Feb 072018
 
 February 7, 2018  Posted by at 11:07 am Finance Tagged with: , , , , , , , , , ,  


Jean-Michel Basquiat Aboriginal 1984

 

Why Did US Stock Market Crash On Monday? Blame The Central Banks (Steve Keen)
Asian Shares On Edge As US Futures Slip (R.)
Two Tiny Volatility Products Helped Fuel Sudden Stock Slump (BBG)
Inside Wall Street’s $8 Billion VIX Time Bomb
The Death Of The “Death Of Contagion” Central Bank Meme (Luongo)
Icahn: “One Day This Thing Is Just Going To Implode” (CNBC)
Good Riddance, Janet, You Were A Colossal Failure, Part 1 (Stockman)
How “Opioid Janet” Got Wall Street Hooked On Monetary Heroin, Part 2 (Stockman)
The EU Is The Enemy Of The Working Classes (Spiked)
German Pay Deal Heralds End Of Wage Restraint In Europe’s Largest Economy (R.)
UK Crops Left To Rot After Drop In EU Farm Workers In Britain (Ind.)
Refugee Arrivals Have Doubled Since August, Greek Migration Minister Says (K.)

 

 

Coming to you from a Russian propaganda channel.

Why Did US Stock Market Crash On Monday? Blame The Central Banks (Steve Keen)

Everyone who’s asking “why did the stock market crash Monday?” is asking the wrong question. The real poser is “why did it take so long for this crash to happen?” The crash itself was significant—Donald Trump’s favorite index, the Dow Jones Industrial (DJIA) fell 4.6% in one day. This is about four times the standard range of the index—and so according to conventional economics, it should almost never happen. Of course, mainstream economists are wildly wrong about this, as they have been about almost everything else for some time now. In fact, a four% fall in the market is unusual, but far from rare: there are well over 100 days in the last century that the Dow Jones tumbled by this much. Crashes this big tend to happen when the market is massively overvalued, and on that front this crash is no different.

It’s like a long-overdue earthquake. Though everyone from Donald Trump down (or should that be “up”?) had regarded Monday’s level and the previous day’s tranquillity as normal, these were in fact the truly unprecedented events. In particular, the ratio of stock prices to corporate earnings is almost higher than it has ever been. There is only one time that it’s been higher: during the DotCom Bubble, when Robert Shiller’s “cyclically adjusted price to earnings” ratio hit the all-time record of 44 to one. That means that the average price of a share on the S&P500 was 44 times the average earnings per share over the previous 10 years (Shiller uses this long time-lag to minimize the effect of Ponzi Scheme firms like Enron).

The S&P500 fell more than 11% that day, so Monday’s fall is minor by comparison. And the market remains seriously overvalued: even if shares fell by 50% from today’s level, they’d still be twice as expensive as they have been, on average, for the last 140 years. After the 2000 crash, standard market dynamics led to stocks falling by 50% over the following two years, until the rise of the Subprime Bubble pushed them up about 25% (from 22 times earnings to 28 times). Then the Subprime Bubble burst in 2007, and shares fell another 50%, from 28 times earnings to 14 times. This was when central banks thought The End of the World Is Nigh, and that they’d be blamed for it. But in fact, when the market bottomed in early 2009, it was only just below the pre-1990 average of 14.5 times earnings.

Read more …

Give it a few days, and complacency may well be reinstated.

Asian Shares On Edge As US Futures Slip (R.)

Asian shares reversed their earlier gains on Wednesday as investors dumped U.S. stock futures for safer harbors, a sign market participants remain jittery after this week’s global markets rout. While most analysts believed this week’s distressed selling looks to have run its course for the moment, allowing volatility to abate a little, the prospect of monetary tightening across the globe remains a challenge for the long term. “If we look at some of the drivers of the recent volatility – the natural correction and the bond sell-off – we don’t foresee any of these factors contributing to a lengthy period of extreme volatility,” said Tom Kenny, senior economist at ANZ. “The correction is probably a healthy development and is not reflective of a souring of the macroeconomic outlook.”

Investors took their cues from a late rebound on Wall Street overnight, though many had an anxious eye on E-Mini futures for the S&P 500 which slipped about 1% in late Asian trading. Dow Minis were down 0.9%. MSCI’s broadest index of Asia-Pacific shares outside Japan was a tad softer, having risen as much as 2% in early trade. Japan’s Nikkei eased too but was still up 0.2%. Chinese blue chips and South Korea’s KOSPI index dropped more than 2%. “The only surprise about the current volatility is that it hasn’t happened sooner. Normally, even in a bull market, investors should expect a sell-off of 10-percent-plus at some point,” said Richard Titherington, chief investment officer of EM Asia Pacific Equities. “While a major market downturn is possible, it is not our current expectation. The underlying backdrop of an improving global economy, a weakening U.S. dollar and a pickup in global earnings all remain supportive factors.”

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Why have these things ever been allowed into existence? Who and what do they serve? The American people?

Two Tiny Volatility Products Helped Fuel Sudden Stock Slump (BBG)

Two days after a sudden spike in volatility sparked a stock-market crash, market participants are left to ponder the wreckage of the sell-off and the mysterious dynamics that caused it. One theory that’s emerging: the curious case of the tail wagging the dog. Two exchange-traded products that democratized access to one of Wall Street’s most tried-and-true strategies – selling volatility – had just $3.6 billion in assets on Monday. That’s a tiny fraction of the roughly $2 trillion estimated to be linked to short-volatility strategies – and a speck of dust compared to the $23 trillion in market value of S&P 500 companies. Yet the popularity of these vehicles might have contributed to one of the most violent moves in U.S. equities in history: one that saw the Dow Jones Industrial Average slump more than 6% in a span of six minutes.

After the dust settled, the combined assets in the two exchange-traded products shrank to $135 million. One of them – the VelocityShares Daily Inverse VIX Short-Term ETN, known as XIV – will soon be extinct. No one knows for sure what played out on the afternoon of Feb. 5 on Wall Street, cautioned Societe Generale SA managing director Ramon Verastegui, but there’s reason to believe the sharpness of the retreat in equities was linked to traders’ understanding of how the exchange-traded products would behave. As funds’ assets swelled, so too had their power to move the underlying VIX futures markets, he suggests. And market participants knew it. Products such as XIV and its close relation, the ProShares Short VIX Short-Term Futures ETF (SVXY), aim to offer investors exposure to the inverse of the daily moves at the front portion of the VIX futures curve, and typically benefit from market tranquility.

Demand from leveraged VIX exchanged-traded products was “the major driver for the move post the cash close,” Barclays analysts led by Maneesh Deshpande said. There are other clues in the case — notably that the big fall in stocks hasn’t yet significantly affected other asset classes. That the volatility spike was concentrated in equities supports the notion of a VIX product-propelled plunge, according to George Pearkes, macro strategist at Bespoke Investment Group. During other eruptions of volatility — the aftermath of China’s shock devaluation of the yuan in August 2015, for instance – volatility in stocks, bonds, currencies and even oil jumped. “This is the exact opposite of a number of different volatility spikes we’ve seen in recent years,” he said in an interview on Bloomberg TV. “Frankly, it’s a reason to think that some of the worst of the recent moves in the VIX and the delta moves in cash equities have been driven specifically by equity-vol products that have not spread out to other asset classes.”

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If it were just $8 billion, we wouldn’t be having this talk.

Inside Wall Street’s $8 Billion VIX Time Bomb

It was the hot trade on Wall Street, a seemingly sure thing that lulled everyone from hedge fund managers to small-time investors. Now newfangled investments linked to volatility in the stock market – until a few years ago, obscure niche products – have exploded in spectacular fashion. The shock waves have only just begun. How these investments proliferated is a classic story of Wall Street salesmanship and old-fashioned greed. In a few short years, financial engineering transformed expectations about the ups and downs of the stock market into an asset class that could be marketed and sold – as tradable as stocks but, it turns out, sometimes far riskier. Call it the volatility-financial complex. All told, financial players have created more than $8 billion of products tied to one index alone.

In a low-interest-rate world, investors desperate for returns snapped them up, and bankers collected fees along the way. But, as with mortgage investments a decade ago, complacency – in this case, over a history-defying period of market calm – masked potential dangers. No one is saying the wild swings of late presage a broad collapse like the one that hit in 2008. But the fallout nonetheless provides a glimpse into the myriad products, and growing complexity, driving global markets a decade after the last debacle. The risks, in hindsight, were clear enough even before the Dow Jones industrial average plummeted nearly 1,600 points on Monday, snapped back, and then took a wild bungee jump of nearly 1,200 points Tuesday. The CEO of Barclays, which pioneered notes linked to U.S. market volatility, warned only last month that investors might be losing their heads.

“If this thing turns, hold on to your hat,” Jes Staley told a panel at the World Economic Forum in Davos. Now, hats have been blown off by a whirlwind the likes of which Wall Street has never seen. To some, the volatility complex feels like a monster that’s been lurking in the shadows. Even one of the inventors of the VIX, Devesh Shah, is perplexed why these products exist in the first place. “Everybody knew that this was a huge problem,” said Shah, who was in his 20s when he helped create what’s become the market’s fear barometer. “Everybody knows that Inverse VIX is going to go to zero at some point, and all these inverse and leveraged products, not just in the VIX but elsewhere too, at the end of the day cost people a lot of money.”

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VIX as CDOs with lipstick on.

The Death Of The “Death Of Contagion” Central Bank Meme (Luongo)

Last year now-former FOMC Chair Janet Yellen downplayed the possibility of another financial crisis. In her hubris she believes the central banks have walled off the financial system from ‘contagion risks’ brought on by over-investment in synthetic derivative market products. Like generals, however, central planners are always fighting the last war. We’re experiencing a major correction in the equity markets brought on in a mean-reversion exercise thanks to central banks trying to shore up their defenses around the last battle they lost, namely off-exchange, unregulated CDOs — synthetic debt-based investment products. Humans are clever and will always find a way around a problem. The problem is incentives. he banks created CDO’s because there was a demand for investment returns far above what the central banks were allowing the market to pay, by setting interest rates well below the real risk profile of the investment community.

In other words, government bonds were over-priced and investors went looking for better returns. Now that Yellen et.al. have stamped out most of that market investors still need yield. And that’s where the equity markets and the VIX come in. The response to the 2008 financial crisis was zero-bound interest rates and trillions in liquidity created by the central banks sitting around looking for yield. It found its way into the equity markets which over the past six plus years been on an historic rally off the October 2011 low. During that time the VIX became more important. What was once only discussed by the real pros was now in the hands of everyone. Contagion risks jumped asset classes. For the uninitiated the VIX — or volatilty index — is a bet about the behavior of the S&P 500, itself an index of stocks. Higher VIX values equal higher implied future volatility in the S&P 500 and vice versa.

In mathematical terms the S&P 500 is the first derivative of any single stock. Stocks in the index trade in sympathy with it regardless of their current business. The VIX is then the 2nd derivative of any stock in your portfolio. During a rally the VIX falls. But, now with so many products out there, ETNs — Exchange Traded Notes — both leveraged and un-leveraged — to speculate in the VIX it became easier and more profitable to trade it than the S&P 500 or individual stocks. Trading volumes in these products have soared. The tail didn’t just wag the dog, it became the dog. Now these ETN’s are another derivative of the equity markets. And if they are leveraged, i.e. the note trades with twice or three times the volatility of the VIX itself (volatility of volatility), then options on these ETNs is the fourth derivative of the underlying stock. Volatilty of volatility of volatility.

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No doubt there.

Icahn: “One Day This Thing Is Just Going To Implode” (CNBC)

Billionaire Carl Icahn told CNBC on Tuesday there are too many exotic, leveraged products for investors to trade, and one day these securities are going to blow up the market. The market is a “casino on steroids” with all these exchange-traded funds and exchange-traded notes, he said. These funds, especially the leveraged ones, are the “fault lines” that will eventually lead to an earthquake on Wall Street, he said. “These are just the beginnings of a rumbling.” The latest example is an obscure security, designed to be a bet on a calm market, that’s being blamed for causing an influx of selling in recent days. The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) blew up overnight as investors were forced to sell when the market went haywire. As a result, Credit Suisse on Tuesday said as of Feb. 20, it will end trading for its XIV, which was supposed to give the opposite return of the Cboe Volatility Index (VIX), often referred to as the market’s fear gauge.

“The market itself is way over-leveraged,” Icahn said on “Fast Money Halftime Report,” predicting that “one day this thing is just going to implode.” He described the possible implosion as “maybe eventually worse than 1929,” making reference to the stock market crash that contributed to the Great Depression. “The market has become a much more dangerous place,” he said, adding the current volatility is a precursor of potential trouble. “It’s telling you something, giving you a warning.” Investors are piling into index funds thinking they’ll never go down, Icahn said. “Passive investing is the bubble right now, and that’s a great danger.” But as much as he was sounding alarm bells, Icahn said, “I don’t think this is the explosive time.” The market will “probably bounce back,” he continued. “I don’t think this is the beginning of the end.”

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I read far too much praise for Yellen. Stockman doesn’t swallow it either.

Good Riddance, Janet, You Were A Colossal Failure, Part 1 (Stockman)

This is one for the record books. During Janet Yellen’s last week in office, the Dow dropped by 1,095 points or 4.1%. But by her lights, apparently, that wasn’t even a warning bell – just the market clearing its collective throat. So on the way out the door our Keynesian school marm could not resist delivering what will soon be seen as a grand self-indictment. There’s nothing to worry about, she averred, because Wall Street’s OK and main street is positively awesome: “I don’t want to label what we’re seeing as a bubble….(even if) asset valuations are generally elevated….(but) when I see the unemployment rate fall to 4.1%…I feel very good about the progress we’ve seen there.” No, there is a monumental bubble out there that was born, bred and nurtured at the hands of the Fed.

At the same time, Yellen and her merry band of money printers had virtually nothing to do with the 4.1% unemployment rate – even if that were a valid measure of return to full employment prosperity, which it is not. To the contrary, the mainstreet economy is sick as a dog, and it is the Fed’s giant Wall Street bubbles which made it so. That said, hereupon follows the ringing economic and financial indictment that Janet Yellen so richly deserves. In the first place, that Fed’s dangerous digression into massive QE and 100 months of near-ZIRP had virtually nothing to do with the limpid “recovery” that has transpired since the June 2009 bottom. And we do mean its contribution amounted to nothing – as in zero, zip and zilch.

[..] In general, our thesis is that central bank stimulus of household spending is equivalent to a one trick pony. Once all the latent headroom on household balance sheets and income statements to raise leverage levels is used up, cheap debt loses its efficacy in the main street economy. In fact, that is exactly what has happened. During the first 20-years of the Greenspan-incepted era of Bubble Finance, household leverage ratios exploded. Whereas wage and salary incomes rose by $4.2 trillion or 2.9X, household liabilities soared by nearly $12 trillion or 5.2X. Over the two decades, therefore, household leverage ratios (liabilities to earned income) nearly doubled from 124% to 224%.

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Yellen has been a terribly destructive force for America. It’s just that the consequences take time to seep through.

How “Opioid Janet” Got Wall Street Hooked On Monetary Heroin, Part 2 (Stockman)

Janet Yellen deserves exactly none of the adulation being conferred upon her tenure by the mainstream financial press. In fact, her reign will be judged by history as a spectacular failure that left main street high and dry—even as it finally and completely addicted Wall Street to the toxic monetary heroin that is the specialty of Keynesian central bankers. Accordingly, it may take a dozen or more episodes like the 12% crash of the last few days to finally purge the “buy the dips” addiction that is rampant in the casinos. Pending that day of deliverance, however, the soon-to-be shaking and shivering cold turkeys of Wall Street will surely come to see that Opioid Janet was not their friend at all, but their very worst nightmare.

[..] much of the mischief, madness and reckless speculation now implanted in the global financial markets happened during the Yellen-enabled global QE phase of 2014-2018. During that period, for example, corporate debt issuance set all-time records. But as we documented in Part 1, the proceeds went into financial engineering and bidding up the price of existing shares to ludicrous heights, not new growth capital. Likewise, carry trade speculation by front-runners went to mindless extremes, such as the fact that the Italian 10-year note traded under 1.0% during points in 2016. The facts that Italy’s public debt stood at 133% of GDP, that its political system was completely broken and dysfunctional and that its economy was 10% smaller than it had been earlier in this century were irrelevant to the price of its debt.

The latter was being set by front-running speculators who were buying on massive repo leverage what the idiot central banker, Mario Draghi, promised them he would be buying, too. Indeed, as Yellen dithered, deferred, ducked and delayed the urgent imperative of monetary normalization at the Fed, the other lesser central banks were given leave to expand their collective balance sheets at a stupendous $2.2 trillion annual rate during much of 2016-2017. With two massive central bank vaults swinging their doors wide open, it’s no wonder that upwards of $15 trillion of sovereign debt traded with a negative yield during the peak of the madness.

And that wasn’t the half of it. By killing the yield on sovereigns, Yellen and her convoy of Keynesian central bankers forced money managers into what will soon be evident as crazy-ass risk taking in order to scrape-up a semblance of yield. Not only did European junk bonds trade inside the UST 10-year yield at one point, but the corporate bond market was literally primed for an explosion of issuance by fund managers desperate for returns. The proceeds, of course, went almost entirely into funding giant, pointless M&A deals, stock buybacks and other forms of debt-financed recapitalization.

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“Workers” and “working classes” is the language of the 1850s. It‘s not going to get you anywhere today.

The EU Is The Enemy Of The Working Classes (Spiked)

here are two European Unions, it seems. There is the EU that stands up for the citizen, for his or her rights; the EU that can face down the behemoths of global capitalism and rein in their avarice and callousness; the EU that has legally enshrined workers’ freedoms, and which exists as a bulwark against untrammelled neoliberalism. And then there is the real EU. That heroic EU is a castle in the anti-Brexit sky, built by those who identify themselves as left-wing. It is maintained by those Labour MPs and peers who, as they did on the eve of Labour’s autumn conference, ceaselessly urge Labour leader Jeremy Corybn ‘to commit to staying in the Single Market and Customs Union… and to work with sister parties and others across Europe to improve workers’ rights’.

It is fortified by the self-appointed keepers of the left-wing flame, those among the commentariat who never tire of telling us that ‘workers’ rights… would be imperilled’ by a so-called ‘Hard Brexit’. And it is peopled by all those who cling to this image of the EU as an essentially social-democratic institution, sticking it gently to the man, defying the Daily Mail, and protecting working men and women against the inhuman workings of capital. Then there’s the other EU, the one that actually exists. This is the EU that uses the pooled-without-consent sovereignty of its member states to pursue its own institutional self-preservation, impoverishing struggling Eurozone members, from Spain to Italy, in the name of economic stability; imposing leaders-cum-administrators on recalcitrant electorates in the interests of austerity; and brazenly betraying workers’ rights at every self-interested turn.

This EU – the actual EU, the one stubbornly committed to its own, not citizens’, interests – is not on the side of the worker. And it never was. Because this EU, when the economic imperative demands, is always against the worker. But those attached to their fantasy left-wing ideal of the EU refuse to see the reality. To face up to this reality would simply be too much. It would mock their left-wing pretensions, humiliate and expose them for what they are: a craven defence of the status quo – a status quo in which they have long prospered. This is presumably why so little attention has been given to what happened in Greece last month, when the real EU was there for all to see. The EU forced the Syriza-led government of Alex Tsipras to implement new anti-union legislation, rendering strike action illegal unless over 50% of union members have formally approved it. The effect of such a measure, as the British trade-union movement discovered in the 1980s, will be to strangle workers’ freedoms in bureaucracy, and emasculate organised labour.

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The country with the most political power in the EU already has the richest citizens. And they stand to get richer. Those is Spain, Italy, Greece: not so much. Two-tier Europe is here.

German Pay Deal Heralds End Of Wage Restraint In Europe’s Largest Economy (R.)

A hard-fought deal on pay and working hours for industrial employees in southwestern Germany sets a benchmark for millions of workers across Europe’s largest economy and heralds wage growth in the coming years. The agreement between labour union IG Metall and the Suedwestmetall employers’ federation, struck overnight, foresees a 4.3% pay raise from April and other payments spread over 27 months. Tough pay negotiations are expected to end years of wage restraint in Germany, potentially aiding the ECB as it tries to get euro zone inflation back up to the bank’s target rate of just below 2%. On an annual basis, the agreement is equivalent to a 3.5% increase in wages, according to Commerzbank analyst Eckart Tuchtfeld, well below IG Metall’s initial demand for a 6% hike over 12 months, but was still seen as a good deal.

“The agreed pay rises, and accompanying measures, are at the top end of expectations and should result in annual wage increases of close to 4% over the next couple of years,” Pictet economist Frederik Ducrozet said. The “pilot” deal, struck against a backdrop of a strong economic recovery and the lowest unemployment since German unification in 1990, covers half a million employees in southwestern Germany, home to industrial powerhouses like car maker Daimler. It is expected to be applied in the rest of Germany as well and is likely to influence negotiations in other industries.

Germany’s second-biggest union, Verdi, is due to publish its wage demand for public sector workers on Thursday. Verdi and IG Metall together account for about 15% of the German workforce. IG Metall’s deal will reinforce market expectations for the ECB to dial back stimulus further this year as growth in the bloc is now self generating and wages are moving slowly upwards. It comes as world stock and bond markets are selling off on fears that a jobs bonanza in the United States may force early interest rate hikes there. But the euro zone outlook is much different with the jobless rate still at almost 9% and the broader slack, which includes part-time and temporary workers, perhaps twice as high, economists say.

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Farmers say they can’t get people to harvest their crops. Question: have you tried raising their wages enough? Something tells us if you pay them well, they will be glad to come work. Something also tells us you haven’t done that. You may say: that makes my products uncompetitive, but that’s another discussion altogether.

Also: the article says “Enough broccoli to feed 15,000 people for a year was wasted..” on that farm. And: the farmer’s loss was “between £30,000 and £50,000.” Does that mean he can feed people for £2 a year? £3? It certainly reads that way.

UK Crops Left To Rot After Drop In EU Farm Workers In Britain (Ind.)

British farmers have been forced to leave thousands of pounds worth of vegetables to rot in their fields, because of a drop in the number of farm workers from the EU. James Orr, whose farm outside St Andrews produces potatoes, carrots, parsnips, broccoli, cauliflower, said his farm suffered a 15% drop in the number of workers between August and November. “We simply could not harvest everything, and as a result we left produce in the field to rot,” he told Scotland’s Sunday Herald newspaper. Enough broccoli to feed 15,000 people for a year was wasted, he added. Mr Orr’s farm supplies more than 1,000 tones of the vegetable and he estimated he lost between £30,000 and £50,000.

The UK farming industry is heavily dependent on pickers from the EU, particularly those from eastern Europe. Britain’s low unemployment rate and the the seasonal nature of the work makes it difficult to attract domestic workers. But the fall in the value of sterling against the Euro since the Brexit vote, means the UK has become less attractive to seasonal workers from Romania and Bulgaria. Farmers also fear that a Brexit deal restricting freedom of movement could leave them with even fewer people to help harvest their crops. [..] NFU Scotland President Andrew Mr McCornick told the Herald access to workers was a key priority for the industry. “This year, there has been a shortage of between 10 and 20% of seasonal workers coming from the EU,” he said. It was essential a scheme was introduced in 2018 that would provide work permits for up to 20,000 workers from outside the EU, he added.

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Mouzalas says: “Whoever says that emptying the islands will improve the situation is wrong..” That doesn’t seem an honest assessement, because it would certainly improve the situation on the islands.

Refugee Arrivals Have Doubled Since August, Greek Migration Minister Says (K.)

Migrant and refugee arrivals onto Greek shores have doubled since August 20 to reach as many as 180 people a day in clement weather, Migration Policy Minister Yiannis Mouzalas said on Tuesday. The increase in arrivals from Turkey has resulted “in a bad situation again” on the islands of the eastern Aegean that host migrant reception and processing centers, Mouzalas admitted, saying that the ministry is trying to improve conditions at overcrowded and under-resourced facilities. Speaking on Thema radio, Mouzalas accused the European Union of contributing to the problem by failing to honor its commitments to Turkey in a deal for that country to take back asylum seekers whose applications are rejected and to crack down on migrant trafficking from its shores.

Mouzalas was also critical of what he described as contradictory reactions from local authorities and communities on the affected islands. “On the one hand, they prevent moves to improve conditions and on the other they are hysterical about dissolving the deal with Turkey at any cost so as to transfer the migrants to the mainland,” Mouzalas said, referring to reactions toward ministry plans for increasing the number of housing units at certain island camps. “Whoever says that emptying the islands will improve the situation is wrong,” Mouzalas said, reiterating concerns that moving all migrants and refugees to the mainland will simply encourage more arrivals. “In 2017, we transferred 27,000 people to the mainland and 19,000 arrived on the islands,” he added.

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Feb 052018
 
 February 5, 2018  Posted by at 11:10 am Finance Tagged with: , , , , , , , , , , , , ,  


Horacio Coppola Calle Corientes at the corner of Reconquista, Buenos Aires 1936

 

Global Equity Slump Deepens as Rate Fears Grow (BBG)
Stocks Punished As Inflation Shadow Spooks Bonds (R.)
The Grand Crowded Trade Of Financial Speculation (Noland)
Don’t Panic. This Slump’s Just a Blip (BBG)
This Isn’t the Start of a Major Downturn – JPMorgan (BBG)
Gundlach: ‘Hard To Love Bonds At Even 3%’ Yield (R.)
Oil Rally Is Unraveling On Fears Over A Rise In US Production (BBG)
Yellen Says Prices ‘High’ for Stocks, Commercial Real Estate (BBG)
Overworked Americans Are Stuck In A Financial Groundhog Day (MW)
SYRIZA’s “Success Story”: Austerity By A Different Name (MintPress)
The Beautiful Cure – Immunology And The Heroes Of The Resistance (G.)
Whale And Shark Species At Increasing Risk From Microplastic Pollution (G.)

 

 

Out of stocks but into what?

Global Equity Slump Deepens as Rate Fears Grow (BBG)

Asian equities fell and U.S. stock futures headed lower, extending the biggest selloff for global stocks in two years as investors adjusted to a surge in global bond yields. Shares sank across the region, with Japan’s benchmarks falling the most in 15 months. S&P 500 Index futures pared a drop of as much as 0.9%, signaling Friday’s rout won’t extend for another day. Shares in Hong Kong and Shanghai trimmed declines after China’s securities regulator urged brokerages to help stem the rout. Australia’s 10-year bond yield surged as the 10-year Treasury yield neared 2.87% after solid jobs data on Friday showed rising wages. The yen advanced. “It’s likely the pullback has further to go as investors adjust to more Fed tightening than currently assumed,” said Shane Oliver at AMP Capital Investors.

“The pullback is likely to be just an overdue correction, with say a 10% or so fall, rather than a severe bear market – providing the rise in bond yields is not too abrupt and recession is not imminent in the U.S. with profits continuing to rise.” The re-pricing of markets has come as investors question whether the Federal Reserve will keep to a gradual pace of monetary tightening, and whether it may need to end up boosting interest rates by more than previously expected in coming years. A higher so-called terminal rate for the Fed’s target implies higher long-term yields – raising borrowing costs across the economy. Yields on 10-year Treasuries have climbed to a four-year high from 2.40% at the start of the year. Last week’s decline for global stocks follows one of the best starts to a year on record amid hopes for ever-expanding corporate profits and growth in the world economy that’s broadening. The MSCI All Country World Index tumbled 3.4% last week, its biggest such slide since January 2016.

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If anyone’s scared of inflation, they’re scared of the wrong thing. But perhaps that’s a fitting way to end a make-believe world.

Stocks Punished As Inflation Shadow Spooks Bonds (R.)

Wall Street had already been flashing expensive by many historical measures and sold off in reaction. “It has to be remembered that U.S. shares were priced for perfection at around 19 times earnings,” said Craig James, chief economist at fund manager CommSec, noting the historic average is around 15 times. “Still, U.S. companies have produced stellar earnings over the reporting period. So it is understandable that some ‘irrational exuberance’ would emerge.” With half of the S&P 500 companies having reported, 78% have beaten expectations against an average 64%. Chris Weston, chief market strategist at broker IG, noted the sudden spike in volatility caused some rules-based funds to automatically dump stock as their models required.

“There is talk that volatility targeting annuity funds could have to sell a further $30 billion of stock this week and another $40 billion should realized volatility not retreat lower,” he warned. The lift in U.S. yields provided some initial support to the dollar after a rocky start to the year, though it was starting to lose altitude again in Asian trade. Against a basket of currencies, the dollar was down a fraction at 89.123 having climbed 0.6% on Friday for its biggest single day gain in three months. The dollar backed off to 109.95 yen from an early 110.29, while the euro was barely changed at $1.2461. Any rally in the U.S. dollar is considered a negative for commodities priced in the currency, with the Thomson Reuters CRB index down 0.5%. Gold was off a touch at $1,332.04 an ounce after losing 1% on Friday.

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Minskian fragility pops up its head.

The Grand Crowded Trade Of Financial Speculation (Noland)

Even well into 2017, variations of the “secular stagnation” thesis remained popular within the economics community. Accelerating synchronized global growth notwithstanding, there’s been this enduring notion that economies are burdened by “insufficient aggregate demand.” The “natural rate” (R-Star) has sunk to a historical low. Conviction in the central bank community has held firm – as years have passed – that the only remedy for this backdrop is extraordinarily low rates and aggressive “money” printing. Over-liquefied financial markets have enjoyed quite a prolonged celebration. Going back to early CBBs, I’ve found it useful to caricature the analysis into two distinctly separate systems, the “Real Economy Sphere” and the “Financial Sphere.”

It’s been my long-held view that financial and monetary policy innovations fueled momentous “Financial Sphere” inflation. This financial Bubble has created increasingly systemic maladjustment and structural impairment within both the Real Economy and Financial Spheres. I believe finance today is fundamentally unstable, though the associated acute fragility remains suppressed so long as securities prices are inflating. [ZH: This week’s sudden burst of volatility across all asset-classes highlights this Minskian fragility]. The mortgage finance Bubble period engendered major U.S. structural economic impairment. This became immediately apparent with the collapse of the Bubble. As was the case with previous burst Bubble episodes, the solution to systemic problems was only cheaper “money” in only great quantities.

Moreover, it had become a global phenomenon that demanded a coordinated central bank response. Where has all this led us? Global “Financial Sphere” inflation has been nothing short of spectacular. QE has added an astounding $14 TN to central bank balance sheets globally since the crisis. The Chinese banking system has inflated to an almost unbelievable $38 TN, surging from about $6.0 TN back in 2007. In the U.S., the value of total securities-to-GDP now easily exceeds previous Bubble peaks (1999 and 2007). And since 2008, U.S. non-financial debt has inflated from $35 TN to $49 TN. It has been referred to as a “beautiful deleveraging.” It may at this time appear an exquisite monetary inflation, but it’s no deleveraging. We’ll see how long this beauty endures.

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People need to be reassured, apparently.

Don’t Panic. This Slump’s Just a Blip (BBG)

Is it a blip, a correction or the end of days? Stock markets in Asia tumbled Monday, extending the biggest global selloff in two years. Equity investors are fretting as Treasury yields approach 3%. On Friday, 10-year returns touched 2.85%, and the dollar rallied 0.9%. Some context, however. While the MSCI Asia ex-Japan Index’s 7.5% return in January was good, it’s not unprecedented. In January 2001, the benchmark soared 12.8%. Also, U.S. government bond yields have been on a steady rise since the start of the year, and that hasn’t stopped Asia from partying. A currency’s strength is dictated by interest rate differentials, in theory at least. And it’s unclear the dollar will get much stronger. Based on the Bloomberg Dollar Spot Index, which determines currency weights according to their relative importance to the U.S. in terms of international trade, one-third of the dollar’s value is dictated by the euro.

[..] But five-year bunds finally offered you something last week, after being negative since 2015. Next in line is the Japanese yen, which dictates 18% of the dollar’s value. There have been plenty of murmurings, from this columnist included, that the Bank of Japan will start stealth tightening, especially in a world of rising U.S. interest rates. After all, Japan’s central bank already owns an unprecedented 45% of the nation’s bond market; how much more entrenched can it get? Interest rates have been climbing in emerging Asia as well. Malaysia and Pakistan have both embarked on tightening cycles while the Philippines is expected to hike by 50 basis points this year. Interest rates in China and India are also on the up, as Beijing limits credit expansion and Delhi can’t stop spending. You get my point: Just because U.S. rates are strengthening doesn’t mean the dollar will necessarily follow suit.

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Life in a fantasy world paid for by the Fed through taxpayers.

This Isn’t the Start of a Major Downturn – JPMorgan (BBG)

Equities still feel like the right place to be relative to bonds for multi-asset investors, according to JPMorgan Asset Management. The pullback in risk assets among overbought conditions and stretched sentiment doesn’t look like the start of a major downturn, the money manager said. With economic and earnings growth remaining solid amid a real macro deterioration, “stretched valuations just aren’t enough to cause a big market sell-off,” said Patrik Schowitz, global multi-asset strategist at JPMorgan Asset, in a note. The firm oversees $1.7 trillion in assets. Asian equities fell and U.S. stock futures headed lower Monday, extending the biggest selloff for global stocks in two years as investors adjusted to a surge in global bond yields.

Investors are questioning whether the Federal Reserve will keep to a gradual pace of monetary tightening, and whether it may need to boost interest rates by more than previously expected in coming years. To be sure, the biggest “endogenous” risk the firm has been pointing to is rising bond yields. “The level of yields in absolute terms is not the issue, rather the velocity of the yield moves is what matters. Investors should continue to watch this closely,” said Schowitz. He said the firm has for some time flagged rising risks of a correction in risk assets on the back of increasingly more stretched positive sentiment in markets. “This move may yet turn out to be the start of something more significant, but so far it is pretty limited and it is likely that buyers will step in before we get near ‘real’ correction levels,” he said.

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Because of accelerating US economic growth. Just wait five minutes.

Gundlach: ‘Hard To Love Bonds At Even 3%’ Yield (R.)

Jeffrey Gundlach, the chief executive of DoubleLine Capital, says “it is hard to love bonds at even 3%” yield, given the backdrop for accelerating economic growth in the U.S. “It seems the tradable buy on bonds will need a flight-to-safety bid on a wave of fear washing over risk markets,” Gundlach told Reuters late on Saturday. “Hard to love bonds at even 3% when GDPNow for Q1 2018 is suggesting annualized nominal GDP growth above 7%.” The 10-year Treasury yield hit a four-year high on Friday after the latest jobs report showed solid wage gains, effectively confirming the expected rate increase at the Federal Reserve’s next meeting in March. Friday’s selloff contributed to the broad decline in U.S. government paper within the last week as inflation fears, strong economic data and an announcement of bigger Treasury auctions drove yields higher.

The yield on the 10-year Treasury note climbed 7.9 basis points to 2.852%, the highest since January 2014. “Treasury yields have been rising at a pace above 200 basis points annualized on parts of the (yield) curve since September,” said Gundlach, known as Wall Street’s Bond King. “This is partly caused by the manic mood and partly caused by the falling dollar and related rising commodities. Rates up significantly and dollar down significantly with exploding deficits is a dangerous cocktail reminiscent of 1987.” Last month, Gundlach predicted the S&P 500 may go up 15% in the first part of the year, but “I believe, when it falls, it will wipe out the entire gain of the first part of the year with a negative sign in front of it.”

On Saturday, Gundlach said: ”What matters to success this year is understanding that we entered a mania phase in 2017 that went completely out of control after September with the Bitcoin blowoff exhibiting exactly the same lunacy as the dot com blow off back in late 1999. “Similar to that period, but even more excessive this time -who’d have thought it possible – is the explosion of bullish sentiment, with some surveys registering 96%, 97%, even 100% bullish respondents. Long Island Blockchain. Kodakcoin. Cryptokitties. Sheer madness.” Gundlach said overall, the U.S. stock market is an odds-on favorite to turn in a negative return for 2018. “Whether Friday is the start of a crash or just the first chapter in the topping process is not the issue,” he said.

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Highest production in 40 years.

Oil Rally Is Unraveling On Fears Over A Rise In US Production (BBG)

Oil’s rally is unraveling on fears over a rise in U.S. production after crude’s best January in more than a decade. Futures in New York are extending declines for a second session as Baker Hughes data showed American explorers last week raised the number of rigs drilling for crude to the highest in almost six months. Short-sellers betting against West Texas Intermediate oil increased their positions for a third week, according to figures from the U.S. Commodity Futures Trading Commission. Crude has remained above $60 a barrel this year, extending a rally driven by the extension of an output deal until the end of 2018 by OPEC and its allies. While oil’s best start to the year since 2006 was also helped by falling U.S. inventories and a weaker greenback, Citigroup says the market is underestimating U.S. output growth as a bigger surge is forecast along with an increase capital spending.

“With the higher U.S. oil rig counts and higher oil production sustaining into February, the concerns in the market seem to be valid at this point,” Barnabas Gan, an economist at Oversea-Chinese Banking Corp., said by phone from Singapore. “As these worries resurface, prices are edging lower.” [..] U.S. drillers last week added 6 rigs to raise the number of machines drilling for crude to 765, the highest since Aug. 11, Baker Hughes data showed Friday. That may lead to a further increase in U.S. crude production, which breached 10 million barrels a day to the highest level in more than four decades in November.

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She starts at Bernanke’s think tank today. Good riddance.

Yellen Says Prices ‘High’ for Stocks, Commercial Real Estate (BBG)

Outgoing Federal Reserve Chair Janet Yellen said U.S. stocks and commercial real estate prices are elevated but stopped short of saying those markets are in a bubble. “Well, I don’t want to say too high. But I do want to say high,” Yellen said on CBS’s “Sunday Morning” in an interview recorded Friday as she prepared to leave the central bank. “Price-earnings ratios are near the high end of their historical ranges.” Commercial real estate prices are now “quite high relative to rents,” Yellen said. “Now, is that a bubble or is it too high? And there it’s very hard to tell. But it is a source of some concern that asset valuations are so high.” Yellen, 71, stepped down as Fed chief on Saturday after one term, after President Donald Trump opted to replace her with Republican Jerome Powell, who’s been a Fed governor since 2012.

“I made it clear that I would be willing to serve, so yes, I do feel a sense of disappointment” about not being renominated, Yellen said. The only woman to serve as the head of the U.S. central bank described her work at the Fed as “the core of my existence.” Yellen said she’s supportive of former investment banker Powell, 64, whom she termed “thoughtful, balanced, and dedicated to public service.” The financial system is now “much better capitalized” and the banking system “more resilient” than they were entering the global financial crisis a decade ago, Yellen said. “What we look at is, if stock prices or asset prices more generally were to fall, what would that mean for the economy as a whole?” Yellen said. “And I think our overall judgment is that, if there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”

Yellen’s final act at the Fed was to hit one of the largest U.S. banks, Wells Fargo, with an unusual ban on growth that follows the lender’s pattern of consumer abuses and compliance lapses. In the interview that aired Sunday, she warned that it would be a “grave mistake” to roll back the regulations put on banks after the previous economic collapse. The current U.S. economic expansion is now approaching nine years and is the third longest in duration since 1945, according to the National Bureau of Economic Research. Yellen said the economy can continue to grow. “Yes, it can keep going,” she said. “Recoveries don’t die of old age.”

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Never no holiday, Try and explain that in Europe.

Overworked Americans Are Stuck In A Financial Groundhog Day (MW)

The U.S. had the fastest wage growth since 2009 in January. But in many other ways, American workers feel like they are working harder to achieve the same result. Does today feel a bit like yesterday, and the day before that? Feb. 2 is Groundhog Day. In the 1993 movie of the same name, Phil (Murray) wakes up at 6 a.m. only to find out that his day is actually exactly the same as the day before and the day before that. “I think people place too much emphasis on their careers,” he says. There may be a reason why that resonates with people in 2018. “Americans are doomed to relive the same reality each year: Forfeited vacation time, burnout, less time for loved ones, and negative consequences for health and well-being,” according to a report by the U.S. Travel Association’s Project Time Off. More than half of Americans (53%) are burned out and overworked, according to this survey of more than 2,000 workers by Staples Advantage, a division of office supplier Staples.

“We found that low pay and more hours is burning employees out and it causes up to half of what employees quit,” says Dan Schawbel, founder of WorkplaceTrends.com. Even so, year after year, most Americans say they are one paycheck away from the street with no emergency savings for a car repair or emergency room visit. But one reason for this exhaustion does not look like it will be changing anytime soon. Some 42% of workers took a vacation last year, according to a separate survey of more than 2,000 American adults released last year by travel site Skift using Google Consumer Surveys. (Nearly 40% only took 10 days or less.) One theory: Roughly one in four workers don’t get any paid vacation from their employers. Many are low-income workers and are the least able to afford to take an unpaid vacation day. Under the The Fair Labor Standards Act, the U.S. is also one of the few developed countries that does not require employers to provide paid time off.

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At least I’m not the only one constantly saying this. Recovery is a mathematical impossibility for Greece.

SYRIZA’s “Success Story”: Austerity By A Different Name (MintPress)

Initially, in May 2016, the Greek parliament passed a 7,500 page omnibus bill, sans any parliamentary debate, that transferred control over all of the country’s public assets to a fund controlled by the EU’s European Stability Mechanism for a period of 99 years – that is, until the year 2115. Not even Marty McFly and Doc Brown traveled that far into the future! Second, Greece’s loan commitments to the “troika” of lenders are set to continue, at the current rate of repayment, until 2059, as reported recently by the German newspaper Handelsblatt. That is the year when Greece is expected to have repaid the balance of the loans it has received, as part of its so-called “bailouts,” since 2010. The same article pointed out that the Greek government has made commitments to implement further austerity measures through 2022.

These measures — totaling €5.5 billion and agreed upon in June 2017 in what is, in essence, a fourth memorandum — include no less than 113 demands on the part of the troika, encompassing new privatizations of public assets and pension reductions. Other measures foreseen as part of this deal include a reduction in the tax- free income threshold and the further dilution of already-decimated worker rights. No increase in the also-decimated minimum wage is foreseen, nor are any new social measures to be implemented until 2023, despite Tsakalotos’ promises to the contrary. In connection with this agreement, assets slated for privatization include such strategic holdings as 25% of Eleftherios Venizelos International Airport in Athens, the remaining regional airports that have not already been privatized, Greece’s national defense industry, and the Corinth Canal.

Third, the SYRIZA-led coalition government has committed to the maintenance of annual primary budget surpluses of 3.5% through 2023, and then 2% annually through 2060. In plain language, what this means is that the state will spend less than it earns in revenues. If revenues therefore decrease, expenditures will be slashed accordingly. And, as foreseen in the 2017 deal between the Greek government and the troika, should there be shortfalls in these fiscal targets, automatic budget and spending cuts are to be immediately implemented through at least 2022. Here it should be noted that the net revenues of the Greek state declined in 2017, falling to €51.27 billion from €54.16 billion in 2016, leading in turn to a reduction in the pre-tax primary budget surplus from €2.78 billion to €1.97 billion. With state expenditures having reached €55.51 billion, Greece now faces a post-interest deficit of €4.24 billion, resulting in an increase in the country’s public debt.

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WHy do people never get smallpox and measles at the same time?

The Beautiful Cure – Immunology And The Heroes Of The Resistance (G.)

In 1989, Charles Janeway, a scientist at Yale University, had an epiphany that would revolutionise immunology. For 50 years, immunologists had subscribed to the dogma that vaccines worked by training the body to recognise molecules that were foreign to the body – “non-self” in immunological jargon. The usual way of doing this was to use vaccines to expose people to a dead or harmless version of a microbe, prompting the activation of antibodies that would be ready to swamp the germ should they encounter the alien entity a second time. But there were exceptions to the rule: sometimes, proteins separated from originating germs proved ineffective as vaccines; at other times, vaccines required the addition of an adjuvant, such as aluminium, to kickstart an immune response and no one could explain why.

What if, wondered Janeway, the presence of something that had never been in your body before was not sufficient to trigger an immune reaction? What if a second signal was required? Today, that second something is known as a pattern-recognition receptor and it is understood that there are countless varieties of them, each equipped to detect specific types of germs and switch on the appropriate immune responses. Together with an alphabet soup of other specialised cells, hormones and proteins, they form part of our innate immune system, helping us to distinguish harmful bacteria and viruses from beneficial ones, such as gut microbes essential for digestion. For Daniel Davis, professor of immunology at the University of Manchester, they constitute a “beautiful cure” more powerful than any product of a pharmaceutical laboratory.

Yet it is only in the past 30 years that immunologists such as Davis and Janeway, who died in 2003, have begun to shed light on these “wonders taking place beneath the skin”. In the process, they have found new ways to treat cancer, diabetes, arthritis and other age-related diseases. Immunologists are even beginning to understand the way in which immune responses are dependent on emotional and psychological states and the role that stress and exposure to light play in fighting disease. Given this, you would have thought that research into the workings of the immune system would be a top scientific priority. But while billions have been poured into the pursuit of the Higgs boson, immunology lacks a similar programmatic call-to-arms. Instead, Davis argues, immunology has always been a curiosity-driven science, a matter of “a few individuals following their nose”.

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Filter feeders. The big boys and girls. Meaning: they ingest lots of plastic.

Whale And Shark Species At Increasing Risk From Microplastic Pollution (G.)

Large filter feeders, such as baleen whales and basking sharks, could be particularly at risk from ingesting the tiny plastic particles, say scientists Whales, some sharks and other marine species such as rays are increasingly at risk from microplastics in the oceans, a new study suggests. Species such as baleen whales and basking sharks, which feed through filtering seawater for plankton, are ingesting the tiny particles of indigestible plastic which now appear to permeate oceans throughout the world. Some of these species have evolved to swallow hundreds or even thousands of cubic metres of seawater a day, but taking in microplastic can block their ability to absorb nutrients, and may have toxic side-effects. The new study, published in the journal Trends in Ecology and Evolution, advises more research on the megafauna of the oceans, as the effects of microplastics on them is currently not well understood.

Scientists have found, for instance through examining the bodies of beached whales, large pieces of plastic in the guts of such creatures, but the effect of microplastics, though less obvious, may be just as harmful. Elitza Germanov, a researcher at the Marine Megafauna Foundation and co-author the study, said: “Despite the growing research on microplastics in the marine environment, there are only a few studies that examine the effects on large filter feeders. We are still trying to understand the magnitude of the issue. It has become clear, though, that microplastic contamination has the potential to further reduce the population numbers of these species, many of which are long-lived and have few offspring throughout their lives.” Many species of whale, filter-feeding shark and rays are already under threat from other problems, such as overfishing and pollution. The added stress from microplastics could push some species further towards extinction, the authors of the study warned.

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Feb 042018
 
 February 4, 2018  Posted by at 11:17 am Finance Tagged with: , , , , , , , , , , ,  


John William Waterhouse Hylas and the Nymphs 1896

 

A Tale Of Two Americas (Axios)
Today’s Market Is Biding Its Time Until It Becomes Normal Again (Bonner)
The Market System Is Tight In All Directions (Fas.)
Bond Market’s Debt-Ceiling Alarm Bell Is Ringing Loud and Clear (BBG)
Yellen: “I Don’t Want To Label What We’re Seeing As A Bubble” (ZH)
The Fed’s Dilemma Isn’t Going Away Under Powell (Shilling)
Theresa May Says Brexit Transition Deal Will Be Agreed In Seven Weeks (R.)
Tory Former Attorney General Says “Time is Now” To Reverse Brexit (Ind.)
Anger Over Glut Of ‘Posh Ghost Towers’ Planned For London (G.)
‘We Made The Finest Steel In The World – Now We Make Lattes’ (G.)
Illicit Foreign Casino Cash Often Goes Straight Into Vancouver Housing (VSun)
Greece On Edge For ‘Macedonia’ Protest In Athens (K.)

 

 

As I said yesterday: the divisions it causes are much bigger than the memo itself. It’s what happens in echo chambers.

A Tale Of Two Americas (Axios)

On MSNBC, Rachel Maddow was literally laughing. Over on Fox News, Sean Hannity put up his dukes. At 9 last night, Axios points out that you could just flip between the two and see an encapsulation of our two Americas – total dismissal of the memo’s import, versus the assertion that it’s “only about 15 percent of what’s coming.”

So, Rachel, how was your day? “This thing?! This was two weeks of: This memo is going to end everything. This memo, have you heard about the memo? Hashtag: Release the memo! This memo will make Donald Trump innocent. This memo will put Robert Mueller in jail. It will abolish the FBI. The Justice Department will have to rename itself the Donald J. Trump & Family Private Security Task Force.” “I mean, I can’t believe this is it.” “I don’t really believe in the whole Cable News Wars idea. I know people who work across the street at the Fox News Channel. I’ve got friends that work there. I think we’re all doing our own thing in our own way best we can.”

“But, oh my God, right? … [T]his … hyping and huffing and puffing and working their audience up into a frenzy for two solid weeks.” “And apparently, despite all of that, … they either didn’t know or they didn’t notice that this thing they have been clamoring for and hyping for two solid weeks, … it actually disproves their whole point.” “They release this memo to prove that the dossier started everything. The memo says the dossier didn’t actually start anything.”

What’s up, Sean? “[W]hen you put all this information together, here’s what it all means. The FBI misled and purposely deceived a federal court while using an unverified, completely phony opposition research bought and paid for by Hillary Clinton.” “We have never, ever in history seen anything like this, and it was spearheaded not by rank-and-file members of the FBI intelligence community and Department of Justice. No. High-ranking officials: James Comey, Andrew McCabe, Rod Rosenstein, Peter Strzok, Lisa Page, likely Loretta Lynch.”

“But here’s the bottom line: Crimes have been committed. There is no way that they did not know that the FBI was lying to a FISA court in order to spy on an opposition campaign during an election year. They have aided and abetted what is a massive constitutional violation.” “Comey, McCabe, Rosenstein and others all need to be investigated and, in many cases, prosecuted to the fullest extent of the law.” “Now, of course, Comey is running scared. He’s out of his mind right now, now that he is exposed with this memo.” “[T]he special counsel must be disbanded immediately.” “And, by the way — nobody else will say this — all charges against Paul Manafort and General Michael Flynn need to be dropped. It’s that simple.” “This scandal is only in Phase 1. … Stay tuned! Tick tock! “

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“..when something is not normal… it is just biding its time until it becomes normal again.”

Today’s Market Is Biding Its Time Until It Becomes Normal Again (Bonner)

On Planet Earth, we can find our direction by reference to the Magnetic North. For investing, we use the most reliable force in finance – the relentless return to “normal” – to get our bearings. And searching for normal, we may have stumbled upon what could be the Trade of the Century. More on that later… As economists describe it, reversion to the mean is merely a recognition of the tendency for things to stay in a range that we recognize as “normal.” Trees do not grow 1,000 feet high. People don’t run 100 mph. You don’t get something for nothing. Normal exists because things tend to follow certain familiar patterns, shapes, and routines. When people go out in the morning, they know, generally, whether to wear a winter coat or a pair of shorts.

The temperature is not 100 degrees one day and zero the next. Occasionally, of course, odd things happen. And sometimes, things change in a fundamental way. But usually, when people say “this time is different”… it’s time to bet on normal. This phenomenon – reversion to the mean – has been thoroughly tested and studied in the investment world. It seems to apply to just about everything – stocks, bonds, strategies, markets, sectors… you name it. But let’s push on. What is unusual in the chart below? What is so abnormal that the mean is likely to revert against it? You will note that global debt was only $30 trillion in 1994. Now it is $230 trillion. That $200 trillion in extra credit is probably the whirlwind that sent equities spinning up to the top right.

Those gusts blew stock and other asset prices up to heights never seen before. The Dow reached over 26,000. Houses went on the market for more than $100 million. Gold rose above $1,900. But while stocks and bonds may have the wind at their backs, it seems to blow in the economy’s face… making forward progress almost impossible. The real economy – as depicted by GDP at the bottom of the chart – has grown in a rather normal way, but at a slower and slower rate. Its steady, plodding increase gives no hint of the chaos going on above it. The real economy and the financial world are as different as the eye of a hurricane and the swirling clouds and storms around it. Another thing you notice is that until the mid-’90s… and again between 2008 and 2012… the average investor got essentially no benefit in exchange for the added risk of putting his money into equities (the chart above includes dividends). He might just as well have left his money in U.S. Treasury bonds.

[..] there is a time to be in stocks… and a time to be out of them. Without knowing the future, you can still know when something is not normal. And when something is not normal… it is just biding its time until it becomes normal again.

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Who or what can restore flexibility when everything’s maxed out to the point of bursting?

The Market System Is Tight In All Directions (Fas.)

The Four Pillars Holding Markets Up Are Strained, All At The Same Time. Viewed as a combination of intertwined components, each component is showing growing signs of pressure and seem to be running out of road for further advancing. The synchronicity of them, more than any single component taken independently, is what should draw attention, as it compounds systemic risk. Here are the four components, characterizing the basin of chaotic attraction for markets nowadays:

What happens when the system is tight in its key possible directions of expansion? That it expands no more. Stochastically, on one of the components a tipping point is reached, which jumpstarts the autolytic effect, spreading back through the vectors of the complex system, and snapping the unstable equilibrium into an alternative stable state. That is our thesis. In [a] recent interview, we discuss the impending tipping points for markets due to a synchronicity of excess valuations, excess indebtedness, excessively low cash balances and a drawback in excessive public flows. Let’s give a cursory look across the four components. Again, the list is by no means exhaustive, but rather a work-in-progress (seemingly endless) collecting of data points, following on to our previous work of ‘a long list of anomalies’

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In a country so divided it doesn’t take much to let things get out of hand.

Bond Market’s Debt-Ceiling Alarm Bell Is Ringing Loud and Clear (BBG)

In the $2 trillion Treasury-bill market, where the U.S. government turns for short-term funding, investors are showing they’re plenty nervous about the approaching deadline to raise the nation’s debt ceiling. With Treasury expected to exhaust its borrowing authority as early as the first half of March, a four-week bill sale on Tuesday will serve as the latest gauge of investor anxiety. There’s growing concern that the impasse over the debt limit will become entangled with efforts to keep the government open. Current federal funding expires Feb. 8, and the Republican-led Congress has been working on a stopgap measure to extend that into late March.

Treasury has deployed extraordinary measures to stay under the debt cap since it was reinstated in early December, but investors are wary. The new securities mature March 8, around when the Congressional Budget Office expects Treasury to run out of room. Traders are asking for higher yields to own previously issued bills maturing March 8. What’s more, an auction last week of bills due March 1 drew the weakest demand since May. “People are kind of getting skeptical of March 8 bills,” said Joseph Abate at Barclays Capital in New York. “You might argue that the March 1 bill isn’t necessarily vulnerable to payment delay because the Treasury probably has sufficient resources to meet outflows and thus might be able to last until” March 5.

Treasury has placed the drop-dead date around the end of February. But investors are leaning toward the projection from the nonpartisan CBO, which said last week that the U.S. may run the risk of default without a debt-ceiling increase in the first half of March. After the Jan. 30 auction of bills maturing March 1, the rate on those securities was higher than debt due a week later. Since then, the rate on debt expiring March 8 has climbed to 1.40%, exceeding that on bills due a week later.

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In a country where 70% of people live paycheck to paycheck, the best the central bank president can muster is “they should diversify their investments..” And people are praising her for doing such a good job.

Yellen: “I Don’t Want To Label What We’re Seeing As A Bubble” (ZH)

While her term ended – for all practical purposes – with the conclusion of this week’s January FOMC meeting, former Fed Chairwoman Janet Yellen’s last official day at the helm of the world’s most important central bank was marked by an explosion of volatility in the Dow, with the blue chips recording their worst single-day selloff since the collapse of Lehman brothers. And even though it’s tempting to suspect Friday’s selloff might foreshadow what’s to come during the Powell era, Yellen admitted during an interview with PBS Newshour that she was disappointed to not be reappointed for a second term by President Trump – and that, if she had her druthers, she would’ve opted to stay. “I would have liked to serve an additional term and I did make that clear, so I will say I was disappointed not to be reappointed,” Yellen said Friday. “I think things are looking very strong.”

Despite the volatility of the past week and the first nascent signs of wage growth in years – which should worry a central bank whose primary responsibility is to put a floor under plunging markets – Yellen says she expects interest rate hikes to proceed as planned. “The Federal Reserve has been on a path of gradual rate increases and if conditions continue as they have been, that process is likely to continue,” she said. “And as it happens we would expect long rates to move up.” Unlike fellow former Fed chairman Alan Greenspan – who this week declared that both stocks and bond valuations are in bubble territory – Yellen was careful not to use such strident language. “I don’t want to label what we’re seeing as a bubble.”

“But I would say that asset valuations are generally elevated…for the stock market, the ratio of price to earnings…is near the high end of its historical range. If we look at for example commercial real estate and other assets, we’re seeing high valuations.” But should Americans be worried about the markets? “They should be careful and I would say diversified in their investments. What we look at is the likely resilience of the economy and the financial system… In that regard, we have a banking system that is much stronger and better capitalized and better able to withstand a shock than prior to the financial crisis.” Stlll, Yellen is refusing to rule out another selloff. “Asset valuations could change I’m not predicting that that would happen and I wouldn’t rule that out,” she said.

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Powelll will be cleaning up Bernanke and Yellen’s shit.

The Fed’s Dilemma Isn’t Going Away Under Powell (Shilling)

[..] the Fed is confronted with a serious dilemma: Inflation and wage increases continue to undershoot its expectations at the same time the central bank confronts forces pressuring it toward credit tightening. The new chairman, Jerome Powell, who isn’t a trained economist, may change the central bank’s tone, but his soon-to-be predecessor Janet Yellen and the other academic economists who have dominated monetary policy, believe fervently in the theoretical Phillips Curve. It posits that a declining unemployment rate should spur inflation, despite evidence to the contrary. Rather than increase as the unemployment rate declined since the recession, the rate of inflation has largely stayed the same.

Nevertheless, the Fed wants to tighten credit slowly due to chronic low inflation and memories of the May 2013 “taper tantrum,” when a mere mention by then-Chairman Ben Bernanke of reducing the Fed’s rate of asset purchases sent financial markets into tailspins as interest rates leaped. Another reason for the Fed to tighten is to keep commercial banks from lending out the more than $2 trillion in excess reserves the Fed has given them through quantitative easing. These are simply an asset of the banks and a liability on the Fed balance sheet with little financial or economic consequences. But as economic growth picks up as a result of the tax cuts followed by likely massive fiscal stimulus, creditworthy borrowers will want to borrow, banks will be happy to lend, and these excess reserves could turn into tons of money that would threaten major inflation.

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Fat chance.

Theresa May Says Brexit Transition Deal Will Be Agreed In Seven Weeks (R.)

British Prime Minister Theresa May said on Friday that a Brexit transition period will be agreed with the European Union in seven weeks as she tries to ease concerns that a deal may take longer to reach. The EU has offered Britain a status quo transition until the end of 2020 after Brexit. Both sides are aiming to reach a transition agreement by the end of March that will form part of the final withdrawal treaty to be agreed later this year. But there is disagreement inside May’s Conservative Party over some details such as the status of EU citizens during the transition and the scope of European Court of Justice jurisdiction. Many businesses and banks are concerned a battle over the terms of a transition could delay or even sink an agreement just months before Britain exits the EU on March 29, 2019.

“In seven weeks time, we will have an agreement with the European Union, that is the timetable they have said on an implementation period,” May told the BBC in an interview in China. “What the British people voted for is for us to take back control of our money, our borders and our laws and that’s exactly what we are going to do,” May said of Brexit. The EU and Britain hope to hammer out a deal on Britain’s exit and the outline of a trade package by October 2018. But some EU officials have begun to voice concern that a plan to have the leaders endorse negotiating guidelines for a new phase of talks to begin in April on a future trade agreement may be in danger of slipping if May does not spell out what Britain’s demands are for that trade pact.

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Britain is as divided as the US is.

Tory Former Attorney General Says “Time is Now” To Reverse Brexit (Ind.)

Dominic Grieve has warned the public it is running out of time to change its mind on Brexit, saying the next few months are “decision time”.The former Attorney General told The Independent it would soon be too late to reverse the decision to leave the EU, and urged people to make their minds up in the next six months.“The six months we have between now and the autumn are so important,” he said. “It is going to be decision time. And decision time in the sense of what happens in the next six months being a final decision.“If people do want to change their mind, and they could if they wanted to, the time is now. It cannot be after 29 March 2019, and frankly it cannot be after the end of the autumn of this year.”

While he did not endorse calls for a second EU referendum, Mr Grieve said it was important to give people the chance to change their minds on Brexit. “I’m not calling for a second referendum,” he said. “But we should not exclude the possibility that people’s opinion may change. And to start from an opinion on an issue that was expressed 18 months ago, where people are bound to have had their opinion influenced since, we must be very careful to listen about what it is they want.”He continued: “It the most extraordinary conundrum. We have an instruction from the electorate, by a small but significant majority, to do something that many of us [in Parliament] think is going to be very hard to achieve without serious damage to the wellbeing of every citizen in this country. It is an ethical conundrum and it is a practical conundrum.”

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And here is why the country is so divided.

Anger Over Glut Of ‘Posh Ghost Towers’ Planned For London (G.)

London councils have granted property developers planning permission to build more than 26,000 luxury flats priced at more than £1m each, despite fears that there are already too many half-empty “posh ghost towers” in the capital. Builders are currently constructing towers containing 7,749 homes priced between £1m and £10m, and have planning rights to build another 18,712 high-end apartments and townhouses, the Observer can reveal. Politicians and housing campaigners said the figures show councils are prioritising the needs of the super-rich over those of hardworking young Londoners. The boom in developments of luxury flats, which often include private cinemas, gyms, swimming pools and concierge facilities, comes as the capital faces a growing crisis in the availability of affordable housing, with nurses, police officers and other essential workers struggling to get on to the housing ladder.

Research shows that a fifth of aspiring first-time buyers have moved in with their parents to save money, and a quarter of them will need to stay there for at least five years to amass enough for a deposit. The proportion of English first-time buyers who rely on help from families and friends for their deposit has increased from 22% in 1996 to 29% in 2016, according to the government’s English Housing Survey. Anne Baxendale of Shelter said: “The UK is in the grip of a housing crisis and nowhere is this more apparent than in the capital – and these luxury developments are certainly not the types of homes most Londoners need. The government must close loopholes which make it easy for developers to build high-priced homes that are way out of reach of ordinary families, rather than the affordable ones most people actually need and can afford.”

David Lammy, the Labour MP for Tottenham, said the figures “reveal a travesty being played against the working class and young Londoners”. “The public keep being told we are building more affordable housing, and people can see cranes up all over London,” he said. “But this shows that councils are prioritising the fancies of overseas millionaires and billionaires before the needs of hardworking young Londoners.” Just 6,423 affordable homes were built in London during the 2016-2017 financial year (the latest figures available), a 5% decline on the previous year and a big drop from the 19,622 built in 2014-15.

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Plus, of course, Britain suffers from what brought Trump to power. Where globalization goes to die.

‘We Made The Finest Steel In The World – Now We Make Lattes’ (G.)

Wearing a T-shirt with the slogan “Fighting for the community” underneath an image of Redcar’s mothballed steelworks, Frankie Wales is preparing to take a training session at the town’s boxing club. Young men are sparring in the rings; others are hitting punchbags. “Nothing gets you fit like boxing,” says one, exhausted from the ring. Wales, who set up the club 20 years ago and funds it on a shoestring with various small grants, is proud to be doing his bit for Redcar’s young people. He is a livewire in a community struggling to get off the floor after a series of near knockout blows. The local steelworks ceased production in 2015 with the loss of 3,000 jobs. Someone, he insists, has to help them. “It is incredibly sad,” he says. “Not long ago they would go and work in the steelworks after school.

Men round here made the finest steel in the world. Now they are making lattes and sandwiches on zero-hours contracts. We have lots of entrepreneurial kids, but the only entrepreneurial activity going on around here is selling fags and drugs.” Few young people care what those who are supposed to run their country – politicians and civic and business leaders – say any more because they feel so let down. “We have lost the steel industry, lost the local shipbuilding, lost the coal. What’s the point? There is nothing left,” says Wales. “We just have to make the best of what we have got and get on with it ourselves.” Like many communities in England’s north-east, the people of this North Yorkshire town, which bears the scars of industrial decline, and has a youth unemployment rate more than double the national average, made their unhappiness known in June 2016.

They fought back. In Redcar, there was a hefty 66% vote for Brexit, similar to that in areas further north up the coast, from Teesside to Tyneside. “We have to get our country back to where it needs to be,” says Geoff Holding, a caretaker at a government office in the town who voted Leave and whose brother lost his job at the steelworks. He wants an end to cheap imports of foreign goods, like the Chinese steel that did for the local plant. There is a still a thriving chemicals sector in Redcar, but not enough manufacturing. “We need to bring things back in-house, get industry back on its own feet, make things ourselves.”

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“Staggering volumes of dirty cash, including hundreds of thousands of dollars worth of $20-dollar bills stuffed in hockey bags..”

Illicit Foreign Casino Cash Often Goes Straight Into Vancouver Housing (VSun)

It’s almost hard to believe the dismaying stories that Postmedia investigative reporter Sam Cooper has been producing about the laundering of hundreds of millions of dollars of East Asian cash through Metro Vancouver casinos and the funnelling of much of it into the city’s pricey real estate. Yet Cooper continues to clearly map out, using impeccable high-level sources, the trans-national connections between Chinese drug traffickers, B.C. casinos and the city’s housing market. He has been so effective that NDP Attorney General David Eby ended years of B.C. Liberal inaction on casino fraud to launch an investigation by money-laundering specialist Peter German. Global intelligence agents have come to call the Asian-Pacific network of corruption, drugs, tax avoidance and real estate that Cooper is exposing “The Vancouver Model.”

Metro’s casinos have become infamous for the way B.C.’s former Liberal government allowed them to be exploited to help make possibly billions of dollars in “dirty” money appear “clean” – particularly by injecting it into residential housing and condo development. Cooper says his sources “took a lot of risks” to unveil how high-stakes Chinese gamblers, called “whales,” have been funnelling illicit cash into gambling chips, especially at Richmond’s River Rock Casino. Using freedom-of-information law, Cooper obtained reports in which an official with the B.C. Lottery Commission noted that 97 of its 100 top rollers were East Asian. Cooper also dug up reports suggesting one out of four of China’s major 100 alleged financial fugitives were living in Canada, with many of them believed to be in B.C.

One Metro Vancouver gambler was accused Lai Changxing, alleged mastermind of a billion-dollar drug-smuggling operation in China, who owned property in Richmond. An audit of 800 “VIP” gamblers at River Rock Casino found their most common profession was “real estate.” Almost half their $53 million worth of transactions in one year were flagged as “suspicious.” The second and third most common professions among the biggest gamblers were “business owner” and “construction.” Many high-stakes gamblers at River Rock also declared themselves as “housewife” or “student” – with one youth forking over $819,000 in cash to buy casino chips. Investigators believe housewives and offspring are often used as fake “nominees” to hide the true source of wealth in money-laundering and real-estate schemes. Staggering volumes of dirty cash, including hundreds of thousands of dollars worth of $20-dollar bills stuffed in hockey bags, have been flowing through Metro casinos and then been shifted into real-estate.

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A major and undoubtedly heated protest today. Topic: A former Yugoslav province wants to call itself Macedonia. But there already is a Greek province called macedonia. So Greece has refused to accept that name for a foreign country, and has for years halted access for that country to international organizations. The legacy of Alexander the Great plays a big role too. There are negotiations ongoing, but 70% of Greeks want no referral to Macedonia in the country’s eventual name. So no New Macedonia etc. Just call it the Republic of Skopje.

Greece On Edge For ‘Macedonia’ Protest In Athens (K.)

With United Nations-mediated negotiations aimed at resolving a dispute between Greece and the Former Yugoslav Republic of Macedonia (FYROM) over the latter’s name at a sensitive juncture, the government is bracing for Sunday’s Athens rally protesting the use of the term “Macedonia” in a solution amid signs that the turnout will be significant. Around 1,500 buses have been chartered to bring demonstrators from the provinces to the capital where the rally is to begin at Syntagma Square at 2 p.m. Most conservative New Democracy MPs are expected to attend. ND leader Kyriakos Mitsotakis said the party respects both those who do choose to attend and those who do not.

“We respect all choices,” he said. Former conservative premier Antonis Samaras endorsed the demo, saying Sunday will be “a great day for the country.” The main speaker will be veteran Greek composer Mikis Theodorakis, who is to address the crowd in person rather than sending a video message as originally planned. Speeches will also be delivered by three clerics representing the Church of Greece, which has backed the rally following initial reservations by Archbishop Ieronymos. The Greek Police plans to erect barriers to keep demonstrators at Syntagma apart from anarchists who are to stage their own counter-rally, starting at noon outside Athens University.

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Feb 012018
 
 February 1, 2018  Posted by at 11:03 am Finance Tagged with: , , , , , , , , , ,  


Frederic Edwin Church The Parthenon 1871

 

FBI Opposes Memo Release Due To “Inaccurate Information” (ZH)
Alan Greenspan Sees Bubbles in Stocks and Bonds (BBG)
Janet Yellen’s Fed Era Ends With Unanimous Vote of No Rate Hike (BBG)
Two Out Of Three UK Pension Schemes Are In The Red (Yahoo)
Secret Price Fixing Among German Carmakers (Spiegel)
Germany Reaches Limit of Support for Macron’s Europe Plans (BBG)
Hungary Rejects Macron’s ‘Arrogance’ as EU Reform-Fight Looms (BBG)
More Than One Million Greeks Trapped In Tax Payment Scheme Nightmare (K.)
Planting Wildflowers Across Farm Fields Could Cut Pesticide Spraying (G.)
Earth’s Magnetic Field Is Shifting, Poles May Flip (ZH)
‘Super Blue Blood Moon’ Rises Over The Acropolis (K.)
Latest Rhino Poaching Figures Show A Decade Of Bloodshed (Ind.)

 

 

Bad theater. But not releasing the memo is no longer an option.

FBI Opposes Memo Release Due To “Inaccurate Information” (ZH)

Update 1240ET: In what CNN described as a “rate public warning,” the FBI released a statement Wednesday saying it has “grave concerns” over the accuracy of the House Intel Committee’s memo describing purportedly egregious FISA abuses. “With regard to the House Intelligence Committee’s memorandum, the FBI was provided a limited opportunity to review this memo the day before the committee voted to release it. As expressed during our initial review, we have grave concerns about material omissions of fact that fundamentally impact the memo’s accuracy,” the FBI said in a statement.
* * *
Update 1130ET: Bloomberg reports that FBI Director Christopher Wray told the White House he opposes release of a classified Republican memo alleging bias at the FBI and Justice Department because it contains inaccurate information and paints a false narrative, according to a person familiar with the matter. Of course, given the allegedly terrible picture the memo paints of The FBI, it is perhaps not entirely surprising that Wary would oppose its release, however, if this sourced reporting proves correct, it plays very badly for Republicans as it would seem to confirm Rep. Schiff’s accusations.
* * *
As we detailed earlier, just before President Trump headed to the Capitol for last night’s “State of the Union”, the Washington Post reported that top Justice Department officials made a last-ditch plea on Monday to White House Chief of Staff John Kelly about the dangers of publicly releasing the memo. Shortly before the House Intelligence Committee voted to make the document public, Deputy Attorney General Rod J. Rosenstein warned Kelly that the four-page memo prepared by House Republicans could jeopardize classified information and implored the president to reconsider his support for making it public. But those pleas from Rosenstein – who isn’t exactly the West Wing’s favorite lawman, and whose name apparently appears in the memo – have apparently fallen on deaf ears.

Last night, President Trump promised a lawmaker that the memo would “100%” be released now that the House Intel Committee has voted to approve its release. And during a Fox News Radio interview with Brian Kilmeade, Chief of Staff John Kelly added that the memo would be publicly released “pretty quick.” “I’ll let all the experts decide that when it’s released. This president wants everything out so the American people can make up their own minds,” he said.

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He should know, he created them both.

Alan Greenspan Sees Bubbles in Stocks and Bonds (BBG)

The man who made the term “irrational exuberance” famous says investors are at it again. “There are two bubbles: We have a stock market bubble, and we have a bond market bubble,” Alan Greenspan, 91, said Wednesday on Bloomberg Television with Tom Keene and Scarlet Fu. Greenspan, who led the Federal Reserve from 1987 until 2006, memorably used the phrase to describe asset values during the 1990’s dot-com bubble. Greenspan’s comments come as stock indexes remain near record highs, despite selling off in recent days, and as the yields on government notes and bonds hover not far from historic lows. Interest rates are expected to move up in coming years as the Fed continues with a campaign to gradually tighten monetary policy.

“At the end of the day, the bond market bubble will eventually be the critical issue, but for the short term it’s not too bad,” Greenspan said. “But we’re working, obviously, toward a major increase in long-term interest rates, and that has a very important impact, as you know, on the whole structure of the economy.” The Fed on Wednesday opted to leave rates unchanged and markets are pricing in an increase at the central bank’s March meeting. Greenspan sounded an alarm on forecasts that the U.S. government deficit will continue to climb as a share of GDP. He said he was “surprised” that President Donald Trump didn’t specify how he would fund new government initiatives in Tuesday’s State of the Union speech. The president last month signed into law about $1.5 trillion in tax cuts that critics say will further balloon the budget gap.

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The nonsense is deafening. Great solid economy, but no rate hikes.

Janet Yellen’s Fed Era Ends With Unanimous Vote of No Rate Hike (BBG)

Federal Reserve officials, meeting for the last time under Chair Janet Yellen, left borrowing costs unchanged while adding emphasis to their plan for more hikes, setting the stage for an increase in March under her successor Jerome Powell. “The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate,” the policy-setting Federal Open Market Committee said in a statement Wednesday in Washington, adding the word “further” twice to previous language. The changes to the statement, collectively acknowledging stronger growth and more confidence that inflation will rise to their 2% target, may spur speculation that the Fed will pick up the pace of interest-rate increases.

Officials also said inflation “is expected to move up this year and to stabilize” around the goal, in phrasing that marked an upgrade from their statement in December. At the same time, the Fed repeated language saying that “near-term risks to the economic outlook appear roughly balanced.” “It opens the door to four hikes for them, but I don’t think they have walked through it,” said Michael Gapen at Barclays in New York. “It closes the door to two hikes.” Fed officials penciled in three rate moves this year in quarterly forecasts they updated last month, according to their median projection.

With her term ending later this week after President Donald Trump chose to replace her, Yellen is handing the reins to Powell, who has backed her gradual approach and is widely expected to raise interest rates at the FOMC’s next meeting for the sixth time since late 2015. Fed officials are hoping to keep a tight labor market from overheating without raising borrowing costs so fast that it would stifle the economy. “Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low,” the Fed said, removing previous references to disruptions from hurricanes. “Market-based measures of inflation compensation have increased in recent months but remain low.”

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People won’t understand their pensions are Ponzis until there are no payments.

Two Out Of Three UK Pension Schemes Are In The Red (Yahoo)

Two out of three pension funds are in the red – to the tune of a combined £210 billion, it has been revealed. Some 3,710 schemes are in deficit according to the Pension Protection Fund watchdog, putting a serious question mark over the retirement plans of millions of workers. The PFF has been called into action on two high profile occasions of late – working with Toys R Us to secure a near £10m injection into its ailing fund to protect the company’s short-term future and also sorting through the debris of the Carillion collapse. The giant contractor folded earlier this month with debts of above £1.3bn, including an estimated £800m hole in its pension fund. The PFF monitors the health of 5,588 pension pots, with some of the biggest names on the FTSE 100 running schemes with major shortfalls.

The biggest include £9.1billion at BT, as well as deficits of £6.9billion at Royal Dutch Shell, £6.7billion at BP and £6.6billion at both Tesco and BAE Systems. Sir Steve Webb, a former pensions minister under the recent coalition government, said Carillion would not be the last big company to fold leaving its pension scheme in jeopardy. “The question isn’t if there will be another Carillion – it’s when,” said Webb, who is now director of policy at pensions group Royal London. “With two-thirds of schemes in deficit it is inevitable there will be more insolvencies and more schemes ending up in the PPF.”

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They had more than 60 active working groups.. And thought it’d remain secret? Anyone going to jail?

Secret Price Fixing Among German Carmakers (Spiegel)

The Federal Cartel Office suspects that major carmakers and a few of their suppliers have been fixing prices for years, and possibly even decades. It’s not the prices at which the companies sell their cars or car parts that is at issue, but rather a significant component of the prices they pay for steel. “The aim of the suspected collusion,” the court ruling that granted the search warrants read, was to “unify the purchasing price for steel in the automobile industry and, by doing so, create a commonality of costs.” The Federal Cartel Office believes that the alleged collusion existed back in the 1990s and that “it existed again from March 2007 until February 2013.” Investigators have also found indications there may have been collusion in 2016.

Collusion of that nature is the antithesis of competition. It means that VW, Daimler and BMW were no longer competing to buy steel cheaper than their rivals and passing their savings down to customers – as is normally the case in a functioning market economy. And steel is one of the most important supplies purchased by carmakers. The nationwide searches didn’t remain secret, with the media quickly reporting on them. But until now, the background and details of the raids have remained largely unknown, the case having been overshadowed by a European Commission investigation into another case that also involves the automobile industry – a case that DER SPIEGEL exposed last summer.

That case was triggered when Daimler and Volkswagen essentially admitted wrongdoing, and since then the Brussels authority has been looking into suspicions that the companies engaged in collusion for several years with BMW, Porsche and Audi, in the form of more than 60 working groups covering areas such as technological development, suppliers and how to deal with environmental protection authorities. The companies had created working groups for almost every part of a vehicle. They existed for “gasoline engines,” “diesel engines,” “car body,” “chassis,” “total vehicle” and many more areas. With five brands involved – Daimler, BMW, Audi, Porsche and VW – the groups were referred to internally as “groups of five.” All together, they met more than 1,000 times in past years.

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Say no more: “Desired ambiguities..”

Germany Reaches Limit of Support for Macron’s Europe Plans (BBG)

French President Emmanuel Macron will be disappointed if he expects Germany’s next government to drum up more goodwill for his European reform plans in this week’s talks, according to four people familiar with the current coalition negotiations. Angela Merkel’s Christian Democratic Union-led bloc and its prospective Social Democratic Party partner are not planning any fundamental changes to their proposals on Europe’s future as set out in a preliminary agreement reached Jan. 12, according to the people, who represent all three parties involved in the talks. All asked not to be named as the negotiations are private and ongoing. Representatives of Merkel’s CDU, its Christian Social Union sister party and Martin Schulz’s Social Democrats met in the Chancellery in Berlin on Wednesday to discuss Europe policy.

While Schulz hailed the outcome as a “fresh start” for Europe, details were in short supply. The negotiators didn’t go much beyond those measures already agreed, one of the people attending the meeting said. These include higher German contributions to the EU budget; expanding the European Stability Fund (ESM) into a European Monetary Fund; and a European framework for minimum wages. The SPD proposed giving the EU its own means to raise revenue, whether by taxes or tolls, prompting Merkel’s bloc to warn against a debate over tax increases. On a visit to Macron in Paris on Jan. 19, Merkel said the coalition’s common Europe plans contained “desired ambiguities,” since any attempt to agree on the final details now would reduce the room to negotiate.

In reality, her CDU/CSU and the SPD, as the Social Democrats are known in German, have different interpretations of the proposals, and these divergent positions are likely to bubble up in the coming months in the debate over euro-area reform.

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Hungary won’t be easy to strong-arm. But Brussels will try. The only people who want more Europe are politicians.

Hungary Rejects Macron’s ‘Arrogance’ as EU Reform-Fight Looms (BBG)

French President Emmanuel Macron’s plan to bring to heel renegade European Union nations as part of a drive to reform the bloc smacks of arrogance and will fail, a senior Hungarian ruling party official said. Unanimity is required both to change the EU constitution and approve a multi-year, post-2020 EU budget. That means proposed sanctions on countries like Hungary and Poland for alleged rule-of-law violations won’t gain traction, according to Gergely Gulyas, parliamentary leader of Hungarian Prime Minister Viktor Orban’s Fidesz party. Governments are drawing battle lines as the EU mulls plans to re-invent itself, with some members saying the euro crisis, Brexit, the biggest refugee influx since World War II and ex-communist members ditching the bloc’s liberal values have necessitated a revamp.

Macron has presented the most ambitious proposals, with a plan to deepen integration in everything from defense to the economy. He has also called for sanctions against member states seen as backsliding on democracy. “If we’re going to play the game that western European countries want to launch rule-of-law procedures against eastern European countries because of differences over values, then that’s not going to work,” said Gulyas, 36. “That would destroy the Union.” Hungary received 3.6 billion euros ($4.5 billion) in net EU funding in 2016. That made it the fourth-biggest beneficiary in the 28-member bloc after Poland, Romania and Greece and underscores the risk to its economy if Macron can make good on his pledge. Gulyas dismissed proposals aimed at punishing Hungary and Poland, arguing that France has for years failed to meet EU spending limits yet has escaped penalties for fiscal offenders.

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Under an alleged left-wing government.

More Than One Million Greeks Trapped In Tax Payment Scheme Nightmare (K.)

More than 1 million Greeks are now trapped in programs to pay off their tax and social security dues in installments, a situation likely to continue for years to come. On Wednesday the Finance Ministry announced taxpayers can apply for a 12- or 24-installment payment scheme, which under certain circumstances can include non-expired dues, on the website of the Independent Authority for Public Revenue. Citizens are resorting to various payment programs offered by the ministries of Finance and Labor because they would otherwise be unable to meet their obligations. In many cases taxpayers are forced to pay additional installments in order not to default on their plans.

The million-plus taxpayers and businesses that are trapped in the various schemes they have entered to pay off the tax authorities and the social security funds have no other choice but to keep paying, otherwise they will have their assets confiscated. The payment schemes are the outcome of the growth in taxation and of social security contributions in recent years. Worse, as of this year, if anyone delays the payment of an installment by more than 24 hours, the debt will be classified as overdue and the process of the monitoring mechanism will be triggered for the state to safeguard its interests. Particularly in the case of the 100-payment program for dues to the tax authorities, missing a deadline means the entire amount due is classified as expired and becomes immediately payable along with fines and penalties.

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You mean, monoculture is not the greatest thing ever?!

Planting Wildflowers Across Farm Fields To Cut Pesticide Spraying (G.)

Long strips of bright wildflowers are being planted through crop fields to boost the natural predators of pests and potentially cut pesticide spraying. The strips were planted on 15 large arable farms in central and eastern England last autumn and will be monitored for five years, as part of a trial run by the Centre for Ecology and Hydrology (CEH). Concern over the environmental damage caused by pesticides has grown rapidly in recent years. Using wildflower margins to support insects including hoverflies, parasitic wasps and ground beetles has been shown to slash pest numbers in crops and even increase yields. But until now wildflower strips were only planted around fields, meaning the natural predators are unable to reach the centre of large crop fields.

“If you imagine the size of a [ground beetle], it’s a bloody long walk to the middle of a field,” said Prof Richard Pywell, at CEH. GPS-guided harvesters can now precisely reap crops, meaning strips of wildflowers planted through crop fields can be avoided and left as refuges all year round. Pywell’s initial tests show that planting strips 100m apart means the predators are able to attack aphids and other pests throughout the field. The flowers planted include oxeye daisy, red clover, common knapweed and wild carrot. In the new field trials, the strips are six metres wide and take up just 2% of the total field area. They will be monitored through a full rotation cycle from winter wheat to oil seed rape to spring barley.

“It’s a real acid test – we scientists are having to come up with real practical solutions,” said Pywell, who led a landmark study published in 2017 showing that neonicotinoids insecticides damage bee populations, not just individual insects. In the new trials, the researchers will be looking out for any sign that drawing the wild insects into the centre of fields, and therefore closer to where pesticides are sprayed, does more harm than good.

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Old threat. But a real one.

Earth’s Magnetic Field Is Shifting, Poles May Flip (ZH)

[..] scientists from the University of Colorado in Boulder are sounding the alarm that the Earth’s magnetic poles are showing signs of reversing. Although the pole reversal, in and of itself, isn’t unprecedented, the solar winds that would take out the power grid and make parts of the globe uninhabitable could cause widespread disasters. The Earth has a fierce molten core that generates a magnetic field capable of defending our planet against devastating solar winds. This magnetic field is vital to life on Earth and has weakened by 15 percent over the last 200 years. This protective field acts as a shield against harmful solar radiation and extends thousands of miles into space and its magnetism affects everything from global communication to power grids.

Historically, Earth’s North and South magnetic poles have flipped every 200,000 or 300,000 years. However, the last flip was about 780,000 years ago, meaning our planet is well overdue. The latest satellite data, from the European Space Agency’s Swarm trio which monitors the Earth’s magnetic field, suggest a pole flip may be imminent. The satellites allow researchers to study changes building at the Earth’s core, where the magnetic field is generated. Their observations suggest molten iron and nickel are draining the energy out of the Earth’s core near where the magnetic field is generated. While scientists aren’t sure why exactly this happens, they describe it as a “restless activity” that suggests the magnetic field is preparing to flip.

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A lot more timeless than most other pics of this.

‘Super Blue Blood Moon’ Rises Over The Acropolis (K.)

A ‘super blue blood moon’ rises behind the 2,500-year-old Parthenon temple on the Acropolis hill in Athens on Wednesday evening, when thousands of city residents took to the streets and balconies to witness the rare spectacle. People in many parts of the world caught a glimpse of the moon as a giant reddish globe thanks to a rare lunar phenomenon that combines a total eclipse with a blue moon and super moon. The spectacle – the first in 152 years – has been coined a ‘super blue blood moon’ by NASA. [Petros Giannakouris/AP]

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Just refuse to do any trade with any country that imports the horns. For starters.

Latest Rhino Poaching Figures Show A Decade Of Bloodshed (Ind.)

Dr Ian Player, the veteran South African game ranger and doyen of global rhino conservation, would be turning in his grave today were he to discover that another 1,000 rhinos had been slaughtered in the last calendar year. The African-wildlife warrior died just over three years ago aged 87, at a point when poaching had just exploded to record levels in South Africa – with nearly three rhinos gunned down daily. Annual government statistics announced last week complete the picture of 7,130 rhino carcasses piled up in South Africa over the last decade. Shortly before his death, I visited Player at his home in the KwaZulu-Natal Midlands to ask him about his thoughts on the poaching crisis and the future of one of the “big five” (lion, leopard, rhinoceros, elephant and Cape buffalo) species he devoted most of his life to protecting.

Frail and dispirited, he had reached a point in life where he should have been taking things easy, after more than six decades of service to nature conservation. Instead, his cellphone rang incessantly as colleagues from all corners of the country reported the discovery of yet another rhino butchered for its horns. Having worked so hard to save rhinos from extinction once before, there was no way Player could hang up his conservation boots amidst this new crisis. He also told me about a dream that haunted him. “My dream was about a young white rhino which came to lie down next to me and then gently placed its head on my shoulder. That does not need too much interpretation – the rhinos still need our help more than ever before,” he explained.

Player first came across a rhino in Imfolozi Game Reserve in the early 1950s when he joined the Natal Parks Board as a learner game ranger. A disciple of Carl Jung and Sir Laurens van der Post, Player went on to spearhead a global operation to safeguard the world’s second-largest land animal from extinction. Less than a decade ago, poaching deaths were limited to roughly 20 rhinos per year in South Africa, the country that provides sanctuary to 93% of Africa’s white rhinos and nearly 40% of the continent’s black rhinos. In 2007, only 13 rhinos were poached in South Africa. But in 2008 that tally rose steeply to 80 deaths; to 333 in 2010 and then to a record level of 1,205 during 2014. Last year the death toll topped the 1,000 mark for the fifth year in a row.

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Jan 302018
 
 January 30, 2018  Posted by at 11:08 am Finance Tagged with: , , , , , , , , , ,  


Horacio Coppola Obelisco, Buenos Aires 1936

 

House Intel Votes To Make “Shocking” FISA Memo Public (ZH)
Trump Administration Holds Off On New Russia Sanctions (R.)
Measure What Is Measurable (John Hussman)
Global Bond Yields Spike as Inflation Fears Rise (Street)
US Mortgage Rates Jump To The Highest Point In 4 Years (CNBC)
Stormy Weather (Jim Kunstler)
Leaked Brexit Report Shows Damage To UK Growth (G.)
Janet Yellen Sets Interest Rates One Last Time. How Will History Rate Her? (G.)
On The Death of Robert Parry (CJ)
Refugee Relocations From Italy And Greece Drawing To A Close (DW)

 

 

I like the suggestion that Trump can read the memo out loiud tonoght in SOTU. Though it’s been discussed so much already, it can only disappoint probably.

House Intel Votes To Make “Shocking” FISA Memo Public (ZH)

In a highly anticipated decision, on Monday evening the House Intelligence Committee voted to make public the memo alleging what some Republicans say are “shocking” surveillance abuses at the Department of Justice regarding the Trump presidential campaign. In immediate response to the vote, the Committee’s top democrat Adam Schiff said that “we’ve crossed a deeply regrettable line”, adding that the “committee voted to put the president’s interest above the interest of the country.” The decision [ends] weeks of speculation over whether the memo, which was drafted by staff for committee chairman Devin Nunes (R- Calif) would be made public. At the same time, it intensifies the dispute over what Democrats say is an all-out assault by Republicans to undermine special counsel Robert Mueller’s probe into Russian interference in the 2016 election.

Now the fate of the 4-page FISA memo is in the hands of Donald Trump: as we discussed earlier, the document will not be immediately released as under the House rule Republicans used to override the classification of the four-page memo, President Trump now has five days to review and reject its publication. But, as per Bloomberg’s reporting earlier, the White House has signaled support for the document’s release and is widely expected to defy the DOJ in allowing the publication to go forward. The DOJ has opposed the release of the document, reportedly infuriating President Trump. While Nunes has described the memo as “facts,” Democrats have slammed it as a collection of misleading talking points they are unable to correct without exposing the highly classified information underpinning the document.

As Bloomberg disclosed earlier on Monday, releasing the memo without allowing them to review it on those grounds, Assistant Attorney General Stephen Boyd wrote to Nunes, would be “extraordinarily reckless.” Of course, the reason for the DOJ – and the Democrats’ fury – is well-known: Republicans who have read the memo have hinted heavily that it contains information that could unravel the entire Mueller investigation, long described by the president as a “witch hunt.” In an amusing twist, now that transparency appears to be the watchword, the Republican controlled House Intel Committee also plans to release the transcript of the business meeting dealing with releasing the FISA memo.

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Russia has pledged to read the list ‘without letting emotion get in the way’.

Trump Administration Holds Off On New Russia Sanctions (R.)

The Trump administration said on Monday it would not immediately impose additional sanctions on Russia, despite a new law designed to punish Moscow’s alleged meddling in the 2016 U.S. election, insisting the measure was already hitting Russian companies. “Today, we have informed Congress that this legislation and its implementation are deterring Russian defense sales,” State Department spokeswoman Heather Nauert said in a statement. “Since the enactment of the … legislation, we estimate that foreign governments have abandoned planned or announced purchases of several billion dollars in Russian defense acquisitions.” Seeking to press President Donald Trump to clamp down on Russia, the U.S. Congress voted nearly unanimously last year to pass a law setting sweeping new sanctions on Moscow.

Trump, who wanted warmer ties with Moscow and had opposed the legislation as it worked its way through Congress, signed it reluctantly in August, just six months into his presidency. Under the measure, the administration faced a deadline on Monday to impose sanctions on anyone determined to conduct significant business with Russian defense and intelligence sectors, already sanctioned for their alleged role in the election. But citing long time frames associated with major defense deals, Nauert said it was better to wait to impose those sanctions. “From that perspective, if the law is working, sanctions on specific entities or individuals will not need to be imposed because the legislation is, in fact, serving as a deterrent,” she said in a statement.

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Next recession: Dow plunge by 2/3.

Measure What Is Measurable (John Hussman)

[..] it’s true that when we examine pre-crash extremes, like 2000 and 2007, we’ll typically find that actual returns over the preceding 12-year period were higher than the returns that one would have expected on the basis of valuations 12 years earlier. No surprise there. The only way to get to breathtaking valuations is to experience a period of surprisingly strong returns. Those breathtaking valuations are then followed by dismal consequences. Likewise, when we examine secular lows like 1974 and 1982, we’ll find that actual returns over the preceding 12-year period fell short of the returns one would have expected on the basis of valuations 12 years earlier.

The chart below offers a reminder of what this looks like, in data since the 1920’s. Look at the “errors” in 1988, 1995, and 2006. Count forward 12 years, and you’ll find the major valuation peaks of 2000, 2007 and today that were responsible for the overshoot of actual returns. The 2000 and 2007 instances were both followed by losses of 50% or more in the S&P 500. Look at the “errors” in 1937, 1962, 1966, and 1970. Count forward 12 years, and you’ll find the market lows of 1949, 1974, 1978 and 1982 that were responsible for the undershoot of actual returns. Those market lows turned out to be the best buying opportunities of the post-war era. When market cycles move to extreme overvaluation or undervaluation, they become an exercise in borrowing or lending returns to the future, and then surrendering or receiving them back over the remaining half of the cycle.

Put simply, in my view, stock prices are rising not because Wall Street has thoughtfully quantified the effect of taxes, interest rates, corporate profits, or anything else. Instead, Wall Street is mesmerized by the self-reinforcing outcomes of its own speculation, relying on verbal arguments, optimistic projections lacking grounds in observable data, and enthusiastic assertions about cause-effect relationships that are accepted without the need for any evidence at all (much less decades of it).

Back to Galileo. Measure what is measurable, and make measurable what is not so. When we do this, come to understand the current speculative extreme as the tension between two observations that are not actually contradictory – just uncomfortable. One is that stock prices are indeed three times the level at which they are likely to end the current market cycle. The other is that there is no pressure for valuations to normalize over shorter segments of the cycle, as long as risk-seeking speculative psychology remains intact.

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It’s starting to feel as if we passed an inflection point.

Global Bond Yields Spike as Inflation Fears Rise (Street)

Global government bond markets continued to sell-off Monday, taking U.S. Treasury yields to the highest level in four years amid renewed bets on faster inflation in the world’s biggest economy and hawkish comments on growth and inflation from central bank officials in Europe. The bond market moves have clipped early gains for stocks and raised the spectre of a correction in inflation assumptions as the global economy roars to life and oil and commodity prices continue to climb amid a surge in manufacturing activity. The selling was also accelerated, in part, by a Goldman Sachs research note which suggested that Wednesday’s meeting of the U.S. Federal Reserve, the last under the leadership of outgoing chairwoman Janet Yellen, could plant the early seeds for a March hike in benchmark borrowing costs.

“We expect the FOMC to issue a generally upbeat post-meeting statement that includes an upgrade to the balance of risks and a slightly hawkish rewording of the inflation assessment,” the note read, adding that public remarks since the December meeting “bolster the case for an upgrade, and by our count, at least half of the Committee has recently referenced upside risks to growth.” Benchmark 10-year U.S. Treasury yields were marked at 2.72% in early Monday trading, the highest since early 2014, while 2-year note yields were seen at 2.15%, the highest since 2008. Those gains followed Friday closing levels that showed the widest yield gap between so-called TIPS, or Treasury Inflation Protected Securities, and benchmark 10-year notes since Sept. 2014.

In Europe, five-year German bunds yields traded in positive territory for the first time since 2015 amid a solid assessment of the region’s growth prospects last week from ECB President Mario Draghi and comments over the weekend from Dutch central bank governor Klaas Knot that he saw “no reason whatsoever” to continue the Bank’s €2.55 trillion ($3.16 trillion) quantitative easing program beyond its September deadline. Both U.S. and European investors are bracing for faster inflation in the months ahead as global commodity prices – particularly crude oil – continue to rise. Brent crude futures for March delivery, the benchmark for prices around the world, were marked at $69.87 Monday, down from their Friday close of $70.52 but still some 28% higher from the same period last year, suggesting a big upside import into headline inflation readings over the first half of this year.

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Yields go up, then so do mortgage rates.

US Mortgage Rates Jump To The Highest Point In 4 Years (CNBC)

A huge sell-off in the bond market is about to make buying a home more expensive. Mortgage rates, which loosely follow the yield on the 10-year Treasury, have been rising for the past few weeks, but are seeing their biggest move higher Monday. “Bottom line, rate sheets are going to be ugly this morning,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. “Some lenders will be at 4.5% on their best-case-scenario 30-year fixed quotes.” That is the highest rate since 2014. The average rate on the popular 30-year fixed started the year right around 4% but then began to climb on positive news in the U.S. economy, solid company earnings reports and a shift in foreign central bank policies which appear to now be following the Federal Reserve’s tightening of monetary policy.

The rate was at 4.28% by the end of last week. “Apart from central banks, there’s a ton of bond market supply coming down the pike due to infrastructure and tax bill spending,” Graham said. That new supply will send yields and, consequently, mortgage rates higher. While mortgage rates are still historically low, they were even lower in the years following the financial crisis. That not only helped juice the sharp increase in home prices, but it has also given borrowers a new sense of normal. Both will hurt affordability this spring on several fronts. “Today is one more reason for Realtors and buyers to move up their spring schedule,” said Chris Kopec, a mortgage loan consultant at Chicago-based Lakeside Bank.

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Why investigate Trump, but not Hillary et al?

Stormy Weather (Jim Kunstler)

It’s hard not to be impressed by the evidence in the public record that the FBI misbehaved pretty badly around the various election year events of 2016. And who, besides Rachel Maddow, Anderson Cooper, and Dean Baquet of The New York Times, can pretend to be impressed by the so far complete lack of evidence of Russian “meddling” to defeat Hillary Clinton? I must repeat: so far. This story has been playing for a year and a half now, and as the days go by, it seems more and more unlikely that Special Prosecutor Robert Mueller is sitting on any conclusive evidence. During this time, everything and anything has already leaked out of the FBI and its parent agency the Department of Justice, including embarrassing hard evidence of the FBI’s own procedural debauchery, and it’s hard to believe that Mr. Mueller’s office is anymore air-tight than the rest of the joint.

If an attorney from Mars came to Earth and followed the evidence already made public, he would probably suspect that the FBI and DOJ colluded with the Clinton Campaign and the Democratic Party to derail the Trump campaign train, and then engineer an “insurance policy” train wreck of his position in office. Also, in the process, to nullify any potential legal action against Clinton, including the matter of her email server, her actions with the DNC to subvert the Sanders primary campaign, the Steele dossier being used to activate a FISA warrant for surveillance of the Trump campaign, the arrant, long-running grift machine of the Clinton Foundation (in particular, the $150 million from Russian sources following the 2013 Uranium One deal, when she was Secretary of State), and the shady activities of Barack Obama’s inner circle around the post-election transition. There is obviously more there there than in the Resistance’s Russia folder.

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What Britain can quarrel about this week.

Leaked Brexit Report Shows Damage To UK Growth (G.)

Brexit would leave the UK worse off under three possible scenarios: a comprehensive free trade deal, single market access and no deal at all, according to a leaked government analysis of the economic impact of leaving the EU. The document was meant to be shown confidentially to cabinet ministers this week but was leaked in an embarrassing development for Theresa May and David Davis, the Brexit secretary. It said national income would be 8% lower under a no deal scenario, around 5% lower with a free trade agreement with the EU and about 2% lower with a soft Brexit option of single market membership over a 15-year period. The government would not comment on leaked documents but sources stressed the analysis did not cover May’s preferred option of a bespoke deal amounting to a “deep and special partnership” with the EU.

The document suggested that chemicals, clothing, manufacturing, food and drink, and cars and retail would be the hardest hit and every UK region would also be affected negatively in all the modelled scenarios, with the north-east, the West Midlands and Northern Ireland facing the biggest falls in economic performance. It comes after Davis refused to release impact assessments covering 58 sectors of the economy when requested to by parliament, claiming they did not in fact exist. Remain supporters said the report, seen by BuzzFeed News, was concerning but in line with what they had feared.

[..] Eloise Todd, the chief executive of anti-Brexit organisation Best for Britain, added: “According to the government’s secret analysis, even the softest Brexit scenario will mean a 2% hit to growth. “Almost every community, region and sector of the economy included in the analysis would be negatively impacted. The case for or against Brexit should be about more than balance sheets, but it’s painfully clear that the numbers are a gloomy part of the story. And behind these numbers are thousands of jobs, businesses and homes that are at risk. “The government are calling this document embarrassing but it’s more than that. It is a colossal act of economic self harm, written down clearly, in black and white. We are reading about an economy facing the abyss.”

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After Janet, the flood.

Janet Yellen Sets Interest Rates One Last Time. How Will History Rate Her? (G.)

Janet Yellen, the Federal Reserve chair, begins her final rate-setting meeting at the helm of the US central bank on Tuesday, before she is replaced by Donald Trump’s chosen successor, Jerome Powell. The first woman to lead the Fed arrived in February 2014 at a time when the money-printing machine of quantitative easing was whirring at full-tilt under her predecessor, Ben Bernanke. QE, which involved the Fed buying bonds from financial institutions, pumped billions of dollars into the US economy to keep it afloat after the financial crisis. Yellen leaves next month with a legacy as the Fed chair who began the long process of turning off the QE machine, and for raising interest rates for the first time in seven years in 2015.

Powell will have a tough act to follow, with the stock market currently sitting at a record high and as economic growth continues to strengthen and unemployment stands at the lowest level since 2000. No increase in interest rates is expected this month, although further hikes are forecast for later this year. James Knightley, senior economist at ING Bank, said: “She has followed up [Bernanke] with strong leadership and solid decision making that led to the robust economic performance we see today. Given all these successes, Jay Powell has been set a very tough bar to match.”

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Emotional by Caitlin Johnstone. We should have a piece that lists his topics through the years. And someone should pick up his legacy.

On The Death of Robert Parry (CJ)

The legendary journalistic titan Robert Parry has died, and I still haven’t quite figured out how to live with that. I did not know Parry and never had any kind of interaction with him, but I can’t stop crying. This is an immense loss and it feels deeply personal, just as one of the countless individuals his work has profoundly impacted. I’ve often recommended Parry’s outlet Consortiumnews as the overall best source of anti-war, anti-establishment information in the English-speaking world, and I cite its content constantly in my own work. This just sucks, and I’m a mess, and this might just be me getting sloppy and emotional for a few paragraphs, but this is all I can really be right now.

In a beautiful tribute to his father, Nat Parry describes a man who was driven not by self-interest, nor even ultimately by any ideology or conceptual values system, but by a deeply held commitment to humanity born out of concern for the future of our species. Parry’s journalistic integrity and ferocious dedication to the truth at all costs appear to have been a byproduct of that fundamental desire for humanity to survive and thrive, and an inability to be comfortable with our horrifying flirtation with extinction. “But besides this deeply held commitment to independent journalism, it should also be recalled that, ultimately, Bob was motivated by a concern over the future of life on Earth,” writes the younger Parry. “As someone who grew up at the height of the Cold War, he understood the dangers of allowing tensions and hysteria to spiral out of control, especially in a world such as ours with enough nuclear weapons to wipe out all life on the planet many times over.”

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Brussels, Paris and Berlin only care when it suits their careers.

Refugee Relocations From Italy And Greece Drawing To A Close (DW)

Germany’s Interior Ministry said on Monday that it will only resettle a small number of migrants from Italy and Greece in the coming weeks, as the EU’s migrant relocation program draws to a close. An Interior Ministry spokesperson told DW that far fewer people had fulfilled the necessary criteria for relocation than first expected. “There are now virtually no more asylum seekers in Greece who could be considered for resettlement,” according to the Ministry. To qualify, applicants had to be from a country where the chances of asylum are at least 75%. Last month, some 500 migrants were still waiting to be relocated from Italy to Germany, while in Greece the number less than 40. “The relocation scheme ended in September 2017, meaning all applicants arriving after that date will no longer be eligible for resettlement,” Annegret Korff, a speaker for the Interior Ministry, said.

“Germany largely completed all outstanding relocations by the end of 2017. In the coming weeks, Germany will only carry out the odd resettlement case that was left outstanding from last year.” The program to relocate migrants landing in Greece and Italy was launched by the European Union in the wake of the 2015 migrant crisis. Initially, EU member states agree to relocate some 160,000 refugees between them from the bloc’s two main points of entry by September 2017. The number was revised to just under 100,000 after officials found that fewer people were eligible under the scheme that first expected. Although the temporary progam has since passed its deadline, the final few migrants that qualify for resettlement are still awaiting asylum.

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Dec 142017
 
 December 14, 2017  Posted by at 10:35 am Finance Tagged with: , , , , , , , , , , ,  


Joseph Mallord William Turner Norham Castle, Sunrise 1845

 

Fed Boosts Benchmark Rate For Third Time This Year (AP)
PBOC Raises Borrowing Costs In Surprise Move Following Fed Hike (BBG)
European Bond-Buying ‘Tsunami’ Is Set to Fade as ECB Tapers (BBG)
Risk May Be Low But Uncertainty Just Hit Record Highs (ZH)
Canadian Homeowners Take Out HELOCs to Fund Subprime Buyers (WS)
These Guys Want to Lend You Money Against Your Bitcoin (BBG)
Druckenmiller: Central Banks Are Financial World’s ‘Darth Vader’ (CNBC)
Theresa May’s EU Summit Marred By Embarrassing Defeat in Commons (Ind.)
The Virtual Economy Is The End Of Freedom (Smith)
Trey Gowdy: “What The Hell Is Going On?” (YT)
Germany Owes Greece €185billion In WWII Reparations – German Researchers (KTG)
‘A Different Dimension Of Loss’: Inside The Great Insect Die-Off (G.)

 

 

2018 will be something to watch.

Fed Boosts Benchmark Rate For Third Time This Year (AP)

The Federal Reserve is raising its benchmark interest rate for the third time this year, signaling its confidence that the U.S. economy remains on solid footing 8Ω years after the end of the Great Recession. The Fed is lifting its short-term rate by a modest quarter-point to a still-low range of 1.25% to 1.5%. It is also continuing to slowly shrink its bond portfolio. Together, the two steps could lead over time to higher loan rates for consumers and businesses and slightly better returns for savers. The central bank says it expects the job market and the economy to strengthen further. Partly as a result, it foresees three additional rate hikes in 2018 under the leadership of Jerome Powell, who succeeds Janet Yellen as Fed chair in February. Investors will look to Yellen’s final scheduled news conference as Fed chair for any clues to what the central bank might have in store for 2018 under Powell.

Powell has been a Yellen ally who backed her cautious stance toward rate hikes in his five years on the Fed’s board. Yet no one can know for sure how his leadership or rate policy might depart from hers. What’s more, Powell will be joined by several new Fed board members who, like him, are being chosen by President Donald Trump. Some analysts say they think that while Powell might not deviate much from Yellen’s rate policy, he and the new board members will adopt a looser approach to their regulation of the banking system. Most analysts have said they think the still-strengthening U.S. economy will lead the Fed to raise rates three more times next year. A few, though, have held out the possibility that a Powell-led Fed will feel compelled to step up the pace of rate hikes as inflation finally picks up and the economy, perhaps sped by the Republican tax cuts, begins accelerating.

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Two centrally controlled economies.

PBOC Raises Borrowing Costs In Surprise Move Following Fed Hike (BBG)

China’s central bank edged borrowing costs higher in an unexpected move after the Federal Reserve’s decision to tighten monetary policy. Hours after the Fed’s quarter%age-point move, the People’s Bank of China, citing market expectations, increased the rates it charges in open-market operations and on its medium-term lending facility, though making smaller adjustments than the U.S. Markets took the announcement in stride. Analysts said the modest adjustment shows the PBOC wants to balance the need to tighten monetary policy with avoiding jolting its markets. China’s rate adjustments “help markets form reasonable expectations for interest rates,” the PBOC said in a statement on its website on Thursday.

It also prevents financial institutions from adding excessive leverage and expanding broad credit supply, it said. The cost of seven-day and 28-day reverse-repurchase agreements was raised by five basis points. That followed an increase in mid-March. The PBOC skipped the use of 14-day reverse repos Thursday. The cost of funds lent via MLF was also increased by five basis points, with the 1-year rate raised to 3.25%. “This action seems to follow the Fed,” said Raymond Yeung at Australia & New Zealand Bank. “Since it only lifted the rate by just five basis points the central bank does not want to jeopardize the market with an aggressive hike. It does indicate the tightening bias of the policy makers and this stance will continue in 2018.”

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Why does the ECB hold all that American debt? Is that its mandate?

European Bond-Buying ‘Tsunami’ Is Set to Fade as ECB Tapers (BBG)

European investors have been plowing so much capital abroad they’ve taken up about half the boom in U.S. corporate debt in recent years, but now that liquidity tap is poised to be shut off, according to Oxford Economics. “The global debt issuance boom is likely to lose steam, given the extent to which it has relied on the support of European investors,” Guillermo Tolosa, an economic adviser to Oxford Economics in London who has worked at the IMF, wrote in a forthcoming research note. “Issuers better seize the opportunities while they last.” ECB asset purchases took up so great a supply of bonds that it pushed euro area investors into markets abroad, to the tune of €400 billion ($473 billion) a year over the past three years, Oxford Economics estimates. With the ECB poised to halve its monthly buying pace to 30 billion euros starting in January, next year might see just €200 billion in European investor outflows, the research group calculates.

“This is a large enough fall to risk causing disruption in some markets, including emerging markets, which have come to rely heavily on European flows recently,” Tolosa wrote. “A global tsunami of euros” benefited borrowers during the past three years, and accounted for a “staggering” 50% of net U.S. corporate-debt issuance, he wrote. European funds have slashed the domestic share of their fixed-income securities holdings by more than 7 percentage points, to less than 70%, since the ECB’s program began. As flows head back into the domestic markets, that could temper the impact of the ECB’s policy normalization on the region’s securities. Upward pressure on European debt valuations may last “for a protracted period,” Tolosa wrote.

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Is VIX as compromised as GDP?

Risk May Be Low But Uncertainty Just Hit Record Highs (ZH)

The decline in the VIX this year has befuddled investors and traders of all stripes, given the host of geopolitical uncertainties in locations like North Korea and political skirmishes in Washington. Not to mention, stocks have been rising relentlessly for years, unnerving some investors who say that stocks are trading too high relative to expected earnings. As The Wall Street Journal reports, two academics are rolling out a new measure of market fear that suggests investors aren’t nearly as complacent as they seem. In separating out ambiguity from common measures of risk, Menachem Brenner of New York University and Yehuda Izhakian of Baruch College are picking up on a concept that traces back nearly a century.

Economist Frank Knight in 1921 wrote about the difference between risk and uncertainty. If volatility measures the uncertainties for which one can determine a probability, or the “known unknowns,” ambiguity measures the “unknown unknowns,” to use a term popularized by former Defense Secretary Donald Rumsfeld, according to Mr. Brenner. In October, the gauge hit 2.42, its highest reading in monthly data that extends back to 1993. That’s above the gauge’s previous peak of 2.41 at the height of the financial crisis in October 2008. While none of the academics is willing to call a ‘top’ or any imminent decline, it is noteworthy that this new measure quantifies what many have noted – that market-based ‘non-normal’ tail risk remains elevated while ‘normal risk’ is repressed.

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Make your home someone else’s ATM.

Canadian Homeowners Take Out HELOCs to Fund Subprime Buyers (WS)

The HELOC (Home Equity Line of Credit) has been a blessing and a curse for Canadian households. While it has helped spur house prices and simultaneously provided consumers the ability to tap into their new found equity, it has also crippled many Canadian households into a debt trap that seems insurmountable. Between 2000 and 2010, HELOC balances soared from $35 billion to $186 billion, according to the Financial Consumer Agency of Canada, an average annual growth rate of 20%. As of 2016, HELOC balances sit at $211 billion, a 500% increase since the year 2000. While also pushing Canadian household debt to incomes to record highs of 168%. Scott Terrio, a debt consultant, says the situation is a full blown “extend and pretend,” meaning borrowers are just continuously refinancing or taking on more and more debt in order to sustain their lifestyle.

Canadians can extend their debt repayment terms and pretend to live a lifestyle they can’t otherwise obtain. What the HELOC has also been able to do is help spur the private lending space which has ultimately supported rising house prices. Seth Daniels of JKD Capital, one of the most astute Canada-Watchers, says there’s a growing trend where “a homeowner acts as a sub-prime lender by drawing a HELOC at 3% interest only, and lends it to a subprime borrower at 8-12% for one year (interest only).” This is something I’ve been hearing on an ongoing basis from mortgage brokers and lawyers who help facilitate these deals. Especially since mortgage lending conditions tightened, starting with OSFI’s first mortgage stress test back in November, 2016. The financial regulator required “high-ratio” borrowers (those with less than 20% down payment) to qualify for a mortgage at the borrowing rate plus 2%. So basically you’re getting qualified on what you can borrow at 5% even though you’re borrowing at 3%.

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Probably inevitable, but it doesn’t feel good.

These Guys Want to Lend You Money Against Your Bitcoin (BBG)

The woes of an early bitcoin investor. Until recently, people who paid virtually nothing for the virtual currency and watched it soar had only one way to enjoy their new wealth – sell. And many weren’t ready. Lenders on the fringe of the financial industry are now pitching a solution: loans using a digital hoard as collateral. While banks hang back, startups with names like Salt Lending, Nebeus, CoinLoan and EthLend are diving into the breach. Some lend – or plan to lend – directly, while others help borrowers get financing from third parties. Terms can be onerous compared with traditional loans. But the market is potentially huge. Bitcoin’s price hovered around $17,000 much of this week, giving the cryptocurrency a total market value of almost $300 billion.

Roughly 40% of that is held by something like 1,000 users. That’s a lot of digital millionaires needing houses, yachts and $590 shearling eye masks. “I would be very interested in doing this with my own holdings, but I haven’t found a service to enable this yet,” said Roger Ver, widely known as “Bitcoin Jesus” for his proselytizing on behalf of the cryptocurrency, in which he in one of the largest holders. People controlling about 10% of the digital currency would probably like to use it as collateral, estimates Aaron Brown, a former managing director at AQR Capital Management who invests in bitcoin and writes for Bloomberg Prophets. “So I can see a lending industry in the tens of billions of dollars,” he said.

One problem is that bitcoin’s price swings violently, which can make it dangerous for lenders to hold. That means the terms can be steep. Someone looking to tap $100,000 in cash would probably need to put up $200,000 of bitcoin as collateral, and pay 12% to 20% in interest a year, according to David Lechner, the chief financial officer at Salt, which has arranged dozens of loans.

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“Every serious deflation I’ve looked at is preceded by an asset bubble and then it bursts..”

Druckenmiller: Central Banks Are Financial World’s ‘Darth Vader’ (CNBC)

Stanley Druckenmiller believes the overly easy monetary policies by global central banks will have disastrous consequences. “The way you create deflation is you create an asset bubble. If I was ‘Darth Vader’ of the financial world and decided I’m going to do this nasty thing and create deflation, I would do exactly what the central banks are doing now,” he told CNBC’s Kelly Evans in an exclusive interview airing Tuesday on “Closing Bell.” “Misallocate resources [with low interest rates], create an asset bubble and then deal with the consequences down the road,” he said. The investor noted how this boom-and-bust cycle has happened time and time again. “Deflation just doesn’t appear out of nowhere and it doesn’t happen because you are near the zero bound. Every serious deflation I’ve looked at is preceded by an asset bubble and then it bursts,” he said.

“Think about the ’20s, a big asset bubble that burst, you have the Depression. Think about Japan. Asset bubble in the ’80s. It burst. You have the consequences follow. Think about 2008, 2009.” Druckenmiller said if the Federal Reserve raised interest rates more quickly, the U.S. would have avoided the worst of the housing bubble and last recession. “If they had moved earlier and more aggressively in the early 2000s, we would have had a recession in ’08 and ’09, but not a financial crisis,” he said. The investor believes the Fed should raise rates and normalize monetary policy as soon as possible. “The longer this goes on, the worse it’s going to be,” he added. “The sooner they can stop what’s going on … the better.”

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She might as well step down now.

Theresa May’s EU Summit Marred By Embarrassing Defeat in Commons (Ind.)

Theresa May is set to arrive in Brussels for a key EU summit on Thursday having suffered a damaging defeat in Parliament over her central piece of Brexit legislation. The Prime Minister is to use the EU event to try and make the case for moving Brexit talks on to trade negotiations quickly, but European leaders will now be left wondering if she still has the political support in London to deliver any deal. There were cheers from opposition MPs in the House of Commons when it emerged the Government had been forced to accept changes to its EU Withdrawal Bill, which it is now claimed will guarantee Parliament a “meaningful” final vote on any Brexit deal Ms May agrees. he embarrassing defeat – the first inflicted on Ms May as she pushes through her Brexit plans – came after Jeremy Corbyn ordered Labour MPs to back an amendment to her legislation proposed by ex-Conservative attorney general Dominic Grieve.

The result immediately exposed deep divisions on the Conservative benches, with reports of a heavy-handed Government whipping operation creating tension, blue-on-blue clashes in the Commons and one Tory rebel sacked from his senior party position within moments of opposing Ms May. Rebels braced themselves for a wave of abuse from the Brexit-backing media, but insisted they had no choice but to put principle before party and vote against the Government. Ms May was supposed to enjoy something of a victory at the EU council summit on Thursday, expected to rubber-stamp the judgment that “sufficient progress” has been made on divorce issues to move on to the next phase of talks. But with difficult obstacles already arising in Brussels, the defeat in London lays bare the difficulties Ms May will have in delivering anything she agrees on the continent.

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“..cryptocurrencies are built upon an establishment designed framework, and they are entirely dependent on an establishment created and controlled vehicle (the internet)..”

The Virtual Economy Is The End Of Freedom (Smith)

Millenials and others think that they are going to rebel and “take down the banking oligarchs” with nothing more than digital markers representing “coins” tracked on a digital ledger created by an anonymous genius programmer/programmers. Delusional? Yes. But like I said earlier, it is an appealing notion. Here is the issue, though; true money requires intrinsic value. Cryptocurrencies have no intrinsic value. They are conjured from nothing by programmers, they are “mined” in a virtual mine created from nothing, and they have no unique aspects that make them rare or tangibly useful. They are an easily replicated digital product. Anyone can create a cryptocurrency. And for those that argue that “math gives crypto intrinsic value,” I’m sorry to break it to them, but the math is free.

In fact, for those that are not already aware, Bitcoin uses the SHA-256 hash function, created by none other than the National Security Agency (NSA) and published by the National Institute for Standards and Technology (NIST). Yes, that’s right, Bitcoin would not exist without the foundation built by the NSA. Not only this, but the entire concept for a system remarkably similar to bitcoin was published by the NSA way back in 1996 in a paper called “How To Make A Mint: The Cryptography Of Anonymous Electronic Cash.” The origins of bitcoin and thus the origins of crytpocurrencies and the blockchain ledger suggest anything other than a legitimate rebellion against the establishment framework and international financiers. I often cite this same problem when people come to me with arguments that the internet has set the stage for the collapse of the globalist information filter and the mainstream media.

The truth is, the internet is also an establishment creation developed by DARPA, and as Edward Snowden exposed in his data dumps, the NSA has total information awareness and backdoor control over every aspect of web data. Many people believe the free flow of information on the internet is a weapon in favor of the liberty movement, but it is also a weapon in favor of the establishment. With a macro overview of data flows, entities like Google can even predict future social trends and instabilities, not to mention peek into every personal detail of an individual’s life and past. To summarize, cryptocurrencies are built upon an establishment designed framework, and they are entirely dependent on an establishment created and controlled vehicle (the internet) in order to function and perpetuate trade. How exactly is this “decentralization”, again?

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How much longer can the Mueller vehicle last?

Trey Gowdy: “What The Hell Is Going On?” (YT)

Tyler Durden: “If there is any remaining doubt in your mind that Special Counsel Mueller’s probe is anything but a farcical, politically-motivated witch hunt, then you’ll be summarily relieved of those doubts after watching the following exchange from earlier this morning between Trey Gowdy (R-SC) and Deputy Attorney General Rod Rosenstein.”

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There are much higher sums floating around.

Germany Owes Greece €185billion In WWII Reparations – German Researchers (KTG)

Does Germany owe indeed Greeks billions of euros in World War II reparations for the damages and the enforced loan during the occupation of the country by the Nazis? So far, Berlin has vehemently rejected any Greek claims. However, two German researchers dug into the documents of the dispute. have discovered and calculated that the German state owes Greece 185 billion euros. Of this not even a 1% has been paid to Greece. In their book “Reparation debt. Mortgages of German occupation in Greece and Europe” publishers Karl Heinz Roth, a historian, and Hartmut Rübner, a researcher, unfold the documents of the dispute and come to the conclusion that the reparations issue was not solved in 1960, as Berlin has been claiming.

According to the book review published in German conservative daily Sueddeutsche Zeitung, Roth and Rübner have researched German documents only and came to the conclusion that: USA allies and “the power elites of West Germany” have systematically ignored Greece’s demands for WWII reparations. In SZ article “Athens – Berlin: Open Bill, Open Wounds” it is said among others that: At the Paris Reparations Conference in 1946, the Greek government presented a damage record of $7.2 billion – eventually earning a share of $25 million. The leitmotiv of the book is that an alliance between the US and the “West German power elite” has systematically ignored Greek demands for decades.

“Undeniable, however, is the diplomatic arrogance with which the Federal Republic rejected the Greek demands for decades. If you do not believe it, you are welcome to make your own impression in Hartmut Rübner’s carefully edited extensive documentary appendix,” SZ notes. In the first part of the book, Roth analyzes the decades-long efforts of Athens to receive reparations. When the Wehrmacht withdrew from Greece in October 1944 after three and a half years of occupation, it literally left behind “scorched land”: the economy, currency and infrastructure were completely destroyed. The health of the surviving population was catastrophic – by the end of the war about 140,000 people had died as a result of malnutrition.

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Long read. First step: ban all pesticides.

‘A Different Dimension Of Loss’: Inside The Great Insect Die-Off (G.)

The Earth is ridiculously, burstingly full of life. Four billion years after the appearance of the first microbes, 400m years after the emergence of the first life on land, 200,000 years after humans arrived on this planet, 5,000 years (give or take) after God bid Noah to gather to himself two of every creeping thing, and 200 years after we started to systematically categorise all the world’s living things, still, new species are being discovered by the hundreds and thousands. In the world of the systematic taxonomists – those scientists charged with documenting this ever-growing onrush of biological profligacy – the first week of November 2017 looked like any other. Which is to say, it was extraordinary. It began with 95 new types of beetle from Madagascar. But this was only the beginning. As the week progressed, it brought forth seven new varieties of micromoth from across South America, 10 minuscule spiders from Ecuador, and seven South African recluse spiders, all of them poisonous.

A cave-loving crustacean from Brazil. Seven types of subterranean earwig. Four Chinese cockroaches. A nocturnal jellyfish from Japan. A blue-eyed damselfly from Cambodia. Thirteen bristle worms from the bottom of the ocean – some bulbous, some hairy, all hideous. Eight North American mites pulled from the feathers of Georgia roadkill. Three black corals from Bermuda. One Andean frog, whose bright orange eyes reminded its discoverers of the Incan sun god Inti. About 2m species of plants, animals and fungi are known to science thus far. No one knows how many are left to discover. Some put it at around 2m, others at more than 100m. The true scope of the world’s biodiversity is one of the biggest and most intractable problems in the sciences. There’s no quick fix or calculation that can solve it, just a steady drip of new observations of new beetles and new flies, accumulating towards a fathomless goal.

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Oct 162017
 
 October 16, 2017  Posted by at 2:00 pm Finance Tagged with: , , , , , , , , ,  


Marc Riboud Zazou, painter of the EIffel Tower 1953

 

Central bankers have never done more damage to the world economy than in the past 10 years. One may argue this is because they never had the power to do that. If their predecessors had had that power, who knows? Still, the global economy has never been more interconnected than it is today, due mostly to the advance of globalism, neoliberalism and perhaps even more, technology.

Ironically, all three of these factors are unremittingly praised as forces for good. But living standards for many millions of people in the west have come down and/or are laden with uncertainty, while millions of Chinese now have higher living standards. People in the west have been told to see this as a positive development; after all, it allows them to buy products cheaper than if they had been made in domestic industries.

But along with their manufacturing jobs, their entire way of life has mostly disappeared as well. Or, rather, it is being hidden behind a veil of debt. Still, we can no longer credibly deny that some three-quarters of Americans have a hard time paying their bills, and that is very different from the 1950s and 60s. In western Europe, this is somewhat less pronounced, or perhaps it’s just lagging, but with globalism and neoliberalism still the ruling economic religions, there’s no going back.

What happened? Well, we don’t make stuff anymore. That’s what. We have to buy our stuff from others. Increasingly, we lack the skills to make stuff too. We have become dependent on nations half a planet away just to survive. Nations that are only interested in selling their stuff to us if we can pay for it. And who see their domestic wage demands go up, and will -have to- charge ever higher prices for their products.

And we have no choice but to pay. But we can only pay with what we can borrow. As nations, as companies, and as individuals. We need to borrow because as nations, as companies, and as individuals we don’t make stuff anymore. It’s a vicious circle that globalization has blessed us with. And from which, we are told, we can escape only if we achieve growth. Which we can’t, because we don’t make anything.

 

So we rely on central bankers to manage the crisis. Because we’re told they know how to manage it. They don’t. But they do pretend to know. Still, if you read between the lines, they do admit to their ignorance. Janet Yellen a few weeks ago fessed up to the fact that she has no idea why inflation is weak. Mario Draghi has said more or less the same. Why don’t they know? Because the models don’t fit. And the models are all they have.

Economic models are more important in central banking than common sense. The Fed has some 1000 PhDs under contract. But Yellen, their boss, still claims that ‘perhaps’ the models are wrong, with it comes to inflation, and to wage growth. They have no idea why wages don’t grow. Because the models say they should. Because everybody has a job. 1000 very well paid PhDs. And that’s all they have. They say the lack of wage growth is a mystery.

I say that those for whom this is a mystery are not fit for their jobs. If you export millions of jobs to Asia, take workers’ negotiating powers away and push them into crappy jobs with no benefits, only one outcome is possible. And that doesn’t include inflation or wage growth. Instead, the only possible outcome is continuing erosion of economies.

The globalist mantra says we will fill up the lost space in our economies with ‘better’ jobs, service sector, knowledge sector. But reality does not follow the mantra. Most new jobs are definitely not ‘better’. And as we wait tables or greet customers at Wal-Mart, we see robots take over what production capacity is left, and delivery services erase what’s left of our brick and mortar stores. Yes, that means even less ‘quality’ jobs.

 

Meanwhile, the Chinese who now have taken over our jobs, have only been able to do that amidst insane amounts of pollution. And as if that’s not bad enough, they have recently, just to keep their magical new production paradise running, been forced to borrow as much as we have been -and are-, at state level, at local government level, and now as individuals as well.

In China, credit functions like opioids do in America. Millions of people who had never been in touch with the stuff would have been fine if they never had, but now they are hooked. The local governments were already, which has created a shadow banking system that will threaten Beijing soon, but for the citizens it’s a relatively new phenomenon.

And if you see them saying things like: “if you don’t buy a flat today, you will never be able to afford it” and “..a person without a flat has no future in Shenzhen.”, you know they have it bad. These are people who’ve only ever seen property prices go up, and who’ve never thought of any place as a ghost city, and who have few other ways to park what money they make working the jobs imported from the US and Europe.

They undoubtedly think their wages will keep growing too, just like the ‘value’ of their flats. They’ve never seen either go down. But if we need to borrow in order to afford the products they make in order to pay off what they borrowed in order to buy their flats, everyone’s in trouble.

 

And then globalization itself is in trouble. The very beneficiaries, the owners of globalization will be. Though not before they have taken away most of the fruits of our labor. What are you going to do with your billions when the societies you knew when you grew up are eradicated by the very process that allowed you to make those billions? It stops somewhere. If those 1000 PhDs want to study a model, they should try that one.

 

Globalization causes many problems. Jobs disappearing from societies just so their citizens can buy the same products a few pennies cheaper when they come from China is a big one. But the main problem with globalization is financial: money continually vanishes from societies, who have to get ever deeper in debt just to stand still. Globalization, like any type of centralization, does that: it takes money away from the ‘periphery’.

The Wal-Mart, McDonald’s, Starbucks model has already taken away untold jobs, stores and money from our societies, but we ain’t seen nothing yet. The advent of the internet will put that model on steroids. But why would you let a bunch of Silicon Valley venture capitalists run things like Uber or Airbnb in your location, when you can do it yourself just as well, and use the profits to enhance your community instead of letting them make you poorer?

I see UK’s Jeremy Corbyn had that same thought, and good on him. Britain may become the first major victim of the dark side of centralization, by leaving the organization that enables it -the EU-, and Corbyn’s idea of a local cooperative to replace Uber is the kind of thinking it will need. Because how can you make up for all that money, and all that production capacity, leaving where you live? You can’t run fast enough, and you don’t have to.

This is the Roman Empire’s centralization conundrum all over. Though the Romans never pushed their peripheries to stop producing essentials; they instead demanded a share of them. Their problem was, towards the end of the empire, the share they demanded -forcefully- became ever larger. Until the periphery turned on them -also forcefully-.

 

The world’s central bankers’ club is set to get new leadership soon. Yellen may well be gone, so will Japan’s Kuroda and China’s Zhou; the ECB’s -and Goldman’s- Mario Draghi will go a bit later. But there is no sign that the economic religions they adhere to will be replaced, it’ll be centralization all the way, and if that fails, more centralization.

The endgame of that process is painfully obvious way in advance. Centralization feeds central forces, be they governmental, military or commercial, with the fruits of labor of local populations. That is a process that will always, inevitably, run into a wall, because too much of those fruits are taken out. Too much of it will flow to the center, be it Silicon Valley or Wall Street or Rome. Same difference.

There are things that you can safely centralize (peace negotiations), but they don’t include essentials like food, housing, transport, water, clothing. They are too costly at the local level to allow them to be centralized. Or everybody everywhere will end up paying through the nose just to survive.

It’s very easy. Maybe that’s why nobody notices.

 

 

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 272017
 
 September 27, 2017  Posted by at 1:31 pm Finance Tagged with: , , , , , , , ,  


Fan Ho Construction 1952

 

You would think, certainly if you were as naive and innocent as I am, that when you get offered the job of Chair of the Federal Reserve, you must be sure, before accepting, that you have the credentials and the knowledge required. If you don’t, it looks as if you don’t take the job seriously. Janet Yellen, who’s been Chair since January 2014, doesn’t seem to agree.

In a speech Tuesday for the National Association for Business Economics Yellen ‘honestly’ admitted that she doesn’t understand inflation, control of which is the Fed’s no.1 task (it’s debatable whether that’s a good idea). She doesn’t understand a bunch of other issues either. Those are her own words, not mine. Here are these own words:

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation..”

Clear enough, you would think. But she didn’t offer her resignation. And for an important post like Fed chair, that is a major problem. As she undoubtedly does. So why is she keeping her job? Doesn’t she realize that when you don’t understand the issues you deal with, you’re prone to make disastrous mistakes?

Yellen and her colleagues work with models, and the models are wrong. The Fed’s predictions for things like inflation are ridiculously off, all the time. That may be news to her, but it’s old hash for many people in her field. So that she’s surrounded solely by people who don’t understand these things either is not an excuse.

So what does she expect now? That she will start to understand them all of a sudden, after years and years of not being able to? That reality will change to comply with her models? We can discount the option that she will suddenly begin using entirely different models, they’re all she has. But what then?

Under her predecessor Ben Bernanke, who never conceded he had no idea either but still didn’t, the Fed lowered interest rates to near zero Kelvin and bought trillions of dollars in bonds and securities. Now Yellen for some reason thinks it’s time to get rid of the stuff.

But on what basis does she make such a decision, if she self-admittedly doesn’t even understand the fundamental forces in play? How is that different from handing a box of matches to a 3-year old? Isn’t she really simply an academic dropped in a casino? From CNBC:

Yellen said a regular pace of rate hikes ahead is likely still warranted, though Fed officials are looking closely at the assumptions underlying those projections. While conceding that the Fed may need to slow the removal of accommodation, she also said the central bank “should also be wary of moving too gradually.”

There comes a point when naive innocent me starts asking: what does that even mean? Rate hikes are warranted but we don’t know why? Accommodative policies have been going too fast but they shouldn’t be too slow? Based on what? It can only be based on models that have proven faulty, can’t it, because they have no others.

 

Here are a few pointers for the occupants of the Marriner S. Eccles Federal Reserve Board Building. Inflation is money velocity multiplied by money and credit supply. MV = PY. M is money supply, V is velocity, P is price level and real GDP is Y.

Velocity of money means consumer spending. 70% of US GDP is consumer spending. But American consumers are neck deep in debt and have very little money left to spend. Much of what they spend, they must borrow.78% of Americans live paycheck to paycheck. So forget about money velocity.

 

 

Moreover, as for the Fed’s second mandate after inflation, full employment, they don’t get that one either. They seem to act on the presumption that any one job is just like the other. And then bleat: “My colleagues and I may have misjudged the strength of the labor market”.

But America has turned into a nation where the gig economy (the natural successor to first the knowledge economy, then the service economy), waiters, greeters and people working 3 jobs just to make ends meet have become the norm. When in the present circumstances you claim to have almost ‘achieved’ full employment, as Yellen and the Fed do, you must really be blind as a bat.

The other side of the equation is money supply. Interestingly, the Fed has issued tons of it, but handed it all to its owner banks. If they had spent it inside the economy itself, we could have been looking at a whole other picture. If those trillions would have gone to investment, manufacturing etc., instead of propping up banks and companies buying their own shares, Yellen might have actually seen some inflation.

If Americans have no money to spend, there can not be inflation. Simple. But the same stupid faulty predictions just keep coming:

 

 

So why is anybody still paying attention to Janet Yellen? Well, because she has her finger on the biggest financial trigger on the planet. No matter how shaky and uneducated that finger may be. Or do we pay attention exactly because we know what’s behind that shaky finger? Do we all put everything on red just because grandma does it too?

The craziest thing of all is that in reactions in the media to Yellen’s speech, she’s praised for admitting she has no clue what she’s doing. That takes the cake. And eats it too. Praised for admitting you’re terribly unfit for your job. That’s just great. That’s Bizarro world.

It’s well past best before time to get rid of Janet Yellen, and all the intellectual but idiots who work at the Fed. What is it, 1,000 PhDs, or was that 10,000? But the only thing that makes any real sense of course, the only thing that can save the nation, is to get rid of the Fed and its braindead mandates, interests and occupants altogether.

Hedgeye got this one painfully right:

 

 

And yeah, I know Yellen could be fired too if she doesn’t resign, but with Goldman Sachs all over the White House, what are the odds? And who would come in when she goes? She’s ideal, who’s going to get angry at a barely 5′ grandmother even is she clearly out of her depth and league?

 

 

Sep 272017
 
 September 27, 2017  Posted by at 8:46 am Finance Tagged with: , , , , , , , ,  


Edward Hopper Night windows 1928

 

Yellen Concedes Inflation Models Could Be Off “In Some Fundamental Way” (BBG)
Fed’s Beautiful Model in Pictures (Mish)
The Law Strangling Puerto Rico (NYT)
US Housing Market “Unhealthy And Mismatched With Today’s Buyers” (CNBC)
Home Prices, Sales In Beijing Are Falling Fast (BI)
China Still Stocking Up On Metals And Credit – Beige Book (CNBC)
China Tells Entrepreneurs They Must Put Patriotism Over Profit (BBG)
Macron Lays Out Vision For ‘Profound’ Changes In EU (G.)
Uber’s New ‘Good Cop’ Tack Will Face Test in US City Tussles (BBG)
Hedge Fund Paulson & Co Declares War On Poor Gold Mining Returns (R.)
The Case For The 3-Hour Workday (BI)
Spain Deploys Ever More Police To Prevent Catalan Independence Vote (G.)
Banned West Papua Independence Petition Handed To UN (G.)
Zealandia Drilling Reveals Secrets Of Sunken Lost Continent (G.)

 

 

If she knows she’s always wrong, why doesn’t she resign?

Yellen Concedes Inflation Models Could Be Off “In Some Fundamental Way” (BBG)

Janet Yellen still has faith, but she’s open to converting. In a wide-ranging speech on inflation, the Fed chair wrestled with an issue that’s flummoxing policy makers everywhere: Why is inflation not only low, but in some instances going south? At this point in an expansion that’s lasted the better part of a decade and has returned jobless levels to pre-recession levels, leading economic models would ordinarily tell us to expect inflation to rise. Kudos to her for admitting the uncertainty. The question is one of the pre-eminent themes of the modern economic era. It’s perhaps fitting she air the issues not in a political environment like Congress or the Federal Open Market Committee, which calls for decisions, but in what might be her last address to the National Association for Business Economics.

Yellen conceded that some assumptions about how the modern economy works could be wrong. She is not operating on the premise that they are wrong, but she is prepared to entertain the prospect. She did so in a very rational way, and she urged no sharp about-turns in policy. If officials’ understanding of the link between inflation and the labor market and, more broadly, inflation itself, ends up being flawed, then there is an obligation to recalibrate policy. Neither Yellen nor the FOMC are there yet. And to be clear, the committee still believes inflation will again start to edge up and stabilize around the Fed’s 2% target. Under that scenario, a bit more tightening of policy is required. Not a ton, and the steps should be gradual. As they have been.

If the scenario proves off, then think again. As Yellen said in her remarks, a couple of things could be at work in explaining the bad behavior of inflation. For one, it’s not necessarily that the model linking low unemployment with wages and inflation is wrong; it may be that in the post-recession world the jobless level at which inflation kicks in could be lower. (The jobless rate in the U.S. now is 4.4%.) But it’s also plausible that policy makers misunderstand inflation on a more fundamental level. “Our framework for understanding inflation dynamics could be misspecified in some fundamental way, perhaps because our econometric models overlook some factor that will restrain inflation in coming years despite solid labor market conditions,” Yellen said.

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Amen.

Fed’s Beautiful Model in Pictures (Mish)

Pictures say more than words, especially when it comes to Fed hubris. Two pictures make the case.

 

Don’t worry. That the Fed is consistently wrong on growth and inflation is purely transitory.

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“..if the Jones Act did not exist, then neither would the public debt of Puerto Rico.”

The Law Strangling Puerto Rico (NYT)

Hurricane Maria was the most powerful storm to hit Puerto Rico in more than 80 years. It left the entire island without electricity, which may take six months to restore. It toppled trees, shattered windows, tore off roofs and turned streets into rivers throughout the island. President Trump declared that “Puerto Rico was absolutely obliterated” and issued a federal disaster declaration. But the United States needs to do more. It needs to suspend the Jones Act in Puerto Rico. After World War I, America was worried about German U-boats, which had sunk nearly 5,000 ships during the war. Congress enacted the Merchant Marine Act of 1920, a.k.a. the Jones Act, to ensure that the country maintained a shipbuilding industry and seafaring labor force. Section 27 of this law decreed that only American ships could carry goods and passengers from one United States port to another.

In addition, every ship must be built, crewed and owned by American citizens. Almost a century later, there are no U-boats lurking off the coast of Puerto Rico. The Jones Act has outlived its original intent, yet it is strangling the island’s economy. Under the law, any foreign registry vessel that enters Puerto Rico must pay punitive tariffs, fees and taxes, which are passed on to the Puerto Rican consumer. The foreign vessel has one other option: It can reroute to Jacksonville, Fla., where all the goods will be transferred to an American vessel, then shipped to Puerto Rico where — again — all the rerouting costs are passed through to the consumer. Thanks to the law, the price of goods from the United States mainland is at least double that in neighboring islands, including the United States Virgin Islands, which are not covered by the Jones Act.

Moreover, the cost of living in Puerto Rico is 13% higher than in 325 urban areas elsewhere in the United States, even though per capita income in Puerto Rico is about $18,000, close to half that of Mississippi, the poorest of all 50 states. This is a shakedown, a mob protection racket, with Puerto Rico a captive market. The island is the fifth-largest market in the world for American products, and there are more Walmarts and Walgreens per square mile in Puerto Rico than anywhere else on the planet. A 2012 report by two University of Puerto Rico economists found that the Jones Act caused a $17 billion loss to the island’s economy from 1990 through 2010. Other studies have estimated the Jones Act’s damage to Puerto Rico, Hawaii and Alaska to be $2.8 billion to $9.8 billion per year. According to all these reports, if the Jones Act did not exist, then neither would the public debt of Puerto Rico.

[..] Food costs twice as much in Puerto Rico as in Florida. Jones Act relief will save many Puerto Ricans — especially children and seniors — from potential starvation. Jones Act relief will also enable islanders to find medicine, especially Canadian pharmaceuticals, at lifesaving rates. And it will give islanders access to international oil markets — crucial for running its electric grid — devoid of a 30% Jones Act markup. And suspending or repealing the law is crucial to the arduous rebuilding process ahead. In one town alone, 70,000 people were evacuated because of a failing dam. Jones Act relief will enable residents to buy materials, rebuild their homes and prevent an explosion of homelessness.

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Either prices fall or sales do. People can’t afford homes anymore.

US Housing Market “Unhealthy And Mismatched With Today’s Buyers” (CNBC)

From a broad view, the U.S. housing market looks very healthy. Demand is high, employment and wages are growing, and mortgage rates are low. But the nation’s housing market is assuredly unhealthy; in fact, it is increasingly mismatched with today’s buyers. While the big numbers don’t lie, they don’t tell the real truth about the affordability and availability of U.S. housing for the bulk of would-be buyers. First, several reports out this week point to both continued heat in home values as well as pushback from homebuyers. Prices remain nearly 6% higher than they were a year ago, nationally, with some local markets seeing double-digit annual price gains. Those prices are being driven by a severe lack of supply at the low end of the market, which is where the most demand exists. That means lower-priced homes are seeing bigger price gains than higher-priced homes because of the competition.

At the same time, sales are falling, again, because there are too few homes on the low end, and the homes that are available are very expensive. “It sets up a situation in which the housing market looks largely healthy from a 50,000-foot view, but on the ground, the situation is much different, especially for younger, first-time buyers and/or buyers of more modest means,” wrote Svenja Gudell, chief economist at Zillow in a response to the latest home-price data. “Supply is low in general, but half of what is available to buy is priced in the top one-third of the market.” Supply on the low end is tight because during the housing crash investors large and small bought hundreds of thousands of foreclosed properties and turned them into rentals. There are currently 8 million more renter-occupied homes than there were in 2007, the peak of the housing boom, according to the U.S. Census.

Investors could take the opportunity of high prices and high demand to sell these properties, but today’s high rents offer them better returns. Low supply of homes for sale might also seem like a great opportunity for the nation’s homebuilders. Yes, they went through an epic housing crash, but they have since consolidated market share and righted their balance sheets. Homebuilders are simply not building enough inexpensive houses that the market needs. [..] Just 2% of newly built homes sold in August were priced under $150,000, and just 14% priced under $200,000. Compare that with the existing home market, where more than half of homes sold in August were priced under $250,000.

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“..a sharp reduction in property sales which tumbled 73.7% from the same quarter a year earlier.”

Home Prices, Sales In Beijing Are Falling Fast (BI)

According to the Caixin website, citing data from the research arm of 5I5J Group, the average price of existing homes in Beijing fell 5%, continuing the slide that began in the June quarter. The fall corresponded with a sharp reduction in property sales which tumbled 73.7% from the same quarter a year earlier. According to survey, turnover alone fell 43.7% in the quarter to 2.06 million units based on measurements using online contracts, the lowest quarterly total since 2015. The sharp decline in turnover and prices follows a series of measures introduced by Beijing’s municipal government to quash speculative activity in the city’s property market. Since October last year, it has raised borrowing costs and minimum downpayment requirements for mortgages for second homes.

It has also introduced requirements for non-local buyers to provide tax or social security payment records for at least 60 consecutive months and increased scrutiny on “strategic divorces” as ways to squeeze speculation out of the market, said Caixin. “In the spirit of central government’s directive that ‘homes are for living in, not speculating on,’ the real estate market in Beijing will continue to be under tight control, thus the existing home market in Beijing is likely to remain tepid in the near term,” Hu Jinghui, vice president of 5I5J Group’s research arm, told Caixin. The measures introduced in Beijing mirror similar efforts from authorities in other large cities to curb rapid price growth seen since the middle of 2015. Previously limited to large tier-one cities initially, restrictions on both buyers and sellers have been rolled out across an increasing number of centres in recent months, including in smaller cities, in an attempt to limit speculators from moving from one market to another.

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Deleveraging is just a word.

China Still Stocking Up On Metals And Credit – Beige Book (CNBC)

The China-driven surge in commodity prices could soon come to an end, according to a private survey of Chinese businesses. Contrary to “markets’ unremitting faith in the Chinese government campaign to combat” oversupply in metals, “firms are saying quite the opposite. For the sixth quarter in a row, coal, aluminum, steel, and copper each saw capacity rise on net,” according to the China Beige Book’s early brief of third-quarter data released Tuesday. “Sector-wide growth took a dive across the board—revenue, profits, output, export orders, volumes, hiring, capex, borrowing, wages, and sales prices,” the report said. The China Beige Book is a quarterly survey of Chinese companies in an attempt to present a more accurate picture of growth. Many question the accuracy of most Chinese government data, since officials may have incentive to inflate or deflate the figures they report in order to show compliance with central policy.

“There has been for the past year and a half a desire to not think too much about China,” Leland Miller, chief executive officer of China Beige Book, told CNBC. “I think you’re at a point right now where there’s been a complacency on the part of the Chinese economy that is lending itself to unrealistic expectations about the economy that are not going to be met.” Copper prices have rallied more than 25% this year to a three-year high on bets for stronger global growth, primarily out of the world’s second-largest economy, China. But the metal has since come off those levels to trade about 16.5% higher for the year. Morgan Stanley echoed some of the China Beige Book’s concern in a Monday report.

“So in fact, the strongest price performances of 2017 (aluminium, zinc, lead, copper, nickel, alumina, iron ore) are based on either China’s reform-based supply shocks or global currency trades – not a sustained improvement in demand growth,” equity strategist Tom Price and a team of analysts said. They have negative price forecasts on aluminum, copper, iron ore and steel. In its third-quarter survey of 3,300 firms and 160 bankers across 34 industries, the China Beige Book also found that companies borrowed at the second-highest rate in four years, contrary to widespread beliefs that China is reducing its use of credit to fuel growth. “Most of the year when the Chinese government has been talking about deleveraging that has not been evidenced in China Beige Book data,” Miller said. “At least part of the time corporations have had even easier access to capital and even when conditions have been tightening it has not contributed to deleveraging or slower deleveraging.”

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Yeah, the US should do the same.

China Tells Entrepreneurs They Must Put Patriotism Over Profit (BBG)

The Chinese government underlined that patriotism is a core element of entrepreneurship, with official media saying it had for the first time defined what enterprise means for the world’s second-biggest economy. The joint statement issued late Monday by the Communist Party’s Central Committee and the State Council urged entrepreneurs to advance patriotism and professionalism, as well as innovation and social responsibility. It called for stronger party guidance of entrepreneurs and for them to endorse party leaders. It also promised to create a environment where they can thrive. The guideline “has defined the core meaning of Chinese entrepreneurship under the new era,” with being patriotic and professional core components, the official Xinhua News Agency said. It’s the first edict “of its kind that focused on entrepreneurial spirit” and is intended “to spur market vitality,” Xinhua said.

The call for patriotic entrepreneurs underscores the trend of emphasizing the national missions of both private and state-run businesses under President Xi Jinping, who has sought to shore up the state sector and build “national champions.” It reflects internal concern about capital outflows and acquisitions, which have put downward pressure on the yuan in recent years. “Key elements of the document relate to the phenomenon of Chinese firms going on massive overseas shopping sprees,” said Han Meng, a senior researcher at the Chinese Academy of Social Sciences Institute of Economics in Beijing. “If not reined in, this could hurt China’s economic base. Patriotic entrepreneurs are those who can do more to benefit the domestic economy and society.”

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Great time to call for more centralization.

Macron Lays Out Vision For ‘Profound’ Changes In EU (G.)

The French president, Emmanuel Macron, has set out his plans for a “profound transformation” of the EU with deeper political integration to win back the support of disgruntled citizens, but suggested a bloc moving forward at differing speeds could become somewhere the UK may “one day find its place again”. Macron, a staunchly pro-European centrist who came to power in May after beating the Front National’s Marine Le Pen, pleaded for the EU to return to its founders’ “visionary” ideas, which were born out of the disaster of two world wars. In what was hailed on Tuesday as one of the most pro-European speeches by an EU leader in years, he spoke up for common EU policies on defence, asylum and tax, called for the formation of European universities, and promised to play Ode to Joy, the EU anthem, at the Paris Olympics in 2024.

He said time was running out for the EU to reinvent itself to counter the rise of far-right nationalism and “give Europe back to its citizens”. With Brexit looming, Macron warned the rest of Europe against the dangers of anti-immigrant nationalism and fragmentation. “We thought the past would not come back … We thought we had learned the lessons,” he told a crowd of European students at Sorbonne University in Paris. Days after a far-right party entered the German parliament for the first time in 70 years, Macron said an isolationist attitude had resurfaced “because of blindness … because we forgot to defend Europe. The Europe that we know is too slow, too weak, too ineffective”.

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Uber will leave Canadian province of Québec in October.

Uber’s New ‘Good Cop’ Tack Will Face Test in US City Tussles (BBG)

Uber is testing out a new conciliatory tone in London, where officials said they wouldn’t renew the ride-hailing service’s operating license. It’s going to have ample opportunity to see if that approach will work in the U.S. San Francisco’s city attorney is investigating whether Uber Technologies Inc. is a public nuisance. In New York, officials are mulling ways to tighten controls on ride-hailing, including requiring a quarter of all trips come with wheelchair-accessible vehicles. And Seattle has passed an ordinance to make it easier for Uber drivers to unionize. “Uber is at a turning point with big-city governments,” Jon Orcutt, director of communications and advocacy for the TransitCenter, said of Uber and other ride-sharing companies. “London’s action to threaten to withdraw their license really could turn the corner in a more normal regulatory situation for Uber.”

London officials said Friday the city would not renew Uber’s operating license, which is set to expire Sept. 30, because it isn’t “fit and proper to hold a private hire operator license.” The city cited a failure to do sufficient background checks on drivers, report crimes and a program called “Greyball” used to avoid regulators. In response, newly minted Chief Executive Officer Dara Khosrowshahi released an open letter Monday apologizing “for the mistakes we’ve made” and acknowledging that the company “got things wrong along the way” during its rapid growth. London is a critical global market for Uber, which could encourage the company to make regulatory concessions to remain on the streets, Orcutt said. That stands in contrast with the company’s sharp-elbowed approach under co-founder and former CEO Travis Kalanick.

Uber ruffled feathers in city halls in several major U.S. cities that struggled to corral the company during its growth. It raised the ire of local officials and incumbent taxi drivers by compiling a track record of skirting traditional taxi-industry regulations and refusing to share trip data and other records sought by city officials. San Francisco City Attorney Dennis Herrera in July requested court orders for Uber and competitor Lyft Inc. to hand over years worth of records after the companies refused to comply with an earlier subpoena for the records. Herrera’s office is investigating whether the companies and their estimated 45,000 drivers in the city are creating a public nuisance, a finding that could subject the companies to civil monetary penalties and expose them to court injunctions restricting their operations in the city.

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Wait. If the mines don’t function, gold gets scarcer, right?

Hedge Fund Paulson & Co Declares War On Poor Gold Mining Returns (R.)

New York-based Paulson & Co, led by longtime gold bull John Paulson, called on Tuesday for the world’s biggest investors in gold-mining stocks to form a coalition to tackle miners’ “dreadful” performance. Speaking at the Denver Gold Forum, the industry’s top annual event, Paulson & Co partner Marcelo Kim launched the blistering attack on the sector, saying the hedge fund was looking for fellow founding members for a body to speak out on issues including high executive pay, cozy board appointments and value-destroying mergers and acquisitions. “If we don’t do anything to change, then as investors we will continually be disappointed with shareholder returns and the industry will slowly dig itself into a hole of irrelevance and oblivion,” Kim told a packed room of delegates.

The “shareholders’ gold council” would focus solely on the gold sector, issuing vote recommendations to shareholders on issues including company takeovers and chief executive officer pay, Kim said. He said that fellow large sector investor, Tocqueville, had endorsed the council idea. Average total shareholder returns from gold mining investments, including world No.1 producer Barrick, are a negative 65% since 2010 over a period when the CEOs of 13 of the largest companies have cumulatively received $550 million in pay, Kim said. In that time, the gold price rose by 20% and the price of oil, a major input cost for miners, fell by 28%, he said. Since 2010, the industry has written off $85 billion due to overpaying for acquisitions and massive cost overruns on mine builds, he said.

Amongst large producers, the weakest performer was Canadian miner Eldorado, which had destroyed shareholder value through M&A, he said. Eldorado could not immediately be reached for comment. Not all gold miners had performed poorly, Kim said, singling out Africa-focused Randgold as a role model. Shareholders have no one to blame but themselves for rubber stamping mergers, CEO pay packages and board appointments, Kim said, adding that there was little industry engagement with company boards or activism.

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Lack of focus.

The Case For The 3-Hour Workday (BI)

Over the course of an eight-hour workday, the average employee works for about three hours — two hours and 53 minutes, to be more precise. The rest of the time, according to a 2016 survey of 1,989 UK office workers, people spend on a combination of reading the news, browsing social media, eating food, socializing about non-work topics, taking smoke breaks, and searching for new jobs (presumably, to pick up the same habits in a different office). The research has been clear for awhile that long workdays hardly get the best from people. Some research has found people can only concentrate for about 20 minutes at a time. One study found people struggled to stay on task for more than 10 seconds.

Toward the end of the day, performance begins to flatline or even worsen, K. Anders Ericsson, an expert on the psychology of work, said. “If you’re pushing people well beyond that time they can really concentrate maximally, you’re very likely to get them to acquire some bad habits,” Ericsson told Business Insider in 2016. Ericsson is the foremost expert on the topic of building expertise. He’s made a career out of studying the most successful people on Earth, and figuring out what exactly helps them rise so high. Turns out the mantra “practice makes perfect” is true, but only if people engage in a certain kind of practice known as “deliberate practice.” Experts don’t spend hours upon hours honing their craft, Ericsson has found. They spend a few hours at a time purposefully trying to improve, and then they stop.

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A very tense weekend is coming.

Spain Deploys Ever More Police To Prevent Catalan Independence Vote (G.)

Police will be deployed at polling stations to prevent people from voting in the Catalan independence referendum, the Spanish government has confirmed. Although the Catalonia regional government has insisted the unilateral poll will go ahead on Sunday, the Spanish government has vowed to stop the vote, which it says is a clear violation of the constitution. Spain’s constitutional court has suspended the legislation underpinning the referendum while it rules on its legality. A spokesman for the Spanish government’s Catalan delegation said on Tuesday that the region’s prosecutor had ordered the Mossos d’Esquadra, Catalonia’s police force, to take control of polling booths and identify those in charge. “The order has been conveyed and it will be executed with all normality,” he said.

The Spanish government said the steps it had taken over the past week, including raiding Catalan government offices, arresting 14 officials and seizing almost 10m ballot papers, meant the vote could not take place. “Today we can affirm that there will be no effective referendum in Catalonia,” the Spanish government’s representative in Catalonia, Enric Millo, told reporters on Tuesday. “All the referendum’s logistics have been dismantled.” In an order to police issued on Monday, the prosecutor’s office said it would take the names of anyone participating in the vote and confiscate relevant documents. Anyone in possession of the keys or entrance codes to a polling booth could be considered a collaborator to crimes of disobedience, misuse of office and misappropriation of funds, the order said.

However, despite the words and actions of the Spanish government, not to mention the deployment of thousands of extra police officers to Catalonia, the regional government is adamant that the referendum cannot be stopped. Catalonia’s regional president, Carles Puigdemont, has accused the Spanish prime minister, Mariano Rajoy, of acting “beyond the limits of a respectable democracy” in his efforts to prevent the referendum. He has also compared the Spanish government’s behaviour to the repression of the Franco era and said it is only serving to drive more Catalans towards independence.

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People want to be independent all over.

Banned West Papua Independence Petition Handed To UN (G.)

A petition banned by the Indonesian government, but bearing the signatures of 1.8 million West Papuans – more than 70% of the contested province’s population – has been presented to the United Nations, with a demand for a free vote on independence. Exiled West Papuan independence campaigner Benny Wenda presented the bound petition to the UN’s decolonisation committee, the body that monitors the progress of former colonies – known as non-self-governing territories – towards independence. The petition was banned in the provinces of Papua and West Papua by the Indonesian government, and blocked online across the country, so petition sheets had to be “smuggled from one end of Papua to the other”, Wenda told the Guardian from New York.

Independence campaigners have been jailed and allegedly tortured in Papua for opposing the rule of Indonesia, which has controlled Papua (now Papua and West Papua) since 1963. Those signing the petition risked arrest and jail. “The people have risked their lives, some have been beaten up, some are in prison. In 50 years, we have never done this before, and we had to organise this in secret,” Wenda said. “People were willing to carry it between villages, to smuggle it from one end of Papua to the other, because this petition is very significant for us in our struggle for freedom.”

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Atlantis down under.

Zealandia Drilling Reveals Secrets Of Sunken Lost Continent (G.)

The mostly submerged continent of Zealandia may have been much closer to land level than previously thought, providing pathways for animals and plants to cross continents from 80m years ago, an expedition has revealed. Zealandia, a for the most part underwater landmass in the South Pacific, was declared the Earth’s newest continent this year in a paper in the journal of the Geological Society of America. It includes Lord Howe Island off the east coast of Australia, New Caledonia and New Zealand. On Wednesday researchers shared findings from their two-month-long expedition, one of the first extensive surveys of the region, announcing fossil discoveries and evidence of large-scale tectonic movements.

“The discovery of microscopic shells of organisms that lived in warm shallow seas, and spores and pollen from land plants, reveal that the geography and climate of Zealandia was dramatically different in the past,” said Prof Gerald Dickens of Rice University. Researchers drilled more than 860 metres below the sea floor in six different sites across Zealandia. The sediment cores collected showed evidence of tectonic and ecological change across millions of years. “The cores acted as time machines for us, allowing us to reach further and further back in time,” said Stephen Pekar, a researcher on board the scientific drilling vessel, in August. “As one scientist put it: ‘We are rewriting the geologic and tectonic history of Zealandia at this drill site.’”

The 5 million sq km continent, roughly the size of the Indian subcontinent, is believed to have separated from Australia and Antarctica, as part of Gondwana, about 80m years ago. On Wednesday Prof Rupert Sutherland from New Zealand’s Victoria University said the expedition had discovered “big geographic changes”. “[The research] has big implications for understanding big scientific questions, such as how did plants and animals disperse and evolve in the South Pacific? The discovery of past land and shallow seas now provides an explanation: there were pathways for animals and plants to move along.”

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