost of the Brexit vote. As the doppelganger is not treated with the Brexit vote, it will continue to evolve in a similar way to how the pre-Brexit economy would have evolved if the referendum had never happened. It shows, in other words, the counterfactual performance of the UK economy, and the divergent output paths between the UK economy and its doppelganger capture the effect of the referendum. This ‘synthetic control method’ has been successfully applied to study similar one-off events, such as German reunification and the introduction of tobacco laws in the US (Abadie et al. 2010, 2015).

Figure 2 zooms into the post-Brexit period. We find that the economic costs of the Brexit vote are already visible. By the third quarter of 2017, the economic costs of the Brexit vote are about 1.3% of GDP. The cumulative output loss is £19.3 billion. As 66 weeks have passed between the referendum and the end of the Q3 2017 (our last GDP data point), the average output cost is almost £300 million on a per-week basis.

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The Tories are not going to win this.

The Irish Question May Yet Save Britain From Brexit (G.)

It was always there for all to see, the great Celtic stone cross barring the way to Brexit. Finally, as crunch day nears, the government and its Brextremists have to confront what was always a roadblock to their fantasies. They pretended it was nothing. Reviving that deep-dyed, centuries-old contempt for the Irish, they have dismissed it with an imperial fly-whisk as a minor irritation. No longer. On 14 December, the time comes when the EU decides whether the UK has made “sufficient progress” on cash, citizens’ rights … and the Irish border. This roadmap was long ago agreed, and yet as the day approaches there is no plan for that 310-mile stretch with its 300 road crossings. The Irish government, which never wanted the UK to leave, demands, as it always did, that no hard border disrupts trade and breaks the Good Friday agreement.

Why would they expect anything else, when Theresa May herself made that one of her “red lines”? But she made three incompatible pledges: no single market, no customs union and no hard border, an impossible conundrum no nearer resolution than the day she uttered it. Labour’s Keir Starmer keeps pointing to the needless trap she jumped into: why not, like Labour, keep those options on the table? The Brexiteers turn abusive: the Irish are holding Britain to “ransom” and “blackmail” by conducting an “ambush”. The Sun leader told the taoiseach, Leo Varadkar, to “shut your gob and grow up”, and to stop “disrespecting 17.4 million voters of a country whose billions stopped Ireland going bust as recently as 2010”.

Brexit fanatic Labour MP Kate Hoey yesterday adopted a Trump-style demand that Ireland builds a wall and pays for it – for a border they never wanted. The Ukip MEP Gerald Batten tweeted: “UK threatened by Ireland. A tiny country that relies on UK for its existence …” and: “Ireland is like the weakest kid in the playground sucking up to the EU bullies.” Brexiteers, thrashing around, accuse the Irish of using the border crisis as a devious plot to further a united Ireland. But Varadkar rightly says he is not using a veto. There is complete unity among the EU 27: no hard border, loud and clear. He is right not to let this slip to the next stage without a written-in-blood pledge.

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Class society.

The Fat Cats Have Got Their Claws Into Britain’s Universities (G.)

Scandals aren’t meant to happen in British universities. Parliament, tabloid newsrooms, the City … those we expect to spew out sleaze. Not the gown-wearing, exam-sitting, quiet-in-the-library surrounds of higher education. Yet we should all be scandalised by what is happening in academia. It is a tale of vast greed and of vandalism – and it is being committed right at the top, by the very people who are meant to be custodians of these institutions. If it continues, it will wreck one of the few world-beating industries Britain has left. Big claims, I know, but easily supportable. Let me start with greed. You may have heard of Professor Dame Glynis Breakwell. As vice-chancellor of Bath University, her salary went up this year by £17,500 – which is to say, she got more in just one pay rise than some of her staff earn in a year.

Her annual salary and benefits now total over £468,000, not including an interest-free car loan of £31,000. Then there’s the £20,000 in expenses she claimed last year, with almost £5,000 for the gas bill – and £2 for biscuits. I knew there had to be a reason they call them rich tea. Breakwell is now the lightning rod for Westminster’s fury over vice-chancellor pay. As the best paid in Britain, she’s the vice-chancellor that Tony Blair’s former education minister, Andrew Adonis, tweets angrily about. She’s the focus of a regulator’s report that slams both her and the university. She’s already had to apologise to staff and students for a lack of transparency in the university’s pay processes – and may even be forced out this week.

But she’s not the only one. The sector is peppered with other vice-chancellors on the make. At Bangor University, John Hughes gets £245,000 a year – and lives in a grace-and-favour country house that cost his university almost £750,000, including £700-worth of Laura Ashley cushions. Two years ago, the University of Bolton gave its head, George Holmes, a £960,000 loan to buy a mansion close by. The owner of both a yacht and a Bentley, Holmes enjoys asking such questions as: “Do you want to be successful or a failure?” Yet as the Times Higher Education observed recently, he counts as a failure, having overseen a drop last year in student numbers, even while being awarded an 11.5% pay rise.

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The marriage meant to make you forget Brexit.

Prince Harry Can Bring His Foreign Spouse To UK – 1/3 Of Britons Can’t (Ind.)

Prince Harry is in a privileged position as he celebrates his engagement to US-born Meghan Markle, not only because he is royalty, but because he is part of a percentage of the population who can afford to marry a spouse from outside of the European Economic Area (EEA). Immigration rules introduced in 2012 under then-Home Secretary Theresa May set a minimum earnings threshold of £18,600 for UK citizens to bring a non-EEA spouse or partner to live here with them. The Migration Observatory in Oxford estimates that 40 per cent of Brits in full or part-time employment don’t earn enough to meet this threshold, narrowing the marriage choices of a significant proportion of the population.

The income requirement doesn’t just disadvantage minimum wage earners, but also the young, women and those with caring responsibilities, who are less likely to meet the threshold. Where you live matters too; Londoners earn higher salaries than those living outside the south-east of the country. But even within London, there are disparities – around 41 per cent of non-white UK citizens working in London earn below the income threshold compared to 21 per cent of those who identify as white. Consider that before hailing the dawn of a new post-racial era in the UK with Meghan Markle, who is mixed race, marrying into the Royal family. The £18,600 figure was calculated as the minimum income amount necessary to avoid a migrant becoming a “burden on the state”.

This makes sense in theory, but economics cannot be the only metric in a system that deals with people’s lives. The committee tasked with setting the amount was not asked to take into account other metrics, such as the wellbeing of UK citizens, permanent residents and their families. The question we need to ask ourselves is, should love have a price tag? Is it right or fair that Prince Harry and those who earn above the minimum wage are a select percentage of the population who can marry whoever they choose? The price of bringing your spouse to the UK rises with every child you include on your application, giving rise to “Skype families” who cannot afford or are otherwise unable to reunite and have to stay in touch over Skype. In 2015, the Children’s Commissioner reported that up to 15,000 children are affected by this rule, most of whom are British citizens. Families are put under immense stress and anxiety.

Read more …

This is what you call organized crime. There are laws covering that.

Wells Fargo Bankers Overcharged Clients For Higher Bonuses (CNBC)

Evidence that embattled bank Wells Fargo had swindled some of its clients emerged in a June conference call led by its managers, according to two employees who were present during the call, The Wall Street Journal reported Monday.The revelation, based on an internal assessment, reportedly came following years of rumors within the bank. Of the approximately 300 fee agreements for foreign exchange trades reviewed internally by Wells Fargo, only about 35 firms were billed the price they had been quoted, the employees told the Journal.

Wells Fargo charged one of the highest trading fees — at least two to eight times higher than industry standards, according to the bank’s employees and others in the sector, the Journal reported. The latest case shares important similarities to Wells Fargo’s ongoing sales scandal: Under a highly unusual policy, employees’ bonuses were tied to how much revenue they brought in, the report said. The practice reportedly led retail employees to open as many as 3.5 million fake accounts, in a controversy first brought to light last year.

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I kid you not: this article is ‘supported by the Rockefeller Foundation”.

Sao Paulo’s Homeless Seize The City (G.)

On the wall of an abandoned and occupied hotel in central Sao Paulo is a mural of a fiercely feral creature – part cat, part rat, part alien – that bears a red revolutionary banner with a single word: Resistencia! The surrounding courtyard is daubed with slogans of defiance – “10 years of struggle!”, “Whoever doesn’t struggle is dead” – and the initials MMLJ (the Movement of Residents Fighting for Justice). Young boys kick a ball against a wall decorated with a giant photograph of masked, armed protesters. In the surrounding blocks, 237 low-income families talk, cook, clean, watch TV, shop, practice capoeira, study literacy, sleep and go about their daily lives in Brazil’s most famous illegal squat.

This is the Maua Occupation, a trailblazer for an increasingly organised fair-housing movement that has reignited debate about whether urban development should aim at gentrification or helping the growing ranks of people forced to live on the street and in the periphery. When the Santos Dumont hotel was first taken over on the 25 March 2007, there were very few organised squats in South America’s biggest city. But recession, inequality and increasing political polarisation have turned the occupation movement into one of the most dynamic forces in the country. There are now about 80 organised squats in the city centre and its environs, including high-rise communities and centres of radical art.

The periphery is home to many more, such as the giant “Povos Sem Medo” (People Without Fear) cluster of 8,000 tents in the Sao Bernardo do Campo district. The burst of energy and activism has been compared to the key transitional periods for other major cities in the 1970s, 80s and 90s. “We are now seeing a boom of squatting in Sao Paulo that is like those once seen in New York, Berlin and Barcelona,” said Raquel Rolnik, a former UN Special Rapporteur and architect who has worked in the housing sector for more than three decades. “What is happening here is not unique but it is happening on a very wide scale.”

Read more …

Oct 042017
 
 October 4, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  


Pablo Picasso Vue de Notre-Dame de Paris 1945

 

Why Greece Took The Fall For A European Banking Crisis (Ren.)
The Fed is a Slave to the S&P 500 (Albert Edwards)
Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)
Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)
White House To Request $29 Billion For Hurricane Relief (R.)
White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)
IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)
IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)
A Debt Bomb Is Growing Down Under (Satyajit Das)
The End of Empire (Chris Hedges)
‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)
King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)
Spain Rules Out Mediator In Catalan Crisis (Pol.)
Goodbye – And Good Riddance – To Livestock Farming (G.)

 

 

“If Greece continues to participate in the EU, democracy is doomed”

Claire Connelly’s damning version of the events. Please read the whole thing.

Why Greece Took The Fall For A European Banking Crisis (Ren.)

The Greek financial crisis was actually a French and German banking crisis for which Greece took the fall, the result of decades of irresponsible spending and lending. When Greece joined the Euro it went on a spending spree, building roads, airports, new subway systems, infrastructure and a state-of-the-art military arsenal all built and provided by German companies. Companies which, incidentally, have been accused of bribing Greek politicians to secure military and civilian government contracts. Siemens allegedly paid €100 million to Greek officials to secure a contract to upgrade Athens’s telecommunications infrastructure for the 2004 Olympic Games. The Euro was designed to limit competition between the industries of member nations while shifting deficits and surpluses around the continent. Greece’s deficits are Germany’s surplus, and so on.

Had Greece still been using the Drachma, it had a chance of keeping its deficits in check, because it could decide on its own how to set interest rates and tax currency, but when replaced with the Euro, French and German loans caused its deficits to explode and it had no option but to accept the terms of its creditors, even though they knew the debt had no chance of being repaid. Banks – having been bankrupted by the 2008 Global Financial Crisis – stopped lending, and Greece, unable to rollover its debt, became insolvent. As a result, the three French banks which had issued loans to its European nations faced peripheral losses twice the size of its economy. More to the point, the French and German banks didn’t want the debts to be repaid. But they also didn’t want countries like Italy, Spain, Portugal and Ireland to default.

France’s top three banks had loaned €627 billion to Italy, Spain and Portugal and €102 billion to Greece and were staring down a 30 to 1 leverage ratio, meaning that if it lost only 3.33% of its loans to defaults, its capital would be wiped out and banking regulators would be forced to shut the banks down. And if Greece defaulted on its debt, the banks were concerned Spain, Italy, Portugal and Ireland would follow, resulting in a 19% loss of French debt assets, far and above the 3% that would lead to its insolvency. The three French banks needed a €562 billion bailout, but unlike the US which can shift its losses to its central bank, the Federal Reserve, France a) had no such central bank to shift its losses to, having dismantled it in favour of the European Central Bank, and b) the ECB was prohibited upon its formation to shift bad debts onto its books.

Likewise, Germany’s banks also went bust and required a €406 billion bailout – which it received – but it was barely enough to cover its US-based toxic derivative trades which led to the crisis in the first place, let alone what they had leant to their European neighbours. The banks came back begging, mere months after being cut a €406 billion cheque by the German government. “Greece’s bankruptcy would force the French state to borrow six time its total annual tax revenues just to hand it over to three idiotic banks,” former Greek finance minister, Yanis Varoufakis wrote in his expose of the ‘bailout’ negotiations, Adults In The Room. Had the markets found out this secret, interest rates would have skyrocketed and €1.29 trillion of French government debt would have gone bad and the country bankrupted, and the EU with it.

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Edwards likes Kevin Warsh, frontrunner for Fed chief….

The Fed is a Slave to the S&P 500 (Albert Edwards)

I was the first speaker and afterward I enjoyed listening to every other speaker at the two-day event. Most notable of the outside economics speakers were Paul Volcker, Larry Summers, and most significantly for me, ex Fed-Governor Kevin Warsh. Much to my own regret, I had never familiarised myself with the views of Governor Warsh, who was at the Fed from 2006-11, and played a key role in navigating the Fed through the crisis. He got a rousing reception from the BCA audience as he talked a lot of sense – in particular on how the Yellen Fed has lost its way and current policy is deeply flawed. He explained that the Fed has been “captured” by a groupthink of academics led by the ‘Secular Stagnation’ ideas of his friend, Larry Summers.

Rather than admitting they are wrong, this group, who failed to predict the current economic malaise, have constructed this theory to explain why ever more stimulus is required. In particular, Warsh warned that the Fed had become the slave of the S&P. Summers’ relaxed view on the debt build-up, particularly visible in the corporate sector, is in sharp contrast with our own view that this looks set to wreck the US economy. The problem with Summers’ analysis in my view is that it is the higher debt that is being used to push up asset values (via share buybacks), just as it did during the housing bubble in 2005-7. And by pushing asset values well beyond fundamentals you build debt structures on false asset values, which only become apparent when the asset bubble bursts. And am I in any way reassured that the Fed sees no bubbles? No, I am not. These dudes will never identify an asset bubble – at least before the event!

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… bur Warsh might endanger easy money policies, and make the dollar stronger.

Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)

[..] we can cross out economist Glenn Hubbard and U.S. Bancorp Chairman Richard Davis, both of whom have been floated as possible candidates, although Trump has no intention of interviewing them. A potential wildcard is Stanford economist John Taylor, a favorite of fiscal conservatives, who is also said to be under consideration. It has also been previously reported that Trump has spoken to Yellen, Cohn, Warsh and Powell about the Fed post, although there is no frontrunner at the moment. According to Bloomberg, “the latest developments show that Trump is closer to making a final selection than previously known.” Last Friday, Trump said that he is “two or three weeks away from announcing his nominee” for the post overseeing the nation’s central bank.

Meanwhile, speaking at the Vanity Fair New Establishment Summit on Tuesday in Los Angeles, Jeffrey Gundlach – who accurately predicted Trump’s presidency – predicted that Neel Kashkari would be picked as next Fed chair. “I actually have a very non-consensus point of view. I think it’s going to be Neel Kashkari… He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win.” The Bond King said that Trump needs someone who will keep rates low in order to keep his populist reputation and help his base voters and that’s why he’ll pick Kashkari. “A stronger dollar is not good for achieving that agenda,” he said. Gundlach also is confident that Yellen would not get reappointed: “I think there is no chance that she wants to be chairwoman, nor do I think the president wants her to be,” said the manager of $109 billion.

Judging by the latest PredictIt odds, if Gundlach is right, and if he is willing to bet some money on it, he could make a killing, as Kashkari does not even have a contract. As to the current ranking, Warsh remains in top spot with 38% odds, although following today’s Politico news, Powell surged to second place with 31% odds, and now following the Bloomberg report, John Taylor finds himself in third spot with 20% odds, above both Gary Cohn in 4th and Janet Yellen who has tumbled to 5th with just 13% odds of being reappointed.

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“I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Wonder how it would be done. And what does it mean for Texas, Florida debt?

Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)

President Donald Trump suggested that the government debt accumulated by bankrupt Puerto Rico would need to be wiped clean to help the island recover from the devastation caused by Hurricane Maria. “We are going to work something out. We have to look at their whole debt structure,” Trump said during an interview on Fox News Tuesday. “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be – you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Puerto Rico is dealing with an immediate humanitarian disaster made worse by the long-term debt crisis that led it to declare a form of bankruptcy this year.

The island’s government for decades had been plagued by budget deficits caused by wasteful spending, and borrowed $74 billion. Much of that went to operations. The commonwealth’s budget is under the control of a federally appointed oversight board, a panel that the U.S. Congress created to wield broad sway over the territory’s finances. The panel approves the island’s budget and is meant to help make unpalatable decisions such as closing schools and cracking down on tax evasion. Trump paid a four-and-a-half-hour visit to the island earlier Tuesday, greeting local officials and offering consolation to residents who have been without power and, in many cases, drinking water since the storm struck on Sept. 20. Some in Puerto Rico’s government already are estimating reconstruction costs will be as high as $60 billion.

Prices of the U.S. territory’s bonds have plunged to record lows, signaling investors expect that there will be even less money available to repay its $74 billion of debt. Puerto Rico has little financial ability to navigate the disaster on its own, leaving the recovery heavily dependent on how much aid comes from Washington. It began defaulting on its debts two years ago, seeking to avoid draconian budget cuts officials said would deal another blow to an already shrinking economy. With nearly half of its 3.4 million residents living in poverty, the government filed for bankruptcy protection in May.

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Are they going to fight over this?

White House To Request $29 Billion For Hurricane Relief (R.)

The White House is preparing a $29 billion disaster aid request to send to the U.S. Congress after hurricanes hit Puerto Rico, Texas and Florida, a White House official said on Tuesday. The request is expected to come on Wednesday. It will combine nearly $13 billion in new relief for hurricane victims with $16 billion for the government-backed flood insurance program, the White House official told Reuters. The White House wants Congress to forgive $16 billion of the debt that the National Flood Insurance Program, which insures about 5 million homes and businesses, has racked up.

The request comes as the program is close to running out of money, congressional aides said. The program had racked up nearly $25 billion in debt before this season’s major hurricanes. The Trump administration is also proposing more than a dozen reforms including new means testing and an extreme-loss repetition provision, aides said. Some homes insured under the program have gotten payments repeatedly from the program after multiple storms. The flood insurance money is aimed primarily for areas impacted by Hurricanes Harvey and Irma, which struck Texas and Florida, aides said.

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Don’t think the GOP will like this.

White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)

The White House is showing “softness” on ending a $1.3 trillion federal tax deduction filers get for their state and local taxes, Senator Bob Corker said Monday, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul. The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts. Corker, who insists he won’t vote for a tax bill that adds a penny to the deficit, said in an interview that he’s concerned about the early signals from the White House. On Friday – two days after the tax framework was rolled out – National Economic Council Director Gary Cohn said that ending the state and local tax break was negotiable.

“That’s the easiest one,” said Corker, a Tennessee Republican. “Some of the others are actually more offensive and produce lesser amounts of money.” The budget rules that Senate leaders plan to use to pass the legislation require that any changes that boost the federal deficit would have to expire in time. But the nine-page framework released Wednesday provided few details on revenue raisers. It calls for eliminating deductions, but doesn’t specify them. By showing its willingness to negotiate on one such deduction, the White House appears to be charting a rocky path. “As a general matter in tax reform you have to acknowledge that you cannot negotiate with everybody’s single pay-for,” said Doug Holtz-Eakin, who runs the American Action Forum, a conservative group that’s working with GOP leaders on taxes. “If you do that for everything, you don’t get tax reform.”

Ending the state and local deduction, which Trump’s aides proposed in April, faces resistance from Republican lawmakers in high-tax states like New York and New Jersey. The same day Cohn commented on the state tax break, tax-writing chiefs Senator Orrin Hatch and Representative Kevin Brady dismissed a study that found ending personal exemptions, another one of the few offsets set forth, could raise taxes for some middle-class families. Their response: The committees haven’t made decisions about which tax breaks to end. Asked if the state tax break and personal exemptions were negotiable, Brady reiterated Monday the bill is a work-in-progress. “We’re continuing to work on the final design of the tax reform plan that we’ll have ready after the budget is completed,” he said.

White House Budget Director Mick Mulvaney is signaling similar flexibility, saying on CNN Sunday that decisions about deductions remain up in the air as “the bill is not finished yet.” He took it a step further on Fox News Sunday, by adding that a tax plan that doesn’t add to the deficit won’t spur growth. “I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3% economic growth.”

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Just-in-time politics.

IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)

The IMF has issued a warning to governments that rely on debt-fuelled consumer spending to boost economic growth, telling them they run the risk of another major financial collapse. In a report before the IMF’s annual meeting in Washington next week, it said analysis of consumer spending and levels of household debt showed that economies benefited in the first two to three years when households raised their levels of borrowing, but then risks began to mount. Once growth becomes dependent on household debt, it can be a matter of two to three years before a financial crash, the IMF said in its annual report on the global financial system. The study follows a series of warnings about rising levels of household debt in the UK from financial regulators and debt charities.

In a blogpost accompanying the report, one of the authors, Nico Valckx, warned: “Debt greases the wheels of the economy. It allows individuals to make big investments today – like buying a house or going to college – by pledging some of their future earnings. That’s all fine in theory. But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous.” He added: “Higher debt is associated with significantly higher unemployment up to four years ahead. And a one percentage point increase in debt raises the odds of a future banking crisis by about one percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5%, even without any increase in debt.”

Earlier this year the IMF cut its forecast for the UK’s GDP growth in 2017 by 0.3 percentage points to 1.7% and it is expected to reduce its prediction further next week when its global outlook is published. The uncertainty created by the Brexit vote and negotiations to leave are likely to be blamed, along with a reliance on consumer spending, which has slowed this year. The Bank of England, which regulates the banking sector, said last month that the UK’s banks could incur £30bn of losses on their lending on credit cards, personal loans and for car finance if interest rates and unemployment rose sharply. The debt charity Stepchange has warned that 6.5 million people have used credit to pay for basic items such as food after a change in their circumstances. And MPs have called for an independent commission to examine the effects of rising household debt levels in the UK.

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Same IMF report, specifically for Australia.

IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)

Rapid growth in household debt works as a short-term sugar hit to the economy but leaves a long hangover with reduced growth, higher unemployment and the risk of a banking crisis, the International Monetary Fund has warned. The fund identifies Australia as one of the countries most exposed, with household debts rising to more than 100% of GDP compared with an advanced- country average of 63%. “In the short term, an increase in the household debt-to-GDP ratio is typically associated with higher economic growth and lower unemployment, but the effects are reversed in three to five years, the IMF says in its latest review of global financial stability. Moreover, higher growth in household debt is associated with a greater probability of banking crises.

Reserve Bank governor Philip Lowe yesterday repeated his concern that housing debt has been outpacing the slow growth in household incomes and is now limiting growth in household spending. “Slow growth in real wages and high levels of household debt are likely to constrain growth in household spending,” he said. Announcing that the bank was keeping its benchmark cash rate at the record low of 1.5%, where it has now been sitting since August 2016, he said risks in the housing market were being contained by banking regulator the Australian Prudential Regulation Authority, which had tightened supervision of real estate lending.

The IMF’s research shows that on average, a 5 percentage point rise in household debt to GDP over a three-year period foreshadows weaker growth in GDP, which would be 1.25 percentage points lower in three years’ time. Reserve Bank statistics on household balance sheets show that total debts have risen from 123% of GDP to 137% over the past five years, or a 14 percentage point increase.

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And Das has some more on the land of Oz.

A Debt Bomb Is Growing Down Under (Satyajit Das)

Australia’s record of 26 years without a recession flatters to deceive. The gaudy numbers mask serious flaws in the country’s economic model. First and most obviously, the Australian economy is still far too dependent on “houses and holes.” During part of the typical business cycle, national income and prosperity are driven by exports of commodities – primarily iron ore, liquefied natural gas and coal – that come out of holes in the ground. At other times, low interest rates and easy credit boost house prices, propping up economic activity. These two forces have combined with one of the highest population growth rates in the developed world (around 1.5% annually, driven mostly by immigration) to prop up headline growth. Yet a significant portion of housing activity is speculative. Going by measures such as price-to-rent or price-to-disposable income, Australia’s property market looks substantially overvalued.

Meanwhile, GDP per capita has been largely stagnant since 2008. Australia’s manufacturing industry, once a significant employer and an important part of the economy, has increasingly been hollowed out. The country’s cost structure is high. Improvements in productivity have, as elsewhere, been lackluster. Infrastructure is aging and unable to cope with the demands of a rising population, especially in major cities. Australia stands at 21st place in the 2017 Global Competitiveness Report. It ranks 15th in the World Bank’s ease of doing business list. Attempts to diversify the economy have had mixed results. Tourism and service exports, mainly of education and health services, have expanded significantly. But they’re nowhere near replacing the revenues brought in by mineral exports.

Second, a debt bomb is growing Down Under. Australia’s total non-financial debt is over 250% of GDP, up around 50% since 2010. Household debt is currently over 120% of GDP, among the highest proportions in the world. The ratio of household debt to income has nearly quintupled since the 1980s, reaching an all-time high of 194%. Stagnant real incomes have contributed to the problem, as have high home prices and the associated mortgage debt. Despite record-low interest rates, around 12% of income is now devoted to servicing all this debt. That’s a third more than in 1989-90, when interest rates neared 20%.

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“..a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too.”

The End of Empire (Chris Hedges)

The American empire is coming to an end. The U.S. economy is being drained by wars in the Middle East and vast military expansion around the globe. It is burdened by growing deficits, along with the devastating effects of deindustrialization and global trade agreements. Our democracy has been captured and destroyed by corporations that steadily demand more tax cuts, more deregulation and impunity from prosecution for massive acts of financial fraud, all the while looting trillions from the U.S. treasury in the form of bailouts. The nation has lost the power and respect needed to induce allies in Europe, Latin America, Asia and Africa to do its bidding. Add to this the mounting destruction caused by climate change and you have a recipe for an emerging dystopia.

Overseeing this descent at the highest levels of the federal and state governments is a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too. The empire will limp along, steadily losing influence until the dollar is dropped as the world’s reserve currency, plunging the United States into a crippling depression and instantly forcing a massive contraction of its military machine. Short of a sudden and widespread popular revolt, which does not seem likely, the death spiral appears unstoppable, meaning the United States as we know it will no longer exist within a decade or, at most, two.

The global vacuum we leave behind will be filled by China, already establishing itself as an economic and military juggernaut, or perhaps there will be a multipolar world carved up among Russia, China, India, Brazil, Turkey, South Africa and a few other states. Or maybe the void will be filled, as the historian Alfred W. McCoy writes in his book “In the Shadows of the American Century: The Rise and Decline of US Global Power,” by “a coalition of transnational corporations, multilateral military forces like NATO, and an international financial leadership self-selected at Davos and Bilderberg” that will “forge a supranational nexus to supersede any nation or empire.”

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“We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)

The chief executive of Wells Fargo & Co. on Tuesday faced senators unimpressed with the bank’s claims of progress in rectifying a massive scandal that lasted years and ensnared millions of customers. “My task is to make sure nothing like this happens again at Wells,” CEO Tim Sloan, a former CFO who was elevated after the ouster of John Stumpf last fall, told the Senate Banking Committee. Sloan outlined steps Wells had taken to address the management structure that incentivized opening accounts for customers fraudulently, and to make affected customers whole. But most legislators said those actions – and Sloan’s testimony – fell far short. The hearing marked one year since regulators settled with Wells over the opening of 2 million phony accounts – and since then, additional wrongdoing has emerged.

In July, the New York Times broke the news that Wells had charged hundreds of thousands of customers for auto insurance they didn’t request or require – a practice that in many cases resulted in overdrawn accounts, fees, and car repossessions. Just days later, the bank told regulators that the number of unauthorized accounts should be revised much higher, to 3.5 million. On Tuesday, Sloan was asked whether the actual count of fraudulent accounts could be even higher than that. He told legislators that he was confident 3.5 million would be the final tally—and more than one noted that Stumpf had said the same thing, a year before. But many senators, it seemed, hadn’t even made peace with the revelations already reported.

“What in God’s name were you thinking?” said Senator John Kennedy, a Louisiana Republican. “I’m not against large, I’m against dumb. I’m against a business practice which has Wells Fargo first and customers second,” he added. Senator Elizabeth Warren, the populist Massachusetts Democrat, was even more blunt. “At best you were incompetent, at worst you were complicit. And either way you should be fired,” she told Sloan. Warren has previously called for removal of the entire board of directors, and urged Federal Reserve Chairwoman Janet Yellen to oust the board in her capacity as a regulator, if Wells doesn’t do it voluntarily. Yellen has said that the bank’s actions were “egregious and unacceptable” and has hinted at further penalties or enforcement actions.

“Why shouldn’t the OCC (Office of the Comptroller of the Currency) simply revoke your charter?” Brian Schatz, a Hawaii Democrat, asked Sloan. “We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

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The King represents the old Franco interests. He’s being used to turn Spaniards against Catalans.

King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)

King Felipe of Spain has accused the Catalan authorities of attempting to break “the unity of Spain” and warned that their push for independence could risk the country’s social and economic stability. In a rare and strongly worded television address on Tuesday evening, he said the Catalan government’s behaviour had “eroded the harmony and co-existence within Catalan society itself, managing, unfortunately, to divide it”. Speaking two days after the regional government’s unilateral independence referendum, in which 90% of participants opted to secede from Spain, he described Catalan society as “fractured” but said Spain would remain united. The king made no mention of the violence that marred the referendum when Spanish police officers raided polling stations, beat would-be voters and fired rubber bullets at crowds.

Instead, he focused on the actions of the government of the Catalan president, Carles Puigdemont. “These authorities have scorned the attachments and feelings of solidarity that have united and will unite all Spaniards,” he said. “Their irresponsible conduct could even jeopardise the economic and social stability of Catalonia and all of Spain. He described the regional government actions as “an unacceptable attempt” to take over Catalan institutions, adding that they had placed themselves outside both democracy and the law. “They have tried to break the unity of Spain and its national sovereignty, which is the right of all Spaniards to democratically decide their lives together,” he said.

“Given all that – and faced with this extremely grave situation, which requires the firm commitment of all to the common interest – it is the responsibility of the legitimate state powers to ensure constitutional order and the normal functioning of the institution, the validity of the rule of law and the self-government of Catalonia, based on the constitution and its statute of autonomy.”

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The EU is making mistakes that will threaten its existence.

Spain Rules Out Mediator In Catalan Crisis (Pol.)

The Spanish government Tuesday dismissed calls to bring in a mediator between Madrid and the government of Catalonia in the wake of Sunday’s controversial independence vote. Spanish European Affairs Minister Jorge Toledo told POLITICO that no third-party mediator would be acceptable to Madrid, and that any dialogue must be bilateral. “You can change the law, you can oppose it, but you cannot disobey it,” Toledo said. The comments are a further sign of Madrid’s opposition to providing any sort of encouragement or reward to Catalan separatists as a result of Sunday’s violent clashes, which they blame on the Catalan government.

The European Commission Monday called for “all relevant players to now move very swiftly from confrontation to dialogue.” European Council President Donald Tusk on Monday “appealed for finding ways to avoid further escalation and use of force.” Ahead of Sunday’s vote Amadeu Altafaj, Catalonia’s representative in Brussels, told POLITICO’s EU Confidential podcast that he welcomed the idea of a third-party mediator and that “ideally it would have happened some time ago.”

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It’s World Animal Day.

Goodbye – And Good Riddance – To Livestock Farming (G.)

What will future generations, looking back on our age, see as its monstrosities? We think of slavery, the subjugation of women, judicial torture, the murder of heretics, imperial conquest and genocide, the first world war and the rise of fascism, and ask ourselves how people could have failed to see the horror of what they did. What madness of our times will revolt our descendants? There are plenty to choose from. But one of them, I believe, will be the mass incarceration of animals, to enable us to eat their flesh or eggs or drink their milk. While we call ourselves animal lovers, and lavish kindness on our dogs and cats, we inflict brutal deprivations on billions of animals that are just as capable of suffering. The hypocrisy is so rank that future generations will marvel at how we could have failed to see it.

The shift will occur with the advent of cheap artificial meat. Technological change has often helped to catalyse ethical change. The $300m deal China signed last month to buy lab-grown meat marks the beginning of the end of livestock farming. But it won’t happen quickly: the great suffering is likely to continue for many years. The answer, we are told by celebrity chefs and food writers, is to keep livestock outdoors: eat free-range beef or lamb, not battery pork. But all this does is to swap one disaster – mass cruelty – for another: mass destruction. Almost all forms of animal farming cause environmental damage, but none more so than keeping them outdoors. The reason is inefficiency. Grazing is not just slightly inefficient, it is stupendously wasteful. Roughly twice as much of the world’s surface is used for grazing as for growing crops, yet animals fed entirely on pasture produce just one gram out of the 81g of protein consumed per person per day.

A paper in Science of the Total Environment reports that “livestock production is the single largest driver of habitat loss”. Grazing livestock are a fully automated system for ecological destruction: you need only release them on to the land and they do the rest, browsing out tree seedlings, simplifying complex ecosystems. Their keepers augment this assault by slaughtering large predators. In the UK, for example, sheep supply around 1% of our diet in terms of calories. Yet they occupy around 4m hectares of the uplands. This is more or less equivalent to all the land under crops in this country, and more than twice the area of the built environment (1.7m hectares). The rich mosaic of rainforest and other habitats that once covered our hills has been erased, the wildlife reduced to a handful of hardy species. The damage caused is out of all proportion to the meat produced.

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Sep 012017
 
 September 1, 2017  Posted by at 9:40 am Finance Tagged with: , , , , , , , , ,  


Vincent van Gogh Seine with Pont de Clichy 1887

 

Monetary Stimulus: How Much Is Too Much? (Lebowitz)
Yes, You Should Be Concerned With Consumer Debt (Roberts)
Why We’re Doomed: Stagnant Wages (CHS)
US Fuel Shortages From Harvey To Hamper Labor Day Travel (R.)
Wells Fargo Says 3.5 Million Accounts Involved In Scandal (AP)
World’s Biggest Wealth Fund Reveals Bleak View on Global Trade (BBG)
New Math Deals Minnesota’s Pensions the Biggest Hit in the US (BBG)
Six Big Banks To Create A Blockchain-Based Cash System (R.)
Putin Warns Of ‘Major Conflict’ Over North Korea, Urges Talks (AFP)
Trump, Nuclear War And Climate Change Among Gravest Threats To Humanity (PA)
Greece Doesn’t Want Any More Rescues – But It Does Need Something Else (CNBC)
Hurricane Irma Turning Into Monster (ZH)

 

 

Take their power away or else.

Monetary Stimulus: How Much Is Too Much? (Lebowitz)

The amount of monetary stimulus increasingly imposed on the financial system creates false signals about the economy’s true growth rate, causing a vast misallocation of capital, impaired productivity and weakened economic activity. To help quantify the amount of stimulus, please consider the graph. Federal Reserve (Fed) monetary stimulus comes in two forms. First in the form of targeting the Fed Funds interest rate at a rate below the nominal rate of economic growth (blue). Second, it stems from the large scale asset purchases QE) by the Fed (orange). When these two metrics are quantified, it yields an estimate of the average amount of monetary stimulus (red) applied during each post-recession period since 1980. It has been almost ten years since the 2008 financial crisis and the Fed is applying the equivalent of 5.25% of interest rate stimulus to the economy, dwarfing that of prior periods.

The graph highlights that the Fed has been increasingly aggressive in both the amount of stimulus employed as well as the amount of time that such monetary stimulus remains outstanding. Amazingly few investors seem to comprehend that despite the massive level of monetary stimulus, economic growth is trending well below recoveries of years past. Additionally, as witnessed by historically high valuations, the rise in the prices of many financial assets is not based on improving economic fundamentals but simply the stimulative effect that QE and low interest rates have on investor confidence and financial leverage. Now consider the ramifications of a Fed that continues to increase the Fed Funds rate and moves forward with plans to slowly remove QE.

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America: the House that Debt Built.

Yes, You Should Be Concerned With Consumer Debt (Roberts)

First, the calculation of disposable personal income, income less taxes, is largely a guess and very inaccurate due to the variability of income taxes paid by households. Secondly, but most importantly, the measure is heavily skewed by the top 20% of income earners, needless to say, the top 5%. As shown in the chart below, those in the top 20% have seen substantially larger median wage growth versus the bottom 80%.

Lastly, disposable incomes and discretionary incomes are two very different animals. Discretionary income is what is left of disposable incomes after you pay for all of the mandatory spending like rent, food, utilities, health care premiums, insurance, etc. According to a Gallup survey, it requires about $53,000 a year to maintain a family of four in the United States. For 80% of Americans, this is a problem even on a GROSS income basis.

This is why record levels of consumer debt is a problem. There is simply a limit to how much “debt” each household can carry even at historically low interest rates. It is also the primary reason why we can not have a replay of the 1980-90’s. “Beginning 1983, the secular bull market of the 80-90’s began. Driven by falling rates of inflation, interest rates, and the deregulation of the banking industry, the debt-induced ramp up of the 90’s gained traction as consumers levered their way into a higher standard of living.”

“While the Internet boom did cause an increase in productivity, it also had a very deleterious effect on the economy. As shown in the chart above, the rise in personal debt was used to offset the declines in personal income and savings rates. This plunge into indebtedness supported the ‘consumption function’ of the economy. The ‘borrowing and spending like mad’ provided a false sense of economic prosperity. During the boom market of the 1980’s and 90’s consumption, as a%age of the economy, grew from roughly 61% to 68% currently. The increase in consumption was largely built upon a falling interest rate environment, lower borrowing costs, and relaxation of lending standards. (Think mortgage, auto, student and sub-prime loans.) In 1980, household credit market debt stood at $1.3 Trillion. To move consumption, as a% of the economy, from 61% to 67% by the year 2000 it required an increase of $5.6 Trillion in debt. Since 2000, consumption as a% of the economy has risen by just 2% over the last 17 years, however, that increase required more than a $6 Trillion in debt.

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Doomed growth projections.

Why We’re Doomed: Stagnant Wages (CHS)

Despite all the happy talk about “recovery” and higher growth, wages have gone nowhere since 2000–and for the bottom 20% of workers, they’ve gone nowhere since the 1970s. GDP has risen smartly since 2000, but the share of GDP going to wages and salaries has plummeted: this is simply an extension of a 47-year downtrend. [..] .. our system requires ever-higher household incomes to function–not just in the top 5%, but in the top 80%. Our federal social programs–Social Security, Medicare and Medicaid–are pay-as-you-go: all the expenditures this year are paid by taxes collected this year. As I have detailed many times, the so-called “Trust Funds” are fictions; when Social Security runs a deficit, the difference between receipts and expenses are filled by selling Treasury bonds in the open market–the exact same mechanism ther government uses to fund any other deficit.

The demographics of the nation have changed in the past two generations. The Baby Boom is retiring en masse, expanding the number of beneficiaries of these programs, while the number of full-time workers to retirees is down from 10-to-1 in the good old days to 2-to-1: there are 60 million beneficiaries of Social Security and Medicare and about 120 million full-time workers in the U.S. Meanwhile, medical expenses per person are soaring. Profiteering by healthcare cartels, new and ever-more costly treatments, the rise of chronic lifestyle illnesses–there are many drivers of this trend. There is absolutely no evidence to support the fantasy that this trend will magically reverse.

Costs are skyrocketing and the number of retirees is ballooning, but wages are going nowhere. Do you see the problem? All pay-as-you-go programs are based on the assumption that the number of workers and the wages they earn will both rise at a rate that is above the underlying rate of inflation and equal to the rate of increase in pay-as-you-go programs. If 95% of the households are earning less money when adjusted for inflation, and their wealth has also declined or stagnated, then how can we pay for programs which expand by 6% or more every year? The short answer is you can’t.

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Are we going to add this to the cost of Harvey?

US Fuel Shortages From Harvey To Hamper Labor Day Travel (R.)

Travelers and fuel suppliers across the United States braced for higher prices and shortages ahead of the Labor Day holiday weekend as the country’s biggest fuel pipelines and refineries curb operations after Hurricane Harvey. Just six days after Harvey slammed into the heart of the U.S. energy industry in Texas, the effects are being felt not just in Houston, but also in Chicago and New York, and prices at the pump nationwide have hit a high for the year. Supply shortages have developed even though there are nearly a quarter of a billion barrels of gasoline stockpiled in the United States. But much of it is held in places where it cannot be accessed due to massive floods, or too far away from the places it is needed. Some of it is unfinished, meaning it needs to be blended before it can go to gas stations.

Harvey has highlighted another weakness in the system: pipeline terminals typically only have a five-day supply in storage to load into the lines. Some of the biggest pipelines in the United States, supplying the northeast market and the Chicago area, have already shut down or reduced operations because they have no fuel to pump. “Gasoline is very much a ‘just-in-time’ fuel, for as many million barrels as they think we have,” said Patrick DeHaan, petroleum analyst at GasBuddy. “Sure, they are somewhere, but they still have to be mixed and blended together.” At least two East Coast refiners, including Philadelphia Energy Solutions and Irving Oil, have already run out of gasoline for immediate delivery as they have rushed to send supplies to the U.S. Southeast, Caribbean, Mexico and South America to offset the lack of exports since Harvey.

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Lock them up!

Wells Fargo Says 3.5 Million Accounts Involved In Scandal (AP)

The scope of Wells Fargo’s fake accounts scandal grew significantly on Thursday, with the bank now saying that 3.5 million accounts were potentially opened without customers’ permission between 2009 and 2016. That’s up from 2.1 million accounts that the bank had cited in September 2016, when it acknowledged that employees under pressure to meet aggressive sales targets had opened accounts that customers might not have even been aware existed. People may have had different kinds of accounts in their names, so the number of customers affected may differ from the account total. Wells Fargo said Thursday that about half a million of the newly discovered accounts were missed during the original review, which covered the years 2011 to 2015.

After Wells Fargo acknowledged the fake accounts last year, evidence quickly appeared that the sales practices problems dated back even further. So Wells Fargo hired an outside consulting firm to analyze 165 million retail bank accounts opened between 2009 and 2016. Wells said the firm found that, along with the 2.1 million accounts originally disclosed, 981,000 more accounts were found in the expanded timeline. And roughly 450,000 accounts were found in the original window. The scandal was the biggest in Wells Fargo’s history. It cost then-CEO John Stumpf his job, and the bank’s once-sterling industry reputation was in tatters. The company ended up paying $185 million to regulators and settled a class-action suit for $142 million. New managers have been trying to amends with customers, politicians and the public.

But it’s been tough, as new revelations keep coming. Wells Fargo said last month that roughly 570,000 customers were signed up for and billed for car insurance that they didn’t need or necessarily know about. Many couldn’t afford the extra costs and fell behind in their payments, and in about 20,000 cases, cars were repossessed. Other customers have filed lawsuits against Wells Fargo saying they were victims of unfair overdraft practices. Wells Fargo is also still under several investigations for its sales practices problems, including a congressional inquiry and one by the Justice Department. Wells Fargo said Thursday that of the 3.5 million accounts potentially opened without permission, 190,000 of those incurred fees and charges. That’s up from 130,000 that the bank originally said. Wells Fargo will refund $2.8 million to customers, in addition to the $3.3 million it already agreed to pay.

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Wise.

World’s Biggest Wealth Fund Reveals Bleak View on Global Trade (BBG)

Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, as the fund is known, says the heyday of cross-border trade is probably behind us. “The question investors are asking themselves is if the easy wins already have been made,” Slyngstad said in an Aug. 29 interview from his office on the top floor of Norway’s central bank in Oslo. “The global supply chains have in a way had a one-time gain primarily through outsourcing of multinationals to China.” Norway’s wealth fund owns 1.3% of globally listed stocks, spread out over almost 80 countries. And with interest rates at record lows, the investor has cut its long-term return expectations to about 3% from 4%, even after winning approval from parliament to raise its share of equities to 70% from 60%.

Slyngstad, who became CEO in 2008 just as the global economy was sinking into the worst crisis since the Great Depression, noted that back then the fund rode out the turmoil by dumping bonds and buying stocks. “I don’t expect that we will act differently in any similar crisis in the future,” he said. During a recent conference on globalization, the fund’s chief strategist, Bjorn Erik Orskaug, suggested the world might be at an “inflection point” in trade, with shallower value chains and less cross-border production. And then there’s the protectionist agenda some governments are pursuing. “Is there also a political situation that could make it more challenging?” Slyngstad said. “Time will tell, but there’s of course a risk on the horizon.” He says the wealth fund’s extremely long-term investment timeline allows it to look past the noise coming from governments that come and go.

The fund will probably stay over-weighted in Europe, where it’s more of an active investor. But the only two economies that really matter are the U.S. and China, Slyngstad said. [..] As the fund approaches $1 trillion in value, its stated goal is to safeguard today’s oil wealth for future generations of Norwegians. It has surged in size since its inception two decades ago, generating an annual nominal return of 5.89%. Norway’s government last year started taking cash out of the fund for the first time, to make up for lower oil revenue. Withdrawals are set to hit about 72 billion kroner ($9.3 billion) in 2017, and remain at that level in coming years amid stricter fiscal rules.

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Once the creative accounting is removed, there won’t be much left.

New Math Deals Minnesota’s Pensions the Biggest Hit in the US (BBG)

Minnesota’s debt to its workers’ retirement system has soared by $33.4 billion, or $6,000 for every resident, courtesy of accounting rules. The jump caused the finances of Minnesota’s pensions to erode more than any other state’s last year as accounting standards seek to prevent governments from using overly optimistic assumptions to minimize what they owe public employees decades from now. Because of changes in actuarial math, Minnesota in 2016 reported having just 53% of what it needed to cover promised benefits, down from 80% a year earlier, transforming it from one of the best funded state systems to the seventh worst, according to data compiled by Bloomberg. “It’s a crisis,” said Susan Lenczewski, executive director of the state’s Legislative Commission on Pensions and Retirement.

The latest reckoning won’t force Minnesota to pump more taxpayer money into its pensions, nor does it put retirees’ pension checks in any jeopardy. But it underscores the long-term financial pressure facing governments such as Minnesota, New Jersey and Illinois that have been left with massive shortfalls after years of failing to make adequate contributions to their retirement systems. The Governmental Accounting Standards Board’s rules, ushered in after the last recession, were intended to address concern that state and city pensions were understating the scale of their obligations by counting on steady investment gains even after they run out of cash – and no longer have money to invest. Pensions use the expected rate of return on their investments to calculate in today’s dollars, or discount, the value of pension checks that won’t be paid out for decades.

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Everybody wants their share of the pie.

Six Big Banks To Create A Blockchain-Based Cash System (R.)

Six new banks have joined a UBS-led effort to create a digital cash system that would allow financial markets to make payments and settle transactions quickly via blockchain technology. The group aims to launch the system late next year. Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG and State Street have joined the group developing the “utility settlement coin” (USC), a digital cash equivalent of each of the major currencies backed by central banks, UBS said on Thursday. The group is in discussions with central banks and regulators and is aiming for a “limited ’go live’” in the latter part of 2018, UBS’s head of strategic investment and fintech innovation told the Financial Times.

The Swiss bank first launched the concept in September 2015 with London-based blockchain company Clearmatics, and was later joined on the project by BNY Mellon, Deutsche Bank, Santander and brokerage ICAP. The USC would be convertible at parity with a bank deposit in the corresponding currency, making it fully backed by cash assets at a central bank. Spending a USC would be the same as spending the real currency it is paired with. Blockchain works as a tamper-proof shared ledger that can automatically process and settle transactions using computer algorithms, with no need for third-party verification. Because it does not require manual processing, nor authentication through intermediaries, the technology can make payments faster, more reliable and easier to audit.

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Better talk with him.

Putin Warns Of ‘Major Conflict’ Over North Korea, Urges Talks (AFP)

Russian President Vladimir Putin warned Friday of a “major conflict” looming on the Korean Peninsula, calling for talks to alleviate the crisis after Pyongyang fired a missile over Japan this week. “The problems in the region will only be solved via direct dialogue between all concerned parties, without preconditions,” Putin said. “Threats, pressure and insulting and militant rhetoric are a dead end,” a statement from his office said, adding that heaping additional pressure on North Korea in a bid to curb its nuclear programme was “wrong and futile.” Tensions on the Korean Peninsula are at their highest point in years after a series of missile tests by Pyongyang.

Early on Tuesday, the reclusive state fired an intermediate-range Hwasong-12 over Japan, prompting US President Donald Trump to insist that “all options” were on the table in an implied threat of pre-emptive military action. The UN Security Council denounced North Korea’s latest missile test, unanimously demanding that Pyongyang halt the programme. US heavy bombers and stealth jet fighters took part in a joint live fire drill in South Korea on Thursday, intended as a show of force against the North, Seoul said. Putin said he feared the peninsula was “on the verge of a major conflict” and called for all sides to sign up to a mediation programme drawn up by Moscow and Beijing. He echoed comments by Foreign Minister Sergei Lavrov who in a Wednesday telephone call with US counterpart Rex Tillerson “underscored… the need to refrain from any military steps that could have unpredictable consequences.”

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Prime candidate for worst report ever. The Independent tweeetd: “12 Nobel Prize winners just warned Trump is one of the gravest threats to humanity “. But that’s not what the article by the Press Association says. It says two.

Trump, Nuclear War And Climate Change Among Gravest Threats To Humanity (PA)

Nobel Prize winners consider nuclear war and US President Donald Trump as among the gravest threats to humanity, a survey has found. More than a third (34%) said environmental issues including over-population and climate change posed the greatest risk to mankind, according to the poll by Times Higher Education and Lindau Nobel Laureate Meetings. But amid rising tensions between the US and North Korea, almost a quarter (23%) said nuclear war was the most serious threat. Of the 50 living Nobel Prize winners canvassed, 6% said the ignorance of political leaders was their greatest concern – with two naming Mr Trump as a particular problem. Peter Agre, who won the Nobel Prize for chemistry in 2003, described the US President as “extraordinarily uninformed and bad-natured”. He told Times Higher Education: “Trump could play a villain in a Batman movie – everything he does is wicked or selfish.”

Laureates for chemistry, physics, physiology, medicine and economics took part in the survey, with some highlighting more than one threat. Peace Prize and Literature Prize recipients were not canvassed. Infectious diseases and drug resistance were considered the gravest threats to humankind by 8% of respondents, while 8% cited selfishness and dishonesty and 6% cited terrorism and fundamentalism. Another 6% spoke of the dangers of “ignorance and the distortion of truth”. Despite high-profile figures Elon Musk and Professor Stephen Hawking expressing concern about the dangers associated with artificial intelligence, just two of those surveyed identified it as among the biggest threats facing humans.

John Gill, editor of Times Higher Education, said the survey offers “a unique insight into the issues that keep the world’s greatest scientific minds awake at night”. He said: “There is a consensus that heading off these dangers requires political will and action, the prioritisation of education on a global scale, and above all avoiding the risk of inaction through complacency.”

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Stockholm Syndrome?

Greece Doesn’t Want Any More Rescues – But It Does Need Something Else (CNBC)

Greece wants nothing more than to avoid another bailout — which means it needs debt relief. And so far, that’s the sticking point. “There is now light at the end of the tunnel,” Greek Finance Minister Euclid Tsakalotos said hopefully in June. After months of wrangling, the European Union and International Monetary Fund had just agreed to release more rescue funds to the perennially troubled nation, bringing the total from its third bailout alone to €40.2 billion ($47.75 billion). Euro zone finance ministers took very light steps toward debt relief at that time — they said they were willing to keep deferring interest on financial assistance Greece had already received — but those measures fell short of the relief Greek Prime Minister Alexis Tsipras was pressing for.

The current bailout program is set to end in September of next year. Greece has been wracked by perennial financial crises since 2010, and it even appeared at risk of leaving the euro zone altogether in 2015. Tsipras’s objective is to re-gain full market access to international bond markets and to leave institutional help behind, so the subject of long-term debt is one that will continue to dominate discussions as it draws closer to September 2018. In July, Greece dipped into bond markets after a 3-year hiatus, issuing 5-year debt at an average yield of 4.66%. Greece is expected to return to the market again in the next 12 months. But Greece’s debt isn’t manageable in the long-run without being either extended or forgiven, according to the IMF, which is pressing for easier budgetary targets for Greece while simultaneously undertaking reforms.

Its European creditors currently require it to achieve a primary surplus before debt service of 3.5% of gross domestic product. The ECB has also been emphatic that it will not include Greek government bonds in its own debt-buying mechanism, the Public Sector Purchase Program. In a June letter, ECB President Mario Draghi ruled out that possibility, saying the central bank’s staff wasn’t in a position to fully analyze Greece’s public debt. Analysts at Barclays have estimated that the inclusion of Greek debt into ECB’s bond-buying program would entail monthly purchases of around 115 million euros ($136.5 million).

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Not looking good.

Hurricane Irma Turning Into Monster (ZH)

Hurricane Irma continues to strengthen much faster than pretty much any computer model predicted as of yesterday or even this morning. Per the National Hurricane Center’s (NHC) latest update, Irma is currently a Cat-3 storm with sustained winds of 115 mph but is expected to strengthen to a devastating Cat-5 with winds that could top out at 180 mph or more. Longer term computer models still vary widely but suggest that Irma will make landfall in the U.S. either in the Gulf of Mexico or Florida. Meteorological Scientist Michael Ventrice of the Weather Channel is forecasting windspeeds of up to 180 mph, which he described as the “highest windspeed forecasts I’ve ever seen in my 10 yrs of Atlantic hurricane forecasting.”

In a separate tweet, Ventrice had the following troubling comment: “Wow, a number of ECMWF EPS members show a maximum-sustained windspeed of 180+mph for #Irma, rivaling Hurricane #Allen (1980) for record wind”. The Weather Channel meteorologist also calculated the odds for a landfall along the eastern seaboard at 30%. Meanwhile, the Weather Channel has the “most likely” path of Irma passing directly over Antigua, Puerto Rico and Domincan Republic toward the middle of next week.

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Aug 302017
 
 August 30, 2017  Posted by at 8:39 am Finance Tagged with: , , , , , , , , , ,  


Elliott Erwitt Crowd at Armistice Day Parade, Pittsburgh 1950

 

The Economy Minus Houston (Slate)
Harvey Didn’t Come Out Of The Blue (Naomi Klein)
The US Cities with the Biggest Housing Bubbles (WS)
“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)
China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)
Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)
The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)
US Defense Boost May Unravel Into a $65 Billion Cut (BBG)
England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)
UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)
We Need To Nationalise Google, Facebook and Amazon (G.)
As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)
Why Every European Country Has A Trump Or Sanders Candidate (Drake)

 

 

A huge number of people will not be able to rebuild, because they lack insurance. And in many cases, rebuilding on the same -flood prone- spot wouldn’t be a good idea to begin with. But where will the people go?

Time to stop talking about the damage to the economy, and focus on the people.

The Economy Minus Houston (Slate)

Houston, America’s fourth-largest city, has a massive, diversified economy. Sure, New Orleans sits near the mouth of the mighty Mississippi River and is an important entrepôt and site for export of raw materials, agricultural commodities chemicals, and petroleum products. But Houston is a larger, busier, and far more important node in the networked economy. Economies derive their power and influence from their connections to other cities, countries, and markets. And Houston is one of the more connected. It is one of the global capitals of the energy and energy services industries. Yes, there’s a degree to which consumption and other economic activity that is forestalled or foregone during a flood is consumption and economic activity deferred. And cleanup efforts tend to be additive to local economies. But in today’s economy, a lot of value can easily be destroyed very quickly.

With only a small portion of the housing stock carrying flood insurance, billions of dollars in property will simply be destroyed and not immediately replaced. People who get paid by the hour, or who work for themselves, won’t be able to make up for the income they’re losing a few weeks from now. Hotel rooms and airplane seats are perishable goods—once canceled, they can’t simply be rescheduled. Refineries won’t be able to make up all the time offline—they can’t run more than 24 hours per day. And given that supply chains rely on a huge number of shipments making their connections with precision, the disruption to the region’s shipping, trucking, and rail infrastructure will have far-reaching effects. If you’re a business in Oklahoma or New Mexico, there’s a pretty good chance the goods you are importing or exporting pass through the Port of Houston.

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Sorry, Naomi, but you can’t take individual events and blame them on cllmate change. The system is far too complex for that. We must stick to science, not lose ourselves in assumptions.

Harvey Didn’t Come Out Of The Blue (Naomi Klein)

Now is exactly the time to talk about climate change, and all the other systemic injustices — from racial profiling to economic austerity — that turn disasters like Harvey into human catastrophes. Turn on the coverage of the Hurricane Harvey and the Houston flooding and you’ll hear lots of talk about how unprecedented this kind of rainfall is. How no one saw it coming, so no one could adequately prepare. What you will hear very little about is why these kind of unprecedented, record-breaking weather events are happening with such regularity that “record-breaking” has become a meteorological cliche. In other words, you won’t hear much, if any, talk about climate change.

This, we are told, is out of a desire not to “politicize” a still unfolding human tragedy, which is an understandable impulse. But here’s the thing: every time we act as if an unprecedented weather event is hitting us out of the blue, as some sort of Act of God that no one foresaw, reporters are making a highly political decision. It’s a decision to spare feelings and avoid controversy at the expense of telling the truth, however difficult. Because the truth is that these events have long been predicted by climate scientists. Warmer oceans throw up more powerful storms. Higher sea levels mean those storms surge into places they never reached before. Hotter weather leads to extremes of precipitation: long dry periods interrupted by massive snow or rain dumps, rather than the steadier predictable patterns most of us grew up with.

The records being broken year after year — whether for drought, storm surges, wildfires, or just heat — are happening because the planet is markedly warmer than it has been since record-keeping began. Covering events like Harvey while ignoring those facts, failing to provide a platform to climate scientists who can make them plain, all while never mentioning President Donald Trump’s decision to withdraw from the Paris climate accords, fails in the most basic duty of journalism: to provide important facts and relevant context. It leaves the public with the false impression that these are disasters without root causes, which also means that nothing could have been done to prevent them (and that nothing can be done now to prevent them from getting much worse in the future).

It’s also worth noting that the Harvey coverage has been highly political since well before the storm made landfall. There has been endless talk about whether Trump was taking the storm seriously enough, endless speculation about whether this hurricane will be his “Katrina moment” and a great deal of (fair) point-scoring about how many Republicans voted against Sandy relief but have their hands out for Texas now. That’s politics being made out of a disaster — it’s just the kind of partisan politics that is fully inside the comfort zone of conventional media, politics that conveniently skirts the reality that placing the interests of fossil fuel companies ahead of the need for decisive pollution control has been a deeply bipartisan affair.

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Wolf Richter with a whole series of US cities, all with record new highs. How people can keep saying there is no bubble in the US, I don’t know.

The US Cities with the Biggest Housing Bubbles (WS)

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house. So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed). The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

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There is no easy way out for New Zealand.

“Crazy” House Prices Are Firing Up New Zealand’s Voters (BBG)

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call. “The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.” Prices across New Zealand have risen 34% the past three years, fanned by record immigration, historically low interest rates and a supply shortage.

That’s seen the portion of owner-occupied properties slump to 63% of the nation’s 1.8 million homes in the second quarter, down from a peak of 74% in the early 1990s. In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild. Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.” Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term. No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44% support in a poll published Aug. 17. Labour had 37% but could get across the line with the additional support of ally the Green Party, which had 4%, and New Zealand First, which got 10%.

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I think the estimates are still low.

China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt (BBG)

Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report. By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry.

Shadow loans grew almost 15% to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates. “This is a sleeper issue,” Bedford wrote. “The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.” Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said. By recording such lending under “investment receivables” rather than “loans” on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding.

Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges. [..] Bank of Tangshan is an unlisted lender in the struggling northeast city of the same name, which produces more steel than any other city around the world. The firm’s shadow loans grew 86% last year to a size equal to 308% of its formal book, the highest of any bank in China, according to Bedford’s report. Still, the bank reported a bad-loan ratio of just 0.05% last year, the lowest of any bank in UBS’ analysis, exemplifying the “distortion” shadow loan books create in assessing asset quality, Bedford said.

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How is this NOT criminal intent? Where are the indictments?

Homeowner’s Lawsuit Says Wells Fargo Charged Improper Mortgage Fees (R.)

A homeowner has filed a lawsuit accusing Wells Fargo of improperly charging thousands of customers nationwide to lock in interest rates when their mortgage applications were delayed. Filed on Monday in San Francisco federal court, the lawsuit said Wells Fargo managers pressured employees to blame homeowners for the delays, sometimes by falsely stating that paperwork was missing, so homeowners could be stuck with extra fees. Wells Fargo Spokesman Tom Goyda said the bank is reviewing past practices on rate lock extensions and will take steps for customers as appropriate. The lawsuit, which will request the court grant class action status, comes as Wells Fargo is trying to recover from a scandal last year when the bank was fined for opening accounts for customers without their authorization in order to boost sales figures.

Last month, a new lawsuit accused it of charging several hundred thousand borrowers for auto insurance they did not request. Monday’s lawsuit accuses the bank of violating state and federal consumer protection laws, including the U.S. Real Estate Settlement Procedures Act and the U.S. Truth in Lending Act. Earlier this month, Wells Fargo disclosed that the Consumer Financial Protection Bureau was investigating the fees the company charged to lock in interest rates for delayed mortgage loans. In a securities filing, the bank said it was working with regulators to see if customers had been harmed by the fees. Interest rate locks are guarantees by a lender to lock in a set interest rate, usually for several weeks, while a loan is processed. If the rate lock expires before a loan closes, lenders often cover the cost of extending the lock if the delay was their fault.

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Modi taking people’s incomes away. Reforms. Here’s thinking India is nowhere near ready for this.

The Battle for India’s $45 Billion Gold Industry Has Begun (BBG)

India’s past and future are colliding in Anand Ghugre’s family jewelry shop in Mumbai. “We still operate the way my father did for 50 years,” said Ghugre, 52, explaining that transactions were typically in cash and were not always recorded. “For small jewelers and the unorganized sector, most of our sales happen through personal connections. Sometimes they don’t want bills, but the jewelers can’t say no to them.” That way of doing business is under threat as the world’s second-largest gold market faces Prime Minister Narendra Modi’s campaign to bring India’s informal economy to book. About three quarters of the estimated $45 billion of the precious metal that is traded in the country each year makes its way through thousands of family-run jewelry shops that have catered for centuries to the nation’s love of gold.

Modi’s financial reforms, including demonetization and a new goods and services tax, combined with a younger generation that shops online, may usher in a wave of takeovers and mergers by big state-wide and national chains as small shops are swallowed up or close. “The one story that we hear is that the business is becoming problematic for smaller jewelers,” said Chirag Sheth at London-based precious metals consultancy Metals Focus. “The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete.” Modi in November banned higher denomination notes to bring unaccounted cash back into the system and introduced tougher proof of identity for purchases, capped the amount of cash used in transactions and topped it off with the uniform goods and services tax last month.

An overhaul of the fragmented industry is also on the cards with the government said to be planning a new policy on gold that will bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Fixing quality standards and allowing supply chains to be easily tracked are ways to enhance trust.

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Well, we can’t have that, can we?

US Defense Boost May Unravel Into a $65 Billion Cut (BBG)

U.S. national security funding may be slashed by about $65 billion in January as lawmakers forge ahead with a spending plan that collides with a budget ceiling under a six-year-old law. A $614 billion bill passed by the U.S. House in H.R. 3219 is caught in a political vise: President Donald Trump and most lawmakers want to see increases in Pentagon spending, yet that intention isn’t backed up by an agreement to undo the 2011 Budget Control Act. Without another budget agreement in place, the Defense Department faces automatic across-the-board cuts of 9% to 10% starting in mid-January, according to Chris Sherwood, a Pentagon spokesman. That’s about $65 billion, the Congressional Budget Office estimates.

Enforcement of the act’s caps are returning for the coming fiscal year that begins Oct. 1 after they were adjusted in fiscal 2016 and 2017 for discretionary domestic and national security spending. That was the third time since the act passed that the limits were adjusted, in those cases for both defense and domestic discretionary spending. Trump wants to cut domestic spending while adding to defense, a proposal opposed by Democrats and many Republicans. If the mandatory cuts go ahead, they would be leveled across thousands of Pentagon programs. The White House would have the option of exempting military personnel funds from the automatic cuts, known as sequestration. Such cuts are likely because all of the pending congressional defense bills so far propose busting the cap of $549 billion in national security spending for fiscal year 2018, or $522 billion for the Pentagon alone.

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Cameron and Osborne and May have gutted the entire country.

England’s Fire Services Suffer 25% Cut To Safety Officers Numbers (G.)

Fire services in England have lost more than a quarter of their specialist fire safety staff since 2011, a Guardian investigation has found. Fire safety officers carry out inspections of high-risk buildings to ensure they comply with safety legislation and take action against landlords where buildings are found to be unsafe. Figures released to the Guardian under the Freedom of Information Act showed the number of specialist staff in 26 fire services had fallen from 924 to 680, a loss of 244 officers between 2011 and 2017. Between 2011 and 2016, the government reduced its funding for fire services by between 26% and 39%, according to the National Audit Office, which in turn resulted in a 17% average real-terms reduction in spending power.

Warren Spencer, a fire safety lawyer, said the figures showed a “clear culture of complacency” about fire safety. “The government has tended to take the view that fewer people are dying in fires, fires occur less frequently, and therefore there’s no need to invest in fire prevention. So there’s been a total brain drain in fire safety knowledge and many experienced specialist officers have left the force,” he said. “But fire safety officers have been saying to me for years that one day, there would be a big fire in a multiple occupancy building, which would make everyone sit up and take notice of the lack of fire safety provision. Tragically, that’s what happened at Grenfell Tower.”

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As dividends keep being paid out.

UK’s Leading Companies’ Pension Deficit Rises To 70% Of Their Profits (G.)

The combined pension deficit of FTSE 350 companies has risen to £62bn, accounting for 70% of their profits. The deficit as a proportion of profits recorded for 2016 is higher than at any time since the financial crisis, following a £12bn rise since 2015. The 25% increase came in a second year of comparatively low profit for UK publicly listed companies. The deficit is the gap between the expected liabilities of pension commitments and the funds that companies hold to pay for pensions. While many have set aside billions in recent years, a trend towards rising life expectancy, combined with lower expectations for returns on investment, has put more pressure on pension schemes and seen the deficit grow. Actuaries have warned that even a slight fall in bond yields would see the pension deficit of the plcs outstrip their aggregate profits by 2019.

The figures, in a report from the actuarial consultancy Barnett Waddingham, show the deficit has risen sharply as a proportion of profits in the past five years, from 25% of the £214bn pre-tax profits of the FTSE 350 in 2011. Even in the aftermath of the financial crisis in 2009, the deficit was lower at 60%. For 21 plcs, the pensions shortfall is more than 10% of their value, which Barnett Waddingham described as alarming. However, the actuaries said recent data suggesting years of austerity had seen gains in UK life expectancy grind to a halt could provide “welcome respite for companies”. It showed that after a century in which the rate of increase in life expectancy had accelerated, the average age of death was levelling off at 79 for men and 83 for women.

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A discussion that must take place. But the political climate doesn’t lean towards nationalization. Besides, how do you nationalize companies that operate in many dozens of countries?

We Need To Nationalise Google, Facebook and Amazon (G.)

At the heart of platform capitalism is a drive to extract more data in order to survive. One way is to get people to stay on your platform longer. Facebook is a master at using all sorts of behavioural techniques to foster addictions to its service: how many of us scroll absentmindedly through Facebook, barely aware of it? Another way is to expand the apparatus of extraction. This helps to explain why Google, ostensibly a search engine company, is moving into the consumer internet of things (Home/Nest), self-driving cars (Waymo), virtual reality (Daydream/Cardboard), and all sorts of other personal services. Each of these is another rich source of data for the company, and another point of leverage over their competitors.

Others have simply bought up smaller companies: Facebook has swallowed Instagram ($1bn), WhatsApp ($19bn), and Oculus ($2bn), while investing in drone-based internet, e-commerce and payment services. It has even developed a tool that warns when a start-up is becoming popular and a possible threat. Google itself is among the most prolific acquirers of new companies, at some stages purchasing a new venture every week. The picture that emerges is of increasingly sprawling empires designed to vacuum up as much data as possible. But here we get to the real endgame: artificial intelligence (or, less glamorously, machine learning). Some enjoy speculating about wild futures involving a Terminator-style Skynet, but the more realistic challenges of AI are far closer.

In the past few years, every major platform company has turned its focus to investing in this field. As the head of corporate development at Google recently said, “We’re definitely AI first.” All the dynamics of platforms are amplified once AI enters the equation: the insatiable appetite for data, and the winner-takes-all momentum of network effects. And there is a virtuous cycle here: more data means better machine learning, which means better services and more users, which means more data. Currently Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.

What’s the answer? We’ve only begun to grasp the problem, but in the past, natural monopolies like utilities and railways that enjoy huge economies of scale and serve the common good have been prime candidates for public ownership. The solution to our newfangled monopoly problem lies in this sort of age-old fix, updated for our digital age. It would mean taking back control over the internet and our digital infrastructure, instead of allowing them to be run in the pursuit of profit and power. Tinkering with minor regulations while AI firms amass power won’t do. If we don’t take over today’s platform monopolies, we risk letting them own and control the basic infrastructure of 21st-century society.

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Of course the headline said “populists”… Fixed that.

As Poverty Surges in Italy, Five Star Propose a ‘Citizens’ Income’ (BBG)

“Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. The populist Five Star Movement “has imposed the issue on national politics. The mainstream parties are being forced to play catch-up.” Five Star is a fast-growing group fueled by anger at the old political class. Three years ago the movement rode economic concerns to power in Livorno, ending 70 years of rule by the Communists and other left-leaning parties. The new mayor, a former engineer named Filippo Nogarin, introduced a €500 ($590) monthly subsidy to the disadvantaged. That idea is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority.

A basic income can “give people back their dignity,” Grillo’s blog declared in April. “The current government is ignoring millions of families in difficulty.” The Five Star program echoes universal basic income schemes being considered around the world. Finland in January started an experiment in which 2,000 unemployed people receive a stipend of €560 per month. And the Canadian province of Ontario this summer began trials in three cities in which individuals can get almost C$17,000 ($13,600) per year. Five Star’s version would give Italians below the poverty line as much as €780 a month. Recipients must perform several hours of community service each week and actively seek work, and they’d be cut off after rejecting three job offers. Five Star says the plan would cost €17 billion a year, funded in part by spending cuts as well as tax hikes on banks, insurance companies, and gambling.

Opinion polls show Five Star neck and neck with the Democratic Party, led by ex-Premier Matteo Renzi, and a center-right bloc including Forza Italia, the party of former Premier Silvio Berlusconi. To keep Five Star from dominating the debate, Prime Minister Paolo Gentiloni, a Renzi ally, has approved a less ambitious plan he calls “the first universal tool against poverty.” The scheme, dubbed “inclusion income,” would give 1.7 million people as much as €485 a month as long as they’re actively seeking work, at a cost of about €2 billion a year. With industrial output down by about 25% from 2008 to 2013 in Italy’s worst postwar recession, either plan could be helpful, says Giuseppe Di Taranto, a professor of economic history at Rome’s Luiss University. “We lost lots of jobs, and poverty has risen so much that we’ve got to experiment.”

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More of the same. But the anti-EU, anti-globalization mood is obvious: “77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union.” While Macron and Merkel are planning a lot more EU. And claiming that the EU is doing fine.

Why Every European Country Has A Trump Or Sanders Candidate (Drake)

As a result of the methods used to promote globalization, the consequences for the West have been tragic. Work is becoming increasingly uncertain and insecure, or it is in the process of disappearing altogether. It would take Veblen’s talents for social satire, which are unsurpassed in all of American literature, to depict with the essential exactitude of artistic synthesis how far the United States has fallen away from democratic grace, the country’s dramatically widening gap between the haves and the have-nots being what it is. Clearly, we are on the wrong course. What the robotics revolution, now at an incipient stage, will do to further diminish opportunities for Western peoples to work can be easily imagined, if the economic imperative of corporate capitalism is the rule to go by.

The same desolating trends can be seen in Europe, where people increasingly regard the European Union as a Trojan horse. The economic elites and their political front-men responsible for this image-challenged contraption lose public support with each new poll. The people by and large blame the European Union and the other accessories of globalization for their worsening standard of living. When informed by the establishment media that thanks to globalization Europe has never been more prosperous and peaceful, Europeans in historic numbers are reacting with disbelief. Their deepening sense of betrayal propels the surge of populism that defines the politics of Europe today. Arguments long-settled in favor of deregulation, liberalization, open borders, and other globalization watchwords have been reopened.

The constituency is growing for a politics that puts the well-being of Europeans first. Political measures calling for the protection of European jobs and cultures have gained a following unforeseen prior to 2008. In Italy, for example, 77% of the people questioned in a recent poll could see no advantage to them at all from the country’s membership in the European Union. 64% of them expressed hostility toward it. Eight Italian businesses out of 10 can find nothing positive to say about the European Union. It is seen to be a creature of the banks and the big financial houses. As public relations disasters go, this one has unfolded on an epic scale as the underlying populations, long left out of consideration by the economic elites, have begun to sense the fate their masters have in store for them.

Leaving underlying populations out of consideration was a special feature of the planning that went into globalization. They have been voiceless. In America, Trump gave them a voice, and they responded to him with their political support. It did not matter that he came before them without a plan for their deliverance. That he came to them at all mattered. He understood the depth of the anger and alienation in America against a status quo personified by his opponent, Hillary Clinton, whose repeated and munificently rewarded speeches before the captains of finance on Wall Street effectively branded her as the safe candidate for all who wanted to leave existing economic arrangements fundamentally undisturbed.

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Aug 192017
 
 August 19, 2017  Posted by at 10:00 am Finance Tagged with: , , , , , , , , ,  


Fred Stein Man in pushcart, New York 1944

 

We’re Racing Towards Another Private Debt Crisis (Graeber)
China Moves To Curb Overseas Acquisitions As Firms’ Debt Levels Rise (G.)
Wells Fargo Troubles Shift From Phony Bank Accounts To Real Ones (R.)
Total Eclipse (Jim Kunstler)
A House Divided Against Itself Cannot Stand (Paul Craig Roberts)
The Truth Will Not Be Googled (Connelly)
Greek Pensioners Set For Another Blow (K.)
The Super Gangs Behind Africa’s Poaching Crisis (G.)
Want To Fight Climate Change? Don’t Invest In Tesla (MW)

 

 

David Graeber on the all too obvious. So yeah, let’s have that inquiry.

We’re Racing Towards Another Private Debt Crisis (Graeber)

This is a call for a public inquiry on the current situation regarding private debt. For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And – this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That’s what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don’t do something about it, the results will, inevitably, be another catastrophe. These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.” As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt. We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened. Now, if this seems to have very little to do with the way politicians talk about such matters, there’s a simple reason: most politicians don’t actually know any of this. A recent survey showed 90% of MPs don’t even understand where money comes from (they think it’s issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

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It’s getting serious.

China Moves To Curb Overseas Acquisitions As Firms’ Debt Levels Rise (G.)

The Chinese government has served notice on the country’s foreign investment spree in football clubs, skyscrapers and Hollywood as it moves to curb rising levels of debt among domestic companies. The announcement of restrictions in a range of sectors follows a buying spree around the globe during which Chinese firms and business tycoons have taken control of assets including Legendary Entertainment, the US film producer behind Jurassic World and Warcraft, buildings such as the Cheesegrater in London, and English football clubs including Southampton and Aston Villa. The curbs were announced in a document released on Friday by the state council, China’s cabinet, in the latest move to halt a string of foreign acquisitions. This week the IMF described China’s credit-fuelled economic strategy as dangerous, in a strongly worded statement warning that the country’s approach risks financial turmoil.

Raising concerns that some of the companies involved may be taking on too much debt, the council said: “There are great opportunities for our nation’s companies to embark on foreign investment, but they also face numerous risks and challenges.” It added that through the new guidance, the government hopes to promote the “rational, orderly and healthy development of foreign investment while effectively guarding against risks”. The document limits overseas investments in areas such as hotels, cinemas, the entertainment industry, real estate and sports clubs. It also bans outright investments in enterprises related to gambling and the sex industry. The Chinese government had already flagged hotels as an area of concern, having reportedly asked the insurance group Anbang to sell the Waldorf Astoria hotel in New York.

One of China’s biggest conglomerates, Wanda Group, also bowed to pressure from the government when it abandoned the $1bn (£780m) purchase of the entertainment company Dick Clark Productions earlier this year. In 2016 Wanda bought Legendary Entertainment for $3.5bn, having become the world’s biggest cinema operator in 2012 with its purchase of a majority stake in US chain AMC for $2.6bn. At the same time, the document encourages companies to plough money into projects related to the “Belt and Road” project, President Xi Jinping’s signature foreign policy initiative that seeks to link China with other parts of Asia and eastern Europe through multibillion-dollar investments in ports, highways, railways, power plants and other infrastructure.

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Why is Wells Fargo a going concern? Close it.

Wells Fargo Troubles Shift From Phony Bank Accounts To Real Ones (R.)

After paying customers millions of dollars for opening phony accounts they did not want, Wells Fargo has said it is now grappling with the possibility it harmed customers by closing real accounts they needed, leaving them without access to funds. Wells, the third-largest U.S. bank, disclosed in a regulatory filing on Aug. 4 that the Consumer Financial Protection Bureau (CFPB) is looking into the matter, one of many regulatory probes the bank faces over its treatment of depositors and borrowers. A Reuters review of the regulator’s complaints database found several instances of customers reporting financial hardship in recent years after Wells Fargo unexpectedly froze or closed their accounts. Some of the complaints described fraudulent deposits of unknown origin.

Others said they were victims of identity theft and Wells Fargo closed their accounts and refused to reopen them or open new ones. One customer said the bank closed an account after a hacker changed personal information, and then Wells Fargo improperly sent funds to the wrong address. The complaints had consistent themes of confusion about why accounts were frozen or closed, and reflected desperation over being unable to access money, as well as frustration over not getting help from Wells Fargo’s customer service. “I moved money from my mother’s savings account into her checking account the day before she passed away,” one Wells Fargo customer wrote. “This checking account has been ‘locked’ by the fraud department for almost 3 months … Now her debts are delinquent and mortgage about to go into foreclosure.”

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Rename the capital!

Total Eclipse (Jim Kunstler)

I’d like to hear to hear an argument as to why the Washington Monument should remain dedicated to that vicious slave-driver and rebellious soldier, and indeed the name of the city that is the federal seat of government. Or the District of Columbia (after Columbus, who initiated the genocide of Native Americans). Or America, cribbed out of Amerigo Vespucci, the wicked Florentine cartographer who ascertained that the place called Brazil today was not the east coast of Asia but actually a New World — and so all our troubles began![..] Just as empires tend to build their most grandiose monuments prior to collapse, our tottering empire is concocting the most monumentally ludicrous delusions before it slides down the laundry chute of history.

It’s as if the Marx Brothers colluded with Alfred Hitchcock to dream up a melodramatic climax to the American Century that would be the most ridiculous and embarrassing to our posterity. In the meantime, many citizens await Monday’s spectacle of a total solar eclipse in parts of the country. They apparently don’t realize that another eclipse has been underway for months: the total eclipse of reality across the entire landscape of the USA. Now that has been an event to behold, not just some twenty-minute freak of astronomy. What’s being blacked out is the perilously fragile condition of the financial system — a great groaning Rube Goldberg contraption of accounting fraud, grift, statistical deceit, and racketeering that pretends to support the day-to-day activities of our national life.

For months, the recognition of this oncoming financial monster has been blocked by the hallucination of gremlins from the Kremlin infiltrating the recent presidential election. But just as that mirage was dissolving, along comes the treacherous invasion of the Confederate statues. It begins to look like the final piece of the puzzle in the Deep State’s quest to eject Donald Trump from the oval office. His response to the deadly statue situation (“…why not Washington and Jefferson…?”) was deemed so obtuse and unfeeling that even the rodents of his own nominal Republican Party want to jump his ship of state.

So, the set-up could not be more perfect! The country will now get down to the business of a months-long 25th Amendment circle-jerk at the very moment that the financial system flies apart. The damage from the financial clusterfuck will be much more real, and much worse, than anything that might be spun out of the anti-statue crusade hogging the headlines today. It will be interesting to see whether the old legacy media even reports on it as it happens, or whether they will cook up new and more bizarre entertainments to distract the public from what might be the ultimate swindling of a lifetime.

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The echo chamber causes hearing damage.

A House Divided Against Itself Cannot Stand (Paul Craig Roberts)

The liberal/progressive/left are enjoying their drunkfest of denunciation. I can’t say I have ever witnessed anything like it. These are the people who sat on their hands for 16 years while Washington destroyed in whole or part seven countries. Not being satisfied with this level of warmongering and crimes against humanity, Washington orchestrated a conflict situation with Russia. Americans elected a president who said he would defuse this dangerous conflict, and the liberal/progressive/left turned on him. In contrast, one person is killed after the hated Charlottesville protest event was over, and there is endless absurd outrage against the president of the US. Three New York Times presstitutes yesterday blamed the crisis on Trump, declaring him “increasingly isolated in a racial crisis of his own making.”

Apparently, Trump is responsible for the crisis because he blamed both protest groups for the violence. But isn’t that what happened? Wasn’t there violence on both sides? That was the impression I got from the news reporting. I’m not surprised that Trump got the same impression. Indeed, many readers have sent emails that they received the same impression of mutual violence. So Trump is being damned for stating the truth. Let’s assume that the impression Trump and many others got from the news is wrong. That would make Trump guilty of arriving at a mistaken conclusion. Yet, he is accused of instigating and supporting Nazi violence. How is it possible to transform a mistake into evil intent? A mistaken impression gained from news reporting does not constitute a “defense of white nationalist protesters.”

An assertion by the New York Times cannot turn the absence of intent into intent. What the Establishment is trying to do is to push Trump into the arms of white supremacists, which is where they want him. Clearly, there is no basis for this charge. It is a lie, an orchestration that is being used to delegitimize President Trump and those who elected him. The question is: who is behind this orchestration? The orchestration is causing people to run away from Trump or is being used as an excuse by them to further the plot to remove him from office. Trump’s Strategic and Policy Forum headed by Stephen A. Schwarzman ran away, just as members of the Carter Center’s board deserted President Jimmy Carter when he criticized Israel for its apartheid policy toward the Palestinians. The New York Times says that the armed services chiefs are running away. And the entire Republican Party.

The hypocrisy is stunning. For 16 years the armed services chiefs, the New York Times and the rest of the presstitute media, both political parties and the liberal/progressive/left have participated actively or passively in massive crimes against humanity. There are millions of dead, maimed, and displaced people. Yet one death in Charlottesville has produced a greater outpouring of protest. I don’t believe it is sincere. I don’t believe that people who are insensitive to the deaths of millions at the hands of their government can be so upset over the death of one person. Assume that Trump is responsible for the death of the woman. How much blood is it compared to the blood on the hands of Bill Clinton, George W. Bush, and Obama?

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Too much monopoly, too much power.

The Truth Will Not Be Googled (Connelly)

While web-hosting services have been criticised for cancelling the registration of neo-Nazi website, Daily Stormer, progressive left-leaning sites are losing Google ranking and traffic because of a deliberate move to censor “fake” news by the internet search giant. New data released by World Socialist Websites (WSWS) revealed that sites such as Wikileaks, The Intercept, Electronic Frontiers Foundation, the American Civil Liberties Organisation, CounterPunch and many other organisations with the audacity to provide context about the activities of federal governments not reported in mainstream publications have experienced a significant drop in traffic after Google altered its algorithm. (WSWS is an online news and information service founded by the International Committee of the Fourth International, the leadership of the world socialist movement).

Earlier this week, internet hosting provider, GoDaddy, announced it had cancelled US neo-Nazi website, Daily Stormer, for posting an attack on Heather Heyer, the protester who was murdered at the Klan rally in Charlottesville last week. Google and CloudFlare likewise cancelled its registration after the site tried to move its hosting over to their respective services. But while these hosting services are being congratulated by some – and condemned by others on free-speech grounds – for ensuring that those looking to commit violence have to work slightly harder to get access to their like-minded Nazi communities, those who own the means of transmission – namely Google, Facebook and Twitter – are still preventing the rest of us from accessing information that allows people to make sense of the world around us.

Earlier this month, Google altered its algorithm – allegedly in an attempt to address the ‘fake news’ problem – and in doing so, a broad array of anti-establishment news organisations, whistleblower, civil-rights and anti-war websites were censored from its search listings. But most people were too distracted by the opinions of some low-level engineer on Google’s diversity hiring policies and its intolerance of conservative views in the workplace to take notice. The data released by WSWS shows that since Google altered its algorithm, Wikileaks experienced a 30% decline in traffic from Google searches. Democracy Now fell by 36%. Truthout dropped by 25%. Its own traffic dropped by 67% percent over the same period. Alternet saw a 63% decline in traffic. Media Matters saw a 36% drop in traffic. Counterpunch.org fell by 21%. The Intercept fell by 19%.

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Ongoing.

Greek Pensioners Set For Another Blow (K.)

Pension applications submitted after May 13, 2016 – after the so-called Katrougalos law was legislated – reveal significant cuts in pension payments. According to the relevant data, five categories of pensioners will suffer cuts due to the new way pensions are calculated. Overall, experts estimate that by the year 2020 some 200,000 retirees will receive pensions that do not correspond to the amount of money they contributed to the funds during their working lives. In some cases, pensioners will receive 30% less than what they would have received had the Katrougalos law not come into effect. The overall reduction is estimated at 12 to 16%. The hardest hit will be civil servants, especially those who have worked for more than 30 years and belong to the categories of University and Technological Education. Other categories of pensioners that will be negatively impacted are those who made above-average contributions to the IKA social security foundation for more than 30 years.

Meanwhile, those who made medium or large contributions to the TEVE fund for the self-employed will also lose out. Others who can expect to be affected by pension cuts are people who contributed for 30 years to the retailer’ insurance fund (TAE) or the professional drivers’ pension fund (TSA). The new pension system, however, will favor retirees with monthly gross earnings below €700 and less than 30 years of insurance – in line with the declaration made by former labor minister Giorgos Katrougalos that the new system would be classless and favor people with low incomes. This category includes people insured for 20 to 30 years with IKA, who will retire with a gross remuneration of around €1,000, or the former social security fund for professional drivers (TSA). Those insured at several public enterprises (DEKO) and bank funds will also be entitled to an increase in their pension because they pay very high contributions.

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Man is losing the world to his own greed. Selling mother earth.

The Super Gangs Behind Africa’s Poaching Crisis (G.)

“It’s not hundreds of groups involved in ivory trafficking – there are just a handful of networks operating across Africa,” says Paula Kahumbu, a conservationist and elephant expert who runs Wildlife Direct, a Kenyan organisation working to stop the ivory trade and which deploys teams to closely observe trials such as Ali’s. lose scrutiny of cases – including making copies of court documents and video recording proceedings – keeps courts and judges honest and prevents the disappearance of files that so often scuppers trials. Wildlife Direct’s pressure was instrumental in ensuring Ali’s case went the distance. At the end, says Kahumbu, there was “a phenomenal sense of achievement”. “It was a huge surprise,” says Ofir Drori, an Israeli wildlife activist and co-founder of the Eagle Network, a group responsible for the prosecution of hundreds of traffickers, big and small, over the years, and who was involved in tracking Ali.

“Every Kenyan will tell you: what’s supposed to happen is that if you belong to a strong syndicate, you’re out.” It was the syndicate aspect that interested Gretchen Peters. A former foreign correspondent in Afghanistan and Pakistan, Peters had become fascinated by the links between drugs and terrorism that she saw in the Taliban’s heroin operation, and by the hidden connections between other forms of criminality. Ditching journalism, she decided to tackle wildlife crime. Peters set up the Satao Project – named after one of Kenya’s magisterial “tusker” bull elephants, killed by a poacher’s poisoned arrow in 2014 – to investigate criminal gangs in 2015 but quickly ran into the underlying problem: corruption. “If there’s a network that is moving illegal goods from one country to another, there are inevitably government officials involved, protecting them or looking the other way,” she says. “It is impossible for that not to be happening.”

Hired by the US department of state, Peters began by studying ivory supply chains in Tanzania and Kenya, but her investigations quickly enveloped Uganda too and spread into other forms of trafficking. There is in East Africa, she says, “a regional ecosystem moving ivory, drugs and guns … a matrix of different organisations that collaborate to move illegal goods along the Swahili coast.” The overlap between drugs and ivory smuggling came as no surprise to her. “I’m not aware of any syndicate trafficking ivory transnationally that is only moving ivory,” she says. No illicit commodity is as profitable as drugs, so: “When you get up to the traffickers they’re almost inevitably moving narcotics too.”

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Thermodynamics 101.

Want To Fight Climate Change? Don’t Invest In Tesla (MW)

Morgan Stanley identified 39 stocks that generate at least half their revenue “from the provision of solutions to climate change,” something it said was a central component of investing to make a difference, as opposed to just a making a buck. “In our view, impact investing needs to begin with companies whose products and services have a notable positive environmental or social impact,” wrote Jessica Alsford, an equity strategist at the investment bank. Not surprisingly, alternative-energy companies ranked the highest in terms of their positive impact, and the “top five climate-change impact stocks” were all manufacturers of solar and wind energy: Canadian Solar, China High Speed Transmission, GCL-Poly, Daqo New Energy and Jinko Solar. Not among the top companies? Electric-car makers, including Tesla. Elon Musk’s company has been an investor favorite for years, even eclipsing Ford and General Motors in market cap.

Tesla shares are up nearly 66% so far this year, but the good it may have been doing for portfolios may not translate to it doing good for the planet. Morgan Stanley said this was one of the “biggest surprises” of its study. The bank grouped the “climate-change impact stocks” into four sector categories: utilities, renewable manufacturers, green infrastructure companies and transportation stocks. It then analyzed them on a number of metrics, including “the CO2 [carbon dioxide] savings achieved from the products and services sold by the companies,” as well as secondary and tertiary factors centered around the environmental impact of the making of these products. This is where Tesla, along with China’s Guoxuan High-Tech, fall short.

“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.” In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.” Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.

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Jul 292017
 
 July 29, 2017  Posted by at 9:09 am Finance Tagged with: , , , , , , , ,  


Dorothea Lange Grocery store in Widtsoe, Utah 1936

 

Trump’s Mistake In Taking Ownership Of The Stock Market Bubble (LR)
Congress Checkmates Trump (And The American People) (LR)
Russia Hits Back Over Sanctions, Orders US Diplomats To Leave (R.)
EU Explores Account Freezes To Prevent Runs At Failing Banks (R.)
The Great Transatlantic Bond Divergence Unwind (WSJ)
Top German Automakers Sued in US Over Two-Decade ‘Cartel’ (BBG)
Wells Fargo Faces Angry Questions After New Sales Abuses Uncovered (R.)
Wells Fargo Cuts 70 Senior Managers in Retail Bank After Accounts Scandal (BBG)
What Explains amazon.com’s Share Price? (PCR)
Panama Leaks and the Fall of Pakistan’s Prime Minister (Niaz)
Plastic Microparticles Found In Flesh Of Fish Eaten By Humans (Ind.)

 

 

More incentives for the Fed to trigger a crisis.

Trump’s Mistake In Taking Ownership Of The Stock Market Bubble (LR)

Let’s start at the beginning. Bubbles and Busts are both created by The Federal Reserve. Presidents are merely along for the ride. They like to credit themselves for the bubbles, and then look for scapegoats, usually the (non-existent) free market during the busts. But it is The Fed that creates them both. President Trump has made a big (yet understandable) mistake. He’s tried to portray himself as the cause of the current bubble in the stock market. He wants credit where credit is due. In this case, credit is not due. As we already mentioned, the Fed created the current bubble, and did so a long time ago. One look at a chart of the S&P 500 says it all:

Chances are, Trump realizes that most people won’t look at a chart of the stock market and he just wants some good PR. The president wants people to think that he is the reason for the stock market bubble. This is a big mistake. The Fed is the premier member of the so-called “Deep State”. In fact, without The Fed, there would hardly be a “Deep State” to speak of. The Fed sits at the top of the Deep State. They have the ultimate power (that no human beings should ever have) to create new money out-of-thin-air. In case Trump hasn’t figured it out yet, the Deep State does not like him. Should a major decline in the stock market occur during Trump’s Administration, guess who will take the blame? President Trump. After all, he took ownership of the bubble!

Should the market tumble, the mainstream media (that also despises Trump) will have plenty of his quotes, YouTubes, and Tweets to use against him. The economic woes will be pinned on Trump. Will Trump deserve the blame? No, but it’ll be too late. This is not to say that a major decline will occur during Trump’s tenure. Bubbles can take on a life of their own, and this one may last during Trump’s full term. But that’s a risky gamble to make. This bubble is going on almost 10 years now without a serious decline. Should we see a major selloff, Trump has very few friends in the major power centers that will come to his aid. As Peter Schiff points out in this fantastic clip below: The Fed now has their fall guy:

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A curious move. An ultimate power game.

Congress Checkmates Trump (And The American People) (LR)

Yesterday, the US Senate passed HR 3364, the Countering America’s Adversaries Through Sanctions Act by a massive 98 yeas to two nays. Opposing the bill were Sens. Bernie Sanders (I-VT) and Rand Paul (R-KY). The bill passed in the House by 419-3 on Tuesday, with Reps Massie (R-KY), Amash (R-MI), and Duncan (R-TN) opposing. The new sanctions bill ties President Trump’s hands on foreign policy, as he will be forced to ask Congress for permission to ease the measures. Speaking in favor of the legislation, Sen. Bob Menendez (R-NJ) cited the need to send Russia a message that it cannot meddle in US elections, that it cannot annex Crimea, that it cannot invade Ukraine, and that it cannot indiscriminately kill women and children in Syria.

Those of us living in the actual real world recognize that the first count remains unproven and the remaining counts are simply fatuous, fact-free bluster by Washington’s uninformed, group-thinking, foreign policy elites. Fueled by the millions coming in to the military-industrial complex. The House and Senate passed “Countering America’s Adversaries Through Sanctions Act” now goes to President Trump’s desk, where he faces a damned if he does and damned if he doesn’t scenario. A veto would certainly be over-ridden, handing the president a bitter bi-partisan blow that would likely end whatever aspirations he may retain to keep his campaign promises to get along better with Russia.

Similarly, signing the bill signs a death warrant for any foreign policy different than the one served up by the neocons for decades: create enemies; push war propaganda; collect massive checks from military industrial complex; demonize any American refusing to go along; repeat, adding bombs as necessary. Checkmate, President Trump.

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Over 600 would have to leave. Question: why does the US have over 6000 more staff in Russia than vice versa?

Russia Hits Back Over Sanctions, Orders US Diplomats To Leave (R.)

Russia told the United States on Friday that some of its diplomats had to leave the country in just over a month and said it was seizing some U.S. diplomatic property as retaliation for what it said were proposed illegal U.S. sanctions. Russia’s response, announced by the Foreign Ministry, came a day after the U.S. Senate voted to slap new sanctions on Russia, putting President Donald Trump in a tough position by forcing him to take a hard line on Moscow or veto the legislation and anger his own Republican Party. President Vladimir Putin had warned on Thursday that Russia had so far exercised restraint, but would have to retaliate against what he described as boorish and unreasonable U.S. behaviour. Relations between the two countries, already at a post-Cold War low, have deteriorated even further after U.S. intelligence agencies accused Russia of trying to meddle in last year’s U.S. presidential election, something Moscow flatly denies.

The Russian Foreign Ministry said on Friday that the United States had until Sept. 1 to reduce its diplomatic staff in Russia to 455 people, the same number of Russian diplomats it said were left in the United States after Washington expelled 35 Russians in December. It said in a statement that the decision by Congress to impose new sanctions confirmed “the extreme aggression of the United States in international affairs.” “Hiding behind its ‘exceptionalism’ the United States arrogantly ignores the positions and interests of other countries,” said the ministry. “Under the absolutely invented pretext of Russian interference in their “Under the absolutely invented pretext of Russian interference in their domestic affairs the United States is aggressively pushing forward, one after another, crude anti-Russian actions. This all runs counter to the principles of international law.”

[..] An official at the U.S. embassy in Moscow, who declined to be named because they were not allowed to speak to the media, said there were around 1,100 U.S. diplomatic staff in Russia. That included Russian citizens and U.S. citizens. Most staff, including around 300 U.S. citizens, work in the main embassy in Moscow with others based in outlying consulates. The Russian Foreign Ministry said it was also seizing a Moscow dacha compound used by U.S. diplomats to relax from Aug. 1 as well as a U.S. diplomatic warehouse in Moscow.

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Confidence spelled backwards. How to cause a bank run in 3 easy lessons.

EU Explores Account Freezes To Prevent Runs At Failing Banks (R.)

European Union states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts to prevent bank runs, an EU document reviewed by Reuters revealed. The move is aimed at helping rescue lenders that are deemed failing or likely to fail, but critics say it could hit confidence and might even hasten withdrawals at the first rumors of a bank being in trouble. The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits at Banco Popular contributed to the collapse of the Spanish lender. It also come amid a bitter wrangle among European countries over how to deal with troubled banks, roughly a decade after a financial crash that required the ECB to print billions of euros to prevent a prolonged economic slump.

Giving supervisors the power to temporarily block bank accounts at ailing lenders is “a feasible option,” a paper prepared by the Estonian presidency of the EU said, acknowledging that member states were divided on the issue. EU countries which already allow a moratorium on bank payouts in insolvency procedures at national level, like Germany, support the measure, officials said. “The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” a person familiar with German government’s thinking said. To cover for savers’ immediate financial needs, the Estonian paper, dated July 10, recommended the introduction of a mechanism that could allow depositors to withdraw “at least a limited amount of funds.”

Banks, though, say it would discourage saving. “We strongly believe that this would incentivize depositors to run from a bank at an early stage,” Charlie Bannister of the Association for Financial Markets in Europe (AFME), a banking lobby group, said. The Estonian proposal was discussed by EU envoys on July 13 but no decision was made, an EU official said. Discussions were due to continue in September. The plan, if agreed, would contrast with legislative proposals made by the European Commission in November that aimed to strengthen supervisors’ powers to suspend withdrawals, but excluded from the moratorium insured depositors, which under EU rules are those below 100,000 euros ($117,000).

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Price discovery.

The Great Transatlantic Bond Divergence Unwind (WSJ)

Many of the trades embraced by markets after President Donald Trump’s election have been slowly unwinding in 2017. Here’s an important one that could have further to go: the gap between U.S. and German government bond yields. The spread between 10-year Treasurys and bunds ballooned after Mr. Trump’s November victory to a level not seen since before the fall of the Berlin Wall, around 2.3 percentage points by the end of 2016. U.S. yields rose sharply on the idea of reflation and stimulus, while Europe appeared stuck in a rut. At 1.75%age points, the gap is close to its pre-election level. But even that is unusual by historical standards. Between 1990 and 2014, the spread was only rarely wider than one percentage point, and over that period averaged just 0.2 point, according to data from FactSet.

Such a tight relationship between German and U.S. bonds reflected the long global bull market for bonds in the glory years of globalization. Relatively synchronized monetary policy meant yields fell on both sides of the Atlantic together. The Fed’s 2013 taper, followed by signals of coming European Central Bank bond buying helped set the bond markets apart. That both helped weaken the euro and encouraged a rush of bond issuance by U.S. companies in European markets as borrowing costs fell. Where policy goes now is key. Markets doubt how far the Fed might get with its tightening, and seem unflustered by the prospect of the central bank shrinking its balance sheet. Investors may be too relaxed, but in the absence of fiscal stimulus and inflation, much higher yields for Treasurys might be hard to achieve in the near term.

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But they rule Germany. So yeah, some fines etc., but the culture just goes on.

Top German Automakers Sued in US Over Two-Decade ‘Cartel’ (BBG)

German’s major automakers were accused in a U.S. lawsuit of acting as a cartel, colluding for nearly two decades to limit the pace of technological advances in their vehicles and stifle competition – allegations that widen the scope of the latest scandal to hit the nation’s auto industry. BMW AG, Daimler AG, Volkswagen AG and its Audi and Porsche brands shared competitive information about vehicle technologies with one another from 1996 through at least 2015 in violation of antitrust laws, according to a complaint filed Friday in San Francisco federal court. “These coordinated actions enabled the manufacturer defendants — the self-named ‘Fünfer-Kreise,’ or Circle of Five — to impose a German automobile premium on consumers premised on superior German engineering, while secretly stunting incentives to innovate,” the suit alleges.

The suit, which seeks class-action status on behalf of U.S. drivers, says the companies agreed to limit the development of vehicle systems, including emissions control. The arrangement allegedly led to the development of so-called “defeat devices” used by Volkswagen to cheat on pollution tests. Plaintiffs claim the operation of convertible roofs, body design, brakes and electronic systems were also part of the “technological innovations inhibited” by the pacts. The supplier of VW’s cheat software, Robert Bosch Gmbh, was also named as a defendant in the lawsuit.

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“The added cost of insurance pushed 274,000 customers into delinquency..”

Elizabeth Warren has called on the Fed to remove Wells Fargo board members. I think if your legal system does not allow you to put these people behind bars, maybe you should look there first. Many of these people should be put before a judge and Wells Fargo should be forced to close. Institutions like that are diseases in a society.

Wells Fargo Faces Angry Questions After New Sales Abuses Uncovered (R.)

New revelations that Wells Fargo spent years enrolling unknowing borrowers in costly auto insurance has put the bank under new pressure to answer for a months-long scandal over sales practices that have harmed millions of Americans. The latest news that 800,000 Wells Fargo auto borrowers were improperly charged for insurance rattled investors yet again, and sent its stock down 2.6% on Friday. Shareholders, analysts, lawmakers and consumer advocates demanded answers about how the situation manifested, and why Wells Fargo did not disclose the problems sooner, given existing turmoil over phony deposit and credit card accounts opened in customers’ names without their permission.

“This is a full-blown scandal — again,” said New York City Comptroller Scott Stringer, who oversees public pension funds that hold roughly 11.6 million Wells Fargo shares. “It’s unbelievable, outrageous, sad, and yet quintessential Wells Fargo. This isn’t just a corporate debacle. It’s caused real human harm.” Stringer called on the bank to install a new independent chair and “immediately” disclose more information. Wells Fargo first became aware of potential problems a year ago, when the auto lending business began receiving an unusually high number of complaints, Franklin Codel, head of consumer lending, said in an interview. The auto insurance program was quickly suspended, and the problem escalated to senior management, the board and regulators, he said.

Wells Fargo planned to delay public disclosure until it could notify affected customers and reimburse them. “The problem with disclosing to the marketplace today or several months ago is customers start calling and asking when they’re going to get their money,” he said. “It’s not a great customer experience to say, ‘Yeah, we’ll get back to you.'” [..] Wall Street analysts expect the financial damage to go beyond the $80 million in reimbursements. In a note on Friday, Piper Jaffray’s Kevin Barker predicted the true cost would be “multiples” of that figure, with lawsuits and further customer remediation. The added cost of insurance pushed 274,000 customers into delinquency, and led to at least 20,000 wrongful repossessions, according to the Times.

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“Community bank” and Wells Fargo in one sentence. Take out the ones that are most guilty and go on as you were.

Wells Fargo Cuts 70 Senior Managers in Retail Bank After Accounts Scandal (BBG)

Wells Fargo, the lender struggling to overcome a fake-accounts scandal in its community bank, said the division’s new leader is cutting about 70 senior executive jobs. The lender will reduce the number of regional and area presidents to 91, Mary Mack, head of the retail bank, said Friday in a memo to staff, a copy of which was obtained by Bloomberg. Bank spokeswoman Bridget Braxton confirmed the contents of the memo and said employees whose positions are eliminated will remain staff members for 60 days until further steps are decided. Most of the remaining managers will be re-titled as region bank presidents with direct responsibility for more employees than before, in a move aimed at reducing management levels across the branch network, Mack wrote.

Across its 10 geographical divisions, Wells Fargo previously employed 160 regional and area presidents. “Change is hard, yet change is necessary to make sure we are well positioned for the future,” Mack wrote. “In order to truly be better, we must put the right structure in place,” she added. The community-banking division, which houses the retail bank, has generated weaker profit since September when Wells Fargo was fined $185 million because employees had been opening accounts for more than a half decade without customers’ permission. This week, the firm’s consumer operations revealed another scandal, announcing that the bank had charged as many as 500,000 customers for auto insurance they didn’t need.

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“..Bill Gates who heads the largest digital technology company is on occasion second fiddle to Bezos who heads an online Sears or Macy’s.”

What Explains amazon.com’s Share Price? (PCR)

“Here are today’s top stories on Bloomberg” “Jeff Bezos briefly overtook Bill Gates as the world’s richest person. A surge in Amazon shares Thursday morning in advance of its earnings report gave Bezos a net worth of $92.3 billion, surpassing the Microsoft founder’s $90.8 billion fortune. In afternoon trading, Bezos remains ranked second on the Bloomberg Billionaires Index. Gates has held the top spot since May 2013.” Amazon’s stock closed yesterday at $1,046 per share. Amazon’s profits do not support this extraordinary price. Apple, a very profitable company, has a share price of $150.56, an overprice itself. What or who is making Bezos so rich from an online sales company? Note, amazon.com is just sales. It is not some new manufacturing technology that produces valuable output at low cost.

amazon.com is what Walmart, Sears, and Macy’s do, the difference being that amazon.com is online and Walmart, Sears, and Macy’s are in physical locations where real merchandise can be experienced hands on and tried on for fit. In other words, online purchases are convenient, but you don’t know what you are getting. Does it fit? What is the quality? And so forth. How many times do you send it back before you get what you want? There are two answers to the question about who is making Bezos rich. One is that Wall Street is betting that the collapse of US anti-trust law and regulatory authority—it is still on the books but not enforced, just look at the Big Banks—and the ability of Bezos to use his ownership of the Washington Post, the newspaper of the country’s capital, to support those who support him, ensure that amazon.com will be an online monopoly.

Once this is put in place, amazon’s prices and profits will rise, and the extraordinary amazon.com P/E ratio will come into line with reality. Another is that Bezos’ cooperation with Washington’s spy network over all Americans is paid for by the CIA’s many front companies driving up the price of amazon.com’s stock. As the price of amazon.com rises, so does Bezos’ wealth. I don’t know that either of these answers is correct. What I notice is that Bill Gates who heads the largest digital technology company is on occasion second fiddle to Bezos who heads an online Sears or Macy’s.

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Just in case you’re thinking things are a mess where you are. His brother is rumored to succeed him.

Panama Leaks and the Fall of Pakistan’s Prime Minister (Niaz)

On July 28, 2017, the Supreme Court of Pakistan (SCP) rendered a unanimous verdict by a five-member bench that disqualified Prime Minister Nawaz Sharif from holding public office. This outcome was the result of the Panama Leaks, which revealed that the premier and his family owned assets disproportionate to their known sources of income. The opposition Pakistan Tehreek-i-Insaf (PTI), led by Imran Khan, seized on this issue and managed to compel Pakistan’s normally apathetic state institutions to take notice. For over a year, the premier and his family failed to explain how they acquired upscale properties in London. The ruling family dug themselves even deeper into the hole in their effort to establish some kind of cover for their acquisitions by being deliberately inaccurate before the SCP and even forging documents.

Surrounded by sycophants, the premier was evidently badly advised at each step and he and his family have paid a very high political price and could well face jail time. Pakistan has a long tradition of dragging its civilian chief executives over the coals. No prime minister has completed a regular term in office, their tenures cut short by assassination, civilian or military coups, judicial intervention, and intra-party machinations. Many premiers have been overthrown or dismissed for alleged abuse of power, mal-administration, and corruption. Nawaz Sharif and his family, in being unable to account for their wealth, and in their crude attempts at a cover up, have demonstrated that they are evidently crooks.

This said, the Pakistan Muslim League-Nawaz (PML-N) has done a better job of delivering on its campaign promises than any political party in Pakistan’s democratic experience. Pakistan’s energy crisis has eased, the economy is headed towards 6% annual growth, FDI is the highest in a decade, per capita income has risen perceptively, major cities have seen considerable investment in their infrastructure, and the gross level of terrorist violence has declined. Given that the ruling party won in 2013 with as many votes as the next two largest parties combined, its victory in 2018 seemed all but assured.

[..] Since 1947, Pakistan state elites have presided over a massive privatization of public wealth. Entitlements in the form of plots, perks, benefits, are part of an elaborate system of bureaucratically induced shortages that breed systemic corruption and undermines governance. Pakistani private and public sector corporations and entrepreneurs guzzle subsidies and thrive only in a cartelized environment. Any attempt by a government to rationalize the economy or improve productivity is met with howls of protest and demands for more subsidies. Pakistani professionals, be they lawyers, doctors, engineers, educators, behave like mafias, seeking to avoid ethical checks while relentlessly pursuing self-aggrandizement.

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We’ll eat our own crap yet. Garbage in, garbage out.

Plastic Microparticles Found In Flesh Of Fish Eaten By Humans (Ind.)

Plastic microparticles are getting into the flesh of fish eaten by humans, according to a new study. A team of scientists from Malaysia and France discovered a total of 36 tiny pieces of plastic in the bodies of 120 mackerel, anchovies, mullets and croakers. They warned that as plastic attracts toxins in the environment, these poisons could be released into people’s bodies after they ate the fish. The plastics found included nylon, polystyrene and polyethylene. Writing in the journal Scientific Reports, the researchers said: “The widespread distribution of microplastics in aquatic bodies has subsequently contaminated a diverse range of aquatic biota, including those sold for human consumption such as shellfish and mussels.

“Therefore, seafood products could be a major route of human exposure to microplastics. “Microplastics were suggested to exert their harmful effects by providing a medium to facilitate the transport of other toxic compounds such as heavy metals and persistent organic pollutants to the body of organisms. Upon ingestion, these chemicals may be released and cause toxicity.” They suggested people eating the fish examined in this study, which are often dried and sold across Malaysia and neighbouring countries, could consume up to 246 pieces of microplastic a year. However, they added: “The majority of the tested fish in this study did not contain microplastics. Therefore, it is less likely that an individual would ingest the suggested maximum number of microplastics per annum.”

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May 132017
 
 May 13, 2017  Posted by at 8:47 am Finance Tagged with: , , , , , , , , ,  


Fred Stein Subway Steps New York 1943

 

Hackers Hit Dozens of Countries Exploiting Stolen NSA Tool (NYT)
UK Health Service, Targeted in Cyberattack, Ignored Warnings for Months (NYT)
Hurricane Bearing Down on the Casino (Stockman)
$500 Trillion in Derivatives “Remain an Important Asset Class” – NY Fed (WS)
The Great Misconception of a Return to “Normal” (Econimica)
US Nears $100 Billion Arms Deal For Saudi Arabia (R.)
Wells Fargo Bogus Accounts Balloon To 3.5 Million (R.)
EU To Decide Future Of Uber, Airbnb In Europe (NE)
A Populist Storm Stirs in Italy (WSJ)
Macron To Visit Germany To Seek Support For A Beefed Up Eurozone (G.)
Blood Sports (Jim Kunstler)
Greece and the Bond Market. Friends Reunited? (BBG)
China’s Xi Offers Indebted Greece Strong Support (R.)
Varoufakis Accuses Tsipras, Tsakalotos Of Giving In To Creditors (K.)
IMF, Eurozone Say Need More Time To Reach Greek Debt Relief Deal (R.)

 

 

Edward Snowden @Snowden: “In light of today’s attack, Congress needs to be asking @NSAgov if it knows of any other vulnerabilities in software used in our hospitals.”

Hackers Hit Dozens of Countries Exploiting Stolen NSA Tool (NYT)

Hackers exploiting malicious software stolen from the National Security Agency executed damaging cyberattacks on Friday that hit dozens of countries worldwide, forcing Britain’s public health system to send patients away, freezing computers at Russia’s Interior Ministry and wreaking havoc on tens of thousands of computers elsewhere. The attacks amounted to an audacious global blackmail attempt spread by the internet and underscored the vulnerabilities of the digital age. Transmitted via email, the malicious software locked British hospitals out of their computer systems and demanded ransom before users could be let back in – with a threat that data would be destroyed if the demands were not met.

By late Friday the attacks had spread to more than 74 countries, according to security firms tracking the spread. Kaspersky Lab, a Russian cybersecurity firm, said Russia was the worst-hit, followed by Ukraine, India and Taiwan. Reports of attacks also came from Latin America and Africa.[..] The hackers’ weapon of choice on Friday was Wanna Decryptor, a new variant of the WannaCry ransomware, which encrypts victims’ data, locks them out of their systems and demands ransoms. Researchers said the impact and speed of Friday’s attacks had not been seen in nearly a decade, when the Conficker computer worm infected millions of government, business and personal computers in more than 190 countries, threatening to overpower the computer networks that controlled health care, air traffic and banking systems over the course of several weeks.

One reason the ransomware on Friday was able to spread so quickly was that the stolen N.S.A. hacking tool, known as “Eternal Blue,” affected a vulnerability in Microsoft Windows servers. Hours after the Shadow Brokers released the tool last month, Microsoft assured users that it had already included a patch for the underlying vulnerability in a software update in March. But Microsoft, which regularly credits researchers who discover holes in its products, curiously would not say who had tipped the company off to the issue. Many suspected that the United States government itself had told Microsoft, after the N.S.A. realized that its hacking method exploiting the vulnerability had been stolen.

Privacy activists said if that were the case, the government would be to blame for the fact that so many companies were left vulnerable to Friday’s attacks. It takes time for companies to roll out systemwide patches, and by notifying Microsoft of the hole only after the N.S.A.’s hacking tool was stolen, activists say the government would have left many hospitals, businesses and governments susceptible. “It would be deeply troubling if the N.S.A. knew about this vulnerability but failed to disclose it to Microsoft until after it was stolen,” Patrick Toomey, a lawyer at the American Civil Liberties Union, said on Friday. “These attacks underscore the fact that vulnerabilities will be exploited not just by our security agencies, but by hackers and criminals around the world.”

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Don’t just blame the hospitals. Blame the government that squeezes them so dry they have to choose patients over computers.

UK Health Service, Targeted in Cyberattack, Ignored Warnings for Months (NYT)

Britain’s National Health Service ignored numerous warnings over the last year that many of its computer systems were outdated and unprotected from the type of devastating cyberattack it suffered on Friday. The attack caused some hospitals to stop accepting patients, doctor’s offices to shut down, emergency rooms to divert patients, and critical operations to be canceled as a decentralized system struggled to cope. At some hospitals, nurses could not even print out name tags for newborn babies. At the Royal London Hospital, in east London, George Popescu, a 23-year-old hotel cook, showed up with a forehead injury. “My head is pounding and they say they can’t see me,” he said. “They said their computers weren’t working. You don’t expect this in a big city like London.”

In a statement on Friday, the N.H.S. said its inquiry into the attack was in its early phases but that “at this stage we do not have any evidence that patient data has been accessed.” Many of the N.H.S. computers still run Windows XP, an out-of-date software that no longer gets security updates from its maker, Microsoft. A government contract with Microsoft to update the software for the N.H.S. expired two years ago. Microsoft discontinued the security updates for Windows XP in 2014. It made a patch, or fix, available in newer versions of Windows for the flaws that were exploited in Friday’s cyberattacks. But the health service does not seem to have installed either the newer version of Windows or the patch.

“Historically, we’ve known that N.H.S. uses computers running old versions of Windows that Microsoft itself no longer supports and says is a security risk,” said Graham Cluley, a cybersecurity expert in Oxford, England. “And even on the newest computers, they would have needed to apply the patch released in March. Clearly that did not happen, or the malware wouldn’t have spread this fast.” Just this month, a parliamentary research briefing noted that cyberattacks were viewed as one of the top threats facing Britain. The push to make medical records systems more interconnected might also make the system more vulnerable to attack. Britain plans to digitize all patient records by 2020.

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The anti-Trump battle will be fought with financial weapons. And the Donald is walking into that trap.

Hurricane Bearing Down on the Casino (Stockman)

Yesterday I said the Donald was absolutely right in canning the insufferable James Comey, but that he has also has stepped on a terminal political land-mine. And he did. That’s because the entire Russian meddling and collusion narrative is a ridiculous, evidence-free attempt to re-litigate the last election. And now that the powers that be have all the justification they need. And what is already an irrational witch-hunt will be quickly turned into a scorched-earth assault on a sitting president. I have no idea how this will play out, but as a youthful witness to history back in 1973-1974 I observed Tricky Dick’s demise in daily slow motion. But the most memorable part of the saga was how incredibly invincible Nixon seemed in early 1973. Nixon started his second term, in fact, with a massive electoral landslide, strong public opinion polls and a completely functioning government and cabinet.

Even more importantly, he was still basking in the afterglow of his smashing 1972 foreign policy successes in negotiating detente and the anti-ballistic missile (ABM) treaty with Brezhnev and then the historic opening to China on his Beijing trip. So I’ll take the unders from anyone who gives the Donald even the 19 months that Nixon survived. After all, Trump lost the popular vote, is loathed by official Washington, barely has a functioning cabinet and is a whirling dervish of disorder, indiscipline and unpredictability. To be sure, the terms of the Donald’s eventual exit from the Imperial City will ultimately by finalized by the 46th President in waiting, Mike Pence. But I’m pretty sure of one thing: Between now and then, there is not a snow ball’s chance in the hot place that Donald’s severance package will include the ballyhooed Trump Tax Cut and Fiscal Stimulus.

Markets slipped today because of carnage in the retail sector (which I’ve been warning readers about). But these fantasies are apparently still “priced-in” to a market that has now become just plain stupid. What is surely coming down the pike after the Comey firing, however, is just the opposite. That is, Washington will soon become a three-ring circus of investigations of Russia-gate and the “hidden” reasons for Trump’s action. The Imperial City will get embroiled in bitter partisan warfare and the splintering of the GOP between its populist and establishment wings. In that context, what passes for “governance” will be reduced to a moveable Fiscal Bloodbath that cycles between debt ceiling showdowns and short-term continuing resolution extensions.

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The swamp that can’t be drained without causing explosions.

$500 Trillion in Derivatives “Remain an Important Asset Class” – NY Fed (WS)

Economists at the New York Fed included this gem in their report on a two-day conference on “Derivatives and Regulatory Changes” since the Financial Crisis: “Though the notional amount [of derivatives] outstanding has declined in recent years, at more than $500 trillion outstanding, OTC derivatives remain an important asset class.” An important asset class. A hilarious understatement. Let’s see… the “notional amount” of $500 trillion is 25 times the GDP of the US and about 7 times global GDP. Derivatives are not just an “important asset class,” like bonds; they’re the largest “financial weapons of mass destruction,” as Warren Buffett called them in 2003.

Derivatives are used for hedging economic risks. And they’re used as “speculative directional exposures” – very risky one-sided bets. It’s all tied together in an immense and opaque market interwoven with the banks. The New York Fed: The 2007-09 financial crisis highlighted weaknesses in the over-the-counter (OTC) derivatives markets and the increased risk of contagion due to the interconnectedness of market participants in these markets. This chart from the New York Fed shows how derivatives ballooned 150% – or by $360 trillion – in less than four years before the Financial Crisis. They ticked down during the Financial Crisis, then rose again during the Fed’s QE to peak at $700 trillion. After the end of QE, they declined, but recently ticked up again to $500 trillion. I added in red the Warren Buffett moment:

The vast majority of the derivatives are interest rate and credit contracts (dark blue). Banks specialize in that. For example, according to the OCC’s Q4 2016 Report on Derivatives, JPMorgan Chase holds $47.5 trillion of derivatives at notional value and Citibank $43.9 trillion. The top 25 US banks hold $164.7 trillion, or 8.5 times US GDP. So even a minor squiggle could trigger some serious heartburn.

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Try use “normal” and “derivatives” in one sentence and put on a straight face.

The Great Misconception of a Return to “Normal” (Econimica)

Since 2009, there has been ongoing discussion of the size & composition of major central bank balance sheets (I’m focusing on the Federal Reserve Bank, European Central Bank, and the Bank of Japan) but little discussion of why these institutions felt (and continue to feel) compelled to “buy” assets. The chart below highlights the ongoing collective explosion of these bank “assets” since 2009 after a previous period of relative stability. These institutions clearly have the capability and willingness to digitally conjure “money” from nothing and have felt compelled to remove over $10 trillion worth of assets from the markets since 2009. This swap of illiquid assets for liquid cash had (and continues to have) the effect of squeezing the prices of the remaining assets higher (more money chasing fewer assets=price appreciation).

A prime example of that squeeze, the US stock market total valuation (represented by the Wilshire 5000, below) is $10 trillion higher than the “bubble” peak of 2008…and $11 trillion higher than the 2001 “bubble” peak. Likewise, US federal debt since 2008 has increased by…you guessed it, $10 trillion. The narrative seems to be that 2009 was a one off event and that the central banks role was and still is to “stabilize” the situation until things “normalize”. But right there…that idea that 2009 was a “one-off” or “abnormal” couldn’t be more wrong. So what is “normal” growth, at least from a consumption standpoint? Normal is never the same twice…it is ever changing and must be constantly rediscovered.

To determine “normal” growth in consumption, all we need do is figure the change in the quantity of consumers (annual population growth) and the quality of those consumers (their earnings, savings, and utilization of credit). The chart below details the ever changing “normal” that is the annual change in the under 65yr/old global population broken down by wealthy consuming nations (blue line) and the rest of the (generally poor) world (red line). The natural rate of growth in consumption has been declining ever since 1988 (persistently less growth in the population on a year over year basis)…but central banks and central governments have substituted interest rate cuts and un-repayable debt to maintain an unnaturally high consumption growth rate.

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If we don’t put a stop to this, we have no chance. This is where it all begins and ends.

US Nears $100 Billion Arms Deal For Saudi Arabia (R.)

The United States is close to completing a series of arms deals for Saudi Arabia totaling more than $100 billion, a senior White House official said on Friday, a week ahead of President Donald Trump’s planned visit to Riyadh. The official, who spoke to Reuters on condition of anonymity, said the arms package could end up surpassing more than $300 billion over a decade to help Saudi Arabia boost its defensive capabilities while still maintaining U.S. ally Israel’s qualitative military edge over its neighbors. “We are in the final stages of a series of deals,” the official said. The package is being developed to coincide with Trump’s visit to Saudi Arabia. Trump leaves for the kingdom on May 19, the first stop on his maiden international trip.

Reuters reported last week that Washington was pushing through contracts for tens of billions of dollars in arms sales to Saudi Arabia, some new, others already in the pipeline, ahead of Trump’s visit. The United States has been the main supplier for most Saudi military needs, from F-15 fighter jets to command and control systems worth tens of billions of dollars in recent years. Trump has vowed to stimulate the U.S. economy by boosting manufacturing jobs. The package includes American arms and maintenance, ships, air missile defense and maritime security, the official said. “We’ll see a very substantial commitment … In many ways it is intended to build capabilities for the threats they face.” The official added: “It’s good for the American economy but it will also be good in terms of building a capability that is appropriate for the challenges of the region. Israel would still maintain an edge.”

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How many executives in jail, you said?

Wells Fargo Bogus Accounts Balloon To 3.5 Million (R.)

Wells Fargo may have opened as many as 3.5 million unauthorized customer accounts, far more than previously estimated, according to lawyers seeking approval of a $142 million settlement over the practice. The new estimate was provided in a filing late Thursday night in the federal court in San Francisco, and is 1.4 million accounts higher than previously reported by federal regulators, in what became a national scandal. Keller Rohrback, a law firm for the plaintiff customers, said the higher estimate reflects “public information, negotiations, and confirmatory discovery.” The Seattle-based firm also said the number “may well be over-inclusive, but provides a reasonable basis on which to estimate a maximum recovery.”

Wells Fargo spokesman Ancel Martinez in an email said the new estimate was “based on a hypothetical scenario” and unverified, and did not reflect “actual unauthorized accounts.” Nonetheless, it could complicate Wells Fargo’s ability to win approval for the settlement, which has drawn opposition from some customers and lawyers who consider it too small. “This adds more credence to the fact there is not enough information to assess whether the settlement is fair and adequate,” Lewis Garrison, a partner at Heninger Garrison Davis in Birmingham, Alabama who represents some objecting customers, said in an interview. U.S. District Judge Vince Chhabria in San Francisco is scheduled to consider preliminary approval at a May 18 hearing. The accounts scandal mushroomed after Wells Fargo agreed last September to pay $185 million in penalties to settle charges by authorities including the U.S. Consumer Financial Protection Bureau.

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They better be thorough, or individual countries must each formulate their own responses.

EU To Decide Future Of Uber, Airbnb In Europe (NE)

An opinion issued by the European Court of Justice on May 11 could prevent people from using or working for services such as Uber and Airbnb. The opinion from the Advocate General of the European Court of Justice follows a case that has been brought by Spanish taxi drivers against the ride sharing service Uber. It found that Uber should be regulated like a transportation company, not as an “information society service”. If the opinion is upheld, these services could be required to apply for specific licences or be restricted in number as is the case with taxis in various European cities in an attempt to keep prices artificially high.

The court is slated to deliver a final ruling on whether Uber should be classified as a transport company or as a passive internet intermediary, in the coming months. Usually, the judges follow the opinion of the Advocate General. It remains to be seen whether the case will impact other so-called sharing economy services as Airbnb. Speaking after the opinion was issued, Dan Dalton, European Conservatives and Reformists (ECR) spokesman on the EU internal market said: “The opinion given today has huge implications for innovative, consumer driven digital services all across Europe… It is right that there are safeguards for consumers, but applying analogue era regulation to the digital world only strangles innovation and entrenches privileged monopolies.”

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Beppe always had one goal first: get rid of corruption. The WSJ can talk all it wants about M5S teething problems, but there are bigger issues here.

A Populist Storm Stirs in Italy (WSJ)

Europe’s establishment breathed a sigh of relief after the pro-European Union centrist Emmanuel Macron was elected French president this week. But another populist storm is brewing in Italy, where the euroskeptic 5 Star Movement has remained strong. Fueled by discontent with slow growth, high unemployment and disillusionment with mainstream politicians, 5-Star has won local elections in Rome, Turin and elsewhere, partly on the strength of its leaders’ call for a referendum on Italy’s use of the European single currency. Pollsters say about 30% of Italian voters support the movement founded by comedian Beppe Grillo, a level of popularity that has stood firm despite a series of high-profile stumbles, especially by its mayor in Rome.

The self-described association of free citizens has replaced the center-left Democratic Party at the top of most polls ahead of national elections to be held by May 2018. Now, the group that has flouted the rules of the game for establishment parties in Italy is experiencing growing pains as it prepares for the possibility of taking power. The prospect of Mr. Grillo and his supporters winning and forming a government has made investors nervous and pushed up yields on Italian bonds in recent months. On Friday, the spread between Italian and German 10-year sovereign bond yields was 1.85 percentage points, nearly five times the corresponding spread between French and German bonds.

Mr. Grillo and 5 Star waged a successful campaign to block constitutional changes sought by former Democratic Italian Prime Minister Matteo Renzi, effectively forcing him from office in December. Since then, a caretaker government has run Italy. The movement has vowed to institute tougher anticorruption laws and deliver a minimum guaranteed income for all working-age and retired Italians if it emerges from upcoming elections as head of a minority government or in a governing coalition with other euroskeptic parties.

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There is no support for a beefed up EU or eurozone. Besides, Macron will be fighting the unions over the summer.

Macron To Visit Germany To Seek Support For A Beefed Up Eurozone (G.)

Emmanuel Macron will take power as French president on Sunday and immediately face the twin challenges of European Union reform and loosening strict labour laws in France. After walking up the red carpet to the Élysée Palace on Sunday morning, being briefed on the nuclear deterrent by the outgoing Socialist leader François Hollande, and making his first speech, Macron will on Monday fly to Berlin to meet the German chancellor, Angela Merkel. It is traditional for French leaders to make Berlin their first European trip. The pro-European centrist Macron wants to boost the French-German motor at the heart of Europe and press for closer cooperation, including creating a parliament and budget for the eurozone. Merkel welcomed Macron’s decisive election victory over the far-right Marine Le Pen, saying he carried “the hopes of millions of French people and also many in Germany and across Europe”.

But if Macron is to push for eurozone reform, he must also prove to Berlin and other European allies that he can deliver the changes he has promised on France’s sluggish economy and deficit problem. The German finance minister, Wolfgang Schäuble, in an interview with the weekly Spiegel, kept up his country’s pressure on France to reduce its budget deficit to the EU ceiling of 3%. “France can make it,” he said. Macron, 39, France’s youngest elected leader, vowed during his campaign that he would immediately loosen France’s rigid labour regulations, giving businesses more power over setting working hours and deciding working conditions. He said that if needed, he would push through these changes by decree soon after taking office. Trade unions and leftwing demonstrators are warning of street protests if changes are not handled carefully.

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Jim waxes nostalgic on Nixon.

Blood Sports (Jim Kunstler)

I remember that sweaty August day that he threw in the towel. (I was a young newspaper reporter when newspapers still mattered.) It was pretty much a national orgasm. “NIXON RESIGNS!” the headlines screamed. A moment later he was on the gangway into the helicopter for the last time. Enter, stage right, the genial Gerald Ford…. Forgive me for getting caught up in the very nostalgia I castigate. And now here we are in the mere early months of Trumptopia about to hit the replay button on a televised inquisition. In my humble opinion, Donald Trump is a far more troubling personality than Tricky Dick ever was, infantile, narcissistic, at times verging on psychotic, but the RussiaGate story looks pretty flimsy. At this point, after about ten months of NSA-FBI investigation, nothing conclusive has turned up about Trump’s people “colluding” with Russia to gain unfair advantage in the election against You-Know-Who.

Former NSA chief James Clapper has publicly stated twice in no uncertain terms that there’s no evidence to support the allegations (so far). And there remains the specter of the actual content of the “collusion” — conveniently ignored by the so-called “Resistance” and its water-carriers at The New York Times — the hacked emails that evince all kinds of actual misbehavior by Secretary of State HRC and the DNC. The General Mike Flynn episode seems especially squishy, since it is the routine duty of incoming foreign affairs officials to check in with the ambassador corps in Washington. Why do you think nations send ambassadors to other countries? The upshot of all this will be a political circus for the rest of the year and the abandonment of any real business in government, at a moment in history when some very weighty black swans circle above the clouds waiting to crash land. Enjoy the histrionics if you dare, and pay no attention to collapsing economy as it all plays out.

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Draghi need to buy Greek bonds, and bring down those rates.

Greece and the Bond Market. Friends Reunited? (BBG)

Greece is considering tapping the capital markets for the first time in three years. Let’s hope its second attempt to regain market access goes more smoothly for investors than its first. A bond sale in July or September is being considered – if a deal on debt relief is reached, and the ECB adds Greek debt to the shopping list of securities it can buy through its quantitative easing program, according to the Wall Street Journal. The news comes as the U.S. presses European officials to ease Greece’s debt burden at informal talks during the Group of Seven gathering currently taking place in Italy.Investors can be forgiven if they feel a sense of déjà vu.In April 2014, Greece sold €3 billion of 4.75% bonds repayable in 2019 in its first issue for almost four years.

The country had sought to raise €2.5 billion; orders from more than 550 investors, though, exceeded €20 billion, and, five months later, the bond was increased by a further €1 billion. The then PM Antonis Samaras called the sale “one more decisive step toward exiting the crisis.”Except … it turned out Greece was about to get worse, not better. The day after the sale, the price of the bonds slipped by a bit more than half a point. By the end of the year, they’d lost almost 20% of their value. And by the middle of 2015, they slumped to as low as 40% of face value as the government was forced to introduce capital controls in an effort to stanch the flood of money leaving the country’s banking system. The bond price recovered as the Greek government dropped its defiance against the terms demanded by its lenders, implemented pension and labor market reforms and accelerated the sale of government assets.

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Does Brussels really want China to buy up Greece?

China’s Xi Offers Indebted Greece Strong Support (R.)

Chinese President Xi Jinping offered the prime minister of deeply indebted Greece strong support on Saturday, saying the two countries should expand cooperation in infrastructure, energy and telecommunications. Xi told Prime Minister Alexis Tsipras that Greece was an important part in China’s new Silk Road strategy. “At present, China and Greece’s traditional friendship and cooperation continues to glow with new dynamism,” China’s Foreign Ministry cited Xi as saying. Cooperation in infrastructure, energy and telecommunications should be “deep and solid”, Xi added, without giving details. Tsipras is in Beijing to attend a summit to promote Xi’s vision of expanding links between Asia, Africa and Europe underpinned by billions of dollars in infrastructure investment called the Belt and Road initiative.

Greek infrastructure development group Copelouzos has signed a deal with China’s Shenhua Group to cooperate in green energy projects and the upgrade of power plants in Greece and other countries, the Greek company said on Friday. The deal will involve total investment of €3 billion, Copelouzos said in a statement, without providing further details. China has been investing heavily in Greece in recent years. Its biggest shipping company, COSCO Shipping, bought a majority stake in Piraeus Port Authority last year under a plan to turn Greece into a transhipment hub for rapidly growing trade between Asia and Eastern Europe. Xi said China and Greece should focus their efforts on turning the Piraeus port into an important international transhipment hub and key part of the new Silk Road, the Chinese ministry said.

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Yanis says Greece’s future is Kosovo, Steve Keen said Somalia. They’re both right.

Varoufakis Accuses Tsipras, Tsakalotos Of Giving In To Creditors (K.)

In an interview Friday on Skai TV, former finance minister Yanis Varoufakis hit out at his erstwhile government colleagues, accusing both his successor Euclid Tsakalotos and Prime Minister Alexis Tsipras of giving in to the country’s international creditors. “There is no new agreement, just a new surrender,” he said of the latest deal with Greece’s lenders. “The first memorandum burned Papandreou, the second Samaras, the third Tsipras. The fourth will require a new prime minister,” he said. As for Greece’s prospects, his prediction was bleak. “We will become Kosovo, a protectorate run by an employee of the European Union.”

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Never seen a more broken record.

IMF, Eurozone Say Need More Time To Reach Greek Debt Relief Deal (R.)

The IMF and eurozone government lenders need more time to reach an agreement on debt relief for Greece because the eurozone is still not sufficiently clear in its intentions, IMF chief Christine Lagarde said on Friday. Top eurozone officials and Lagarde met on Friday morning to discuss debt relief for Athens which eurozone finance ministers, or the Eurogroup, promised in May 2016, but under strict conditions. “We will carry on working on this debt relief package. There is not enough clarity yet. Our European partners need to be more specific in terms of debt relief, which is an imperative,” Lagarde told reporters in the city of Bari in Italy. German Finance Ministers Wolfgang Schaeuble, also at the meeting of the G7 advanced economies in Bari, asked if he would be prepared to ease the conditions for debt relief, said: “We are prepared to stick to what we have agreed in May 2016. That is the basis on which we are working … I am still in favor of getting a solution, at least a political solution, in the Eurogroup on the 22nd of May.”

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