Nov 212017
 
 November 21, 2017  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , ,  


Notting Hill Gate Station, London 1860s

 

China’s $15 Trillion Problem: Investors Don’t Believe in Losses (BBG)
Household Debt, Size Of Home Loans A Worry – Australia Regulator (ND)
Fiscal Sundown In America, Part 1 (Stockman)
The Approaching Silicon Valley Meltdown (St. Cyr)
Merkel Prefers Fresh Elections To Minority Government As Talks Fail (G.)
Italy To Go Beyond GDP, Measure La Dolce Vita (BBG)
Your Retirement Cash May Be In The Caymans. Can You Get It Back? (IBT)
Room Rates At Trump’s Hotels Have Fallen By Up To 63% (Tel.)
Why Are We Helping Saudi Arabia Destroy Yemen? (Ron Paul)
Spain ‘Ready To Discuss’ Greater Fiscal Autonomy For Catalonia (G.)
37.5% of Greece’s Children Are At Risk Of Poverty (KTG)
Greek Online Foreclosures To Start With Big Debtors’ Assets (K.)
EU Orders Greece To Recover Up To €55 Million In State Aid (R.)
As Oceans Warm, the World’s Kelp Forests Begin to Disappear (Yale)

 

 

They wouldn’t let that happen…

China’s $15 Trillion Problem: Investors Don’t Believe in Losses (BBG)

When China unveiled plans on Friday to end the implicit guarantees underpinning asset-management products worth trillions of dollars, it should have been a bombshell for the nation’s savers. But for Yolanda Yuan and other individual investors who’ve piled into AMPs issued by banks, insurers and securities firms, the government’s announcement was largely a non-event. The reason: they didn’t believe it. “I don’t think any big banks will dare to take the risk of allowing defaults on AMPs, as that will lead to a flood of fund redemptions,” said Yuan, a 29-year-old sales manager at a state-run financial company in Shanghai. She has about 100,000 yuan ($15,069) of personal savings in products covered by the new regulations.

Over the past 13 years, assets in Chinese AMPs have swelled from almost nothing to $15 trillion in large part due to one key assumption: that investors would be made whole no matter what happened to the products’ underlying assets. Authorities are now moving to quash that belief amid concern that rampant moral hazard is distorting market prices and making the financial system vulnerable to crises. Yuan’s enduring faith in implicit guarantees suggests the government’s task won’t be easy. It may ultimately require an AMP blowup for Chinese regulators to convince investors that they’re serious about the new rules, which are set to take effect in mid-2019. But a major product failure is risky: In a worst-case scenario, it could spark a destabilizing stampede out of AMPs, which have become a key source of funding for banks and other financial institutions.

It’s not clear that’s a chance Beijing is willing to take, despite last week’s rhetoric. “It’s very hard,” said David Loevinger, a former China specialist at the U.S. Treasury Department who now works at TCW Group in Los Angeles. “You have to show people that there are no longer guarantees. The only way to show it is to force investors to take losses. They have to see it to believe it.”

Read more …

Not at all late.

Household Debt, Size Of Home Loans A Worry – Australia Regulator (ND)

The banking regulator is concerned about the size of mortgages being taken on by homeowners, issuing a warning to both lenders and borrowers. Australian Prudential Regulation Authority chairman Wayne Byres on Tuesday said Australia’s household debt was high and would continue to rise, and that too many loans were still being approved above people’s ability to pay. “Household indebtedness is high. Perhaps more importantly, the trajectory is clearly for it to rise further,” Mr Byres told the Australian Securitisation Forum in Sydney. “Lenders need to be vigilant to ensure their policies and practices are both prudent and responsible. “In short, heightened risk requires heightened prudence by APRA but also – and preferably – by lenders and borrowers themselves.”

Mr Byres said APRA’s moves to limit investor and interest-only mortgages had worked, bringing growth in lending to property investors back into line with owner-occupier lending. APRA decreed in March that big banks should limit interest-only loans to 30% of new residential mortgages, on top of a 10% cap on investor lending growth. But Mr Byres said the size of loans being issued by the big banks was still an issue, with consumers vulnerable if historically low interest rates are lifted by the Reserve Bank of Australia. Mr Byres said there had been only a slight drop in the proportion of borrowers being granted loans six times the amount of their income – a level at which they would spend about half their net income on repayments if interest rates returned to their long-term average of about 7%.

Such leverage was far higher in Australia than in comparable markets such as the UK and Ireland, he said. That left considerable potential for banks to further tighten lending practices, Mr Byres said. “Aided by file reviews conducted by external auditors, we have confirmed there is more to do in this area to improve serviceability measures, particularly in relation to the assessment of living expenses and the identification of a borrower’s existing debts.” APRA’s move to limit investor lending has borne fruit, with interest-only lending accounting for about 23% of new lending in the three months to September 30, well below its 30% limit.

Read more …

Dave’s still an angry young man.

Fiscal Sundown In America, Part 1 (Stockman)

[..] at least the Democrats did attempt to finance the trillions in new tax credits and Medicaid costs generated by ObamaCare with some revenue raisers such as the medical device and insurance company taxes and the added levies on upper income earners and investment returns. Back in the day, in fact, this kind of “tax and spend” welfare statism is exactly what the Democrats stood for. And it was also the party’s political Achilles Heel because it enabled the GOP to periodically arouse the electorate on the dangers of “big government” and thereby obtain a resurgence in Washington’s corridors of political power. But after the break from the old-time fiscal religion of balanced budgets during the so-called Reagan Revolution in 1981, the GOP has slowly morphed into the “borrow and spend” party.

Indeed, as the historically ordained party of fiscal rectitude, the GOP’s apostasy has enabled two-party complicity in a mindless regime of fiscal kick-the-can since the turn of the century. That lapse, in turn, acutely aggravated an already perilous fiscal equation owing to the baby boom retirement wave and the Fed induced slowdown in the trend rate of economic growth (see below). In this context, it should be noted that the Senate bill is a farce insofar as it claims to be a middle class tax cut and growth stimulant – since it actually accomplishes neither. On a honestly reckoned basis (counting debt service and eliminating budget gimmicks), however, it would add $2.2 trillion of new debt over the next decade on top of the $12 trillion already built-in under current policy.

Accordingly, the Senate version of Trumpite “tax reform” would accelerate the public debt toward $35 trillion by 2027 or 140% of GDP. Yet all of this added red ink would be “wasted” on cuts for 150 million individual taxpayers that are written in disappearing ink (i.e. they lapse after 2025) and on misbegotten corporate rate cuts that will do virtually nothing for economic growth. Indeed, contrary to the old Washington saw about “wasting a good crisis” the Senate bill involves something more like creating a good crisis and wasting it, too.

Read more …

“The Valley” (and its entire ancillary complex aka “the disruptor class”) is on the verge of receiving a wake up call..”

The Approaching Silicon Valley Meltdown (St. Cyr)

[..] there has been one outlier, for the most part, which seemed to skirt around all the current chaos, relatively unscathed. That would be Silicon Valley and all its ancillary provinces aka “Disruptive Tech.” So far the coveted group known collectively as “FAANG” (e.g., Facebook™, Apple™, Amazon™, Netflix™, Google™) seems to have held the “barbarians at the gates” known as investors relatively at bay, or “stable” in their positions, if you will. What has been, anything but, is their cohort of IPO brethren that were supposed to have joined them. “The Valley” seems to fit nicely as a moniker for a now self-recognized nation-state, after-all, if you include the market cap of these and a few others (e.g., Tesla™ and more) their combined valuations rival those of sovereign nations.

For all intents and purposes one could say they’re already developing and embracing their own newly formed currency, aka “Bitcoin™.” All that’s needed would seem is proposing a charter, and recognition. And that’s why it’s all about to burst, in my opinion. All of it. Why? Just as there are always clues, it’s in the consistency of further developments, along with weighing any prior, coupling them with the current, then trying to extrapolate whether or not they still stand, or are valid. This is the work most people (especially those paraded across the sycophantic mainstream business/financial media) won’t do. And not doing so for many – as of today – will have ramifications, maybe for a lifetime. So what’s the “Why?” Of course, it’s only my opinion, but I stand behind it more fervently than ever before. And it is this…

“The Valley” (and its entire ancillary complex aka “the disruptor class”) is on the verge of receiving a wake up call, the likes, that may make the dot-com era look relatively “stable” in hindsight. To use the political as an analogy, let’s just say, I believe the newly formed “nation-state” of FAANG will have much more in common with the turmoil in Brazil, Spain, Venezuela, and a few others in the coming months as it continues to desperately cling to the mythical Utopia of magical creatures known as unicorns, and cash out riches known as IPO’s. That “Utopia” has already been found to be a Potemkin Village made of spreadsheet papier-mâché analysis and valuation metrics, not worth the digital paper they’re written on.

Read more …

All of a sudden, both Merkel’s career and Germany’s role in Europe are under fire.

Merkel Prefers Fresh Elections To Minority Government As Talks Fail (G.)

Angela Merkel has indicated that she would rather have fresh elections than try to rule in a minority government as the collapse of German coalition talks posed the most serious threat to her power since she became chancellor more than a decade ago. Merkel, who has headed three coalitions since 2005, said she was “very sceptical” about ruling in a minority government and suggested she would stand again as a candidate if elections were called in the new year, telling public broadcaster ARD she was “a woman who has responsibility and is prepared to take responsibility in the future”. Exploratory talks to form the next German government collapsed on Sunday night after the pro-business Free Democratic Party (FDP) walked out of marathon negotiations with Merkel’s Christian Democrats, its Bavarian sister party, the Christian Social Union (CSU), and the Green party.

Germany’s president had earlier urged political parties to resume efforts to a build a governing coalition following a meeting with Merkel. “I expect the parties to make the formation of a new government possible in the foreseeable future,” Frank-Walter Steinmeier said, adding that the parties had a responsibility that “cannot be simply given back to the voters.” Elections in September saw Merkel’s bloc poll first place but with a reduced share of the vote and with the FDP and Greens as its only plausible coalition partners. The collapse in the talks and possibility of fresh elections brings further uncertainty for the British government over Brexit, which had hoped that a strong German coalition, including the FDP, might help smooth the next phase of negotiations.

Read more …

“There may be cases when a government is willing to press ahead with a policy even if it reduces short-term growth because it produces benefits in terms of broader welfare.”

Italy To Go Beyond GDP, Measure La Dolce Vita (BBG)

Italy has long prided itself for its quality of life – and with good reason. Italy may be only just recovering from a long economic crisis, but its citizens are healthier and live longer than those of most other countries in the world. It is perhaps no coincidence then that the Italian government is pioneering the use of welfare indicators in its budget process. As of this year, the finance ministry will produce official forecasts for 12 indicators, ranging from income inequality to CO2 emissions to obesity – the first country to do so in the EU and the G7. Measuring “la dolce vita” is a complex task, but one other countries should consider too. Growth will remain the main indicator to judge a country’s economic success because of its conciseness.

But, to the extent they can, it is hard to see why governments should not monitor the broader impact their policies have on the well-being of citizens. The push to go beyond GDP as a measure of welfare dates back at least to former U.S. presidential candidate Robert Kennedy. “The gross national product does not allow for the health of our children, the quality of their education or the joy of their play,” said Kennedy in a speech in 1968. Since then, economists have produced a long list of reports on well-being – the most famous of which was probably one by the Stiglitz-Sen-Fitoussi Commission set up by the French Government in 2008. Yet, so far this paperwork has produced little action: Governments still base their economic policy-making primarily on the basis of GDP.

There are very good reasons for continuing to do so. The choice of other welfare indicators is arbitrary and may be imprecise. In Italy, one of the biggest drivers of inequality is the gap between the young, whose incomes have fallen the most during the crisis, and the elderly and yet this is not included in the range of selected measures. There is also an issue of weighting: How will the Italian government decide which of the 12 indicators it has chosen is the most important? Finally, forecasting some variables such as “predatory crime” is bound to pose some serious headaches. Yet, this does not mean the principle is wrong. There may be cases when a government is willing to press ahead with a policy even if it reduces short-term growth because it produces benefits in terms of broader welfare.

Read more …

Chasing yield. What ultra low rates do.

Your Retirement Cash May Be In The Caymans. Can You Get It Back? (IBT)

The release of the so-called “Paradise Papers” touched off new scrutiny of how moguls, celebrities and politicians stash their cash in offshore tax havens. The practice, though, is hardly limited to the global elite. In fact, government documents show that local government officials have sent hundreds of billions of dollars of public sector workers’ retirement savings to a tiny archipelago most famous for white-sand beaches — and laws that shield investors from taxes. Operating outside the U.S. legal system, the offshore accounts in the Cayman Islands give Wall Street firms leeway to make complex international investments and to earn big fees off investors’ capital. But with offshore accounts featuring prominently in high-profile Ponzi schemes, some critics warn that the use of tax havens can endanger the retirement savings of millions of teachers, firefighters, cops and other public workers — a situation that could put taxpayers on the hook for losses if the investments go bust, or the money goes missing.

The tidal wave of cash has flowed from public pension systems into so-called “alternative investments”: private equity, hedge funds, venture capital firms and real estate. While many alternative investment firms operate in Lower Manhattan, more than a third of all the cash in those private funds flows through vehicles domiciled in the Caymans, according to Securities and Exchange Commission records reviewed by International Business Times. Those same records show that public pension plans, university endowments and other nonprofits have funneled a massive $1.8 trillion into alternative investments.

Read more …

From the Telegraph’s travel section. Is it Airbnb?

Room Rates At Trump’s Hotels Have Fallen By Up To 63% (Tel.)

There is further evidence that Donald Trump’s occupation of the Oval Office has had a negative impact on his business empire, with new research showing that average room rates have fallen by as much as 63%at all but one of his 13 hotels. Hardest hit was Trump Las Vegas. The average cost of a two-night stay in a standard double room during January 2017, just before his inauguration, was priced at £637, according to analysis by FairFX, the currency provider. But a two-night break in January 2018, one year on, can be secured for just £237.

At Trump Turnberry, his Ayrshire golf hotel, the average cost of a two-night stay has fallen by 57%, from £498 to £215, while steep drops have also been found for stays at Trump Doral in Miami (down 53%), Trump Washington DC (down 52%), Trump Vancouver (down 48%), and Trump New York (down 32%). Only the president’s Irish hotel, Trump Doonbeg, has seen a rise in rates, from £334 to £357. “One year after Trump’s inauguration, prices for a weekend in one of his hotels have for the most part decreased,” said Ian Strafford-Taylor, FairFX CEO. “While big events, like the inauguration in Washington, will usually cause prices to rise in that city for a particular weekend, the decreases in other places suggest that it doesn’t necessarily pay to be president.”

Read more …

“Does holding hands with Saudi Arabia as it slaughters Yemeni children really reflect American values?”

Why Are We Helping Saudi Arabia Destroy Yemen? (Ron Paul)

It’s remarkable that whenever you read an article about Yemen in the mainstream media, the central role of Saudi Arabia and the United States in the tragedy is glossed over or completely ignored. A recent Washington Post article purporting to tell us “how things got so bad” explains to us that, “it’s a complicated story” involving “warring regional superpowers, terrorism, oil, and an impending climate catastrophe.” No, Washington Post, it’s simpler than that. The tragedy in Yemen is the result of foreign military intervention in the internal affairs of that country. It started with the “Arab Spring” which had all the fingerprints of State Department meddling, and it escalated with 2015’s unprovoked Saudi attack on the country to re-install Riyadh’s preferred leader.

Thousands of innocent civilians have been killed and millions more are at risk as starvation and cholera rage. We are told that US foreign policy should reflect American values. So how can Washington support Saudi Arabia – a tyrannical state with one of the worst human rights record on earth – as it commits by what any measure is a genocide against the Yemeni people? The UN undersecretary-general for humanitarian affairs warned just last week that Yemen faces “the largest famine the world has seen for many decades with millions of victims.” The Red Cross has just estimated that a million people are vulnerable in the cholera epidemic that rages through Yemen. And why is there a cholera epidemic? Because the Saudi government – with US support – has blocked every port of entry to prevent critical medicine from reaching suffering Yemenis.

This is not a war. It is cruel murder. The United States is backing Saudi aggression against Yemen by cooperating in every way with the Saudi military. Targeting, intelligence, weapons sales, and more. The US is a partner in Saudi Arabia’s Yemen crimes. Does holding hands with Saudi Arabia as it slaughters Yemeni children really reflect American values? Is anyone even paying attention?

Read more …

What they refused to do 5 years ago. Now withdraw the warrants for Catalan elected officials.

Spain ‘Ready To Discuss’ Greater Fiscal Autonomy For Catalonia (G.)

Madrid is paving the way for Catalonia to be given the power to collect and manage its own taxes, similar to the system enjoyed by the autonomous Basque country, in an attempt to defuse the crisis over an illegal referendum on independence for the region. Senior sources in the Spanish government have told the Guardian that although there remains intense opposition within the ruling People’s party (PP) to any future referendum on self-determination, there is a renewed willingness to open discussions on a new fiscal pact under which Catalonia would have greater control of its finances. “If the Catalans ask for a fiscal pact, we are ready to discuss this,” one senior source said.

“The Basque country [in northern Spain] and Navarre collect their own taxes. They have their own system and there is a meeting between the Basque country and the central government and they decide how much they contribute to foreign policy and defence. It‘s a negotiation. Every five years. “We are open to discuss this, taking into account that the constitution of Spain also establishes solidarity [among the Spanish regions].” A fiscal pact was proposed in 2012 by Catalonia’s then president, Artur Mas, but the Spanish government blocked the move over concerns that it would be destabilising at a time when Spain appeared to be in dire economic peril. A cross-party commission on potential constitutional reform opened discussions last week on a new settlement between the Catalans and the Spanish government, with the support of the prime minister, Mariano Rajoy.

Read more …

Child poverty is high all over the EU. In Greece, it’s criminal.

37.5% of Greece’s Children Are At Risk Of Poverty (KTG)

Year in, year out since 2010, the number of children at risk of poverty is continuously increasing in Greece. With 37.5%, Greece is tops among members of the eurozone and third after Romania and Bulgaria within the European union. Four in 10 children aged up to 17 years old in Greece are at risk of poverty or social exclusion, Europe’s statistical agency Eurostat has found, putting the crisis-hit country at the top of the eurozone child poverty scale. In its report published on Monday and using 2016 data, Eurostat reported that with 37.5% of children facing the threat of poverty, Greece has the highest rate of at-risk children in the eurozone and the third highest in the European Union, behind Romania (49.2%) and Bulgaria (45.6%). At the opposite end of the scale, the lowest shares of children at risk of poverty or social exclusion were recorded in Denmark (13.8%), Finland (14.7%) and Slovenia (14.9%), ahead of the Czech Republic (17.4%) and the Netherlands (17.6%).

Greece also saw the highest rise in the number of at-risk children in the period between 2010 and 2016, growing 8.8% from a pre-crisis level of 28.7%. Cyprus also saw a spike of 7.8%, followed by Sweden (5.4%) and Italy (1.1%). In total in 2016, 24.8 million children in the EU, or 26.4% of the population aged up to 17 years old, were at risk of poverty or social exclusion. This means that the children were living in households with at least one of the following three conditions: at-risk-of-poverty after social transfers (income poverty), severely materially deprived or with very low work intensity. The proportion of children at risk of poverty or social exclusion in the EU has slightly decreased over the years, from 27.5% in 2010 to 26.4% in 2016, Eurostat reported.

Read more …

Prediction: a big mess.

Greek Online Foreclosures To Start With Big Debtors’ Assets (K.)

The first online foreclosures, set to start on November 29, will concern the assets of individuals or enterprises with debts of €500,000 or more (in some cases over €2 million). Villas, large buildings, historic buildings with one owner, plots of land, professional facilities and even parking spaces are among the assets slated to go under the electronic hammer as of end-November, when the online process finally begins. The amount of debts banks are seeking from these foreclosures comes to tens of millions of euros and concerns loans issued between 2005 and the outbreak of the crisis, when credit flowed handsomely.

Such is the case of one property with a single owner that will be auctioned for that individual’s debts of over €1.5 million to two systemic banks. The amount banks hope to claim is just €100,000, as it is common practice that the starting price is far smaller than the actual debt. The banks have vowed not to auction the homes of vulnerable groups or families without any other assets, but bank sources cannot rule out any exceptions made either intentionally or not, as 98% of debtors have failed to update their property details.

Read more …

The EU shouldn’t get to order Greece to do anything.

EU Orders Greece To Recover Up To €55 Million In State Aid (R.)

The European Commission ordered Greece on Monday to recover up to €55 million in state aid from Hellenic Defense Systems (HDS), a largely state-owned company that makes defense-related products. Greece granted a number of support measures between 2004 and 2011 including a direct grant of €10 million, a capital increase of €158 million and state guarantees for loans of up to €942 million. The Commission said in a statement that its investigation had concluded that the vast majority of Greek measures fell outside the scope of EU state aid control because they served Greek security interests. However, some measures worth up to €55 million did amount to illegal state aid because they supported the HDS’s civil activities, which include small pistols, explosives for construction and fireworks.

Read more …

Global.

As Oceans Warm, the World’s Kelp Forests Begin to Disappear (Yale)

A steady increase in ocean temperatures — nearly 3 degrees Fahrenheit in recent decades — was all it took to doom the once-luxuriant giant kelp forests of eastern Australia and Tasmania: Thick canopies that once covered much of the region’s coastal sea surface have wilted in intolerably warm and nutrient-poor water. Then, a warm-water sea urchin species moved in. Voracious grazers, the invaders have mowed down much of the remaining vegetation and, over vast areas, have formed what scientists call urchin barrens, bleak marine environments largely devoid of life. Today, more than 95 percent of eastern Tasmania’s kelp forests — luxuriant marine environments that provide food and shelter for species at all levels of the food web — are gone.

With the water still warming rapidly and the long-spine urchin spreading southward in the favorable conditions, researchers see little hope of saving the vanishing ecosystem. “Our giant kelp forests are now a tiny fraction of their former glory,” says Craig Johnson, a researcher at the University of Tasmania’s Institute for Marine and Antarctic Studies. “This ecosystem used to be a major iconic feature of eastern Tasmania, and it no longer is.” The Tasmanian saga is just one of many examples of how climate change and other environmental shifts are driving worldwide losses of giant kelp, a brown algae whose strands can grow to 100 feet.

In western Australia, increases in ocean temperatures, accentuated by an extreme spike in 2011, have killed vast beds of an important native kelp, Ecklonia radiata. In southern Norway, ocean temperatures have exceeded the threshold for sugar kelp — Saccharina latissima — which has died en masse since the late 1990s and largely been replaced by thick mats of turf algae, which stifles kelp recovery. In western Europe, the warming Atlantic Ocean poses a serious threat to coastal beds of Laminaria digitata kelp, and researchers have predicted “extirpation of the species as early as the first half of the 21st century” in parts of France, Denmark, and southern England.

Read more …

Nov 192017
 
 November 19, 2017  Posted by at 10:04 am Finance Tagged with: , , , , , , , , ,  


Wyland Stanley Pontiac coupe at San Francisco Palace of Fine Arts 1935

 

A Fiscal Disappointment – Tax Bill (Lebowitz)
Mt. Gox’s Bitcoin Customers Could Lose Again (R.)
The Coming Economic Downturn In Canada (MN)
How a Half-Educated Tech Elite Delivered Us Into Chaos (Naughton)
Europe Turns On Facebook, Google For Digital Tax Revamp (AFP)
When Unpaid Student Loan Bills Mean You Can No Longer Work (NYT)
Subways May Be the Latest Casualty of China’s Crackdown on Debt (BBG)
Upsurge In Big Earthquakes Predicted For 2018 As Earth Rotation Slows (G.)
Will Puerto Ricans Return Home After Hurricane María? (Conv.)
600 African Migrants Rescued Near Spain (AFP)
First Child Refugee From Greek Camps Comes To UK (G.)
Lesvos Authorities Going On Strike Over Rising Migrant Population (K.)
Over 50,000 Yemeni Children Expected To Die By The End Of 2017 (Ind.)

 

 

This is about much more than the Tax bill. It’s about how much growth you get per dollar in debt added. That is crucial.

A Fiscal Disappointment – Tax Bill (Lebowitz)

The Committee For A Responsible Budget penned after the passage of the tax bill: “The House approved debt-financed tax cuts based on predictions of magical economic growth that defy history and all credible analyses. Tax reform should grow the economy and not add to the debt. Unfortunately, lawmakers are assuming faster economic growth will pay for that debt increase when there is no evidence it will cover more than a fraction of the tax bill’s costs. The last time Congress added 10-figures worth of tax cuts to the debt in 2001, it blew a hole in the budget and helped erase our surpluses — despite claims that economic growth would cover the cost.The growth fairy did not appear then, and it would be unwise to assume she will this time around.” Read that again. Despite claiming to be “fiscally conservative,” what is so amazing is that Republicans are considering doing this when debt is at the highest level in history and climbing.

When the “Reagan” tax cuts of were passed, debt was less than 50% of GDP, inflation and interest rates were high and falling, and the economy was just recovering from back to back recessions. When the “Bush” tax cuts were passed, debt to GDP was only slightly higher than under Reagan but despite the tax cuts, the economy slid into a recession compounded by the “dot.com” bust. Currently, debt is 104% of GDP — higher than any time in history, the economy has been in a 9-year expansion at the lowest rate of growth on record, and interest rates and inflation are low with the Fed hiking rates and reducing monetary support. The situation currently is much more like Bush versus Reagan. Lastly, despite the continuing “talking points” that “tax cuts” spur economic growth and will pay for themselves over time….there is no evidence to support that claim.

Read more …

A curious tale.

Mt. Gox’s Bitcoin Customers Could Lose Again (R.)

When Mt. Gox, the world’s largest bitcoin trading exchange, collapsed in early 2014, more than 24,000 customers around the world lost access to hundreds of millions of dollars’ worth of cryptocurrency and cash. More than three years later, with the price of bitcoin skyrocketing to more than $7,000, not a single customer has recouped a single cent, crypto or otherwise. It’s not clear when they will. The failed exchange has become stuck in a morass of litigation – a Russian doll of bankruptcies in Japan and New Zealand, four in all, plus lawsuits in the United States and competing claims from creditors. And although the Mt. Gox bankruptcy trustee recovered digital currency now worth more than $1.6 billion, under Japanese law the exchange’s customers likely will recover only a fraction of that.

Kim Nilsson, a Swedish software developer who had more than a dozen bitcoins at Mt. Gox, isn’t optimistic of a payout soon. “It’s a legal twilight zone,” he says. “I wouldn’t be surprised if it took several years more.” There are few better examples of the dangers of investing in cryptocurrencies than Mt. Gox. As Reuters reported in September, cryptocurrency exchanges – where digital coins are bought, sold and stored – are largely unregulated and have become magnets for fraud and deception. At least 10 of them have closed, often after thefts, leaving customers without their funds. In all, more than 980,000 bitcoins have been stolen from exchanges since 2011 – two-thirds of those from Mt. Gox. Today, all of the stolen coins would be worth more than $6 billion, Reuters has calculated.

Mt. Gox is one of the few collapsed exchanges that ended up in bankruptcy court; some just vanished. But the problem for Mt. Gox’s thousands of creditors is that under Japanese bankruptcy law, their claims were valued at the market price of bitcoin in April 2014 just before the Tokyo District Court ordered the exchange be liquidated. At that time, one bitcoin was worth $483. On the basis of the April 2014 value, the claims ultimately approved were fixed at 45.6 billion Japanese yen, currently about $400 million. Based on the current price of bitcoin, Mt. Gox’s bankruptcy trustee is sitting on enough cash to repay creditors whose claims have been approved more than three times that amount, according to Reuters’ calculation. But that likely won’t happen, according to two Japanese bankruptcy attorneys.

In Japan, by law any funds left over in a bankrupt company’s estate after creditors have been paid go to shareholders. Mt. Gox is 88% owned by a Japanese company called Tibanne. And Mark Karpeles, a 32-year-old French software engineer and Mt. Gox’s former chief executive, owns 100% of Tibanne. Karpeles is currently on trial in Tokyo, accused of embezzling money from Mt. Gox and manipulating its data, as well as breach of trust. He has pleaded not guilty to the charges, some of which carry sentences of up to 10 years. He served nearly a year in jail following his arrest in August 2015.[..] In a three-hour interview, Karpeles told Reuters he doesn’t want the money. The main reason: He expects he would be inundated with lawsuits. He says he already is facing about a half dozen. “I don’t want to be the beneficiary of this,” he said. “I don’t really need money. I work, I get by.”

Read more …

Bubbles all around.

The Coming Economic Downturn In Canada (MN)

Given its natural resource-based economy, Canada is a boom and bust kind of place. This year, the country has enjoyed a significant boom. Thanks to a government stimulus program, rising corporate capital expenditures and consumer spending, Canada’s GDP growth has been nothing short of spectacular in 2017. According to Statistics Canada, the latest reading for year-over-year GDP growth is a healthy 3.5% (as of August 2017). While this is stronger than all major developed countries, growth is decelerating from its most recent peak in May 2017 (when GDP growth was an astounding 4.7%). A visual overview of historical GDP growth is shown below for reference:

Following the crude oil bust in the second quarter of 2014, Canadian growth rates cratered. While the country avoided a technical recession, the economic outlook was poor until early 2016. After crude oil returned to a bull market in the first quarter of 2016, the fortunes of the country turned. Given limited growth in 2015, the economy had no problem delivering 2%+ year-over-year growth rates in 2016. As a substantial stimulus program ramped up government spending in 2017, growth rates have continued to accelerate this year. While Canada has delivered exceptional growth in the last two years, the future outlook is much more challenging.

Beyond the issue of base effects (mathematically, year-over-year GDP growth will be much tougher next year), key sectors including the oil & gas industry and Canadian real estate look ripe for a downturn. As WTI crude strengthens beyond $55, crude oil is clearly in a bull market today. Looking at figures from the International Energy Agency, global demand growth continues to run ahead of supply growth. Thus the ongoing bull market is supported by fundamentals. Thanks to the impact of hurricanes and infrastructure bottlenecks in 2017, US shale hasn’t entirely fulfilled its role as the global ‘swing producer’ this year. The dynamics of supply growth versus demand growth are shown below:

Read more …

It’s a good thing this is getting addressed. It may well be too late though.

How a Half-Educated Tech Elite Delivered Us Into Chaos (Naughton)

One of the biggest puzzles about our current predicament with fake news and the weaponisation of social media is why the folks who built this technology are so taken aback by what has happened. Exhibit A is the founder of Facebook, Mark Zuckerberg, whose political education I recently chronicled. But he’s not alone. In fact I’d say he is quite representative of many of the biggest movers and shakers in the tech world. We have a burgeoning genre of “OMG, what have we done?” angst coming from former Facebook and Google employees who have begun to realise that the cool stuff they worked on might have had, well, antisocial consequences.

Put simply, what Google and Facebook have built is a pair of amazingly sophisticated, computer-driven engines for extracting users’ personal information and data trails, refining them for sale to advertisers in high-speed data-trading auctions that are entirely unregulated and opaque to everyone except the companies themselves. The purpose of this infrastructure was to enable companies to target people with carefully customised commercial messages and, as far as we know, they are pretty good at that. (Though some advertisers are beginning to wonder if these systems are quite as good as Google and Facebook claim.) And in doing this, Zuckerberg, Google co-founders Larry Page and Sergey Brin and co wrote themselves licences to print money and build insanely profitable companies.

It never seems to have occurred to them that their advertising engines could also be used to deliver precisely targeted ideological and political messages to voters. Hence the obvious question: how could such smart people be so stupid? The cynical answer is they knew about the potential dark side all along and didn’t care, because to acknowledge it might have undermined the aforementioned licences to print money. Which is another way of saying that most tech leaders are sociopaths. Personally I think that’s unlikely, although among their number are some very peculiar characters: one thinks, for example, of Paypal co-founder Peter Thiel – Trump’s favourite techie; and Travis Kalanick, the founder of Uber. So what else could explain the astonishing naivety of the tech crowd? My hunch is it has something to do with their educational backgrounds.

Take the Google co-founders. Sergey Brin studied mathematics and computer science. His partner, Larry Page, studied engineering and computer science. Zuckerberg dropped out of Harvard, where he was studying psychology and computer science, but seems to have been more interested in the latter. Now mathematics, engineering and computer science are wonderful disciplines – intellectually demanding and fulfilling. And they are economically vital for any advanced society. But mastering them teaches students very little about society or history – or indeed about human nature. As a consequence, the new masters of our universe are people who are essentially only half-educated. They have had no exposure to the humanities or the social sciences, the academic disciplines that aim to provide some understanding of how society works, of history and of the roles that beliefs, philosophies, laws, norms, religion and customs play in the evolution of human culture.

Read more …

It’s as much about the companies as it is about Europe’s own tax havens. The latter should be easier to tackle.

Europe Turns On Facebook, Google For Digital Tax Revamp (AFP)

They have revolutionised the way we live, but are US tech giants the new robber barons of the 21st century, banking billions in profit while short-changing the public by paying only a pittance in tax? With public coffers still strained years after the worst of the debt crisis, EU leaders have agreed to tackle the question, spurred on by French President Emmanuel Macron who has slammed the likes of Google, Facebook and Apple as the “freeloaders of the modern world”. As recently as March, five of the world’s top 10 valued companies were Silicon Valley behemoths: Apple, Google’s Alphabet, Microsoft, Amazon and Facebook. (Germany’s SAP was Europe’s biggest and 56th on the global list). But tax rules today are designed for yesterday’s economy when US multinationals -such as General Motors, IBM or McDonald’s- entered countries loudly, with new factories, jobs and more taxes for the taking.

These firms had what tax specialists call “permanent establishment”, when companies showed a clear physical presence measured and taxed through tangible, real world assets. But today in most EU nations, the US tech titans exist almost exclusively in the virtual world, their services piped through apps to smart phones and tablets from designers and data servers oceans away. Ghost-like, Silicon Valley has turned Europe’s economies upside down, but often with just a skeleton staff and some office space in markets with millions of users or customers. According to EU law, to operate across Europe, multinationals have almost total liberty to choose a home country of their choosing. Not surprisingly, they choose small, low tax nations such as Ireland, the Netherlands or Luxembourg. Thus, it is through Ireland that Facebook draws its wealth from millions of accounts across Europe.

There are 33 million accounts in France and 31 million in Germany, according to recent data. While users enjoy the platform, Facebook tracks likes, comments and page views and sells the data to companies who then target consumers. But unlike the economy of old, Facebook sells its data to French companies not from France but from a great, nation-less elsewhere, with no phone number, address or physical “presence” for a customer who probably cares little. It is in states like Ireland, whose official tax rate of 12.5% is the lowest in Europe, that the giants have parked their EU headquarters and book profits from revenues made across the bloc. Indeed, actual revenues from advertising are minimal in France and Germany, but at Facebook HQ Ireland they grew to 7.9 billion euros, even though the vast majority does not come from the tiny EU island-nation of a mere 2.5 million users.

Read more …

A crazy world.

When Unpaid Student Loan Bills Mean You Can No Longer Work (NYT)

Fall behind on your student loan payments, lose your job. Few people realize that the loans they take out to pay for their education could eventually derail their careers. But in 19 states, government agencies can seize state-issued professional licenses from residents who default on their educational debts. Another state, South Dakota, suspends driver’s licenses, making it nearly impossible for people to get to work. As debt levels rise, creditors are taking increasingly tough actions to chase people who fall behind on student loans. Going after professional licenses stands out as especially punitive. Firefighters, nurses, teachers, lawyers, massage therapists, barbers, psychologists and real estate brokers have all had their credentials suspended or revoked.

Determining the number of people who have lost their licenses is impossible because many state agencies and licensing boards don’t track the information. Public records requests by The New York Times identified at least 8,700 cases in which licenses were taken away or put at risk of suspension in recent years, although that tally almost certainly understates the true number. [..] With student debt levels soaring — the loans are now the largest source of household debt outside of mortgages — so are defaults. Lenders have always pursued delinquent borrowers: by filing lawsuits, garnishing their wages, putting liens on their property and seizing tax refunds. Blocking licenses is a more aggressive weapon, and states are using it on behalf of themselves and the federal government.

Proponents of the little-known state licensing laws say they are in taxpayers’ interest. Many student loans are backed by guarantees by the state or federal government, which foot the bills if borrowers default. Faced with losing their licenses, the reasoning goes, debtors will find the money. But critics from both parties say the laws shove some borrowers off a financial cliff.

Read more …

Politicians everywhere dream of big and grandiose projects.

Subways May Be the Latest Casualty of China’s Crackdown on Debt (BBG)

China’s frenzied construction of subway systems in cities all over the country may be easing, amid reports funding has been pulled for some projects as Beijing pushes to rein in debt levels. The National Development and Reform Commission, China’s top economic planning body, is revising a 2003 policy on subway development, Caixin reported on Saturday. The NDRC wants to “raise the bar” for approving local rail projects amid growing concern over a debt-driven infrastructure boom, the financial magazine said, citing sources that it didn’t identify. Population levels, as well as the economy and fiscal conditions of Chinese cities seeking permission for subway projects will be more closely scrutinized, Caixin said. Subway construction is a constant presence in China’s cities, with streets torn up to build the capacity needed to transport the swelling ranks of urban commuters.

Beijing alone has been testing three lines: a driverless subway, a maglev train, and a tram to be launched in the city’s western suburbs at the end of the year, the official Xinhua News Agency reported in September. But investment in the sector appears to be tapering off, just as China’s leaders make reining in financial risks a top priority. Fixed-asset investment in rail transportation has slowed almost to a standstill in 2017, increasing just 0.4% in January-October from a year earlier, statistics bureau data show. That’s down from 3.5% growth in the first four months of the year. Private rail transport investment – which makes up a tiny share of an industry that’s dominated by state-backed enterprises – slumped 58.6% January-October from a year earlier.

Read more …

Rotation slowing by a millisecond per day.

Upsurge In Big Earthquakes Predicted For 2018 As Earth Rotation Slows (G.)

Scientists have warned there could be a big increase in numbers of devastating earthquakes around the world next year. They believe variations in the speed of Earth’s rotation could trigger intense seismic activity, particularly in heavily populated tropical regions. Although such fluctuations in rotation are small – changing the length of the day by a millisecond – they could still be implicated in the release of vast amounts of underground energy, it is argued. The link between Earth’s rotation and seismic activity was highlighted last month in a paper by Roger Bilham of the University of Colorado in Boulder and Rebecca Bendick of the University of Montana in Missoula presented at the annual meeting of the Geological Society of America.

“The correlation between Earth’s rotation and earthquake activity is strong and suggests there is going to be an increase in numbers of intense earthquakes next year,” Bilham told the Observer last week. In their study, Bilham and Bendick looked at earthquakes of magnitude 7 and greater that had occurred since 1900. “Major earthquakes have been well recorded for more than a century and that gives us a good record to study,” said Bilham. They found five periods when there had been significantly higher numbers of large earthquakes compared with other times. “In these periods, there were between 25 to 30 intense earthquakes a year,” said Bilham. “The rest of the time the average figure was around 15 major earthquakes a year.”

The researchers searched to find correlations between these periods of intense seismic activity and other factors and discovered that when Earth’s rotation decreased slightly it was followed by periods of increased numbers of intense earthquakes. “The rotation of the Earth does change slightly – by a millisecond a day sometimes – and that can be measured very accurately by atomic clocks,” said Bilham. Bilham and Bendick found that there had been periods of around five years when Earth’s rotation slowed by such an amount several times over the past century and a half. Crucially, these periods were followed by periods when the numbers of intense earthquakes increased. “It is straightforward,” said Bilham. “The Earth is offering us a five-year heads-up on future earthquakes.”

Read more …

Many will not.

Will Puerto Ricans Return Home After Hurricane María? (Conv.)

Even before this year’s devastating hurricane season, the team of demographers I work with at Penn State and the Puerto Rico Institute of Statistics had predicted that the population of Puerto Rico would decline over the next few decades. Have Hurricanes Irma and María accelerated this trend? Slowing population decline is central to the economic recovery plan drafted by the Puerto Rican government in March of this year. If migration off the island accelerates, it is likely that the government of Puerto Rico will face even greater challenges in meeting that plan’s milestones. Preliminary data from the Puerto Rican Diaspora Study, which I recently concluded, can help shed light on how many Puerto Ricans who have fled the island might return home – and how many are gone for good.

In the two months since María made landfall, Puerto Ricans have left the island in even higher numbers than before. Recent commercial flight passenger data indicate that between Sept. 20, the day Hurricane María made landfall, and Nov. 7, approximately 100,000 people left Puerto Rico. That number exceeds the 89,000 people who left island during all of 2015 and increases by the day. Lack of access to power, drinking water and health care are pushing people out. Recent forecasts of migration out of Puerto Rico from the Center for Puerto Rican Studies at CUNY suggest that, because of Hurricane María, the island may lose up to 470,335 residents, or 14% of its current population, by 2020. This would represent a doubling of migration off the island compared to previous years.

Read more …

3,000 died this year.

600 African Migrants Rescued Near Spain (AFP)

Around 600 African migrants were rescued off the coast of Spain in 24 hours, a sea rescue patrol said Saturday. The Guardia Civil and Salvamento Maritimo rescue service added that operations to recover further migrants were still under way. Spain is the third busiest gateway for migrants arriving in Europe, but far behind Italy and Greece. However, the number of people arriving by sea in Spain has nearly tripled over the last year to 17,687. Many Africans undertaking the long route to Europe are choosing to avoid crossing danger-ridden Libya to get to Italy along the so-called central Mediterranean route, and choosing instead to get there via Morocco and Spain.

On Saturday, most of the migrants arrived in the south-eastern region of Murcia, where 431 people aboard 41 makeshift boats were discovered. Patrols found more than 110 people in the Alboran Sea, between Morocco and Spain’s Andalusian coast. Operations were also conducted in the Strait of Gibraltar, recovering 48 people on four makeshift boats. The rescues were carried out by the Navy, the Guardia Civil police and Salvamento Maritimo. According to the International Organization for Migration (IOM) close to 160,000 people have made the dangerous crossing to Europe this year and almost 3,000 more died or went missing while trying.

Read more …

An irreversibly harmed child who has been waiting for a year for Britain to fulfill an already made pledge.

First Child Refugee From Greek Camps Comes To UK (G.)

More than a year after the UK government pledged to transfer hundreds of child refugees from Greece, the first unaccompanied minor from the country will arrive in London this week. However the 15-year-old Syrian is described by experts as profoundly traumatised because of the delay and has recently attempted to take his own life. Fourteen months have elapsed since the boy was first identified by the Home Office as especially vulnerable and eligible for immediate transfer. It has also emerged that Hammersmith and Fulham council in west London told the Home Office a year ago that it had a place for the teenager, but officials did not act on the offer – a decision that charities say has caused “irreversible damage” to the child, who has lost contact with his family in Syria.

Giannoula Kefala, the council’s principal social worker, said: “From my perspective, the impasse and likely irreversible harm already caused to this extremely vulnerable child is unbearably disturbing.” Kefala said that last December she informed the Home Office of her intention to travel to Greece to assess the boy. “It is absolutely clear from my visit that the long delay has caused this child terrible harm, and that it has been apparent for a long time that the available resources in Greece cannot cater for this child’s needs. Recent hospital records make clear that the ongoing uncertainty is having a devastating impact.” The teenager is currently on heavy psychiatric medication, which worries his doctor but which is believed to be necessary to prevent a fatal outcome.

Until last Monday the youngster was being detained in a police cell with no access to medical professionals, and forced to sleep on a mattress on the floor. On 22 October, police said the boy, after repeated self-harming, had made a suicide attempt and was at “imminent risk of killing himself”. Kefala said she was concerned the boy could die.

Read more …

They live in summer tents. It’s been pouring with rain for days. The UNHCR has many rolls of plastic sheeting just lying around.

Lesvos Authorities Going On Strike Over Rising Migrant Population (K.)

With reception centers for migrants on the Aegean islands reaching breaking point, local authorities on Lesvos go on strike on Monday to draw attention to the problem. The island’s mayor, Spyros Galinos, called the general strike last week, noting that the rising migrant population “has fueled insecurity among citizens.” Authorities on Lesvos want the government to move migrants from seriously overcrowded facilities on the islands to the mainland. Around 16,000 migrants have been relocated to the mainland since October last year, but more transfers are needed as dozens continue to reach the islands daily even as the pace of returns to Turkey remains slow. Concerns are also growing about hundreds of migrants living in tents around the reception centers amid worsening weather conditions. The Interior Ministry has said that measures to deal with the winter months will be implemented in phases through the end of December.

Read more …

Please stop.

Over 50,000 Yemeni Children Expected To Die By The End Of 2017 (Ind.)

More than 50,000 children in Yemen are expected to die by the end of the year as a result of disease and starvation caused by the stalemated war in the country, Save the Children has warned. Seven million people are on the brink of famine in the country, which is in the grips of the largest cholera outbreak in modern history. An estimated 130 Yemeni children are dying every day and an estimated 400,000 children will need treatment for acute malnutrition this year, the charity said. “These deaths are as senseless as they are preventable,” said Tamer Kirolos, Save the Children’s country director for Yemen. “They mean more than a hundred mothers grieving for the death of a child, day after day.”

Eighteen-month-old Nadhira from the Bani Qais district of Hajja, northern Yemen, is suffering from severe acute malnutrition and respiratory diseases. Her mother saved the family’s income for three days to afford to take her to Hajja city for treatment, but her condition deteriorated once again after they were left unable to afford the medicine. “I worry about my family’s food and medicine when they get sick. I want my daughter to live: she’s my biggest concern now. I wish my daughter recovers from her sickness soon,” her mother Shaika said.

The charity has warned the death toll as a result of starvation and disease could be even higher, as the calculations were made before Saudi Arabia tightened a blockade on rebel-held parts of the country in response to a missile fired from rebel territory towards Riyadh international airport this month. The blockade has closed the major entry ports of Hodeidah and Saleef, as well as the airport in the capital Sanaa, which has severely hindered the access of food and aid.

Read more …

Nov 132017
 
 November 13, 2017  Posted by at 9:42 am Finance Tagged with: , , , , , , , , , ,  


Mark Twain in Nikola Tesla’s lab 1894

 

John Hussman Forecasts A Decade Of Stock Losses (BI)
One In Five American Households Have ‘Zero Or Negative’ Wealth (MW)
Top Tech Stocks’ $1.7 Trillion Gain Eclipses Canada’s Economy (BBG)
Bitcoin Plunges 29% From Record High (BBG)
The End Of “The End Of History” (Luongo)
Warnings From the “China Beige Book” (Rickards)
UK Government Tensions Rise After Leak Of ‘Orwellian’ Memo Sent To May (G.)
More Than A Third Of UK Home Sellers Cut Asking Price (G.)
Fossil Fuel Burning Set To Hit Record High In 2017 (G.)
The Decisions Behind Monsanto’s Weed-Killer Crisis (R.)
Weed-Killer Prompts Angry Divide Among US Farmers (AFP)
Millions On Brink Of Famine In Yemen As Saudi Arabia Tightens Blockade (G.)

 

 

Big fall, big rise and an even bigger fall.

John Hussman Forecasts A Decade Of Stock Losses (BI)

As the equity bull market has climbed into rarefied air, investors have continuously come up with new ways to rationalize the rally. Right now, they like to cite earnings growth, which has expanded for several quarters after a prolonged rough patch. They also frequently mention interest rates that, despite hawkish signals from central banks, have remained low, supplying the market with a seemingly endless supply of cheap money. On the other side of the spectrum, John Hussman, the president of the Hussman Investment Trust and a former economics professor, thinks that the investment community is unwisely ignoring the most stretched valuations in history on the heels of a nearly 300% bull market run. Ever the outspoken bear, Hussman says investors are being willfully ignorant, which has stocks at risk of a drop that could reach 63% and send the market spiraling into a full decade of negative returns.

It wouldn’t be the first time in history this has happened. But Hussman thinks this crash will be different, because the reasons for market instability are “purely psychological” this time around, according to a recent blog post. At the root of Hussman’s pessimistic market view are stock valuations that look historically stretched by a handful of measures. According to his preferred valuation metric — the ratio of non-financial market cap to corporate gross value-added (Market Cap/GVA) — stocks are more expensive than they were in 1929 and 2000, periods that immediately preceded major market selloffs. “US equity market valuations at the most offensive levels in history,” he wrote in his November monthly note. “We expect that more extreme valuations will only be met by more severe losses.”

Those losses won’t just include the 63% plunge referenced above – it’ll also be accompanied by a longer 10 to 12 year period over which the S&P 500 will fall, says Hussman. He cites the chart below, which shows how closely 12-year expected returns for the benchmark have historically tracked Market Cap/GVA, which is shown in inverted fashion. Note that the expected trajectory for Market Cap/GVA shows the S&P 500 veering into negative territory. The psychology behind the market’s willingness to accept lofty stock valuations stems from the flawed rationale that prices are justified by low interest rates, says Hussman. To him, the US economy is growing too slowly for this to be true, and that any belief to the contrary gives people false confidence.

Read more …

While other reports say some 70% live paycheck to paycheck. Which one is true? At least it should be clear that the US is not doing well at all.

One In Five American Households Have ‘Zero Or Negative’ Wealth (MW)

Millions of Americans are living on the edge. One in five households has zero or negative wealth, according to a report released this week by the Institute for Policy Studies, a progressive think tank based in Washington, D.C. What’s more, an even greater share of African-American (30%) and Latino (27%) households are “underwater” financially. The combined impact of $1 trillion in credit-card debt, $1.4 trillion in student loan debt, and stagnant wages are taking a toll. U.S. homes have regained value since the Great Recession, but many households have not. “Millions of American families struggle with zero or negative wealth, meaning they owe more than they own,” the report found. “This means that they have nothing to fall back on if an unexpected expense comes up like a broken down car or illness.” And inequality could get worse through new tax cuts for the wealthy.

President Trump’s tax proposals won’t give America’s middle class the reprieve they need to grow their wealth and recover from the financial crash, said Josh Hoxie, who heads up the Project on Opportunity and Taxation at the Institute for Policy Studies. A recent analysis by the Joint Committee on Taxation concluded that taxes would decline for all income groups, with the biggest percentage-point decline for millionaires. After-tax income would rise by nearly 7% for households earning over $1 million per year, compared to less than 2% for those earning between $50,001 and $1 million, as MarketWatch recently reported. And less than 1% for those earning less than $50,000, according to Ernie Tedeschi, an economist at Evercore IS investment banking advisory firm who worked in the Treasury Department under President Obama.

Looking at private income, such as earnings and dividends, and government benefits like Social Security, the income of families near the top increased roughly 90% from 1963 to 2016, while the income of families at the bottom rose less than 10%, according to a separate report released last month by the Urban Institute, a nonprofit policy group based in Washington, D.C., while most other groups have been left behind. And that gap between rich and poor is only going to get worse, Hoxie said. The wealthiest 25 individuals in the U.S., including co-founder Bill Gates, Amazon CEO Jeff Bezos and Facebook CEO Mark Zuckerberg, own $1 trillion in combined assets. These 25 — a group equivalent to the active roster of a major league baseball team — hold more wealth than the bottom 56% of the U.S. population.

Read more …

Completely nuts.

Top Tech Stocks’ $1.7 Trillion Gain Eclipses Canada’s Economy (BBG)

Between the FAANG quintet and China’s rivaling BAT companies, gains in the world’s top technology shares are nearing a whopping $1.7 trillion in market value this year. That’s more than Canada’s entire economy, and exceeds the worth of Germany’s biggest 30 companies put together. The eight tech giants – Facebook, Amazon, Apple, Netflix and Google parent Alphabet, as well as their Asian peers Baidu, Alibaba and Tencent – have amassed as much money in 2017 as PIMCO, one of the world’s biggest fund managers, has done in about 46 years. While the stocks have seen a meteoric rise this year, their combined market value came off highs last week amid a global selloff in which the year’s high flyers had a bigger retreat. A recent breakdown in the correlation between high-yield bonds and the tech-heavy Nasdaq 100 Index suggests the slide in junk may spread further.

Read more …

Confidence.

Bitcoin Plunges 29% From Record High (BBG)

Bitcoin plunged as the cancellation of a technology upgrade prompted some users to switch out of the cryptocurrency, spooking speculators who had profited from a more than 800% surge this year. The cryptocurrency has dropped 9.5% since late Friday, extending its slide from last week’s record to as much as 29%, according to data compiled by Coinmarketcap.com and Bloomberg. Bitcoin cash, a rival that split from the original bitcoin in August, has jumped nearly 40% since Friday. Bitcoin cash is gaining popularity because of its larger block size, a characteristic that makes transactions cheaper and faster than the original. When a faction of the cryptocurrency community canceled plans to increase bitcoin’s block size on Wednesday – a move that would have created another offshoot – some supporters of bigger blocks rallied around bitcoin cash.

The resulting volatility has been extreme even by bitcoin’s wild standards and comes amid growing interest in cryptocurrencies among regulators, banks and fund managers. While skeptics have called bitcoin’s rapid advance a bubble, it has become too big for many on Wall Street to ignore. Even after shrinking by as much as $38 billion since Wednesday, bitcoin boasts a market value of $101 billion. Supporters of bitcoin’s technology upgrade “are now switching support to bitcoin cash,” said Mike Kayamori, head of Tokyo-based Quoine, the world’s second most-active bitcoin exchange over the past day. “There’s a panic about what’s happening. People shouldn’t panic. Just hold on to both coins until we see how it plays out.”

Read more …

A different view from most.

The End Of “The End Of History” (Luongo)

The path to draining the swamp is a circuitous one but, in my mind, it’s hard to argue where things are headed. They are not headed towards confrontation with Iran but actually the opposite. The most rabidly anti-Iranian segment of the Saudi Royal house is impoverished and imprisoned. CNN will be sold and go out of business to allow for the Time-Warner/AT&T merger. Jeff Zucker is out. Add another scalp to Steve Bannon’s belt along with Harvey Weinstein, Kevin Spacey and so many to come. Will the vestiges of the neoconservative establishment in the U.S. and Israel continue to sabre-rattle and try to undermine what is happening? Yes.

They’ve been doing that since the day Trump was elected just over a year ago, but it hasn’t stopped the momentum. Why? Because Putin was on the job outmaneuvering them at every turn. Trump made a deal with the neocons back in August to cede them control of foreign policy and, in effect, outsourced cleaning up the Middle East to Putin. But, predictably they also didn’t follow through with their end of the bargain. Trump learned, like Putin did, the John McCain’s of the world don’t keep to their deals. They are ‘not agreement capable.’ And, as such, since the last failure to repeal Obamacare Trump has gone after every pillar of support these people had. It will end with Hillary Clinton’s indictment. But in the meantime it will look like the world is on the brink of world war.

Read more …

“Xi is ready to undertake reform of the financial system, which means shutting down insolvent companies and banks.”

Warnings From the “China Beige Book” (Rickards)

The China Beige Book, CBB, says that China had been covering up and smoothing over problems related to weak growth and excessive debt in order to provide a calm face to the world in advance of the National Congress of the Communist Party of China, which took place last month. CBB also makes it clear that the much-touted “rebalancing” of the Chinese economy away from investment and manufacturing toward consumption and spending has not occurred. Instead China has doubled down on excess capacity in coal, steel and manufacturing and has continued its policy of wasteful investment fueled with unpayable debt. It’s become obvious that the first cracks are starting to appear in China’s Great Wall of Debt. The Chinese debt binge of the past 10 years is a well-known story.

Chinese corporations have incurred dollar-denominated debts in the hundreds of billions of dollars, most of which are unpayable without subsidies from Beijing. China’s debt-to-equity ratio is over 300%, far worse than America’s (which is also dangerously high) and comparable to that of Japan and other all-star debtors. China’s trillion-dollar wealth management product (WMP) market is basically a Ponzi scheme. New WMPs are used to redeem maturing WMPs, while most of the market is simply rolled over because the underlying real estate and infrastructure projects cannot possibly repay their debts. A lot of corporate lending is simply one company lending to another, which in turns lends to another, giving the outward appearance of every company holding good assets, but in which none of the companies can actually pay its creditors.

It’s an accounting game with no real money behind it and no chance of repayment. All of this is well-known. What is not known is when it will end. When will confidence be lost in such a way that the entire debt house of cards crumbles? When will a geopolitical shock or natural disaster trigger a loss of confidence that ignites a financial panic? There was little prospect of this in the past year because President Xi Jinping was keeping a lid on trouble before the recently concluded National Congress of the Communist Party of China. With the congress behind him, Xi is ready to undertake reform of the financial system, which means shutting down insolvent companies and banks. Now the first bankruptcies have begun to appear.

Read more …

None of these people give one hoot about their country. They care about themselves only.

UK Government Tensions Rise After Leak Of ‘Orwellian’ Memo Sent To May (G.)

The tensions in Theresa May’s government intensified on Sunday night ahead of this week’s vital votes on the Brexit bill, as ministers accused Boris Johnson and Michael Gove of sending an “Orwellian” set of secret demands to No 10. As an increasingly weakened prime minister faces the possibility of parliamentary defeats on the bill, government colleagues have said they are aghast at the language used by the foreign secretary and the environment secretary in a joint private letter. The leaked letter – a remarkable show of unity from two ministers who infamously fell out during last year’s leadership campaign – appeared to be designed to push May decisively towards a hard Brexit and limit the influence of former remainers. It complained of “insufficient energy” on Brexit in some parts of the government and insisted any transition period must end in June 2021 – a veiled attack on the chancellor, Philip Hammond.

They urged the prime minister to ensure members of her top team fall behind their Brexit plans by “clarifying their minds” and called for them to “internalise the logic”. But the leak drew a bitter response from supporters of a soft Brexit, who suggested that May would now be forced to either discipline the pair or further weaken her position, which has already been tested by the recent resignations of Priti Patel and Michael Fallon and continuing pressure on Johnson and Damian Green. One cabinet minister told the Guardian: “It is not surprising that they [Gove and Johnson] would express their view. But what is surprising is that they would write this down and use this kind of language in a letter to the prime minister. “Some have described it as Orwellian, and it is. It is not helpful when people try and press their views in untransparent way.”

Read more …

It’s just starting. London falling.

More Than A Third Of UK Home Sellers Cut Asking Price (G.)

More than a third of home owners trying to sell their house have been forced to reduce their asking price, with the number of price cuts at their highest level since 2012, according to Rightmove. Traditionally house sellers are often forced to cut asking prices in the pre-Christmas period but this year the nation appears to be holding a collective autumn sale, said the property website. Rightmove, which claims to list 90% of the houses being sold in the UK, said 37% of current sellers had dropped their asking price, with a typical 0.8% or £2,392 price reduction. It also warned that those who recently put their property on the market were being too optimistic by not discounting by more. The mass price cut will be seen as further evidence that the market has slowed dramatically, particularly in London where prices have been falling.

Last week the Royal Institution of Chartered Surveyors said the overall UK property market had stalled. Rics also warned that it expected the market to remain subdued in the coming months as sales stay flat or fall in most regions. Rightmove director, Miles Shipside, said the slowdown in the housing market, the recent interest rate rise and the prediction that further rises were on the horizon suggested bigger reductions in house prices in the near future. “Given that the market has been price-sensitive for a while and a five-year high proportion of sellers are slashing their prices, some sellers and their agents are over-pricing. These sellers may well be asking themselves if they could have saved some time and stress by pricing a lot more conservatively at the start.”

Read more …

As you’re being pleasantly entertained with that dumb Paris agreement.

Fossil Fuel Burning Set To Hit Record High In 2017 (G.)

The burning of fossil fuels around the world is set to hit a record high in 2017, climate scientists have warned, following three years of flat growth that raised hopes that a peak in global emissions had been reached. The expected jump in the carbon emissions that drive global warming is a “giant leap backwards for humankind”, according to some scientists. However, other experts said they were not alarmed, saying fluctuations in emissions are to be expected and that big polluters such as China are acting to cut emissions. Global emissions need to reach their peak by 2020 and then start falling quickly in order to have a realistic chance of keeping global warming below the 2C danger limit, according to leading scientists. Whether the anticipated increase in CO2 emissions in 2017 is just a blip that is followed by a falling trend, or is the start of a worrying upward trend, remains to be seen.

Much will depend on the fast implementation of the global climate deal sealed in Paris in 2015 and this is the focus of the UN summit of the world’s countries in Bonn, Germany this week. The nations must make significant progress in turning the aspirations of the Paris deal into reality, as the action pledged to date would see at least 3C of warming and increasing extreme weather impacts around the world. The 12th annual Global Carbon Budget report published on Monday is produced by 76 of the world’s leading emissions experts from 57 research institutions and estimates that global carbon emissions from fossil fuels will have risen by 2% by the end of 2017, a significant rise.

“Global CO2 emissions appear to be going up strongly once again after a three-year stable period. This is very disappointing,” said Prof Corinne Le Quéré, director of the Tyndall Centre for Climate Change Research at the UK’s University of East Anglia and who led the new research. “The urgency for reducing emissions means they should really be already decreasing now.” “There was a big push to sign the Paris agreement on climate change but there is a feeling that not very much has happened since, a bit of slackening,” she said. “What happens after 2017 is very open and depends on how much effort countries are going to make. It is time to take really seriously the implementation of the Paris agreement.” She said the hurricanes and floods seen in 2017 were “a window into the future”.

Read more …

Farmers are using dicamba because they get it on their crops anyway from the neighbors. There’s not much time left to stop Monsanto from effectively owning all our food.

The Decisions Behind Monsanto’s Weed-Killer Crisis (R.)

In early 2016, agri-business giant Monsanto faced a decision that would prove pivotal in what since has become a sprawling herbicide crisis, with millions of acres of crops damaged. Monsanto had readied new genetically modified soybeans seeds. They were engineered for use with a powerful new weed-killer that contained a chemical called dicamba but aimed to control the substance’s main shortcoming: a tendency to drift into neighboring farmers’ fields and kill vegetation. The company had to choose whether to immediately start selling the seeds or wait for the U.S. Environmental Protection Agency (EPA) to sign off on the safety of the companion herbicide. The firm stood to lose a lot of money by waiting.

Because Monsanto had bred the dicamba-resistant trait into its entire stock of soybeans, the only alternative would have been “to not sell a single soybean in the United States” that year, Monsanto Vice President of Global Strategy Scott Partridge told Reuters in an interview. Betting on a quick approval, Monsanto sold the seeds, and farmers planted a million acres of the genetically modified soybeans in 2016. But the EPA’s deliberations on the weed-killer dragged on for another 11 months because of concerns about dicamba’s historical drift problems. That delay left farmers who bought the seeds with no matching herbicide and three bad alternatives: Hire workers to pull weeds; use the less-effective herbicide glyphosate; or illegally spray an older version of dicamba at the risk of damage to nearby farms.

The resulting rash of illegal spraying that year damaged 42,000 acres of crops in Missouri, among the hardest hit areas, as well as swaths of crops in nine other states, according to an August 2016 advisory from the U.S. Environmental Protection Agency. The damage this year has covered 3.6 million acres in 25 states, according to Kevin Bradley, a University of Missouri weed scientist who has tracked dicamba damage reports and produced estimates cited by the EPA. The episode highlights a hole in a U.S regulatory system that has separate agencies approving genetically modified seeds and their matching herbicides.

Monsanto has blamed farmers for the illegal spraying and argued it could not have foreseen that the disjointed approval process would set off a crop-damage crisis. But a Reuters review of regulatory records and interviews with crop scientists shows that Monsanto was repeatedly warned by crop scientists, starting as far back as 2011, of the dangers of releasing a dicamba-resistant seed without an accompanying herbicide designed to reduce drift to nearby farms.

Read more …

“Farmers need it desperately,” said Perry Galloway. “If I get dicamba on (my products), I can’t sell anything,” responded Shawn Peebles.”

Weed-Killer Prompts Angry Divide Among US Farmers (AFP)

When it comes to the herbicide dicamba, farmers in the southern state of Arkansas are not lacking for strong opinions. “Farmers need it desperately,” said Perry Galloway. “If I get dicamba on (my products), I can’t sell anything,” responded Shawn Peebles. The two men know each other well, living just miles apart in the towns of Gregory and Augusta, in a corner of the state where cotton and soybean fields reach to the horizon and homes are often miles from the nearest neighbor. But they disagree profoundly on the use of dicamba. Last year the agro-chemical giant Monsanto began selling soy and cotton seeds genetically modified to tolerate the herbicide. The chemical product has been used to great effect against a weed that plagues the region, Palmer amaranth, or pigweed – especially since it became resistant to another herbicide, glyphosate, which has become highly controversial in Europe over its effects on human health.

The problem with dicamba is that it vaporizes easily and is carried by the wind, often spreading to nearby farm fields – with varying effects. Facing a surge in complaints, authorities in Arkansas early this summer imposed an urgent ban on the product’s sale. The state is now poised to ban its use between April 16 and October 31, covering the period after plants have emerged from the soil and when climatic conditions favor dicamba’s dispersal.

Read more …

This is who we are. This is caused by people we support, that we call our friends.

Millions On Brink Of Famine In Yemen As Saudi Arabia Tightens Blockade (G.)

Abdulaziz al-Husseinya lies skeletal and appears lifeless in a hospital in Yemen’s western port city of Hodeidah. At the age of nine, he weighs less than one and a half stone, and is one of hundreds of thousands of children in the country suffering from acute malnutrition. Seven million people are on on the brink of famine in war-torn Yemen, which was already in the grip of the world’s worst cholera outbreak when coalition forces led by Saudi Arabia tightened its blockade on the country last week, stemming vital aid flows. Al-Thawra hospital, where Abdulaziz is being treated, is reeling under the pressure of more than two years of conflict between the Saudi-led coalition and Iranian-allied Houthi rebels. Its corridors are packed, with patients now coming from five surrounding governorates to wait elbow-to-elbow for treatment.

Less than 45% of the country’s medical facilities are still operating – most have closed due to fighting or a lack of funds, or have been bombed by coalition airstrikes. As a result, Al-Thawra is treating some 2,500 people a day, compared to 700 before the conflict escalated in March 2015. [..] Aid agencies are now warning that Yemen’s already catastrophic humanitarian crisis could soon become a “nightmare scenario” if Saudi Arabia does not ease the blockade of the country’s land, sea and air ports – a move that the kingdom insists is necessary after Houthi rebels fired a ballistic missile towards Riyadh’s international airport this month. United Nations humanitarian flights have been cancelled for the past week and the International Committee of the Red Cross (ICRC), along with Médecins Sans Frontières (MSF), have been prevented from flying vital medical assistance into the country.

More than 20 million Yemenis – over 70% of the population – are in need of humanitarian assistance that is being blocked. Following international pressure, the major ports of Aden and Mukalla were reopened last week for commercial traffic and food supplies, along with land border crossings to neighbouring Oman and Saudi Arabia, but humanitarian aid and aid agency workers remained barred from entering the country on Sunday. UN aid chief Mark Lowcock has said if the restrictions remain, Yemen will face “the largest famine the world has seen for many decades, with millions of victims”.

Read more …

Nov 062017
 
 November 6, 2017  Posted by at 9:47 am Finance Tagged with: , , , , , , , ,  


Salvador Dalí Figure at a window 1925

 

The Next Market Cleanse Will Be Sharp, Deep, Fast (Peters)
Round-Up Of Saudi Princes, Businessmen Widens, Travel Curbs Imposed (R.)
Saudi Arabia Seals Yemen Borders, Accuses Iran Over Missile Strike (AFP)
Paradise Papers Leak Reveals Secrets Of The World Elite’s Hidden Wealth (G.)
Are We Taming Offshore Finance? (BBC)
Queen’s Private Estate Invested Millions of Pounds Offshore (G.)
UK Families Thousands Of Pounds Worse Off After Years Of Cuts (G.)
Britain ‘Would Be Booming’ If It Wasn’t For Brexit – Mark Carney (Tel.)
Most EU Firms Plan Retreat From UK Suppliers (R.)
UK Ministers ‘Could Be In Contempt Of Parliament Over Brexit Papers’ (G.)
China’s Shadow Banking Halts as Regulation Bites – Moody’s (BBG)
Catalonia’s Puigdemont Conditionally Released By Belgian Judge (G.)

 

 

Eric Peters gets points for style.

The Next Market Cleanse Will Be Sharp, Deep, Fast (Peters)

Anecdote: “The most common example is a ball sitting atop a hill,” she said, polished accent, hint of condescension. “Locally stable, but one nudge and it’s all over.” She drove terribly fast, discussing Minsky Moments; the idea that persistent stability breeds instability. “Naturally each cycle is different in key respects, and that’s because you’re far better at preventing past problems from recurring than new ones from arising.” I smiled, amused, insulted. “Despite knowing this all too well, you humans remain inexplicably fixated on the rearview mirror. And this blinds you to all manner of hazards ahead.”

She initiated a few perfect turns of the Tesla, dodging a squirrel or two, tumbling, unhurt. “The source of instability in this cycle is your dissatisfaction with ultra-low bond yields.” $8trln of sovereign debt carries a negative yield, still our central bankers buy. “You should logically respond to this historic rise in valuations across asset classes with a reduction in your expectations for future returns.” I nodded. “But instead you respond with indignation.” So I explained to her that without robust growth and a compounding stream of uninterrupted 7.5% returns, our entitlement systems will implode. They probably will anyway. And lacking the stomach for an honest accounting of this predicament, we prefer to pretend it doesn’t exist.

“Is this humor or sarcasm?” she asked. “Both,” I answered. “Fascinating, anyhow, you then demand that we algorithms produce mathematically impossible returns. So we apply leverage, which makes nearly anything possible, even at valuations that are 99th percentile in all of human history. The more leverage we apply, the more stable your system appears. The flatter your hilltop. Naturally, we ensure that today’s leverage looks different from yesterday’s disaster, recognizing your powerful aversion to repeating recent mistakes.” And I stared out the window, lost in thought, fall’s kaleidoscope whizzing by.

Read more …

Not done yet.

Round-Up Of Saudi Princes, Businessmen Widens, Travel Curbs Imposed (R.)

An anti-corruption probe that has purged Saudi Arabian royals, ministers and businessmen appeared to be widening on Monday after the founder of one of the kingdom’s biggest travel companies was reportedly detained. Shares in Al Tayyar Travel plunged 10 percent in the opening minutes of trade after the company quoted media reports as saying Nasser bin Aqeel al-Tayyar, who is still a board member, had been held by authorities. The company gave no details but online economic news service SABQ, which is close to the government, reported Tayyar had been detained in an investigation by a new anti-corruption body headed by Crown Prince Mohammed bin Salman.

Dozens of people have been detained in the crackdown, which has consolidated Prince Mohammed’s power while alarming much of the traditional business establishment. Billionaire Prince Alwaleed bin Talal, Saudi Arabia’s best-known international investor, is also being held, officials said at the weekend. The front page of Okaz, a leading Saudi newspaper, challenged businessmen on Monday to reveal the sources of their assets, asking: “Where did you get this?” in a bright red headline. Pan-Arab newspaper Al-Asharq Al-Awsat reported that a no-fly list had been drawn up and security forces in some Saudi airports were barring owners of private jets from taking off without a permit.

Among those detained are 11 princes, four ministers and tens of former ministers, according to Saudi officials. The allegations against the men include money laundering, bribery, extorting officials and taking advantage of public office for personal gain, a Saudi official told Reuters. Those accusations could not be independently verified and family members of those detained could not be reached. A royal decree on Saturday said the crackdown was in response to “exploitation by some of the weak souls who have put their own interests above the public interest, in order to, illicitly, accrue money”.

Read more …

The big fear is that it’s all a set-up to go after Iran. Which just signed a $30 billion energy deal with Russia.

Saudi Arabia Seals Yemen Borders, Accuses Iran Over Missile Strike (AFP)

The Saudi-led coalition battling Shiite Huthi rebels in Yemen closed the country’s air, sea and land borders Monday and accused Iran of being behind a weekend missile attack on Riyadh, saying it “may amount to an act of war”. Saudi Arabia intercepted and destroyed the ballistic missile, which was launched from Yemen as rebels appeared to escalate hostilities, near Riyadh’s international airport on Saturday. The missile was the first aimed by the Shiite rebels at the heart of the Saudi capital, underscoring the growing threat posed by the raging conflict. “The leadership of the coalition forces therefore considers this… a blatant military aggression by the Iranian regime which may amount to an act of war,” the official Saudi news agency SPA said in a statement.

Smouldering debris landed inside the King Khalid International Airport, just north of Riyadh, after the missile was shot down but authorities reported no major damage or loss of life. Yemen’s complex war pits the Saudi-backed government of President Abedrabbo Mansour Hadi against former president Ali Abdullah Saleh and his Iran-backed Huthi rebel allies. The Saudi statement said that the borders were being closed “to fill the gaps in the inspection procedures which enable the continued smuggling of missiles and military equipment to the Huthi militias loyal to Iran in Yemen”. Despite the temporary closure of the air, sea and land ports, Saudi would protect “the entry and exit of relief and humanitarian personnel”. “The coalition… affirms the kingdom’s right to respond to Iran at the appropriate time and in the appropriate form,” it added.

Read more …

Most of this is legal. But what are the Queen, Bono, Trudeau thinking?

Paradise Papers Leak Reveals Secrets Of The World Elite’s Hidden Wealth (G.)

The world’s biggest businesses, heads of state and global figures in politics, entertainment and sport who have sheltered their wealth in secretive tax havens are being revealed this week in a major new investigation into Britain’s offshore empires. The details come from a leak of 13.4m files that expose the global environments in which tax abuses can thrive – and the complex and seemingly artificial ways the wealthiest corporations can legally protect their wealth. The material, which has come from two offshore service providers and the company registries of 19 tax havens, was obtained by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists with partners including the Guardian, the BBC and the New York Times. The project has been called the Paradise Papers. It reveals:

• Millions of pounds from the Queen’s private estate has been invested in a Cayman Islands fund – and some of her money went to a retailer accused of exploiting poor families and vulnerable people. • Extensive offshore dealings by Donald Trump’s cabinet members, advisers and donors, including substantial payments from a firm co-owned by Vladimir Putin’s son-in-law to the shipping group of the US commerce secretary, Wilbur Ross. • How Twitter and Facebook received hundreds of millions of dollars in investments that can be traced back to Russian state financial institutions. • The tax-avoiding Cayman Islands trust managed by the Canadian prime minister Justin Trudeau’s chief moneyman. • A previously unknown $450m offshore trust that has sheltered the wealth of Lord Ashcroft.

• Aggressive tax avoidance by multinational corporations, including Nike and Apple.• How some of the biggest names in the film and TV industries protect their wealth with an array of offshore schemes. • The billions in tax refunds by the Isle of Man and Malta to the owners of private jets and luxury yachts.• The secret loan and alliance used by the London-listed multinational Glencore in its efforts to secure lucrative mining rights in the Democratic Republic of the Congo. •The complex offshore webs used by two Russian billionaires to buy stakes in Arsenal and Everton football clubs.

The disclosures will put pressure on world leaders, including Trump and the British prime minister, Theresa May, who have both pledged to curb aggressive tax avoidance schemes. The publication of this investigation, for which more than 380 journalists have spent a year combing through data that stretches back 70 years, comes at a time of growing global income inequality. Meanwhile, multinational companies are shifting a growing share of profits offshore – €600bn in the last year alone – the leading economist Gabriel Zucman will reveal in a study to be published later this week. “Tax havens are one of the key engines of the rise in global inequality,” he said. “As inequality rises, offshore tax evasion is becoming an elite sport.”

Read more …

No. Hell no.

Are We Taming Offshore Finance? (BBC)

The offshore finance industry puts trillions of dollars worldwide beyond the taxman’s reach. Bringing it to heel is like taming a cat; not just a normal moggy – a thankless task in itself – but a Cheshire Cat: nebulous, hard to pin down, disappearing and reappearing when it likes. No-one can actually agree on what a tax haven is. Or even on the name: one person’s tax haven is another’s “offshore financial centre”. No-one can agree on how many there are. Nor on exactly how much money is stashed offshore. No statistics are fully reliable. And this suits those who operate in offshore finance, from the owner of the wealth to the lawyer or accountant middlemen who manage the funds, to the often sun-kissed beaches of the jurisdictions where they are secluded or pass through. The industry’s key word is privacy. Or secrecy – a word it doesn’t like so much.

One adage cited by the taxation author and expert Nicholas Shaxson sums it up: “Those who know don’t talk. And those who talk don’t know.” But do we really not know how much is stashed offshore? A report this September, co-authored by the economist Gabriel Zucman, estimates about 10% of global GDP – the way we measure the size of the world’s economy – is held offshore, about $7.8tn (£6tn) . The Boston Consulting Group reported it last year at about $10tn. If you are thinking, wow, that’s bigger than Japan’s economy, you’d be right. But if you want a real wow, try $36tn – the estimate offered by James Henry, author of the book Blood Bankers. That’s twice as big as the US economy.

But no-one really knows. And here’s another wow. Remember the slogan “we are the 99%” coined by the Occupy movement to lambast the top 1% of the population for their disproportionate share of wealth? Well, the Zucman report says 80% of all offshore cash is owned by 0.1% of the richest households, with 50% held by the top 0.01%. So if you read this and are thinking, if you can’t beat them… quite frankly, it’s unlikely you will ever join them.

Read more …

This cannot be. Many Britons are miserable, and their Queen dodges taxes. As someone suggested, she should go live where her money is stashed.

Queen’s Private Estate Invested Millions of Pounds Offshore (G.)

Millions of pounds from the Queen’s private estate has been invested in a Cayman Islands fund as part of an offshore portfolio that has never before been disclosed, according to documents revealed in an investigation into offshore tax havens. Files from a substantial leak show for the first time how the Queen, through the Duchy of Lancaster, has held and still holds investments via funds that have put money into an array of businesses, including the off-licence chain Threshers, and the retailer BrightHouse, which has been criticised for exploiting thousands of poor families and vulnerable people. The duchy admitted it had no idea about its 12-year investment in BrightHouse until approached by the Guardian and other partners in an international project called the Paradise Papers.

Though the duchy characterised its stake in BrightHouse as negligible, it would not disclose the size of its original 2005 investment, which coincided with a boom in the company’s value. BrightHouse has since been accused of overcharging customers, and using hard sell tactics on people with mental health problems and learning disabilities. Last month, it was ordered to pay £14.8m in compensation to 249,000 customers. Critics are likely to ask why the Queen had money in there in the first place, and the duchy may face awkward questions about whether there was enough oversight and management of the Queen’s “onward investments” to ensure they remained ethical. The duchy has also disclosed investments in “a few overseas funds”, including one in Ireland, and will be under pressure to give details of where the money is being held.

Read more …

This is Britain’s reality….

UK Families Thousands Of Pounds Worse Off After Years Of Cuts (G.)

Seven years of cuts to tax credits and universal credit have hugely eroded their role in supposedly rewarding people for working, leaving many families thousands of pounds a year worse off, a study has concluded. Ministers’ promises that the systems would benefit families for taking on more work had effectively been broken because of the cuts, according to the report by the Child Poverty Action Group (CPAG) and the Institute for Public Policy Research thinktank. The study, titled Austerity Generation, details what it says are the huge numbers of families with children pushed into poverty due to cuts and freezes to benefits, as well as measures such as the new two-child limit for payments. It calls for the chancellor, Philip Hammond, to tackle the issue in next month’s budget by restoring previous levels of universal credit work allowances, the amount of monthly income that can be earned without penalty. These were cut in April 2016.

It also seeks a pension-style triple lock of the child benefit and child credit element of universal credit, ensuring it kept pace with prices and earnings. This alone, the report argues, would keep 600,000 children out of poverty. Introduced in 2003, working tax credits are intended to top up low earnings. It is among a series of benefits replaced by universal credit, which is gradually being rolled out nationally and is intended to incentivise working. But, according to the report, cuts have eroded much of this effect for families. It calculates that a couple with two young children, one working full-time and the other part-time on the national living wage, will lose more than £1,200 a year due to universal credit cuts. Another example given is that of a single parent with two young children who starts work at 12 hours a week on the national living wage and will have an effective hourly wage of £4.18, as opposed to £5.01 before the cuts.

Read more …

… and this is what its central bank chief thinks it is instead.

Britain ‘Would Be Booming’ If It Wasn’t For Brexit – Mark Carney (Tel.)

Britain’s economy would be “booming” if not for Brexit, the Governor of the Bank of England has said. Mark Carney said businesses were waiting for the outcome of Theresa May’s negotiations with the EU before making investment decisions, which was slowing down economic growth. He said the bank’s predictions for foreign investment in Britain was now 20 per cent lower than they estimated in the month before the referendum. Speaking to Peston on Sunday, he said: “Since the referendum, what we’re seeing is that business investment has picked up, but it hasn’t picked up to any of the extent that one would have expected given how strong the world is, how easy financial conditions are, how high profitability is and how little spare capacity they have. Despite acknowledging the strength of economy, Mr Carney warned: “It should really be booming, but it’s just growing.

“I think we know why that’s the case, because they’re waiting to see the nature of the deal with the European Union. “It’s the most important investment destination and [businesses] need to know transition and end state, everybody knows this, the government knows it and is working on it, UK businesses know it and the Europeans know it.” Asked if the economy would take a hit if the UK left the EU without a Brexit deal, he said: “In the short term, without question, if we have materially less access (to the EU’s single market) than we have now, this economy is going to need to reorient and during that period of time it will weigh on growth.” He added that in the event of a bad Brexit deal, the bank would not be able to cut future interest rates because of that inflationary pressure.

Read more …

Uncertainty.

Most EU Firms Plan Retreat From UK Suppliers (R.)

Most European businesses plan to cut back orders from British suppliers because of the slow progress of Brexit talks, a survey of company managers showed on Monday. 63% of non-British European companies expect to move some of their supply chain out of Britain, up from 44 percent in May, the Chartered Institute of Procurement and Supply (CIPS) said. With only 17 months left until Britain is due to exit the EU, the lack of clear progress in the negotiations has raised fears among executives of an abrupt departure with no transition. Monday’s survey raised the prospect of disruption for British manufacturers with EU clients. On Sunday, the Confederation of British Industry said almost two in three British firms will have implemented Brexit contingency plans by March if Britain and the rest of the EU have not struck a transitional deal by then.

Britain and the EU said last week they were ready to speed up talks, but CIPS said it was already too late for scores of businesses that look likely to be dropped by European customers. “British businesses simply cannot put their suppliers and customers on hold while the negotiators get their act together,” said Gerry Walsh, CIPS’ group CEO. “The lack of clarity coming from both sides is already shaping the British economy of the future – and it does not fill businesses with confidence.” British finance minister Philip Hammond said last month that a transition deal needed to be struck by early 2018. CIPS said a fifth of British businesses were struggling to secure contracts that extend beyond March 2019, the date Britain is due to leave the EU.

Read more …

“Offenders can also theoretically be confined to a room in the Big Ben clock tower, although this power has not been used since 1880.”

UK Ministers ‘Could Be In Contempt Of Parliament Over Brexit Papers’ (G.)

Labour is to warn ministers on Monday that they risk being held in contempt of parliament if they do not immediately release dozens of papers outlining the economic impact of Brexit. The government conceded last week that it had to publish the 58 studies covering various parts of the economy after the move was supported in a Labour opposition motion that was passed unanimously on Wednesday. While normal opposition motions are advisory, Labour presented this one as a “humble address”, a rare and antiquated procedure which the Speaker, John Bercow, advised was usually seen as binding. The leader of the Commons, Andrea Leadsom, said on Thursday that the government accepted the motion as binding, and that “the information will be forthcoming”.

However, she gave no timescale – the government has previously said it will respond to opposition motions within 12 weeks – and indicated some elements of the papers would need to be redacted to avoid “disclosing information that could harm the national interest”. The Labour motion called for the papers to be released immediately to the Brexit select committee, which has a majority of Conservative MPs, and which would then decide what elements should not be published more widely. The shadow Brexit secretary, Keir Starmer, has warned that Labour will refer the matter to Bercow over possible contempt if the studies are not passed to the committee before parliament’s one-week recess begins on Tuesday.

The parliamentary rulebook, known as Erskine May after its 19th-century author, says actions that obstruct or impede the Commons “in the performance of its functions, or are offences against its authority or dignity, such as disobedience to its legitimate commands” be can viewed as contempt. MPs held in contempt can be asked to apologise, suspended or even expelled by their fellows. Offenders can also theoretically be confined to a room in the Big Ben clock tower, although this power has not been used since 1880.

Read more …

Yeah, yeah, but: “core shadow banking activity,” including entrusted loans, trust loans, and undiscounted bankers’ acceptances, continues to expand…”

China’s Shadow Banking Halts as Regulation Bites – Moody’s (BBG)

China’s shadow banking sector, estimated by some analysts to be worth 122.8 trillion yuan ($18.5 trillion), stopped growing in the first half of the year as issuance of wealth management products declined, according to Moody’s Investors Service. For the first time since 2012, China’s gross domestic product grew faster than shadow banking assets in the six-month period, Moody’s said in a statement Monday. Following last month’s Communist Party Congress, further regulation will continue to rein in shadow banking and address some of the key systemic imbalances, Moody’s said. While Moody’s assessment offers some evidence that China’s crackdown on shadow financing is starting to bite, authorities continue to sound the alarm on high debt levels.

In an article on the People’s Bank of China’s website late Saturday, Governor Zhou Xiaochuan pointed to latent risks that are “hidden, complex, sudden, contagious and hazardous.” Government, household and corporate debt adds up to about 260 percent of the economy, according to Bloomberg Intelligence. Moody’s said that shadow banking assets accounted for 83 percent of GDP on June 30, down from a peak of 87 percent in 2016. Michael Taylor, the company’s chief credit officer for the Asia-Pacific region, said “core shadow banking activity,” including entrusted loans, trust loans, and undiscounted bankers’ acceptances, continues to expand even as regulation has had an effect.

Read more …

The pressure on the judge(s) must be deafening.

Catalonia’s Puigdemont Conditionally Released By Belgian Judge (G.)

A Belgian judge has released the ousted Catalan leader, Carles Puigdemont, and four of his ministers under certain conditions after a hearing lasting more than 10 hours. Puigdemont, who faces charges of misuse of public funds, disobedience and breach of trust relating to the secessionist campaign, turned himself in to Belgian police earlier on Sunday. The judge decided to grant them conditional release late in the evening pending a ruling by a court within the next 15 days whether to execute the European arrest warrant issued by Spain. The five have been told they must not leave the country and stay in a fixed address. “The request made by the Brussels’ Prosecutor’s Office for the provisional release of all persons sought has been granted by the investigative judge,” a statement from the federal prosecutor’s office said.

On Friday, the Spanish government had issued European arrest warrants against Puigdemont, Antoni Comín, Clara Ponsatí, Meritxell Serret and Lluís Puig for trying to “illegally change the organisation of the state through a secessionist process that ignores the constitution”. The formal charges, punishable by 30 years in prison, are rebellion, sedition, embezzlement of public funds and disobedience to authority, for their role in organising the referendum on Catalan independence on 1 October. The secessionist politicians fled to Belgium on Monday after the Spanish authorities removed Puigdemont and his cabinet from office for pushing ahead with a declaration of independence following an illegal referendum. From his self-imposed exile, Puigdemont claimed he would not receive a fair trial in Spain but promised to cooperate with the Belgian justice system.

[..] In a sign of the growing headache the crisis is causing the Belgian coalition government, the country’s deputy prime minister, Jan Jambon, from the Flemish nationalist party, questioned Spain’s handling of the crisis in Catalonia and suggested the EU should intervene. “When the police hit people, we can still ask questions,” he said. “When the Spanish state has locked two opinion leaders, I have questions. And now the Spanish government will act in the place of a democratically elected government? “Members of a government are put in prison. What have they done wrong? Simply apply the mandate they received from their constituents.”

Read more …

Aug 252017
 
 August 25, 2017  Posted by at 8:30 am Finance Tagged with: , , , , , , , ,  


Sergio Larraín Valparaiso Passage Bavestrello 1952

 

78% of Americans Live Paycheck To Paycheck (CNBC)
Systemic Banking Fraud Means Next Crisis Will Be Worse (Feierstein)
Did the Economy Just Stumble Off a Cliff? (CHS)
Central Bank Balance Sheets Are Headed for a Great Divergence (BBG)
Low World Inflation Dogs Central Bankers, Even As Economies Grow (R.)
Amazon’s Plans to Cut Food Prices Will Be a Headache for the Fed (BBG)
Has The Fed Completely Lost Control (Roberts)
No Alternative To Austerity? That Lie Has Now Been Nailed (G.)
Germany Slammed For Domestic Under-Spending (Ind.)
EU States Begin Returning Refugees To Greece As German Reunions Slow (G.)
Yemen: The War No One Is Allowed To Know About (NS)
3,700-Year-Old Babylonian Clay Tablet Just Changed The History of Maths (SA)
Hurricane Harvey Has All the Ingredients to Become a Monster (AP)

 

 

Forget about Jackson Hole. This is America.

78% of Americans Live Paycheck To Paycheck (CNBC)

No matter how much you earn, getting by is still a struggle for most people these days. 78% of full-time workers said they live paycheck to paycheck, up from 75% last year, according to a recent report from CareerBuilder. Overall, 71% of all U.S. workers said they’re now in debt, up from 68% a year ago, CareerBuilder said. While 46% said their debt is manageable, 56% said they were in over their heads. About 56% also save $100 or less each month, according to CareerBuilder. The job-hunting site polled over 2,000 hiring and human resource managers and more than 3,000 full-time employees between May and June.

Most financial experts recommend stashing at least a six-month cushion in an emergency fund to cover anything from a dental bill to a car repair — and more if you are the sole breadwinner in your family or in business for yourself. While household income has grown over the past decade, it has failed to keep up with the increased cost-of-living over the same period. Even those making over six figures said they struggle to make ends meet, the report said. Nearly 1 in 10 of those making $100,000 or more said they usually or always live paycheck to paycheck, and 59% of those in that salary range said they were in the red.

Read more …

“Someone once alerted me to the Bohica syndrome. Bohica? I asked.

He sneered: “Bend Over, Here It Comes Again.”

Systemic Banking Fraud Means Next Crisis Will Be Worse (Feierstein)

Henry Paulson. Hank. Remember him? Of the crisis in 2008, he said: “Where I come from, if someone takes a risk and they’re going to make the profit from that risk, they shouldn’t have the taxpayer pay for the losses.” Quite the wisdom one expects from the 74th US Secretary of the Treasury. Yet, as Paulson played pass the parcel with the rest of us, it was he who unwrapped the final layer when the music stopped, and discovered that the prize within was a grenade. Understandable, therefore, that he offered a second opinion somewhat in contrast to his first: “It’s better to have the taxpayer pay for the losses than have the United States of America become an economic wasteland. If the financial system collapses, it’s really, really hard to put it back together again.”

Well, it did, and it was. Two years after the fall of Lehman Brothers, former Federal Reserve chairman Alan Greenspan was still reflecting on the solution. “There are two fundamental reforms we need — to get adequate capital and… far higher levels of enforcements of… fraud statutes.” So what progress has been made in the efforts to reduce the risks of another crisis? Not enough. In a letter this year to Bank of England’s Governor, Mark Carney, (in his capacity as chairman of the Financial Stability Board), the Senior Supervisors Group reported that “firms’ progress toward consistent, timely, and accurate reporting of top counterparty exposures fails to meet supervisory expectations”. It said there is still too little reform, and too little essential knowledge of counterparty risk.

But what of Greenspan’s assertions of criminal behaviour in financial markets? Again, no change. Market manipulation is not a conspiracy theory. The Bank of Japan has manoeuvred its bond market to a point where bond futures no longer trade. Its interventions have distorted free-market pricing mechanisms to the point that risk is virtually impossible to quantify. But the most pressing concern is the behaviour of central banks, which had previously appeared a solid safe haven.

Read more …

Guess where the trillions went?!

Did the Economy Just Stumble Off a Cliff? (CHS)

The signs are everywhere for those willing to look: something has changed beneath the surface of complacent faith in permanent growth. This is more intuitive than quantitative, but my gut feeling is that the economy just stumbled off a cliff. Neither the cliff edge nor the fatal misstep are visible yet; both remain in the shadows of the intangible foundation of the economy: trust, animal spirits, faith in authorities’ management, etc. Since credit expansion is the lifeblood of the global economy, let’s look at credit expansion. Courtesy of Market Daily Briefing, here is a chart of total credit in the U.S. and a chart of the%age increase of credit. Notice the difference between credit expansion in 1990 – 2008 and the expansion of 2009 – 2017. Credit expanded by a monumental $40+ trillion in 1990 – 2008 without any monetary easing (QE) or zero-interest rate policy (ZIRP). The expansion of 2009 – 2017 required 8 long years of massive monetary/fiscal stimulus and ZIRP.

This chart of credit change (%) reveal just how lackluster the current expansion of credit has been, despite unprecedented trillions of stimulus pumped into the financial sector.

Back in the real world, have you noticed a slowing of animal spirits borrowing and spending? Have you tightened up your household budget recently, or witnessed cutbacks in the spending habits of friends and family? Have you noticed retail parking lots aren’t very full nowadays, and once-full cafes now have empty tables? According to the conventional economic statistics, everything’s going great: there are millions of job openings, unemployment is near historic lows, GDP is expanding nicely and of course, everyone’s favorite signifier of wonderfulness, the stock market, is hovering near all-time highs.

The possibility that the real economy just stumbled off a cliff creates instant cognitive dissonance, as the official narrative is the economy is expanding slowly but surely and everything is nominal: there’s plenty of everything, from oil/gas to consumer credit to jobs to student loans. Nonetheless, I feel a disturbance in the Force: once credit expansion slows or ceases, the economy will roll over into recession, as wages have been stagnant for the past 17 years, and the bottom 95% of households can only spend more if they borrow more.

Read more …

The Fed is going to raise rates as Japan and Europe continue to buy everything not bolted down? Boy, I’d like to see that happen…

Central Bank Balance Sheets Are Headed for a Great Divergence (BBG)

A brief convergence this year in the dollar value of the balance sheets of the Federal Reserve, the European Central Bank and the Bank of Japan has passed and the trio are now set to take very different paths. After all three touched $4.5 trillion in April, they’ve split, mostly due to a rally in the euro and strength in the yen. With expectations that Janet Yellen may begin whittling away at the Fed’s balance sheet in the next few months, and the BOJ set to carry on with its unprecedented asset purchases, the Japanese central bank may find itself carrying something approaching double the load of its American counterpart two years from now. The ECB’s picture is much more difficult to discern, and investors will be listening intently on Friday when Mario Draghi speaks at the annual Jackson Hole summit of central bankers in Wyoming. With Europe’s recovery gathering pace, officials may start talks this fall about a strategy for 2018 that could include gradually reducing net purchases to zero.

When it comes to the size of the balance sheets relative to the economies of the U.S., Europe and Japan, Haruhiko Kuroda’s BOJ is already the uncontested heavyweight, and will keep extending its lead. The BOJ doesn’t expect to hit its 2% inflation target until sometime around the fiscal year starting in April 2019, dictating the need for hefty asset purchases for years to come. This divergence has big implications for the central banks the next time crisis threatens the global economy. The Fed and the ECB are likely to have more room to dive back into asset purchases or cut interest rates, while the BOJ may find itself pinned down unless it can find a way out of its current predicament before the next problem comes along.

Read more …

Are central bankers really this dumb?

Low World Inflation Dogs Central Bankers, Even As Economies Grow (R.)

The world’s top central bankers gather in Jackson Hole, their confidence bolstered by a sustained return to economic growth that may eventually allow the European Central Bank and the Bank of Japan to follow the Federal Reserve in winding down their crisis-era policies. Yet in one key area, none of the world’s central banks has found the answer. Inflation remains well below their 2% targets, stoking a debate about whether they are missing signals of a less than healthy economy and the need for a slower path of “rate normalization”, or that they simply don’t understand how inflation works in a globalized world. In Japan, officials have researched behavioral causes, wondering whether businesses and families are just slower to react to economic signals than thought. European officials have blamed slow-moving union wage contracts and online shopping, while U.S. policymakers have cited a lengthy sequence of “one-offs” in pricing from oil to cellphones to prescription drugs.

In each case the response of policymakers has been the same: wait it out and talk confidently about inflation’s return, as the Fed has put it since 2013, over “the medium term”. “Yes, our models aren’t perfect… Certainly the fact that we have had some low inflation readings is something that we take very seriously,” said Cleveland Fed President Loretta Mester. Yet Mester is convinced the problem is not a weakening economy, but changes in how businesses set prices – a supply side issue she says leaves her comfortable pressing ahead with slow but steady interest rate increases. Not everyone is convinced by Mester’s approach. Concerns over the significance of a recent slide in inflation have renewed questions about whether a global tightening of monetary policy can proceed, with U.S. investors betting the Fed will have to hold off on more rate changes until later next year.

[..] The use of inflation targeting has been an important innovation in central banking, rooted in theories of how public expectations, central bank communication and other factors shape economic behavior. It was a recognition that how policymakers talked about inflation, and what households believed, would in part determine the outcome. But the developed world’s alignment around a 2% target has become a headache as much as a policy guide, with central banks trying to estimate and regulate something they acknowledge they don’t fully understand. Bank of Japan consultants have puzzled over whether people shop and save as if they fully see the future, or whether they look at the past and only slowly adapt to change. If the latter, then what central banks say is less important. [..] “Look, inflation is hard to forecast,” Mester said in an interview with Reuters, noting that the most elaborate models don’t do much better than simply saying inflation will be 2% and leaving it at that.

Read more …

Finance humor.

Amazon’s Plans to Cut Food Prices Will Be a Headache for the Fed (BBG)

Amazon’s plans to cut prices at Whole Foods is great news for shoppers, but not so much for Federal Reserve officials wondering whether they’ll ever hit their 2% inflation target. A low unemployment rate is supposed to boost inflation, or so the economic theory goes. One possible reason it’s not happening, according to the minutes of the central bank’s latest meeting in July: “Restraints on pricing power from global developments and from innovations to business models spurred by advances in technology.” Chicago Fed President Charles Evans earlier this month mused that “people are utilizing newer technologies, competition is emerging from unexpected places – not necessarily your nearest competitor but somebody else – and that could lead to reduced margins and downward price pressure for some period of time.”

Read more …

Many years ago.

Has The Fed Completely Lost Control (Roberts)

An interesting thing happened on the way to World Domination, uhh, I mean “Stability” – the data quit cooperating with the Federal Reserve’s carefully devised plan. Just recently the Federal Reserve quit updating their carefully constructed “Labor Market Conditions Index” which failed to support their ongoing claims of improving employment conditions. The chart below is the last iteration before it was discontinued which showed a clear deterioration in underlying strength.

The problem for the Fed in making the decision to discontinue their own Labor Market Conditions Index, which is likely providing a more accurate picture of the real conditions, is being forced to remain tied to an outdated U-3 employment index. As noted recently by Morningside Hill:

“There is sufficient evidence to suggest the Bureau of Labor Statistics (BLS) calculation method has been systemically overstating the number of jobs created, especially in the current economic cycle. Furthermore, the BLS has failed to account for the rise in part-time and contractual work arrangements, while all evidence points to a significant and rapid increase in the so-called contingent workforce as full-time jobs are being replaced by part-time positions, resulting in double and triple counting of jobs via the Establishment Survey. Lastly, a full 93% of the new jobs reported since 2008 and 40% of the jobs in 2016 alone were added through the business birth and death model – a highly controversial model which is not supported by the data. On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship.”

This last point was something I have addressed many times previously, the chart below shows the actual employment roles in the U.S. when stripping out the Birth/Death Adjustment model. With such a large overstatement of actual employment, the flawed model does support the idea of a tight labor market.

Unfortunately, despite arguments to the contrary, there is little support for why the bulk of Americans that should be working, simply aren’t.

Read more …

Not everyone is completely nuts.

No Alternative To Austerity? That Lie Has Now Been Nailed (G.)

Ever since the banks plunged the western world into economic chaos, we have been told that only cuts offer economic salvation. When the Conservatives and the Lib Dems formed their austerity coalition in 2010, they told the electorate – in apocalyptic tones – that without George Osborne’s scalpel, Britain would go the way of Greece. The economically illiterate metaphor of a household budget was relentlessly deployed – you shouldn’t spend more if you’re personally in debt, so why should the nation? – to popularise an ideologically driven fallacy. But now, thanks to Portugal, we know how flawed the austerity experiment enforced across Europe was. Portugal was one of the European nations hardest hit by the economic crisis. After a bailout by a troika including the IMF, creditors demanded stringent austerity measures that were enthusiastically implemented by Lisbon’s then conservative government.

Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, and the working day was extended. In a two-year period, education spending suffered a devastating 23% cut. Health services and social security suffered too. The human consequences were dire. Unemployment peaked at 17.5% in 2013; in 2012, there was a 41% jump in company bankruptcies; and poverty increased. All this was necessary to cure the overspending disease, went the logic. At the end of 2015, this experiment came to an end. A new socialist government – with the support of more radical leftwing parties – assumed office. The prime minister, António Costa, pledged to “turn the page on austerity”: it had sent the country back three decades, he said. The government’s opponents predicted disaster – “voodoo economics”, they called it.

Perhaps another bailout would be triggered, leading to recession and even steeper cuts. There was a precedent, after all: Syriza had been elected in Greece just months earlier, and eurozone authorities were in no mood to allow this experiment to succeed. How could Portugal possibly avoid its own Greek tragedy? The economic rationale of the new Portuguese government was clear. Cuts suppressed demand: for a genuine recovery, demand had to be boosted. The government pledged to increase the minimum wage, reverse regressive tax increases, return public sector wages and pensions to their pre-crisis levels – the salaries of many had plummeted by 30% – and reintroduce four cancelled public holidays. Social security for poorer families was increased, while a luxury charge was imposed on homes worth over €600,000 (£550,000).

The promised disaster did not materialise. By the autumn of 2016 – a year after taking power – the government could boast of sustained economic growth, and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved, to 2.1% – lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules.

Read more …

But it’s about political power, not economics: “Germany has a bigger surplus even than China, they should spend it in the European economy.” By bleeding Europe dry, Germany expands its dominance.

Germany Slammed For Domestic Under-Spending (Ind.)

A Nobel economics laureate, Sir Christopher Pissarides, has hit out at Germany’s refusal to increase its domestic state spending in order to help entrench the eurozone’s recovery. Speaking at the Lindau meetings in Germany on Wednesday, Sir Christopher said that despite the bounce back in the single currency zone in recent months after years of crisis, the Continent’s largest economy was still exerting a damaging and unnecessary drag. “German fiscal policy is not at all what some countries still need,” he said, arguing that demand across the single currency zone was still too low. “Why is there no demand? Because of German fiscal policies! There is austerity, there is low infrastructure spending and therefore companies are hesitating [on] investment.” “Where is expansion going to come from? It’s going to come from the surplus countries spending more. Germany has a bigger surplus even than China, they should spend it in the European economy.”

The German government is running a fiscal budget surplus and its current account surplus (the difference between its total national spending and total national income) of $294bn in 2016 has drawn criticism from a host of economic bodies, including the IMF, for similar reasons as those advanced by Sir Christopher. Sir Christopher, who was awarded the Nobel in 2010 for his theoretical breakthroughs on labour market analysis, said that countries such as Spain had pushed through major and necessary job market reforms in 2010 and 2011 in the teeth of its sovereign debt crisis. The official headline Spanish unemployment rate currently stands at 17.3%, down from a 2013 peak of 27%. But Sir Christopher said it should be falling faster and that higher German state spending would help. “It’s certainly the case that if the European economy as a whole expanded faster we would see faster positive results from these [labour market] reforms,” he said.

Read more …

Completely nuts.

EU States Begin Returning Refugees To Greece As German Reunions Slow (G.)

European countries are poised to begin the process of returning refugees to Greece, as migrants seeking reunification with their family members – mostly in Germany – step up protests in Athens. In a move decried by human rights groups, EU states will send back asylum seekers who first sought refuge in Greece, despite the nation being enmeshed in its worst economic crisis in modern times. Germany has made nearly 400 resettlement requests, according to officials in Berlin and sources in Athens’ leftist-led government. The UK, France, the Netherlands and Norway have also asked that asylum seekers be returned to Greece. Greece’s migration minister told the Guardian the first returns were expected imminently.

“The paperwork has begun and we expect returns to begin over the next month,” said Yannis Mouzalas. “It will start with a symbolic number as an act of friendship [towards other EU nations]. Greece has already accepted so many [refugees], it has come under such pressure, that to accept more would be absurd, a joke if it weren’t such a tragedy.” Mouzalas said he had no idea where the returnees would be placed or whether they would ever leave Greece. “I don’t know where they will go. It could be Athens, it could be Thebes … they are accommodated in an apartment scheme,” he said. “Whatever [happens], conditions will be good, they have improved greatly and will meet EU criteria.”

[..] On Monday a reported 330 migrant arrivals were registered on Greece’s eastern Aegean isles, piling the pressure on overcrowded and vastly overstretched reception centres in Lesvos, Chios, Kos, Leros and Samos. An estimated 14,335 people are currently in limbo in accommodation centres on the Greek islands, according to figures released by the country’s interior ministry on Thursday. Conditions in the centres are described as deplorable, and protests and riots are commonplace. Human Rights Watch recently said self-harm and suicide attempts along with aggression, anxiety and depression were all on the rise. Local services complain about being unable to cope.

Read more …

Our friends and allies.

Yemen: The War No One Is Allowed To Know About (NS)

Ten thousand people have died. The world’s largest cholera epidemic is raging, with more than 530,000 suspected cases and 2,000 related deaths. Millions more people are starving. Yet the lack of press attention on Yemen’s conflict has led it to be described as the “forgotten war”. The scant media coverage is not without reason, or wholly because the general public is too cold-hearted to care. It is very hard to get into Yemen. The risks for the few foreign journalists who gain access are significant. And the Saudi-led coalition waging war in the country is doing its best to make it difficult, if not impossible, to report from the area. Working in Sana’a as a fixer for journalists since the start of the uprisings of the so-called Arab Spring in 2011 has sometimes felt like the most difficult job in the world.

When a Saudi-led coalition started bombing Yemen in support of its president, Abdrabbuh Mansour Hadi, in March 2015, it became even harder. With control of the airspace, last summer they closed Sana’a airport. The capital had been the main route into Yemen. Whether deliberately or coincidentally, in doing so, the coalition prevented press access. The media blackout came to the fore last month, when the Saudi-led coalition turned away an extraordinary, non-commercial UN flight with three BBC journalists on board. The team – including experienced correspondent Orla Guerin – had all the necessary paperwork. Aviation sources told Reuters that the journalists’ presence was the reason the flight was not allowed to land. The refusal to allow the press to enter Yemen by air forced them to find an alternative route into the country – a 13-hour sea crossing.

Read more …

Sorry, Greece… (btw, it took a century to figure this out)

3,700-Year-Old Babylonian Clay Tablet Just Changed The History of Maths (SA)

A Babylonian clay tablet dating back 3,700 years has been identified as the world’s oldest and most accurate trigonometric table, suggesting the Babylonians beat the ancient Greeks to the invention of trigonometry by over 1,000 years. The tablet, known as Plimpton 322, was discovered in the early 1900s in what is now southern Iraq, but researchers have always been baffled about what its purpose was. Thanks to a team from the University of New South Wales (UNSW) in Australia, the mystery may have been solved. More than that, the Babylonian method of calculating trigonometric values could have something to teach mathematicians today. “Our research reveals that Plimpton 322 describes the shapes of right-angle triangles using a novel kind of trigonometry based on ratios, not angles and circles,” says one of the researchers, Daniel Mansfield.

“It is a fascinating mathematical work that demonstrates undoubted genius.” Experts established early on that Plimpton 322 showed a list of Pythagorean triples, sets of numbers that fit trigonometry models for calculating the sides of a right-angled triangle. The big debate has been about what those triples were actually for. Are they just a series of exercises for teaching, for example? Or are they something more profound? Babylonian mathematics used a base 60 or sexagesimal system (like the minute markers on a clock face), rather than the base 10 or decimal system we use today. By applying Babylonian mathematical models, the researchers were able to show that the tablet would originally have had 6 columns and 38 rows. They also show how the mathematicians of the time could’ve used the Babylonian system to come up with the numbers on the tablet.

The researchers suggest that the tablet may well have been used by ancient scribes to make calculations for building palaces, temples, and canals. But if the new study is right, then the Greek astronomer Hipparchus, who lived about 120 BC, is not the father of trigonometry that he’s long been regarded as. Scholars date the tablet to around 1822-1762 BC. What’s more, because of the way the Babylonians did their maths and geometry, it’s the most accurate trigonometric table as well as the oldest. The reason is that a sexagesimal system has more exact fractions than a decimal system, which means less rounding up. Whereas only two numbers can divide 10 with nothing left over – 2 and 5 – a base 60 system has far more. Cleaner fractions means fewer approximations and more accurate maths, and the researchers suggest we can learn from it today.

Read more …

Don’t want to cry wolf, but.. Be safe!

Hurricane Harvey Has All the Ingredients to Become a Monster (AP)

Hurricane Harvey is following the perfect recipe to be a monster storm, meteorologists say. Warm water. Check. Calm air at 40,000 feet high. Check. Slow speed to dump maximum rain. Check. University of Miami senior hurricane researcher Brian McNoldy said Harvey combines the worst attributes of nasty recent Texas storms: The devastating storm surge of Hurricane Ike in 2008; the winds of Category 4 Hurricane Brett in 1999 and days upon days of heavy rain of Tropical Storm Allison in 2001. Rainfall is forecast to be as high as 35 inches through next Wednesday in some areas. Deadly storm surge — the push inwards of abnormally high ocean water above regular tides — could reach 12 feet, the National Hurricane Center warned, calling Harvey life-threatening. Harvey’s forecast path is the type that keeps it stronger longer with devastating rain and storm-force wind lasting for several days, not hours.

“It’s a very dangerous storm,” National Weather Service Director Louis Uccellini told AP. “It does have all the ingredients it needs to intensify. And we’re seeing that intensification occur quite rapidly.” Warm water is the fuel for hurricanes. It’s where storms get their energy. Water needs to be about 79 degrees (26 Celsius) or higher to sustain a hurricane, McNoldy said. Harvey is over part of the Gulf of Mexico where the water is about 87 degrees or 2 degrees above normal for this time of year, said Jeff Masters, a former hurricane hunter meteorologist and meteorology director of Weather Underground. A crucial factor is something called ocean heat content. It’s not just how warm the surface water is but how deep it goes. And Harvey is over an area where warm enough water goes about 330 feet (100 meters) deep, which is a very large amount of heat content, McNoldy said.

“It can sit there and spin and have plenty of warm water to work with,” McNoldy said. If winds at 40,000 feet high are strong in the wrong direction it can decapitate a hurricane. Strong winds high up remove the heat and moisture that hurricanes need near their center and also distort the shape. But the wind up there is weak so Harvey “is free to go nuts basically,” McNoldy said.

Read more …

Mar 062017
 
 March 6, 2017  Posted by at 10:03 am Finance Tagged with: , , , , , , , , , ,  


Dorothea Lange Negro woman who has never been out of Mississippi July 1936

 

The Government Doesn’t Actually Want Housing To Be More Affordable (SMH)
In Praise Of Cash (Aeon)
Basic Income Isn’t Just A Nice Idea. It’s A Birthright (G.)
Oil Falls On Lower China Growth Targets, Doubts On Russian Output Curbs (R.)
China’s Credit Target Implies Adding Entire German GDP This Year (BBG)
Record-Breaking Stocks A Bad Reason For The Fed To Raise Interest Rates (BI)
Leaving The EU Is The Start Of A Liberal Insurgency (Carswell)
Deutsche Bank CEO Cryan Has A New Strategy: Reverse His Old Strategy (BBG)
Renzi’s Return Clouded By Probe Into Father, Government Minister (BBG)
The Iraq War Stench Lingers Behind Today’s Preoccupation With Fake News (G.)
Saudi Arabia Stealing 65% of Yemen’s Oil in Collaboration with US, Total (AHT)
Turkey’s Erdogan Compares German Behavior With Nazi Period (R.)
US Asks Ankara For Steps To Ease Aegean Tension (K.)
Greece Desperate For Growth Strategy As Public Mood Darkens (G.)
Polluted Environments Kill 1.7 Million Children A Year (R.)

 

 

From Australia, but applicable worldwide. Mortgages in housing bubbles are the main engine of money (credit) creation in our economies. Boith governments and banks depend on them for profit, taxes and ultimately survival. Imagine if housing prices halved, the entire construct would collapse. They’ll do anything to keep the game going. And then they will fail.

The Government Doesn’t Actually Want Housing To Be More Affordable (SMH)

The federal government’s problem with making housing more affordable is that it becomes, by definition, cheaper. And that’s not something that the federal government wants to see happen for some very understandable reasons. Back in the Howard era Australians were encouraged to invest in housing as a form of wealth creation, partially as a way of addressing rental strain and mainly as a way to ensure people had assets and therefore didn’t go selfishly claiming pensions later on. That’s when the negative gearing and capital gains exemptions were introduced that made buying property such a sweet deal. So now there are a lot of Australians who have put their retirement eggs in the basket marked “leveraging the hell out of my mortgage to buy more investment properties” for the last couple of decades and who will be therefore disadvantaged if the value of housing drops.

And then there’s pure self interest at work too, since between a third and half of all our representatives have investment properties – the PM himself owns seven properties, for example. How keen would you say that our parliamentary representatives are to make their portfolios drop in value, especially for something as stupid as the greater good? Also, as well we know thanks to the efforts of the NSW Independent Commission Against Corruption, the NSW Liberals are so beloved by property developers that the party went to some effort to find a way of accepting donations from them despite those donations being completely illegal. If they suddenly become the party that makes property less lucrative, there’d be no donations to justify the creation of opaque entities like the Free Enterprise Foundation.

[..] Will housing become more affordable in Australia? Absolutely! And it could happen one of two ways. This complex web of legislation can be gently and strategically unpicked via careful bipartisan cooperation across our different spheres of government in concert with the private sector in an effort to create a sane, universally beneficial housing system at all levels. Alternatively, we can choose to leave things be until the housing bubble bursts and plunges Australia into a crippling recession. And since this is politics in 2017, we can assume that Plan A is already off the table.

Read more …

Using cash is fast becoming a revilutionary act.

In Praise Of Cash (Aeon)

The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge. The first is the banking industry, which controls the core digital fiat money system that our public system of cash currently competes with. It irritates banks that people do indeed act upon their right to convert their bank deposits into state money. It forces them to keep the ATM network running. The cashless society, in their eyes, is a utopia where money cannot leave – or even exist – outside the banking system, but can only be transferred from bank to bank.

The second is the private payments industry – the likes of Mastercard – that profits from running the infrastructure that services that bank system, streamlining the process via which we transfer digital money between bank accounts. They have self-serving reasons to push for the removal of the cash option. Cash transactions are peer-to-peer, requiring no intermediary, and are thus transactions that Visa cannot skim a cut off. The third – perhaps ironically – is the state, and quasi-state entities such as central banks. They are united with the financial industry in forcing everyone to buy into this privatised bank-payments society for reasons of monitoring and control. The bank-money system forms a panopticon that enables – in theory – all transactions to be recorded, watched and analysed, good or bad. Furthermore, cash’s ‘offline’ nature means it cannot be remotely altered or frozen.

This hampers central banks in implementing ‘innovative’ monetary policies, such as setting negative interest rates that slowly edit away bank deposits in order to coerce people into spending. Governments don’t really mention that monetary policy agenda. It isn’t catchy enough. Rather, the key weapons used by the alliance are more classic shock-and-awe scare tactics. Cash is used by criminals! People buy drugs with cash! It’s the black economy! It supports tax evasion! The ability to present control as protection relies on constant calls to imagine an external enemy, the terrorist or Mafiosi. These cries of moral panic are set in contrast to the glossy smiling adverts about digital payment. The emerging cashless society looms like a futuristic sunrise, cleansing us of these dangerous filthy notes with rays of hygienic, convenient, digital salvation.

Read more …

From Thomas Paine to Henry George, the reason for UBI has long been known. Call it ‘ground rent’ or ‘land value tax’. Tax the ownership class, not the workers. ‘Birthright’ may sound strange today, but is it really?

Basic Income Isn’t Just A Nice Idea. It’s A Birthright (G.)

Every student learns about Magna Carta, the ancient scroll that enshrined the rights of barons against the arbitrary authority of England’s monarchs. But most have never heard of its arguably more important twin, the Charter of the Forest, issued two years later in 1217. This short but powerful document guaranteed the rights of commoners to common lands, which they could use for farming, grazing, water and wood. It gave official recognition to a right that humans nearly everywhere had long just presupposed: that no one should be debarred from the resources necessary for livelihood. But this right – the right of habitation – came under brutal attack beginning in the 15th century, when wealthy nobles began fencing off common lands for their own profit.

[..] the success of basic income – in both the north and south – all depends on how we frame it. Will it be cast as a form of charity by the rich? Or will it be cast as a right for all? Thomas Paine was among the first to argue that a basic income should be introduced as a kind of compensation for dispossession. In his brilliant 1797 pamphlet Agrarian Justice, he pointed out that “the earth, in its natural, uncultivated state was, and ever would have continued to be, the common property of the human race”. It was unfair that a few should enclose it for their own benefit, leaving the vast majority without their rightful inheritance. As far as Paine was concerned, this violated the most basic principles of justice.

Knowing that land reform would be politically impossible (for it would “derange any present possessors”), Paine proposed that those with property should pay a “ground rent” – a small tax on the yields of their land – into a fund that would then be distributed to everyone as an unconditional basic income. For Paine, this would be a right: “justice, not charity”. It was a powerful idea, and it gained traction in the 19th century when American philosopher Henry George proposed a “land value tax” that would fund an annual dividend for every citizen. The beauty of this approach is that it functions as a kind of de-enclosure. It’s like bringing back the ancient Charter of the Forest and the right of access to the commons. It restores the right to livelihood – the right of habitation.

Read more …

Yeah, output cuts. Sure.

Oil Falls On Lower China Growth Targets, Doubts On Russian Output Curbs (R.)

Oil prices fell in Asian trade on Monday, wiping out some of the gains of the previous session amid worries lower growth targets in China could cut oil demand and ongoing concern over Russia’s compliance with a global deal to cut oil output. But worries over escalating violence in the Middle East put a floor under prices. Brent crude futures dropped 29 cents, or 0.5%, to $55.61 a barrel as of 0638 GMT after settling 1.5% higher in the previous session. U.S. West Texas Intermediate (WTI) crude futures fell 30 cents, or 0.6%, to $53.03 a barrel after closing the previous session up 1.4%. “The main drag affecting markets today is the lowering of growth targets by China and tighter regulatory controls which implies less demand for oil and commodities in general,” said Jeffrey Halley at Oanda brokerage in Singapore.

China aims to expand its economy by around 6.5% this year, Premier Li Keqiang said in his work report at the opening of the annual meeting of parliament on Sunday. That is lower than the 6.7% growth achieved last year. China also plans to cut steel and coal output this year in an effort to tackle pollution, its top economic planner said on Sunday, while China’s newly appointed banking regulator vowed on to strengthen supervision of the lending sector. Meanwhile, figures by Russia’s energy ministry released last week showed February oil output was unchanged from January at 11.11 million barrels per day (bpd), casting doubt on Russia’s moves to rein in output as part of a pact with oil producers last year. That came as oil prices rose on Friday as the dollar weakened modestly after a speech by Fed Chair Janet Yellen, which suggested a rate increase would come at the end of its two-day meeting on March 15.

Read more …

“China’s great ball of money.”

China’s Credit Target Implies Adding Entire German GDP This Year (BBG)

China’s credit engine will keep humming this year, adding the rough equivalent of Germany’s annual economic output to its already massive stock of total social financing (TSF), according to estimates derived from the nation’s 2017 targets. Adding higher equity market financing and about 5 trillion yuan ($725 billion) worth of local government bond swaps to the official credit growth target of 12%, analysts at UBS see TSF expansion of 14.8% this year. They calculate that’s equal to a whopping 23 trillion yuan, or $3.3 trillion, addition to the amount of total credit already swishing around the world’s second-largest economy. “China’s pace of leverage increase will be slowing, albeit not by that much,” economists led by Hong Kong-based Wang Tao wrote in a report.

“The government’s intention for a still strong pace of credit growth and recent notable tightening in China’s money market and bond market attest to the difficulties facing the PBC in balancing monetary policy.” China’s great ball of money creates a constant headache for policy makers as money flows from asset class to asset class, creating bubbles along the way. It’s a particular dilemma for the People’s Bank of China because it needs new credit to generate the kind of growth its leaders desire – around 6.5% or higher if possible this year. The M2 money supply target was cut to 12% this year from 13% in 2016, while still higher than the 11.3% actual expansion last year.

Read more …

So wrong so many times, and still taken serious. You’d almost admire them for it.

Record-Breaking Stocks A Bad Reason For The Fed To Raise Interest Rates (BI)

Federal Reserve officials say their decisions on interest rate policy hinge on the ebb and flow of economic data, not the whims of financial markets. They have repeatedly downplayed the effect of short-term market fluctuations in their policy moves, aimed at maintaining a strong labor market and 2% inflation over the medium term. But the thing about markets is, they don’t really matter until they suddenly do. That may be the case at the moment, with Fed officials suddenly signaling in unison, without major changes in the economic data, that an increase in interest rates is coming this month. Investors accordingly shifted from considering a March hike as rather a long shot to seeing it as a near sure possibility in just two weeks. What changed? The stock market continued to set new records without much underlying economic impetus.

When the Fed released minutes from its end of January meeting, they showed members “expressed concern that the low level of implied volatility in equity markets appeared inconsistent with the considerable uncertainty attending the outlook.” The Fed comments on the broad health of the financial markets all the time, but that kind of focus on stock volatility is less common. Fed Chair Janet Yellen and her Vice Chair Stanley Fischer, both speaking on March 3, appeared to seal the deal for a rate increase at the Fed’s upcoming March 14-15 meeting — with Yellen indicating that a hike is coming barring a drastic disappointment in next week’s February jobs report. Fischer was also was fairly unequivocal. “If there has been a conscious effort to move up our hike expectations I am going to join it,” he told a monetary policy conference in New York, sponsored by the University of Chicago’s Booth School of Business.

Read more …

Carswell is the only MP for Ukip. Farage hates him now. But he has some points: “Trump – or Geert Wilders in the Netherlands – is where you end up when you ignore legitimate public concerns and there isn’t a safety valve. “

Leaving The EU Is The Start Of A Liberal Insurgency (Carswell)

What is Nigel Farage so cross about? We won the EU referendum, for goodness sake. Since 23 June, I’ve been walking on sunshine. My mood has been a state of Zen-like bliss. Alongside Boris Johnson, David Owen, Gisela Stuart and all of those involved in the official Vote Leave campaign, I spent the referendum arguing that leaving the EU would be an opportunity to make Britain more open, outward-looking and globally competitive. It is becoming increasingly clear to me that this is where Brexit is going to take us. [..] Brexit is often bracketed alongside the election of Donald Trump and the rise of the new radical populist movements in many western countries. But to me the EU referendum result was a safety valve. Trump – or Geert Wilders in the Netherlands – is where you end up when you ignore legitimate public concerns and there isn’t a safety valve.

Throughout history oligarchy has emerged in societies in which power was previously dispersed: in the late Roman republic, and in early modern times in the Venetian and then the Dutch republics. Each time, the emergence of oligarchy was always accompanied by an anti-oligarch insurgent reaction.Many of today’s new radical movements aren’t oligarchs, but an anti-oligarchy insurgency. Trump is no American Caesar about to cross some constitutional Rubicon. Yet such insurgents often ended up unwittingly assisting the oligarchs. In Rome the Gracchi brothers, with their Trump-like concern about cheap migrant labour, caused so much civil strife that an all-powerful emperor seemed a better bet. In Venice, the anti-oligarch rebel Bajamonte launched an unsuccessful coup – and in doing so gave the elite a pretext to create a new, superpowerful executive arm of government, the Council of Ten.

Created to respond to the crisis for six weeks, it ran the republic for the next 600 years. The Dutch anti-oligarch De Witt was so inept, he paved the way for the return of a strong stadtholder, or king. So, too, today. If chaotic, angry insurgents such as France’s Marine Le Pen and the rightwing populist Alternative for Germany party are the alternative, then being governed by remote, unaccountable elites sitting in central banks and Brussels doesn’t seem so unattractive after all. But Brexit isn’t anything like that. It is the beginning of a liberal insurgency. Brexit means that we take back control from the supranational elite. Power can be dispersed outward and downwards. Those who make public policy might once more answer to the public. Cheer up – it might even mean that there is less space for anger in our politics too.

Read more …

“Even after a recent rally, the stock is 29% lower than when Cryan took the helm in 2015…”

Deutsche Bank CEO Cryan Has A New Strategy: Reverse His Old Strategy (BBG)

Deutsche Bank CEO John Cryan tore up his own turnaround plan in an admission that the 17-month-old effort flopped. Germany’s largest bank late Sunday approved measures – most crucially, plans to raise about $8.5 billion in a share sale – that effectively restart what has already been the most turbulent transformation in its recent history. Among the moves: naming two deputy CEOs who may now be positioned to succeed Cryan; selling a piece of the asset-management business and abandoning the sale of the consumer-banking unit, which was the linchpin of the blueprint he scrapped. Speaking on Monday, Cryan said the deputies were installed at his request as the company will focus more on the German market with the reintegration of Postbank, which he said reflects a strong performance by the unit and a changed environment for banks.

Yet the developments underscore how, almost two years after he took over, Deutsche Bank has been unable to plot a course to a more profitable future while seeking to eliminate 9,000 jobs. “We want to move back into modest growth mode, controlled growth,” Cryan said in the interview. “The operating environment in the U.S. but also increasingly in the euro zone and especially in Germany looks strong. And so I’m reasonably confident about the future.” Deutsche Bank fell 5.4% at 9:16 a.m. in Frankfurt trading, the biggest drop more than four weeks. Before today, the shares had rallied 44% in the past six months. Even though they’re being tapped for a capital infusion for the fourth time since 2010, some investors welcomed the developments as a way to end questions about the firm’s financial strength. S

elling a minority stake in the asset-management unit within the next two years and unloading some assets at the investment bank will help raise another 2 billion euros ($2.1 billion) of capital. Deutsche Bank’s last three capital increases raised about €21.7 billion – compared to the current market value of €26.4 billion. Even after a recent rally, the stock is 29% lower than when Cryan took the helm in 2015. “The shareholder dilution is enormous,” said Michael Huenseler, an investor at Assenagon Asset Management, which holds a stake in Deutsche Bank. “But at the same time, this package should end what has been hurting Deutsche Bank for so long: the discussion about the capital situation. Now the bank has to prove that it can be profitable.”

Read more …

A boiling cauldron that will keep festering a for a while longer. Italy has a long-standing ownership class that won’t give up easily. Corruption, the mob, the church, secret lodges.

Renzi’s Return Clouded By Probe Into Father, Government Minister (BBG)

Matteo Renzi’s comeback risks being undermined by a judicial investigation into the father of the Italian former prime minister and a government minister. Rome prosecutors on Friday were due to question Tiziano Renzi, 65, over an accusation of influence-peddling, his lawyer said. The elder Renzi is alleged to have obtained promises of monthly sums of money from Alfredo Romeo, a Naples entrepreneur, in return for mediating on his behalf for public works contracts, Italian news agency Ansa reported. The ex-premier’s father has denied any wrongdoing. [..] “If the investigation goes ahead, it will surely hurt Matteo Renzi’s prospects even if he has nothing to do with it,” said Sergio Fabbrini, director of the school of government at Luiss University in Rome. “This is the most critical moment of his political career, he has to find a new strategy.”

Tiziano Renzi’s lawyer Federico Bagattini said in a telephone interview that his client had done nothing illicit. “We deny that he ever asked for anything, that he ever promised he would intervene, and that he ever received any money or any other benefit,” Bagattini said. Tiziano Renzi said Thursday he had nothing to hide. “I have never asked for money. I never took any. Never,” he said in a statement reported by Ansa. [..] The anti-establishment Five Star Movement, which has made denunciations of political corruption one of its main platforms, has seized on the case. It submitted on Thursday a parliamentary vote of no confidence against Sports Minister Luca Lotti, a close ally of Matteo Renzi, which will test the government’s majority.

Lotti is also under investigation in the case for allegedly revealing confidential information, according to Italian news media, a charge he denied in a post on Facebook on Thursday. Five Star “talks of kick-backs, arrests, contracts – all things which I have nothing to do with,” Lotti wrote. The office of Franco Coppi, Lotti’s lawyer, did not respond to an emailed request for comment on Friday. The case is “an atomic bomb on Italian politics,” Five Star co-founder Beppe Grillo, who wants a referendum on Italy’s membership of the euro, wrote on his blog. “When it explodes, no one will be able to find shelter. Today more than ever we need honesty in institutions.”

Read more …

It didn’t start yesterday. Western media have been killing off their own credibility for propaganda reasons, for many years.

The Iraq War Stench Lingers Behind Today’s Preoccupation With Fake News (G.)

[..] with trust in the establishment at an all time low, the institutional heft of traditional media companies becomes a liability rather than an asset, enabling Trump to successfully turn the “fake news” label onto his opponents. Much of that goes back to Iraq. “The period of time between 9/11 and the invasion of Iraq represents one of the greatest collapses in the history of the American media,” says Gary Kamiya. “Every branch of the media failed, from daily newspapers, magazines and websites to television networks, cable channels and radio. “Bush administration lies and distortions went unchallenged, or were actively promoted. Fundamental and problematic assumptions about terrorism and the ‘war on terror’ were rarely debated or even discussed. Vital historical context was almost never provided. And it wasn’t just a failure of analysis. With some honourable exceptions, good old-fashioned reporting was also absent.”

Let’s look at the most famous example of how the media was used to make the Iraq war happen. On September 8 2002, the New York Times published a major story by Michael R Gordon and Judith Miller asserting that Iraq had “stepped up its quest for nuclear weapons and … embarked on a worldwide hunt for materials to make an atomic bomb”. The piece cited no named sources whatsoever. Rather, it attributed all its significant claims simply to anonymous US officials – and, by so doing, it helped launder the Bush administration’s talking points, lending a liberal imprimatur to unverified (and totally untrue) claims. When the key members of the Bush administration launched a publicity blitz to make the war happen, they were able to quote the New York Times as evidence: in effect, reacting to newspaper revelations for which they themselves were responsible.

For instance, during a CNN appearance, Condoleeza Rice urged the public to support an invasion on the basis that “we don’t want the smoking gun to be a mushroom cloud”. She’d lifted the phrase directly from Gordon and Miller – who’d taken it from the administration. Elsewhere, Gordon and Miller referred to Iraq’s supposed interest in acquiring high-strength aluminium tubes as an illustration of its nuclear ambitions. Again, the claims came from Bush officials. But when, at the UN General Assembly, Bush told the story, he sounded as if he were repeating a New York Times scoop. A similar circularity defined the propaganda campaign conducted in other countries.

Read more …

In case you were still wondering why an entire country and its people are being obliterated.

Saudi Arabia Stealing 65% of Yemen’s Oil in Collaboration with US, Total (AHT)

“63% of Yemen’s crude production is being stolen by Saudi Arabia in cooperation with Mansour Hadi, the fugitive Yemeni president, and his mercenaries,” Mohammad Abdolrahman Sharafeddin told FNA on Tuesday. “Saudi Arabia has set up an oil base in collaboration with the French Total company in the Southern parts of Kharkhir region near the Saudi border province of Najran and is exploiting oil from the wells in the region,” he added. Sharafeddin said that Riyadh is purchasing arms and weapons with the petro dollars stolen from the Yemeni people and supplies them to its mercenaries to kill the Yemenis. Late in last year, another economic expert said Washington and Riyadh had bribed the former Yemeni government to refrain from oil drilling and exploration activities, adding that Yemen has more oil reserves than the entire Persian Gulf region.

“Saudi Arabia has signed a secret agreement with the US to prevent Yemen from utilizing its oil reserves over the past 30 years,” Hassan Ali al-Sanaeri told FNA. “The scientific research and assessments conducted by international drilling companies show that Yemen’s oil reserves are more than the combined reserves of all the Persian Gulf states,” he added. Al-Sanaeri added that Yemen has abundant oil reserves in Ma’rib, al-Jawf, Shabwah and Hadhramaut regions. He noted that a series of secret documents by Wikileaks disclosed that the Riyadh government had set up a committee presided by former Saudi Defense Minister Crown Prince Sultan bin Abdel Aziz. “Former Saudi Foreign Minister Saud al-Faisal and the kingdom’s intelligence chief were also the committee’s members.”

Read more …

“If I want to come to Germany, I will, and if you don’t let me in through your doors, if you don’t let me speak, then I will make the world rise to its feet..”

Turkey’s Erdogan Compares German Behavior With Nazi Period (R.)

Turkish President Tayyip Erdogan accused Germany on Sunday of “fascist actions” reminiscent of Nazi times in a growing row over the cancellation of political rallies aimed at drumming up support for him among 1.5 million Turkish citizens in Germany. German politicians reacted with shock and anger. German Justice Minister Heiko Maas told broadcaster ARD that Erdogan’s comments were “absurd, disgraceful and outlandish” and designed to provoke a reaction from Berlin. But he cautioned against banning Erdogan from visiting Germany or breaking off diplomatic ties, saying that such moves would push Ankara “straight into the arms of (Russian President Vladmir) Putin, which no one wants”.

The deputy leader of Chancellor Angela Merkel’s Christian Democratic Union (CDU) party said the Turkish president was “reacting like a wilful child that cannot have his way”, while a top leader of the CDU’s Bavarian sister party described Erdogan as the “despot of the Bosphorus” and demanded an apology. German authorities withdrew permission last week for two rallies by Turkish citizens in German cities at which Turkish ministers were to urge a “Yes” vote in a referendum next month on granting Erdogan sweeping new presidential powers. Berlin says the rallies were canceled on security grounds. However, Turkish Economy Minister Nihat Zeybekci spoke at large events in Leverkusen and Cologne on Sunday while protesters stood outside.

The row has further soured relations between the two NATO members amid mounting public outrage in Germany over the arrest in Turkey of a Turkish-German journalist. It has also spurred growing demands for Merkel to produce a more forceful response to Erdogan’s words and actions. A poll conducted for the Bild am Sonntag newspaper showed that 81% of Germans believe that Merkel’s government has been too accommodating with Ankara. Germany, under an agreement signed last year, relies on Turkey to prevent a further flood of migrants from pouring into Europe. The lead article in German news magazine Der Spiegel on Sunday urged Merkel to free herself from the “handcuffs of the migrant deal”.

[..] A defiant Erdogan said he could travel to Germany himself to rally support for the constitutional changes to grant him greater power. “Germany, you have no relation whatsoever to democracy and you should know that your current actions are no different to those of the Nazi period,” Erdogan said at a rally in Istanbul. “If I want to come to Germany, I will, and if you don’t let me in through your doors, if you don’t let me speak, then I will make the world rise to its feet,” he told a separate event.

Read more …

And Erdogan will want something in return.

US Asks Ankara For Steps To Ease Aegean Tension (K.)

American officials have urged Ankara to refrain from action that would further escalate tension with fellow NATO member Greece in the Aegean Sea, Kathimerini understands, adding that the issue was raised during the Munich Security Conference last month, as well as during private contacts in Ankara. Sources told Kathimerini that US Secretary of State Rex Tillerson raised the topic with Turkish Foreign Minister Mevlut Cavusoglu on the sidelines of the Munich gathering last month. Assistant Secretary of State John Heffern reportedly asked Turkish officials for steps that will help reduce the recent spike in tensions with Greece.

A few days later, the same sources said, US Ambassador to Ankara John Bass met with Turkey’s Foreign Ministry Undersecretary Umit Yalcin to put pressure in the same direction. Yalcin is said to have attributed the standoffish behavior of the Turkish military to the army’s damaged morale by developments following July’s failed coup attempt. Analysts however say that any autonomy of the Turkish armed forces has been heavily compromised in the wake of the coup. Greek Foreign Minister Nikos Kotzias is expected to travel to Washington for a meeting with Tillerson in the coming days. Talks are to be followed by a telephone conversation between Prime Minister Alexis Tsipras and US President Donald Trump.

Read more …

Growth is not possible in Greece today. The entire austerity edifice would have to be reversed.

Greece Desperate For Growth Strategy As Public Mood Darkens (G.)

In navigating the country’s economic collapse, every one of Athens’ post-crisis governments has at some point attempted to change the narrative by diverting attention to development and growth. But the latest shift comes amid evidence that prime minister Alexis Tsipras’s two-party administration has gone a step further, approaching the World Bank for a €3bn loan to finance employment policies and programmes.

The move would highlight the desperation of a government tackling ever-growing poverty rates. Last week, the Cologne Institute for Economic Research said poverty in thrice-bailed out Greece had jumped 40% between 2008 and 2015, by far the biggest leap of any European country. Tsipras has been told he will have to enforce labour market reforms and further pension and income tax cuts if Greece is to realistically achieve a primary surplus of 3.5% – before interest payments are taken into account – once its current rescue programme expires in August 2018. The country faces debt repayments of over €7bn in July and with its coffers near empty would be unable to avert default – and inevitable euro exit – if additional loans weren’t forthcoming.

The prospect of more cuts, when pensions have already been slashed 12 times and some retirees are surviving on little more than €300 a month, has exacerbated the sense of gloom in the eurozone’s weakest member state. “We will have to compromise,” Dragasakis admitted. “Even if such demands are totally irrational,” he said, adding that Greece’s real problem was that it was primarily caught up in an ugly dispute between its lenders over what to do with a debt load close to 180% of GDP. The IMF has projected the pile will reach an “explosive” 275% of output if not relieved – a move that Germany, the biggest provider of bailout funds, refuses steadfastly to agree to. “It is why we have not completed the review,” said Dragasakis of the progress report Athens must conclude to secure further assistance.

The Greek government has been accused of deliberately delaying implementation of reforms. “This government won’t deliver reforms because it doesn’t believe in them,” said the centre-right main opposition leader Kyriakos Mitsotakis at the Delphi forum. As in antiquity, when kings, warriors and philosophers descended on Delphi at times of uncertainty to consult the Pythia, or prophetess, about their future, politicians, policy gurus, economists and academics gather annually at the place once regarded as the centre of the world to debate Greece’s plight. “What we need is a masterplan and a vision to get out of this crisis,” said Nikos Xydakis, the former European affairs minister who is now parliamentary spokesman for the ruling Syriza party. “A masterplan in financial terms but also a vision for a new identity of Greeks once this crisis ends.”

Read more …

How mankind gets rid of itself, and can’t help doing it.

Polluted Environments Kill 1.7 Million Children A Year (R.)

A quarter of all global deaths of children under five are due to unhealthy or polluted environments including dirty water and air, second-hand smoke and a lack or adequate hygiene, the World Health Organization (WHO) said on Monday. Such unsanitary and polluted environments can lead to fatal cases of diarrhea, malaria and pneumonia, the WHO said in a report, and kill 1.7 million children a year. “A polluted environment is a deadly one – particularly for young children,” WHO Director-General Margaret Chan said in a statement. “Their developing organs and immune systems, and smaller bodies and airways, make them especially vulnerable to dirty air and water.” In the report – “Inheriting a sustainable world: Atlas on children’s health and the environment” – the WHO said harmful exposure can start in the womb, and then continue if infants and toddlers are exposed to indoor and outdoor air pollution and second-hand smoke.

This increases their childhood risk of pneumonia as well as their lifelong risk of chronic respiratory diseases such as asthma. Air pollution also increases the lifelong risk of heart disease, stroke and cancer, the report said. The report also noted that in households without access to safe water and sanitation, or that are polluted with smoke from unclean fuels such as coal or dung for cooking and heating, children are at higher risk of diarrhea and pneumonia. Children are also exposed to harmful chemicals through food, water, air and products around them, it said. Maria Neira, a WHO expert on public health, said this was a heavy toll, both in terms of deaths and long-term illness and disease rates. She urged governments to do more to make all places safe for children. “Investing in the removal of environmental risks to health, such as improving water quality or using cleaner fuels, will result in massive health benefits,” she said.

Read more …

Oct 182016
 
 October 18, 2016  Posted by at 9:06 am Finance Tagged with: , , , , , , , , , , ,  


Russell Lee Hollywood, California. Used car lot. 1942

US Bondholders Risk a $1.1 Trillion Hit if Rates Spike (BBG)
US First Home Buyers Even More Leveraged Than During Housing Bubble (MW)
China’s Bad Credit (Balding)
Foreigners Shun Gilts On Hard Brexit Talk, As Hallowe’en Verdict Awaits (AEP)
The Cashless Society Is a Creepy Fantasy (BBG)
Greece in 2050: A Country For Old Men (Kath.)
Judge Rejects Riot Charges For Journalist Amy Goodman On Pipeline Protest (G.)
State Department Official Pressured FBI To Declassify Clinton Email (R.)
RBS Backtracks Over Closure Of RT Bank Accounts (RT)
The Odor of Desperation (Jim Kunstler)
Pentagon Backtracks, Voices Caution On Latest Yemen Missile Incident (R.)
We Have To Begin To Look Outside. Because There Is More Out There (Adam Curtis)

 

 

As Gilts sell off… Very reassuring.

US Bondholders Risk a $1.1 Trillion Hit if Rates Spike (BBG)

First they came for the yield, then they came for the duration. A Goldman Sachs analysis says investors could be mired in a world of pain if yields on long-dated assets snap higher. Just a modest backup in rates could inflict outsized losses on bond portfolios — a sobering prospect in light of the recent jump in longer-dated bond yields that’s already eating into bondholders’ capital returns. A 1% increase in interest rates could inflict a $1.1 trillion loss to the Bloomberg Barclays U.S. Aggregate Index, analysts at Goldman calculate, representing a larger loss for bondholders than at any other point in history. With the bank predicting the selloff in bonds has further to run, that remains “far from a tail scenario,” its analysts write.

Bets on longer-maturity obligations had paid off handsomely for most of the year amid a global bond rally triggered by expectations that weak economic activity will persuade central banks in advanced economies to postpone tightening monetary policy. Asset purchases by the BOJ, BOE and the ECB helped the average maturity of new U.S. corporate bonds climb to a peak of 11.3 years in August. With average bond maturities worldwide now more than double the inflation-adjusted level of 2009, and three times that of 1994, Goldman says there’s an elevated risk of losses if rates spike higher. “We see potential for the rates market to continue to sell off, and the notional amount of duration dollars at risk is unprecedentedly large,” Goldman fixed-income analysts, led by Marty Young, wrote in the report on Monday.

Read more …

“..lack of affordability. “We have our eye on the wrong ball..”

US First Home Buyers Even More Leveraged Than During Housing Bubble (MW)

Ever since the shock of the financial crisis ebbed and buyers began to return to the housing market, one truth has dominated: mortgage lending is tight. But is it? It’s true that only the borrowers with the highest credit scores get home loans now. So much lending to people with higher credit scores and so little to those on the lower end of the spectrum has shifted the average FICO score up about 40 points since before the bubble burst. But measured in another way, lending is shockingly loose. And, according to one economist, that tells us a lot not just about the housing market, but about the economy as a whole. The 20% down payment may linger in Americans’ imagination, but it’s even less real today than Jimmy Stewart’s small-town banker from 1946.

American homeowners, particularly those at the lower end of the market, are increasingly leveraged to pay for their houses, says Sam Khater, deputy chief economist at data provider CoreLogic. In fact, owners of entry-level homes, those in the $150,000 to $300,000 range — have more debt and less equity now than they did in 2005, at the height of mortgage mania. For Khater, that says less about credit markets and more about another defining feature of the post-recession housing market — its lack of affordability. “We have our eye on the wrong ball,” he told MarketWatch. “What I worry about is the leverage not from a default perspective but from an affordability perspective. Demand for credit has been weak. But the much bigger issue is the supply of housing, not supply of credit.”

Read more …

Swaps won’t rescue China’s bad debt. It’s just multiple state-owned firms selling each other the things.

China’s Bad Credit (Balding)

There is good news when it comes to China’s scary and still-growing pile of debt: At least the government recognizes the problem. Its attempts to mitigate those risks, however, seem doomed to fall short. The government’s recent decision to create a market for credit default swaps is a case in point. The idea, as elsewhere, is to give banks and investors a means of pricing and trading the risk of Chinese companies defaulting on their debts. The need is obvious: Official measures of non-performing loans are worsening, while unofficial estimates say their share may have reached anywhere from 8% to 20%. Anything that spreads that risk should improve financial stability. Yet, as envisioned, this new CDS market is unlikely to do much to improve the situation.

For one thing, all but the largest companies already have to purchase credit insurance when taking out loans from giant state banks. There’s no pricing differential on this insurance, of course. But for the new system to function effectively, the government would have to let markets freely set the price of credit risk. China doesn’t exactly have a stellar record of allowing markets to set prices in any field, whether in stocks, real estate or currencies. If credit default swaps started to indicate a rising risk of default at a major state-owned company, it’s hard to imagine officials wouldn’t intervene to reverse that impression. This is dangerous on multiple levels. Already, several Chinese credit insurance firms have collapsed because they underestimated credit risk, forcing government bailouts. Continuing to underprice risk will only encourage the over-allocation of credit that’s gotten China into trouble thus far.

There’s also little reason to think that creating a CDS market would shift risk away from the most vulnerable banks. In a heavily concentrated banking and lending market such as China, where major financial institutions all trade with each other, swaps are likely to produce no net change to risk levels. Think of a simple example. Assume that Bank A has loans totaling 100 billion yuan but wants to protect itself against the risk of default by buying a CDS from Bank B that covers these companies. Now assume that Bank B does the same to cover its 100 billion yuan of loans, with A as the counter-party. If we assume these are similar baskets of loans – a reasonable assumption for major banks within a single country – then there’s been no net change in credit risk for either bank.

Read more …

It doesn’t get much more serious than this: “The UK faces a balance of payments crisis..”

Foreigners Shun Gilts On Hard Brexit Talk, As Hallowe’en Verdict Awaits (AEP)

The bond vigilantes are sharpening their knives. The last five trading sessions have seen a sudden and potentially ominous shift in the reflexes of the Gilts market, a sign that ‘hard Brexit’ rhetoric has rattled global debt managers. “For the first time, foreign investors are beginning to question the credit-worthiness of the United Kingdom,“ said Vatsala Datta, UK rates strategist at RBC. We will find out how serious it is on October 31 – Hallowe’en day – when the UK Debt Management Office publishes its monthly data on foreign holdings of Gilts. Central banks, sovereign wealth funds, and the like, currently hold £503bn of British public debt or 27pc of the total, a bigger share than UK pension funds and insurance companies.

Yields on 10-year Gilts have spiked by 62 basis points to 1.14pc from their trough in August. Until last week this was pure a ‘reflation trade’, a turbo-charged variant of what has been happening in the US and other parts of the world as markets price in accelerating global growth and a commodity rebound. Britain got a double-dose because the sharp fall in sterling automatically pushed up the likelihood of future inflation, and that is what bondholders hate most. It is easy to measure the inflation component of moves by tracking how the ‘break-even inflation rate’ rises in tandem with the headline bond yield. “The correlation was exact. It has now broken down,” said Ms Datta. Break-even rates stopped rising last week, yet this time Gilt yields spiked higher, a divergence of 18 basis points.

RBC said the pattern in the interlocking currency and debt markets is clear: sterling is no longer trading like a bona fide reserve currency. “The parallel sell-off in gilts and sterling is potentially a worrying development, consistent with the UK’s having growing difficulty funding its internal and external deficits,” it said. What typically happens when a blue chip currency like the US dollar or the Swiss franc falls is that central banks and fund managers buy more of that country’s bonds to keep a constant weighting. This is a mechanical practice. It happens unless managers take a conscious decision to override their model. It is why foreign holdings of UK Gilts have risen by 20pc over the last year, and why they surged at an even faster rate after the referendum.

This foreign rush into Gilts happened not in spite of the falling pound, but because of it. All of a sudden this has stopped. Loose proxies such as ‘swap spreads’ suggest an outright exodus from Gilts even as the pound weakens. It is symptomatic that the Japanese bank Nomura has issued a string of tough reports about what could happen if the British government opts to leave the EU single market, warning that an erratic UK can no longer count on the “kindness of strangers” to fund its current account deficit. “The UK faces a balance of payments crisis,” it says, menacingly.

Read more …

“..if we’re going to cite unlawful transactions as a rationale for banning cash, it only makes sense to ban banks and accounting firms first.”

The Cashless Society Is a Creepy Fantasy (BBG)

It’s fun to imagine a world without cash. Liberated from the burden of physical currency, consumers could make purchases from the convenience of a mobile device. Every transaction would come equipped with fraud protection, reward points and a digital record of its time and location. Comprehensive tracking could help the Internal Revenue Service reclaim billions of tax dollars lost to unreported income, like the $80 I made selling a used refrigerator on Craigslist. Drug dealers, helpless without an anonymous medium of exchange, would acquire wholesome professions. El Chapo might become a claims adjuster. Such is the utopia recently described by Nathan Heller in the New Yorker and by a former chief economist of the International Monetary Fund, Kenneth Rogoff, in a new book, “The Curse of Cash.”

But this universe is missing one of the fundamental aspects of human civilization. A world without cash is a world without money. Money belongs to its current holder. It doesn’t matter if a banknote was lost or stolen at some point in the past. Money is current; that’s why it’s called currency! A bank deposit, however, grants custody of money to the bank. An account balance is not actually money, but a claim on money. This is an important distinction. A claim is only as good as its enforceability, and in a cashless society every transaction must pass through a financial gatekeeper. Banks, being private institutions, have the right to refuse transactions at their discretion. We can’t expect every payment to be given due process.

This means that politically unpopular organizations could easily be deprived of economic access. Past attempts to curb money laundering have already inadvertently cut off financial services for legitimate individuals, businesses, and charities. The removal of paper currency would undoubtedly leave similar collateral damage. The crime-fighting case against cash is overstated. Last year, a risk assessment of money laundering and terrorist financing conducted by the U.K. government found that regulated institutions such as banks (like HSBC) and accountancy service providers (like the Panamanian tax-shelter specialist Mossack Fonseca) posed the highest risk of facilitating the illicit storage or movement of funds. Cash came in a close third, but if we’re going to cite unlawful transactions as a rationale for banning cash, it only makes sense to ban banks and accounting firms first.

Read more …

Extrapolating trends is a pretty much useless exercise.

Greece in 2050: A Country For Old Men (Kath.)

By 2050, Greece’s population is expected to shrink by 800,000 to 2.5 million people to between 8.3 and 10 million, and one in three of its residents will be over the age of 65 (30-33% compared to the present 21% and 7% in 1951), while under-14s will represent just 12-14.8% from 15% today and 28% in 1951. This dystopian view of the country – with empty schools and offices – emerges from a recent study on Greece’s demographic prospects, presented by the Athens-based Dianeosis research organization. The study explored eight different scenarios, all of which calculated a significant drop in the population by 2050. The most optimistic saw a reduction of 800,000 people and the rapid aging of society. The median age is seen reaching 49-52 years from 44 today and 26 in 1951.

By then, the study says, 50-year-olds will be the young ’uns. The number of school-age children (3-17) will drop from 1.6 million today to 1.4 million in the optimistic scenario and 1 million in the pessimistic one and the economically active population will shrink from 4.7 million people today to between 3 and 3.7 million, meaning that a much lower number of people will be able to work to cover the country’s needs. The study by Dianeosis reflects trends that are already being noted: On January 1, 2015, Greece’s population came to 10.8 million from 11.1 million in 2011, marking the first time since 1951 that the number of the country’s residents has gone down.

There are three factors that affect population fluctuations – births, deaths and migration – which can be separated into two categories, the natural process of births and deaths, and the migration factor, which includes both inflows and outflows. Today, births are decreasing and deaths going up due to sliding standards of living and a crumbling public healthcare system. Meanwhile, the outflow of mainly young Greeks and foreigners from the country is on the rise, while, despite the arrival of thousands of migrants, the crisis is preventing their numbers from being made up by fresh inflows.

Read more …

It helps when politicians actually know the law.

Judge Rejects Riot Charges For Journalist Amy Goodman On Pipeline Protest (G.)

A North Dakota judge rejected prosecutors’ “riot” charges against Democracy Now! host Amy Goodman for her reporting on the oil pipeline protests, a decision that advocates hailed as a major victory for freedom of the press. After the award-winning broadcast journalist filmed security guards working for the Dakota access pipeline using dogs and pepper spray on protesters, authorities issued a warrant for Goodman’s arrest and alleged that she participated in a “riot”, a serious offense that could result in months in jail. On Monday, judge John Grinsteiner ruled that the state lacked probable cause for the riot charge, blocking prosecutors from moving forward with the controversial prosecution.

“I feel vindicated. Most importantly, journalism is vindicated,” Goodman told reporters and supporters on a live Facebook video Monday afternoon. “We have a right to report. It’s also critical that we are on the front lines. Today, the judge sided with … freedom of the press.” The case stems from a 3 September report when Goodman traveled to the Native American-led protest against a controversial $3.8bn oil pipeline that the Standing Rock Sioux tribe says is threatening its water supply and cultural heritage. Goodman’s dispatch on the use of dogs went viral and has since garnered 14m views on Facebook and also prompted coverage from many news outlets, including CBS, NBC, NPR and CNN.

Read more …

I picked the Reuters take on this. There are many others, some much more negative. The crux: This is getting way out of hand. Trying to interfere with classified material is crazy and desperate. And very illegal.

State Department Official Pressured FBI To Declassify Clinton Email (R.)

A senior State Department official sought to shield Hillary Clinton last year by pressuring the FBI to drop its insistence that an email on the private server she used while secretary of state contained classified information, according to records of interviews with FBI officials released on Monday. The accusation against Patrick Kennedy, the State Department’s most senior manager, appears in the latest release of interview summaries from the Federal Bureau of Investigation’s year-long investigation into Clinton’s sending and receiving classified government secrets via her unauthorized server.

Although the FBI decided against declassifying the email’s contents, the claim of interference added fuel to Republicans’ belief that officials in President Barack Obama’s administration have sought to protect Clinton, a Democrat, from criminal liability as she seeks to succeed Obama in the Nov. 8 election. The FBI recommended against bringing any charges in July and has defended the integrity of its investigation. Clinton has said her decision to use a private server in her home for her work as the U.S. secretary of state from 2009 to 2013 was a mistake and has apologized. One FBI official, whose name is redacted, told investigators that Kennedy repeatedly “pressured” the various officials at the FBI to declassify information in one of Clinton’s emails.

The email was about the deadly 2012 attack on a U.S. compound in Benghazi, Libya, and included information that originated from the FBI, which meant that the FBI had final say on whether it would remain classified. The dispute began in the summer of 2015 as officials were busy reviewing the roughly 30,000 emails Clinton returned to the State Department ahead of their court-ordered public release in batches in 2015 and 2016. The official said the State Department’s office of legal counsel called him to question the FBI’s ruling that the information was classified, but the FBI stood by its decision. Soon after that call, one of the official’s FBI colleagues received a call from Kennedy in which Kennedy “asked his assistance in altering the email’s classification in exchange for a ‘quid pro quo.'”

Read more …

From the Times (behind paywall): “The state-owned bank withdrew its planned punitive action after Moscow claimed it would freeze the BBC’s finances in Russia and report Britain to international watchdogs for breaching commitments to freedom of speech.”

RBS Backtracks Over Closure Of RT Bank Accounts (RT)

The Royal Bank of Scotland (RBS) appears to have backtracked from its earlier statement that the looming closure of RT accounts is not up for discussion. In a letter to RT, the bank said the situation is being reviewed and the bank is contacting the customer. The e-mailed response began with apologies for the delay in the reply. These decisions are not taken lightly. We are reviewing the situation and are contacting the customer to discuss this further. The bank accounts remain open and are still operative,” Sarah Hinton-Smith, Head of Corporate & Institutional, Commercial & Private Media at RBS Communications, wrote. However, the response by Hinton-Smith contradicted an earlier statement by RBS, which said that the decision to suspend banking services to RT was final and not up for discussion.

The broadcaster addressed the Royal Bank of Scotland representative over the contradiction, pointing out that “your statement seems to suggest that the bank will contact RT and that there will be a review and further discussion.” “There’s not much more of a steer I can give other than what is in the statement,” Hinton-Smith replied via email. Earlier Monday, the National Westminster Bank (NatWest), which is part of RBS Group, informed RT UK’s office in London that it will no longer have the broadcaster among its customers, without providing any explanation for the decision.

Read more …

“..the fact that the US polity now so desperately has to fight for survival shows how frail its legitimacy is.”

The Odor of Desperation (Jim Kunstler)

It must be obvious even to nine-year-old casual observers of the scene that the US national election is hacking itself. It doesn’t require hacking assistance from any other entity. The two major parties could not have found worse candidates for president, and the struggle between them has turned into the most sordid public spectacle in US electoral history. Of course, the Russian hacking blame-game story emanates from the security apparatus controlled by a Democratic Party executive establishment desperate to preserve its perks and privileges . (I write as a still-registered-but-disaffected Democrat).

The reams of released emails from Clinton campaign chairman John Podesta, and other figures in HRC’s employ, depict a record of tactical mendacity, a gleeful eagerness to lie to the public, and a disregard for the world’s opinion that are plenty bad enough on their own. And Trump’s own fantastic gift for blunder could hardly be improved on by a meddling foreign power. The US political system is blowing itself to pieces. I say this with the understanding that political systems are emergent phenomena with the primary goal of maintaining their control on the agencies of power at all costs. That is, it’s natural for a polity to fight for its own survival. But the fact that the US polity now so desperately has to fight for survival shows how frail its legitimacy is.

It wouldn’t take much to shove it off a precipice into a new kind of civil war much more confusing and irresolvable than the one we went through in the 1860s. Events and circumstances are driving the US insane literally. We can’t construct a coherent consensus about what is happening to us and therefore we can’t form a set of coherent plans for doing anything about it. The main event is that our debt has far exceeded our ability to produce enough new wealth to service the debt, and our attempts to work around it with Federal Reserve accounting fraud only make the problem worse day by day and hour by hour. All of it tends to undermine both national morale and living standards, while it shoves us into the crisis I call the long emergency.

Read more …

If anything ever smelled like a flase flag, it was this. Mere days after the world turned on the US and its Saudi friends for bombing a funeral procession, the Houthis supposedly shot at a US destroyer, missed by a mile and a half, and next thing you knew all of a sudden the US was itself involved in the so-called war, which is really just slaughter.

Pentagon Backtracks, Voices Caution On Latest Yemen Missile Incident (R.)

The Pentagon declined to say on Monday whether the USS Mason destroyer was targeted by multiple inbound missiles fired from Yemen on Saturday, as initially thought, saying a review was under way to determine what happened. Any determination that the USS Mason guided-missile destroyer was targeted on Saturday could have military repercussions, since the United States has threatened to retaliate again should its ships come under fire from territory in Yemen controlled by Iran-aligned Houthi fighters. The United States carried out cruise missile strikes against radar sites in Yemen on Thursday after two confirmed attempts last week to hit the USS Mason with coastal cruise missiles. “We are still assessing the situation. There are still some aspects to this that we are trying to clarify for ourselves given the threat – the potential threat – to our people,” Pentagon spokesman Peter Cook told a news briefing.

Read more …

Unfortunately, Curtis’ film Hypernormalization is for now still only available in Britain. Far as I know.

We Have To Begin To Look Outside. Because There Is More Out There (Adam Curtis)

Power is all around us. It’s just that it has shifted and mutated into a massive system of management and control, whose tentacles reach into all parts of our lives. But we can’t see it because we still think of power in the old terms – of politicians telling us what to do. The aim of the film I have made – HyperNormalisation – is to bring that new power into focus, and show its true dimensions. It ranges from a giant computer high up in the mountains of northeast America that manages and controls over 7% of the worlds total wealth, to the complex algorithms that constantly monitor every move and choice you make online, to modern scientific ideas about what the normal human being should be – in their weight and in their feelings and moods.

What links all these systems is an overriding aim is to keep the world stable. To avoid all change. The giant computer constantly compares events happening around the world to events in the past. If it sees a dangerous pattern, it immediately adjusts its trillions of dollars to keep things stable. That is real power. The algorithms on social media constantly look at the patterns of what you like and then feed you more of that – so you enter into an echo chamber that constantly feeds you back to you. So again nothing changes – and you learn nothing new that would contradict how you feel. That too is real power. What results is a system which cocoons us and makes us feel safe. And that means we have become terrified of all change.

But that fear of change is in the interest of a system that wants to hold everything stable. And stops us from ever challenging it. But it is impossible to keep things frozen forever. The world is dynamic. Things happen that you can never predict just by reading the past. This is why more and more we are being hit by events – the horror in Syria, Brexit, Trump, the waves of refugees – that neither we nor our leaders have the mental map to understand let alone deal with. Because we have bought into the dream that the world can be held stable and safe. The short film I have made for VICE is about how, if you pull back and look at the everyday life all around you, you can see the cracks appearing through the shiny surface of the cocoon we are living in.

So much of the modern world is beginning to feel odd, unreal and sometimes fake. I think these are the dynamic forces outside beginning to pierce through as the system begins to fail. It will fail – because a system of power that has no vision of the future can never last. It cannot deal with change. We have to begin to look outside. Because there is more out there…

Read more …

Aug 202016
 
 August 20, 2016  Posted by at 9:13 am Finance Tagged with: , , , , , , , , ,  


William Henry Jackson New Orleans, “Canal Street from the Clay monument” 1890

A Black Swan The Size Of World War I (IBT)
Canadian Debt Slaves Pile it on (WS)
Things Keep Getting Worse For EU Banks (CNBC)
Brexit Armageddon Was A Terrifying Vision – But It Simply Hasn’t Happened (G.)
Over 500,000 UK First-Time Buyers Let Down By ‘Help To Buy’ Scheme (Sun)
A Dairy Firm at the End of the Earth Is Trying to Rule the World (BBG)
Does Motorola Need To Go To Rehab? (CCB)
Finance is Not the Economy (Hudson/Bezemer)
Saudi Arabia Kills Civilians, the US Looks the Other Way (NYT)
US Withdraws Staff From Saudi Arabia Dedicated To Yemen Planning (R.)
US Army Fudged Its Accounts By Trillions Of Dollars (R.)
Netherlands On Brink Of Banning Sale Of Petrol-Fuelled Cars (Ind.)

 

 

“The saving grace would have been to invest in Detroit startups or other investments that successfully straddled wars, Russian revolution, crises..”

A Black Swan The Size Of World War I (IBT)

To illustrate a strategic gap common to today’s portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of a typical, well-diversified investment strategy in 1912. Teetering on the cusp of revolution, war and depression, Sokoloff’s point is that, even following a modern portfolio management strategy, the manager would stand to lose the vast majority of their assets. People tend to rely on historically stable relationships between bonds and stocks, and when that relationship breaks down – as often happens in a liquidity event – even complicated strategies involving some arbitrage, essentially blow up. Imagine being a wealth manager out of Geneva in 1912, trying to create a nice diversified portfolio of developed market bonds, and emerging market bonds, says Sokoloff.

Say 39% of client assets would be split between stocks of Great Britain, France, German Empire, Austria-Hungary and Italy: truly mature, developed markets. Some 21% of assets would go into stocks of the two fastest growing economies: Russian Empire and North American United States. The wealth manager might also put a smidge into emerging economies like Argentina, Brazil or Japan. In bonds, allocation would be somewhat similar. Gilts with sub-3% yield would be the benchmark, with the rest of developed and emerging bonds trading at a spread. Alternatives investment could be in anything ranging from arable land in central Russia or the Great Plains, to shares of new automotive or aeroplane startups in Europe and America, to Japanese manufacturing ventures.

This well-intentioned, balanced portfolio would be in for a wild ride in the next decade and possibly drawdowns of as much as 80%. The saving grace would have been to invest in Detroit startups or other investments that successfully straddled wars, Russian revolution, crises and the technological boom of the early 20th century. Sokoloff told IBTimes UK: “That thought experiment is really frightening to me. You followed very sound modern portfolio management advice back then and still in ten years your portfolio is gone. I don’t think we are really learning the lessons of history, especially now that the global economy is so much more interconnected than it was before.”

Read more …

Scary.

Canadian Debt Slaves Pile it on (WS)

Consumer debt in Canada’s debt-fueled economy rose to a new record of C$1.67 trillion in the second quarter, according to Equifax. That’s up 3.0% from the prior quarter and 6.3% from a year ago. Excluding mortgages, consumer debt rose 3.4%, to C$21,878 per borrower on average. Folks 65 and over splurged the most with money they didn’t have and ended up increasing their debt by 8.2%. But Millennials had trouble. Their debts barely rose, and their delinquency rates have begun to jump. Equifax Canada, which based this report on its 25 million consumer credit files, doesn’t appear to capture the full extent of Canadian household debt: Statistics Canada’s most recent quarterly report pegged “total household credit market debt,” which includes mortgages, at a record C$1.933 trillion, up 5% year-over-year.

This gives Canadian households one of the highest debt-to-income ratios in the world. The ratio started soaring relentlessly 15 years ago, supporting the housing boom that barely took a breather during the Financial Crisis – a boom that now has turned into one of the globe’s most phenomenal and riskiest housing bubbles. Piling on debt to move the economy and the housing bubble forward was encouraged by record low borrowing rates. So at the end of the first quarter, the level of consumer debt was 165.3% of disposable income. It’s so high that it’s regularly subject of ineffectual hand-wringing in Canada’s central bank circles:

Read more …

“..investment banking in Germany, for example, is down 45%…”

Things Keep Getting Worse For EU Banks (CNBC)

European Union banks just can’t catch a break. Many of them are still slogging uphill to recoup share price losses incurred from the Brexit vote in the U.K. European investment banking revenue overall is down 23% this year compared with the same period in 2015, according to data tracker Dealogic. And all are lagging behind U.S. banks for wallet share, or how much revenue they take in from dealmaking compared to competitors. JPMorgan Chase tops every bank in the EU for wallet share, with 7.3% of deals, according to data from Dealogic this week. It’s followed by Goldman Sachs, which has 6.2% of deals, and only then, in third place, is an EU bank: Deutsche Bank has 5% of revenue on European mergers and acquisitions.

But European banks (and their American counterparts) are fighting off a rising tide of boutique banks that have taken a growingpercentage of M&A revenue from them over the last decade. Around the world, M&A levels have declined from recent record highs. But the pain is exacerbated in Europe, where big banks experienced a steeper drop off in revenue. Dealogic data show that investment banking in Germany, for example, is down 45%. Globally, European deals account for just 22% of banking revenue, the lowest margin since Dealogic began tracking investment banking wallet share. That comes in the wake of banks being hit especially hard on concerns about elevated loan losses, especially those coming from oil and gas assets.

Read more …

For the love of Brexit.

Brexit Armageddon Was A Terrifying Vision – But It Simply Hasn’t Happened (G.)

Unemployment would rocket. Tumbleweed would billow through deserted high streets. Share prices would crash. The government would struggle to find buyers for UK bonds. Financial markets would be in meltdown. Britain would be plunged instantly into another deep recession. Remember all that? It was hard to avoid the doom and gloom, not just in the weeks leading up to the referendum, but in those immediately after it. Many of those who voted remain comforted themselves with the certain knowledge that those who had voted for Brexit would suffer a bad case of buyer’s remorse. It hasn’t worked out that way. The 1.4% jump in retail sales in July showed that consumers have not stopped spending, and seem to be more influenced by the weather than they are by fear of the consequences of what happened on 23 June.

Retailers are licking their lips in anticipation of an Olympics feelgood factor. The financial markets are serene. Share prices are close to a record high, and fears that companies would find it difficult and expensive to borrow have proved wide of the mark. Far from dumping UK government gilts, pension funds and insurance companies have been keen to hold on to them. City economists had predicted an immediate rise in the claimant count measure of unemployment in July. That hasn’t happened either. This week’s figures show that instead of a 9,000 rise, there was an 8,600 drop.

Some caveats are in order. It is still early days. Hard data is scant. Survey evidence is still consistent with a slowdown in the economy in the second half of 2016. Brexit may be a slow burn, with the impact only becoming apparent in the months and years to come. But it is obvious that the sky has not fallen in as a result of the referendum, and those who said it would look a bit silly. By now, Britain was supposed to be reeling from the emergency budget George Osborne said would be necessary to fill a £30bn black hole in the public finances caused by a plunging economy. The emergency budget is history, as is Osborne.

Read more …

Nobody should be buying a home in Britain.

Over 500,000 UK First-Time Buyers Let Down By ‘Help To Buy’ Scheme (Sun)

The much-trumpeted Help to Buy Isa was branded a scandal last night as it emerged that first-time buyers will not be able to use it for a deposit. More than 500,000 savers opened accounts after George Osborne claimed it would provide ‘direct Government support’. But it has been revealed that a flaw in the scheme means a 25% Government bonus on savings will not be paid out until a house purchase has been completed. Experts said those struggling to find the money to buy a home would have to look to their parents for loans. The Help to Buy Isas, which launched last year, let customers save £200 a month, to which the Government adds £50, up to a final total of £15,000. Buyers are usually required to provide a 10% deposit when they exchange contacts.

But the small print shows the bonus cannot be used for the initial deposit and only spent as part of the purchase cost. So far, fewer than 1,500 people have used the Isas to help buy a home as the limit on how much can be paid in means they have only just got a realistic amount to put toward a deposit. Andrew Boast of SAM Conveyancing said: “It is a scandal. Unsuspecting first-time buyers are finding that they can’t use the bonus as part of the deposit.” Danny Cox of Hargreaves Lansdown financial advisers said: “Hundreds of thousands of Help to Buy Isa savers risk finding a last-minute hole in their finances.” A Treasury spokesman said: “It has always been the case that money saved in a Help to Buy Isa is for an exchange deposit, with the bonus of up to £3,000 per Isa going toward the total funds available for the property transaction.”

Read more …

Fonterra was never going to last. Illusions of grandeur only go so far.

A Dairy Firm at the End of the Earth Is Trying to Rule the World (BBG)

In the shadow of a snow-dusted volcano on a corner of New Zealand’s North Island, a sprawling expanse of stainless steel vats, chimneys and giant warehouses stands as a totem of the tiny nation’s dominance in the global dairy trade. The Whareroa factory was until recently the largest of its kind, churning out enough milk powder, cheese and cream to fill more than three Olympic-sized swimming pools a week. The plant has helped make owner Fonterra Cooperative Group the world’s top dairy exporter and its farmer-suppliers among the greatest beneficiaries of China’s emerging thirst for milk. Now, faced with reduced Chinese demand that’s eroded milk prices and helped drag 80% of New Zealand’s dairy farmers into the red, the 44-year-old factory has come to symbolize Fonterra’s struggle to climb the value chain.

While a global shift toward more natural foods has spurred even Coca-Cola to develop new milk products, Fonterra’s business remains largely wedded to commodities traded on often-volatile international markets. That’s frustrated the ranks of the cooperative’s 10,500 farmer-shareholders, who are set to receive the lowest return in nine years for the milking season just ended, and turned Fonterra’s strategy into the subject of national debate. “Fonterra hasn’t taken the opportunity to put itself in a position to really weather these storms as well as they should be able to,” said Harry Bayliss, 63, a former Fonterra director who still supplies the cooperative from farms about 30 kilometers west of the Whareroa factory. “What the board has focused on in the last 10 years haven’t been areas that have created real ongoing value for the shareholders or the company.”

Read more …

Motorola borrows heavily to buy its own shares. If that isn’t liquidating your company, what is? “It’s a much weaker company than it was two or three years ago..”

Does Motorola Need To Go To Rehab? (CCB)

How does Motorola Solutions CEO Greg Brown keep his company’s stock rising despite declining revenue and profit? Volume—of share repurchases. Since splitting off its mobile phone business in 2011, Motorola Solutions has spent $11.5 billion buying back stock. Earlier this month, the provider of products and services for government communications systems authorized another $2 billion in repurchases. The buybacks have reduced total share count by more than half, bolstering earnings per share even as actual profit declined to $613 million in 2015 from $1.16 billion in 2011. And because investors price shares on the basis of EPS, Motorola Solutions shares increased 90% in value over that period, to $75.99 yesterday, outpacing a 72% rise for the Standard & Poor’s 500 market.

Of course, Motorola Solutions is far from alone in gobbling its own shares as an antidote to sluggish growth. Companies in the Standard & Poor’s 500 repurchased a record amount in the 12 months through March 31. Still, Motorola ranks in the top 10% in terms of the percentage of outstanding shares repurchased over five years, according to Birinyi Associates. Buybacks are becoming more controversial as they consume a growing share of capital. Critics say companies are artificially burnishing their results rather than investing in business activities that would generate real long-term growth. Defenders say buybacks make sense for companies that generate more cash than they can reinvest profitably.

But Motorola Solutions has spent far more than excess cash flow on buybacks. Since the spinoff, the now Chicago-based maker of two-way radio systems has produced $2.7 billion in operating cash flow and collected $3.4 billion in proceeds from selling its enterprise business to Zebra Technologies in 2014. That $6.1 billion total represents a little more than half of Motorola’s buyback outlay. Brown has financed the rest with borrowed money, tripling long-term debt to $5 billion since the spinoff. Cash on hand dropped to $1.5 billion as of June 30, from $3.1 billion a year earlier. “It’s a much weaker company than it was two or three years ago,” says analyst David Novosel of Gimme Credit, a research firm in Chicago.

Read more …

“When the financial bubble bursts, negative equity spreads as asset prices fall below the mortgages, bonds, and bank loans attached to the property.“

Finance is Not the Economy (Hudson/Bezemer)

Analysis of private sector spending, banking, and debt falls broadly into two approaches. One focuses on production and consumption of current goods and services, and the payments involved in this process. Our approach views the economy as a symbiosis of this production and consumption with banking, real estate, and natural resources or monopolies. These rent-extracting sectors are largely institutional in character, and differ among economies according to their financial and fiscal policy. (By contrast, the “real” sectors of all countries usually are assumed to share a similar technology.)

Economic growth does require credit to the real sector, to be sure. But most credit today is extended against collateral, and hence is based on the ownership of assets. As Schumpeter (1934) emphasized, credit is not a “factor of production,” but a precondition for production to take place. Ever since time gaps between planting and harvesting emerged in the Neolithic era, credit has been implicit between the production, sale, and ultimate consumption of output, especially to finance long- distance trade when specialization of labor exists (Gardiner 2004; Hudson 2004a, 2004b). But it comes with a risk of overburdening the economy as bank credit creation affords an opportunity for rentier interests to install financial “tollbooths” to charge access fees in the form of interest charges and currency-transfer agio fees.

Most economic analysis leaves the financial and wealth sector invisible. For nearly two centuries, ever since David Ricardo published his Principles of Political Economy and Taxation in 1817, money has been viewed simply as a “veil” affecting commodity prices, wages, and other incomes symmetrically. Mainstream analysis focuses on production, consumption, and incomes. In addition to labor and fixed industrial capital, land rights to charge rent are often classified as a “factor of production,” along with other rent-extracting privileges. Also, it is as if the creation and allocation of interest-bearing bank credit does not affect relative prices or incomes.

Read more …

Not exactly. The US is not some innocent bystander. Having the NYT write this up is maybe a sign, but it’s also double tongued.

Saudi Arabia Kills Civilians, the US Looks the Other Way (NYT)

In the span of four days earlier this month, the Saudi Arabia-led coalition in Yemen bombed a Doctors Without Borders-supported hospital, killing 19 people; a school, where 10 children, some as young as 8, died; and a vital bridge over which United Nations food supplies traveled, punishing millions. In a war that has seen reports of human rights violations committed by every side, these three attacks stand out. But the Obama administration says these strikes, like previous ones that killed thousands of civilians since last March, will have no effect on the American support that is crucial for Saudi Arabia’s air war.

On the night of Aug. 11, coalition warplanes bombed the main bridge on the road from Hodeidah, along the Red Sea coast, to Sana, the capital. When it didn’t fully collapse, they returned the next day to destroy the bridge. More than 14 million Yemenis suffer dangerous levels of food insecurity — a figure that dwarfs that of any other country in conflict, worsened by a Saudi-led and American-supported blockade. One in three children under the age of 5 reportedly suffers from acute malnutrition. An estimated 90 percent of food that the United Nation’s World Food Program transports to Sana traveled across the destroyed bridge.

Read more …

Too much publicity lately?

US Withdraws Staff From Saudi Arabia Dedicated To Yemen Planning (R.)

The U.S. military has withdrawn from Saudi Arabia its personnel who were coordinating with the Saudi-led air campaign in Yemen, and sharply reduced the number of staff elsewhere who were assisting in that planning, U.S. officials told Reuters. Fewer than five U.S. service people are now assigned full-time to the “Joint Combined Planning Cell,” which was established last year to coordinate U.S. support, including air-to-air refueling of coalition jets and limited intelligence-sharing, Lieutenant Ian McConnaughey, a U.S. Navy spokesman in Bahrain, told Reuters. That is down from a peak of about 45 staff members who were dedicated to the effort full-time in Riyadh and elsewhere, he said.

The June staff withdrawal, which U.S. officials say followed a lull in air strikes in Yemen earlier this year, reduces Washington’s day-to-day involvement in advising a campaign that has come under increasing scrutiny for causing civilian casualties. A Pentagon statement issued after Reuters disclosed the withdrawal acknowledged that the JCPC, as originally conceived, had been “largely shelved” and that ongoing support was limited, despite renewed fighting this summer. “The cooperation that we’ve extended to Saudi Arabia since the conflict escalated again is modest and it is not a blank check,” Pentagon spokesman Adam Stump said. U.S. officials, speaking on condition of anonymity, said the reduced staffing was not due to the growing international outcry over civilian casualties in the 16-month civil war that has killed more than 6,500 people in Yemen, about half of them civilians.

Read more …

The DoD simply does no accounting.

US Army Fudged Its Accounts By Trillions Of Dollars (R.)

The United States Army’s finances are so jumbled it had to make trillions of dollars of improper accounting adjustments to create an illusion that its books are balanced.The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up. As a result, the Army’s financial statements for 2015 were “materially misstated,” the report concluded. The “forced” adjustments rendered the statements useless because “DoD and Army managers could not rely on the data in their accounting systems when making management and resource decisions.”

Disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades. The report affirms a 2013 Reuters series revealing how the Defense Department falsified accounting on a large scale as it scrambled to close its books. As a result, there has been no way to know how the Defense Department – far and away the biggest chunk of Congress’ annual budget – spends the public’s money. The new report focused on the Army’s General Fund, the bigger of its two main accounts, with assets of $282.6 billion in 2015. The Army lost or didn’t keep required data, and much of the data it had was inaccurate, the IG said. “Where is the money going? Nobody knows,” said Franklin Spinney, a retired military analyst for the Pentagon and critic of Defense Department planning.

Read more …

It’ll take a lot more than that to make cities liveable. How about a deep financial crisis?

Netherlands On Brink Of Banning Sale Of Petrol-Fuelled Cars (Ind.)

Europe appears poised to continue its move towards cutting fossil fuel use as the Netherlands joins a host of nations looking to pass innovative green energy laws. The Dutch government has set a date for parliament to host a roundtable discussion that could see the sale of petrol- and diesel-fuelled cars banned by 2025. If the measures proposed by the Labour Party in March are finally passed, it would join Norway and Denmark in making a concerted move to develop its electric car industry. It comes after Germany saw all of its power supplied by renewable energies such as solar and wind power on one day in May as the economic powerhouse continues to phase out nuclear energy and fossil fuels.

And outside Europe, both India and China have demanded that citizens use their cars on alternate days only to reduce the exhaust fume production which is causing serious health problems for the populations of both nations. The consensus-oriented parties of the Netherlands are set to consider a total ban on petrol and diesel cars in a debate on 13 October. Richard Smokers, principle adviser in sustainable transport at the Dutch renewable technology company TNO, said the Dutch government was committed to meeting the Paris climate change agreement to reduce greenhouse emissions to 80% less than the 1990 level. The plan requires the majority of passenger cars to be run on CO2-free energy by 2050.

“Dutch cities still have some problems to meet existing EU air quality standards and have formulated ambitions to improve air quality beyond these standards,” he told The Independent, adding that the government had at the same time been reluctant to implement strict policies on the environment. “The current government embraces long term targets and strives at meeting EU requirements, but is hesistant about proposing ‘strong’ policy measures. “Instead it prefers to facilitate and stimulate initiatives from stakeholders in society.” If the law to ban the sale of new fossil-fuel cars by 2025 passes, a significant move will have been made towards phasing out all petrol and diesel cars by 2035, added Dr Smokers.

Read more …

Aug 182016
 
 August 18, 2016  Posted by at 8:51 am Finance Tagged with: , , , , , , , , , , ,  


NPC George W. Cochran & Co., 709 14th Street NW, Washington DC 1920

Japanese Imports Drop -24.7%, Exports Crash -14.1% (ZH)
A Physics Lesson for Central Bankers (BBG)
The Idea Of The Fed Raising The Inflation Target Is Outrageous (Boockvar)
On The Impossibility Of Helicopter Money And Why The Casino Will Crash (DS)
US Buyback Announcements Tumble to a 2012 Low (BBG)
Oil Drillers Have Slashed Spending For 2015-2020 By $1 Trillion
Only 37% Of Borrowers Are Paying Down Their Student Loans (WSJ)
Chinese Airlines Need To Hire 100 Pilots A Week For The Next 20 Years (BBG)
Hillary Clinton Picks TPP and Fracking Advocate To Set Up Her White House (IC)
Is US Moving Nuclear Weapons From Turkey to Romania? (EurA)
America Is Complicit in the Carnage in Yemen (NYT Editorial Board)
California Slaughter: The State-Sanctioned Genocide of Native Americans (NW)
Uncovering The Brutal Truth About The British Empire (G.)
Greek Villagers Rescued Refugees. Now They Are the Ones Suffering. (NYT)

 

 

Apparently Kuroda doesn’t buy enough yet.

Japanese Imports Drop -24.7%, Exports Crash -14.1% (ZH)

For the 19th month in a row, Japanese Imports plunged – dropping 24.7% YoY (worse than expected), the biggest drop since Oct 2009. Exports were just as dismal, also missing expectations, plunging 14.1% YoY – worst since Oct 2009. The biggest driver of the collapse of Japanese trade was a 44% crash in the Chinese trade balance. There’s no lipstick to put on this pig… it’s a disaster.. and worse still Yen is strengthening back below 100 against the USD.

Read more …

Why not simply admit that central bankers and economists alike have no idea what they’re doing?! Even if they ever had a clue, we’re now 8 years into ‘uncharted territory’, and it’s all anyone‘s guess. That’s what ‘uncharted territory’ means.

Moreover, central bankers and economists come in with dogmatic school book theories that don’t apply in ‘uncharted territory’, and those school book educations make sure they’re the very last candidates for finding creative solutions. Comparing economics to actual science does not help one bit.

A Physics Lesson for Central Bankers (BBG)

The world is braced for the discovery of a fifth fundamental forces of nature – the four known ones being electromagnetism, gravity, and strong and weak nuclear forces – that subverts the so-called standard model of particle physics. Given the lackluster outlook for global growth, maybe economics needs a similar revolution. Quantitative easing’s failure to quash the threat of deflation is finance’s equivalent of the bump in the data that alerted physicists to the possibility of a new boson. The mismatch between economic theory and the real-world outcome of zero interest rates poses a direct challenge to the current orthodoxy that puts a 2% inflation target at the heart of monetary policy in most of the developed world.

Figures earlier this week showed inflation running at an annual pace of just 0.8% in the U.S. and 0.6% in the U.K. Consumer prices in the euro zone are rising by about 0.2% a year; in Japan, prices dropped by 0.4% in June. The consensus forecast among economists surveyed by Bloomberg News is for none of the four central banks in those regions to meet their targets in 2016, and for the ECB and the BOJ to continue falling short for at least the next year:

Years of pumping trillions of dollars, euros, yen and pounds into the economy by buying government debt and other securities hasn’t produced the rebound in inflation that economics textbooks predicted. Record low borrowing costs haven’t led to a surge in investment and spending that would lead to higher prices. That’s the kind of empirical evidence that should produce a reconsideration of what Rothschild Investment Trust Chairman Jacob Rothschild this week called “the greatest experiment in monetary policy in the history of the world.” Neil Grossman, director of Florida-based bank C1 Financial and former chief investment officer at TKNG Capital Partners, likens the need to abandon the current economic orthodoxy with the impact of quantum physics on science in the last century.

Read more …

“There is no science to this 2% number, it is all art.”

The Idea Of The Fed Raising The Inflation Target Is Outrageous (Boockvar)

I can’t let an opportunity go by without criticizing a Fed official. I believe their feet should be held to the fire after creating a huge asset price bubble and culture of debt that is dragging down economic growth. Fed President John Williams comments yesterday really got me angry. First, he suggested possibly raising the Fed’s 2% inflation target. This reflects an amazing cluelessness of the damage this would do if realized. We are in an epic bond bubble globally where higher inflation would be kryptonite. With the bond monster central bankers have created, the last thing they should want is higher inflation. Also, many U.S. citizens are literally living paycheck to paycheck and a higher cost of living without a corresponding increase in wages or any interest income would damage the largest component of the U.S. economy and the lives of millions.

Second, he said, “Conventional monetary policy has less room to stimulate the economy during an economic downturn.” This we know is true. But he then added, “This will necessitate a greater reliance on unconventional tools like central bank balance sheets, forward guidance, and potentially even negative policy rates.” This last sentence proves he’s blind to the negative consequences of what unconventional tools have wrought and he believes in negative rates even in the face of all the evidence of how damaging the idea is. Let me expand on the first issue of inflation. Central banks in the U.S., Eurozone, UK and in Japan have tethered their monetary policy decisions on growth certainly but also the desire for 2% annual inflation. There is no science to this 2% number, it is all art.

The reason for this target and desire for this level of inflation is a matter of control. While they like to keep interest rates artificially low, they also understand the need to have them higher than they are in order to respond to any economic challenges. The fallacy with this theory that higher inflation is good and deflation is bad, is inflation is just a symptom of underlying supply and demand and technological improvements, and thus shouldn’t be manipulated.

Read more …

Stockman: “..earnings had fallen by 19% since then, even as the stock market moved from 1950 to nearly 2200 or 13% higher..”

On The Impossibility Of Helicopter Money And Why The Casino Will Crash (DS)

[..] .. the S&P 500 companies posted Q2 2016 earnings for the latest 12 month period at $86.66 per share. So at the August bubble high the market was being valued at a lunatic 25.1X. Even in a healthy, growing economy that valuation level is on the extreme end of sanity. But actual circumstances are currently more nearly the opposite. That is, earnings have now been falling for six straight quarters in line with GDP growth that has slumped to what amounts to stall speed. In fact, reported earnings for the S&P 500 peaked at $106 per share in the 12 months ended in September 2014. That means that earnings had fallen by 19% since then, even as the stock market moved from 1950 to nearly 2200 or 13% higher.

This is called multiple expansion in the parlance of Wall Street, but it’s hard to find a more bubblicious example. Two years ago the market was trading at just 18.4X, meaning that on the back of sharply falling earnings the PE multiple had risen by 36%! Valuation multiples are supposed to go up only when the economic and profits outlook is improving, not when it’s unmistakably deteriorating as at present. But during the spring-summer melt-up these faltering fundamentals were blithely ignored on the hopes of a second half growth spurt and, failing the latter, that the Fed would again pull the market’s chestnuts out of the fire.

Read more …

Time for Yellen to buy those stocks? Buybacks were the no. 1 reason the S&P looked good till now. Better find something to replace them, or else…

US Buyback Announcements Tumble to a 2012 Low (BBG)

Stock buybacks appear to be slowing down, suggesting either corporate America’s outlook has dimmed, stock valuations have become prohibitively high or, most optimistically, that companies are starting to listen to investors and put funds toward other uses. Buybacks announced for the second quarter’s earnings season between July 8 and August 15 totaled an average of $1.8 billion a day, the lowest volume in an earnings season since the summer of 2012, according to TrimTabs Investment Research.
Share repurchases have been a key driver of this year’s stock market rally, despite a notable deceleration relative to to the same period in 2015. In the first seven months of 2016, buybacks totaled $376.5 billion, according to TrimTabs.

That’s down 21% from $478.4 billion in the first seven months of last year. Equity buybacks last week totaled just $2.6 billion, while record highs in U.S. stocks triggered an increase in new equity offerings. “The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead,” David Santschi, chief executive officer of TrimTabs, said in a press release on Tuesday. That means “buybacks aren’t likely to provide as much fuel for the stock market as they have in the recent past.” According to TrimTabs, just five companies have announced buybacks of more-than $3 billion this earnings season: Biogen ($5 billion), Visa ($5 billion), CBS ($5 billion), AIG ($3 billion), and 21st Century Fox ($3 billion).

Read more …

Hard to admit to something that will cost you your livelihood. They all keep hoping for rising prices.

Oil Drillers Have Slashed Spending For 2015-2020 By $1 Trillion

Mad Dog, BP’s drilling project deep in the Gulf of Mexico, could be Exhibit A in the oil industry’s war on cost. When the British oil giant announced the project’s second phase in 2011, it put the price at $20 billion. Last month, after simplifying plans and benefiting from a sharp drop in everything from steel to drilling services, Chief Executive Officer Bob Dudley said he could do the job for $9 billion.

Across the industry, companies have taken a chainsaw to expenses, slashing spending for the 2015-to-2020 period by $1 trillion through cutting staff, delaying projects, changing drilling techniques and squeezing outside contractors, according to consulting firm Wood Mackenzie. That’s cushioned businesses as oil prices plunged 60% since 2014. Now producers seek to show they can make the savings stick, while service providers try to reverse their losses. Industry costs “may be the defining issue of the next six to 12 months,” said J. David Anderson, a Barclays analyst in New York. “As you start ramping up, the fact is you’re going to need more services and they’re going to have to come in at a higher price.”

Read more …

Someone will come with an across the board forgiveness plan. But it’ll be contentious.

Only 37% Of Borrowers Are Paying Down Their Student Loans (WSJ)

A largely overlooked report released in February by the Government Accountability Office suggests that the Obama administration’s policies have exacerbated student debt, which equals nearly a quarter of annual federal borrowing. With only 37% of borrowers actually paying down their loans, the federal student-loan program more closely resembles the payday-lending industry than a benevolent source of funds for college. As this newspaper reported in April, “43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1,” and a staggering “1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt.”

If student debt continues to skyrocket, the federal government may have to deal with as much as a $500 billion write-down when future defaults and loan-forgiveness programs are factored in. In 2010, the Obama administration dispensed with the private intermediaries that had administered federal loans since the 1960s. It put in their place Direct Lending, a program administered by the Education Department. At the time, the Congressional Budget Office estimated that Direct Lending would save $62 billion from 2010 to 2020. That didn’t happen. The program’s advocates failed to anticipate how two other Obama-backed college affordability initiatives—Income-Driven Repayment and loan forgiveness—would create a cataclysmic hit to the federal student-loan program’s finances.

There are more than 20 Income-Driven Repayment programs, but they all work essentially the same way. Students struggling financially can defer their payments. When no or limited payments are made, their balances grow. Today, over 20 million borrowers are watching their loan balances increase thanks to these programs. The average balance ballooned to approximately $25,000 in 2014 from $15,000 in 2004, according to the Federal Reserve Bank of New York, and has grown still larger since then.

Read more …

In their dreams.

Chinese Airlines Need To Hire 100 Pilots A Week For The Next 20 Years (BBG)

Chinese airlines need to hire almost 100 pilots a week for the next 20 years to meet skyrocketing travel demand. Facing a shortage of candidates at home, carriers are dangling lucrative pay packages at foreigners with cockpit experience. Giacomo Palombo, a former United Airlines pilot, said he’s being bombarded every week with offers to fly Airbus A320s in China. Regional carrier Qingdao Airlines promises as much as $318,000 a year. Sichuan Airlines, which flies to Canada and Australia, is pitching $302,000. Both airlines say they’ll also cover his income tax bill in China. “When the time to go back to flying comes, I’ll definitely have the Chinese airlines on my radar,” said Palombo, 32, now an Atlanta-based consultant for McKinsey. “The financials are attractive.”

Air traffic over China is set to almost quadruple in the next two decades, making it the world’s busiest market, according to Airbus Group SE. Startup carriers barely known abroad are paying about 50% more than what some senior captains earn at Delta Air Lines, and they’re giving recruiters from the U.S. to New Zealand free rein to fill their captains’ chairs. With some offers reaching $26,000 a month in net pay, pilots from emerging markets including Brazil and Russia can quadruple their salaries in China, said Dave Ross, Las Vegas-based president of Wasinc International. Wasinc is recruiting for more than a dozen mainland carriers, including Chengdu Airlines, Qingdao Airlines and Ruili Airlines. “When we ask an airline, ‘How many pilots do you need?,’ they say, ‘Oh, we can take as many as you bring,”’ Ross said. “It’s almost unlimited.”

Read more …

Incredible, but he really said it: “..there’s not a single case where hydraulic fracking has created an environmental problem for anyone..”

Hillary Clinton Picks TPP and Fracking Advocate To Set Up Her White House (IC)

Two big issues dogged Hillary Clinton during the Democratic primary: the Trans-Pacific Partnership trade agreement (TPP) and fracking. She had a long history of supporting both. Under fire from Bernie Sanders, she came out against the TPP and took a more critical position on fracking. But critics wondered if this was a sincere conversion or simply campaign rhetoric. Now, in two of the most significant personnel moves she will ever make, she has signaled a lack of sincerity. She chose as her vice presidential running mate Tim Kaine, who voted to authorize fast-track powers for the TPP and praised the agreement just two days before he was chosen.

And now she has named former Colorado Democratic Senator and Interior Secretary Ken Salazar to be the chair of her presidential transition team — the group tasked with helping set up the new administration should she win in November. That includes identifying, selecting, and vetting candidates for over 4,000 presidential appointments. As a senator, Salazar was widely considered a reliable friend to the oil, gas, ranching and mining industries. As interior secretary, he opened the Arctic Ocean for oil drilling, and oversaw the botched response to the BP oil spill in the Gulf of Mexico. Since returning to the private sector, he has been an ardent supporter of the TPP, while pushing back against curbs on fracking.

The TPP would enhance the ability of corporations to sue to overturn environmental regulations, but Salazar helped a pro-TPP front group, the “Progressive Coalition for American Jobs,” argue the opposite. In a November 2015 USA Today op-ed that Salazar co-wrote with Bruce Babbitt, the two men argued that the TPP would be the “the greenest trade deal ever” by promoting sustainable energy. Both Salazar and Babbitt cited their former positions as interior secretaries to boost their credibility. The following month, Salazar authored a Denver Post op-ed with two former Colorado governors also affiliated with PCAJ, arguing that the agreement would protect the state’s scenic beauty: “And as a state rich with natural wonder and a long history of conservation, Colorado can be proud that the TPP includes the highest environmental standards of any trade agreement in history.”

Shortly after leaving his post at the Obama administration, Salazar appeared at an oil and gas industry conference to argue in favor of fracking. “We know that, from everything we’ve seen, there’s not a single case where hydraulic fracking has created an environmental problem for anyone,” Salazar told the attendees, who included the vice president of BP America, another keynote speaker at the conference. “We need to make sure that story is told.”

Read more …

Not confirmed. But moving them out of Turkey seems logical. Not exactly a safe third country these days.

Is US Moving Nuclear Weapons From Turkey to Romania? (EurA)

Two independent sources told EurActiv.com that the US has started transferring nuclear weapons stationed in Turkey to Romania, against the background of worsening relations between Washington and Ankara. According to one of the sources, the transfer has been very challenging in technical and political terms. “It’s not easy to move 20+ nukes,” said the source, on conditions of anonymity. According to a recent report by the Simson Center, since the Cold War, some 50 US tactical nuclear weapons have been stationed at Turkey’s Incirlik air base, approximately 100 kilometres from the Syrian border.

During the failed coup in Turkey in July, Incirlik’s power was cut, and the Turkish government prohibited US aircraft from flying in or out. Eventually, the base commander was arrested and implicated in the coup. Whether the US could have maintained control of the weapons in the event of a protracted civil conflict in Turkey is an unanswerable question, the report says. Another source told EurActiv.com that the US-Turkey relations had deteriorated so much following the coup that Washington no longer trusted Ankara to host the weapons. The American weapons are being moved to the Deveselu air base in Romania, the source said. Deveselu, near the city of Caracal, is the new home of the US missile shield, which has infuriated Russia.

Read more …

It doesn’t sit well with me at all that the NYT editors are saying this. Far too much blood on those hands. It doesn’t feel right one bit.

America Is Complicit in the Carnage in Yemen (NYT Editorial Board)

A hospital associated with Doctors Without Borders. A school. A potato chip factory. Under international law, those facilities in Yemen are not legitimate military targets. Yet all were bombed in recent days by warplanes belonging to a coalition led by Saudi Arabia, killing more than 40 civilians. The United States is complicit in this carnage. It has enabled the coalition in many ways, including selling arms to the Saudis to mollify them after the nuclear deal with Iran. Congress should put the arms sales on hold and President Obama should quietly inform Riyadh that the United States will withdraw crucial assistance if the Saudis do not stop targeting civilians and agree to negotiate peace.

The airstrikes are further evidence that the Saudis have escalated their bombing campaign against Houthi militias, which control the capital, Sana, since peace talks were suspended on Aug. 6, ending a cease-fire that was declared more than four months ago. They also suggest one of two unpleasant possibilities. One is that the Saudis and their coalition of mostly Sunni Arab partners have yet to learn how to identify permissible military targets. The other is that they simply do not care about killing innocent civilians. The bombing of the hospital, which alone killed 15 people, was the fourth attack on a facility supported by Doctors Without Borders in the past year even though all parties to the conflict were told exactly where the hospitals were located.

In all, the war has killed more than 6,500 people, displaced more than 2.5 million others and pushed one of the world’s poorest countries from deprivation to devastation. A recent United Nations report blamed the coalition for 60% of the deaths and injuries to children last year. Human rights groups and the United Nations have suggested that war crimes may have been committed.

Read more …

Today Yemen, yesterday California. Maybe if we stop trying to hide the past, we’re less likely to repeat it?!

California Slaughter: The State-Sanctioned Genocide of Native Americans (NW)

The tally is relentlessly grim: a whole settlement wiped out in Trinity County “excepting a few children”; an Indian girl raped and left to die somewhere near Mendocino; as many as 50 killed at Goose Lake; and, two months later, as many as 257 murdered at Grouse Creek, scores of them women and children. There were the four white ranchers who tracked down a band of Yana to a cave, butchering 30. “In the cave with the meat were some Indian children,” reported a chronicle published later. One of the whites “could not bear to kill these children with his 56-calibre Spencer rifle. ‘It tore them up so bad.’ So he did it with his 38-calibre Smith and Wesson revolver.”

Read more …

We might as well stop speaking about western ‘civilization’.

Uncovering The Brutal Truth About The British Empire (G.)

Help us sue the British government for torture. That was the request Caroline Elkins, a Harvard historian, received in 2008. The idea was both legally improbable and professionally risky. Improbable because the case, then being assembled by human rights lawyers in London, would attempt to hold Britain accountable for atrocities perpetrated 50 years earlier, in pre-independence Kenya. Risky because investigating those misdeeds had already earned Elkins heaps of abuse. Elkins had come to prominence in 2005 with a book that exhumed one of the nastiest chapters of British imperial history: the suppression of Kenya’s Mau Mau rebellion. Her study, Britain’s Gulag, chronicled how the British had battled this anticolonial uprising by confining some 1.5 million Kenyans to a network of detention camps and heavily patrolled villages.

It was a tale of systematic violence and high-level cover-ups. It was also an unconventional first book for a junior scholar. Elkins framed the story as a personal journey of discovery. Her prose seethed with outrage. Britain’s Gulag, titled Imperial Reckoning in the US, earned Elkins a great deal of attention and a Pulitzer prize. But the book polarised scholars. Some praised Elkins for breaking the “code of silence” that had squelched discussion of British imperial violence. Others branded her a self-aggrandising crusader whose overstated findings had relied on sloppy methods and dubious oral testimonies. By 2008, Elkins’s job was on the line. Her case for tenure, once on the fast track, had been delayed in response to criticism of her work.

To secure a permanent position, she needed to make progress on her second book. This would be an ambitious study of violence at the end of the British empire, one that would take her far beyond the controversy that had engulfed her Mau Mau work. That’s when the phone rang, pulling her back in. A London law firm was preparing to file a reparations claim on behalf of elderly Kenyans who had been tortured in detention camps during the Mau Mau revolt. Elkins’s research had made the suit possible. Now the lawyer running the case wanted her to sign on as an expert witness. Elkins was in the top-floor study of her home in Cambridge, Massachusetts, when the call came. She looked at the file boxes around her. “I was supposed to be working on this next book,” she says. “Keep my head down and be an academic. Don’t go out and be on the front page of the paper.”

She said yes. She wanted to rectify injustice. And she stood behind her work. “I was kind of like a dog with a bone,” she says. “I knew I was right.” What she didn’t know was that the lawsuit would expose a secret: a vast colonial archive that had been hidden for half a century. The files within would be a reminder to historians of just how far a government would go to sanitise its past. And the story Elkins would tell about those papers would once again plunge her into controversy.

Read more …

But not everyone has lost it: “If it happens again, everyone will do the exact same thing: We will help.”

Greek Villagers Rescued Refugees. Now They Are the Ones Suffering. (NYT)

Stratis Valamios revved the motor on his small white boat and steered under a thumbnail moon out of the harbor of this fishing village, perched on the northern tip of Lesbos, Greece’s third-largest island. Skies were clear enough to see the purple mountains of Turkey a short distance across the Aegean Sea. It would be easy on this tranquil evening to catch calamari. These days, he needed a good haul to make ends meet. A year ago, he and other fishermen in the tiny village, Skala Sikaminias, were making a more unusual catch: thousands of sea-drenched asylum seekers who streamed across the Aegean to escape conflict and poverty in the Middle East and Africa.

As one of the landfalls in Greece that is closest to Turkey, Skala Sikaminias, with its 100 residents, fast became ground zero for the crisis, the first stop in Europe for people trying to reach Germany in a desperate bid to start new lives. “I’d be in the middle of the sea, and I would see 50 boats zigzagging toward me,” Mr. Valamios said, gazing across the narrow channel. “I would speed toward them, and they would throw their children into my boat to be saved.” Today the migrants have mostly stopped coming. The coastline, once littered with orange life vests and wrecked boats, has been cleaned to a near-spotless white. But the human drama has left an imprint here, and across all of Lesbos, in ways that have only begun to play out.

The village is nearly empty of tourists this year as Germans, Swedes and other visitors who had long flocked to the crystalline waters of Lesbos go elsewhere, wary of spending their vacations in a place now associated with human desperation. Business at the island’s hotels and tavernas has slumped around 80%, especially along the 7.5-mile stretch between Skala Sikaminias and the vacation town of Molyvos, where many of the more than 800,000 migrants who survived the crossing last year washed ashore. Mr. Valamios used to supplement his income as a fisherman by working five months of the year at Myrivilis’ Mulberry taverna, facing the bucolic port where fishermen mend yellow nets beneath oleanders and village cats prowl for fish. This year, he was asked to work just one month amid a dearth of customers. Nearly 1,000 Greeks in the area have lost seasonal employment.

[..] The villagers no longer experience the sea in the same way. When they look at the horizon, some say they think for a split second that another refugee boat is coming. “We have to be ready,” Mr. Valamios said. “If it happens again, everyone will do the exact same thing: We will help.”

Read more …

Mar 282016
 
 March 28, 2016  Posted by at 8:40 am Finance Tagged with: , , , , , , , , ,  


Albert Freeman Mrs. Alice White at the War Fund Victory Store, Hardwick, VT 1942

The Seven Countries Most Vulnerable To A Debt Crisis (Steve Keen)
Capital and Credit (Mr. Practical)
Japan’s Negative Rates A Looming Headache For Central Bank (Reuters)
Japan Seen Stuck With Negative Yields on 70% of Bonds for 2016 (BBG)
China’s Pension Fund To Flow Into Stock Market This Year (CD)
China Hunts Source of Letter Urging Xi to Quit (WSJ)
US Energy Companies Pay Up to Raise Cash (WSJ)
Negative Gearing Has Created Empty Houses And Artificial Scarcity (SMH)
Has The Brics Bubble Burst? (Guardian)
In Yahoo, Another Example of the Buyback Mirage (NY Times)
Wealthier Countries Have More Leisure Time – With One Big Exception (Wef)
Is Monsanto Losing Its Grip? (WS)
Pentagon, CIA-Armed Militias Fight Each Other In Syria (LA Times)
Saudi Arabia Campaign Leaves 80% Of Yemen Population Needing Aid (G.)
Smugglers Prepare New Human Trafficking Route To Italy (DW)
EU Prepares For Massive Migration Flows From Libya (EurActiv)

It’s Steve’s birthday today!

The Seven Countries Most Vulnerable To A Debt Crisis (Steve Keen)

For decades, some of the most important data about market economies was simply unavailable: the level of private debt. You could get government debt data easily, but (with the outstanding exception of the USA—and also Australia) it was hard to come by. That has been remedied by the Bank of International Settlements, which now publishes a quarterly series on debt—government & private—for over 40 countries. This data lets me identify the seven countries that, on my analysis, are most likely to suffer a debt crisis in the next 1-3 years. They are, in order of likely severity: China, Australia, Sweden, Hong Kong (though it might deserve first billing), Korea, Canada, and Norway. I’ve detailed the logic behind my argument too many times to count, and I won’t repeat it here.

The bottom line is that private sector expenditure in an economy can be measured as the sum of GDP plus the change in credit, and crises occur when (a) the ratio of private debt to GDP is large; (b) growing quickly compared to GDP. When the growth of credit falls—as it eventually must, as growing debt servicing exhausts the funds available to finance it, new borrowers baulk at entry costs to house purchases, and numerous euphoric and Ponzi-based debt-financed schemes fail—then the change in credit falls, and can go negative, thus reducing demand rather than adding to it.

This is what caused the Global Financial Crisis, and the simplest way to simply substantiate my argument—which virtually every other economist on the planet will advise you is crazy (except Michael Hudson, Dirk Bezemer and a few others)—is to show you this data for the USA. The crisis began as the rate of growth of credit began to fall, and the Great Recession was dated as starting in 2008 and ending in 2010. As you can see from Figure 1, the sum of GDP plus credit growth peaked in 2008, and fell till 2010—at which point the recovery began.


Figure 1: America’s crisis began when the rate of growth of credit began to fall

The BIS database lets me identify other countries—several of which managed to avoid a serious downturn during the GFC—which fill these two pre-requisites: a high level of private debt to GDP, and a rapid growth of that ratio in the last few years. The American ex-banker turned philanthropist and debt reformer Richard Vague, in his excellent empirical study of crises over the last 150 years, concluded that crises occur when (a) private debt exceeds 1.5 times GDP and (b) the level grows by about 20% (say from 140% to 160%) over a 5 year period.

America fitted those gloves in 2008, as did many other countries—all of which are either still in a crisis (especially in the Eurozone), or are suffering “inexplicably” low growth after an apparent recovery (as is the case in the USA, the UK, and so on). Using the BIS database, I can identify 21 countries that meet Richard’s first criteria, but to “go for broke” on this forecast, I restricted myself to the 16 countries that had a private debt to GDP ratio exceeding 175% of GDP. To simplify my analysis, I then limited the second criteria to countries where the increase in private debt last year exceeded 10% of GDP. That combination gave me my list.


Figure 2: Countries with private debt/GDP > 175% & debt growth in 2015 > 10% of GDP, ranked by debt growth

Read more …

“If all the savings are chased out of banks, what is left for investment for the future?”

Capital and Credit (Mr. Practical)

Central banks have altered the definition of debt. Debt was once created by banks when they lent out deposits, transferring the liquid capital of the depositor to the debtor; the bank, acting as a clearing house, guaranteed the deposit. The Federal Reserve allows banks to lever that functionality by requiring banks to keep just 10% of the deposit as collateral; ergo, a bank could lend ten times its deposit base. That was the first step in levering capital up in the economy. It was and is called fractional banking. Over the last 30 years, central banks, regulators, and Wall Street have created various methods to increase that leverage even more; in other words, they have taken a modicum of capital and created mountains of debt with it. In other words, financial engineering creates new and different ways to increase leverage.

Most of those vehicles are disguised as derivatives. For example, some stocks allow investors to buy them on margin of 50%: they put up half of the cost and a broker lends them the other half so the investor’s capital is levered two-to-one. Alternatively, through derivatives, they can buy an SP500 futures contract and only put up 5% in capital and the broker will lend them the other 95%, so the investor’s capital is levered twenty to one! The derivatives market has a notional value of ~$1 quadrillion (one thousand trillions; pause to let the enormity of that number sink in); this provides a glimmer of the risk and leverage embedded in the derivatives markets, and by extension the stock and commodity markets. The system imploded under this debt in 2008 because there was not enough income being generated to pay back interest and principal.

Central banks and governments responded by adding $60 trillion of fresh global debt to reflate the bubble. How is that working? Well, we’re now seeing negative interest rates (NIRP) in Europe and Asia and many think they are coming to the U.S. Negative interest rates mean savers are now being charged to keep their money at the bank; there now is a cost to holding cash in a savings account. This is not natural and has revolting consequences. If you buy an Italian government bond you actually have to pay them interest to lend them money. This is ridiculous on its face but especially since Italy is bankrupt. The only reason it is possible is that the central bank of Europe is buying them up to that price. And why is this happening? The bubble is fraying. It is about to pop again for all of the new debt created since 2008; that debt is even less productive than the previous debt and generates even less income to pay it back.

Bureaucrats can either lever capital or re-distribute it. t seems they are having trouble levering it any further so negative rates are an attempt to re-distribute capital. All of the savings in liquid capital within the banks must be chased out to buy increasingly risky assets like stocks and houses to stimulate the economy. This is like Dr. Frankenstein raising the dead. If all the savings are chased out of banks, what is left for investment for the future?

Read more …

“The JGB market is really in a bubble, when you think about it as an investment vehicle..”

Japan’s Negative Rates A Looming Headache For Central Bank (Reuters)

Driving interest rates below zero, the Bank of Japan has turned a comatose government bond market into an enormous free-for-all, complicating the central bank’s own efforts to kick-start growth and end deflation. The $9 trillion market for Japanese government bonds had been all but paralyzed since the BOJ began a massive monetary easing three years ago that made the bank the dominant buyer. But in the two months since the BOJ announced it was imposing a negative interest rate, JGBs have become a volatile commodity, with prices swinging wildly as below-zero yields confound investors’ attempts to find fair market value. “The JGB market is really in a bubble, when you think about it as an investment vehicle,” said Takuji Okubo at Japan Macro Advisors. “Their prices have moved away from fundamentals, and people don’t have a traditional way to measure their value.”

As the BOJ’s dominance distorts bond market functions and dries up liquidity, the central bank could have a hard time tapering its buying binge when it eventually chooses to exit its “quantitative and qualitative easing” program. The bank theoretically could just sit on its enormous holdings until the bonds mature, but policymakers are unlikely to want those assets to remain on the balance sheet for decades. On the other hand, it might be difficult to smoothly taper off its asset purchases, much less sell its holdings. So far, the BOJ’s money printing has kept the cost for financing the government’s massive public debt very low. A spike in that cost could stoke market fears Japan may be losing control of its finances, potentially triggering a damaging bond sell-off, some analysts say. “It would be quite tough for the BOJ to taper such an enormous balance sheet without disrupting markets,” said a person familiar with the BOJ’s thinking.

Read more …

Abe to call snap elections, the opposition melting into blocks to prevent a 2/3 majority.

Japan Seen Stuck With Negative Yields on 70% of Bonds for 2016 (BBG)

Japanese primary dealers say negative bond yields are here to stay in 2016, and room for capital gains has run out. [..] Three years after the start of the Bank of Japan’s unprecedented quantitative and qualitative easing, or QQE, and two months since the surprise announcement of negative interest rates, bond investors are still trying to adjust to the conditions that have turned yields on 70% of the market negative. Even amid such extreme measures, the central bank has failed to prevent inflation from flatlining for more than a year. Most of the dealers surveyed expect a further expansion of stimulus. “The BOJ has dominated the bond market,” said Takafumi Yamawaki at JPMorgan, who sees the 10-year note yielding minus 0.15% at year-end. “Yields will remain deeply depressed.” An investor would just about break even if the 10-year JGB yield ended the year at minus 0.1%, after accounting for reinvested interest.

The 10-year yield was at minus 0.095% on Friday, the lowest globally after Switzerland’s minus 0.35%. The equivalent U.S. Treasury note yielded 1.9%. JGBs have returned 5.3% over the past six months, the most of 26 sovereign debt markets tracked by Bloomberg, as yields pushed ever lower amid pressure from BOJ easing. “We expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long,” said Takeki Fukushima at Citigroup in Tokyo, who predicts the 10-year note will yield about minus 0.15% at year-end. The BOJ owns an unprecedented one-third of outstanding JGBs, more than any other class of investor, as it snaps up as much as 12 trillion yen ($106 billion) of the debt each month. The result has been a loss of liquidity that has heightened volatility and hurt market functionality.

Read more …

There goes the kitchen sink.

China’s Pension Fund To Flow Into Stock Market This Year (CD)

China’s massive pension fund may begin investing in the nation’s A-share markets this year, an anticipated move that will channel approximately 600 billion yuan ($92.28 billion) into the equity market and likely improve its liquidity. The target date comes several months after China’s State Council published an investment guideline that would allow the country’s pension fund to invest in more diversified and risker products, with the maximum proportion of investments in stocks and equities set at 30% of total net assets. As of last Friday, the nation’s A-share markets’ combined value totaled about 44 trillion yuan. China’s pension fund, which accounts for approximately 90% of the country’s total social security fund pool, had net assets of 3.98 trillion yuan by the end of 2015.

By the end of last year, total investible pension fund nationwide reached approximately 2 trillion yuan, according to data from the Ministry of Human Resources and Social Security. Yin Weimin, the minister of Human Resources and Social Security, said last week: “Detailed guidelines about how the investments will be conducted are expected shortly and the investments will be made through commissioned institutional investors.” According to a survey by the Shenzhen Stock Exchange, which polled 3,874 small investors from 219 cities around China, more than 77.5% of respondents said they had been anticipating the pension fund investments and that the move will bring a wave of liquidity.

The move is expected to not only benefit the equity market but also the pension fund itself, because yields from investing in equities are normally higher than that from treasury bonds or interest rates from bank accounts. Critics have said that the low yields earned from bank accounts or bonds will not meet the increasing demands of a rapidly growing elderly population. Researchers said it will take time for all of the investible portion of the pension fund to become fully injected into the equity market. Provinces that have already piloted their local pension funds to be invested in the equity market have reported positive yields. South China’s Guangdong province reportedly accrued a combined yield of 17.34 billion yuan from a 100-billion-yuan investment.

Read more …

China, Turkey, Saudi: what’s the difference? And they’re all our friends…

China Hunts Source of Letter Urging Xi to Quit (WSJ)

A Chinese news portal’s publication of a mysterious letter calling for President Xi Jinping’s resignation appears to have triggered a hunt for those responsible, in a sign of Beijing’s anxiety over bubbling dissent within the Communist Party. The letter, whose authorship remains unclear, appeared on the eve of China’s legislative session in early March, the most public political event of the year. Since then, at least four managers and editors with Wujie Media—whose news website published the missive—and about 10 people from a related company providing technical support have gone missing, according to their friends and associates, who say the disappearances are linked to a government probe into the letter.

A U.S.-based dissident author said authorities have also taken away his family in southern China over claims that he had helped disseminate the letter – an allegation he denies. The editor of an overseas Chinese website that also published the letter said he has received harassing phone calls and anonymous death threats. Wujie Media -which is based in Beijing and partly owned by the government of China’s far western Xinjiang region- hasn’t published any original news content since mid-March, while its social-media accounts have also gone silent. Many among its more than 100 employees worry that the company may soon be shut down, according to a Wujie employee and two people familiar with the situation.

[..] Analysts said the incident highlights the party’s concerns over the letter and a broader pushback against Mr. Xi’s domineering style of leadership. The response “shows a real brittleness of power and of high levels of nervousness,” said Kerry Brown, professor of Chinese studies at King’s College London. “If this sort of complaint spreads, then there could be real problems,” he said. [..] “The concentration of power in Xi’s hands, as well as the budding personality cult, have come to arouse dissent among party circles,” said Daniel Leese, a professor of Chinese history and politics at Germany’s University of Freiburg. Over the past two months, divisions between the disgruntled party members and Mr. Xi’s camp have spilled out into the open. After prominent real-estate tycoon and party member Ren Zhiqiang questioned Mr. Xi’s demands for loyalty from the media, party news outlets savaged the retired businessman.

Read more …

“These firms have come to rely on selling new shares to pay down debt and keep rigs drilling..”

US Energy Companies Pay Up to Raise Cash (WSJ)

Energy companies tapping the stock market to fill their coffers are deepening the pain for shareholders. These firms have come to rely on selling new shares to pay down debt and keep rigs drilling since oil and gas prices began tumbling in late 2014. The further commodity prices and energy stocks slid, the more shares that companies have had to sell at ever lower prices to raise the desired proceeds. This has further diluted the stakes held by existing shareholders, who are already suffering from falling share prices. North American oil and gas producers have raised more than $10 billion selling new shares this year. That’s in line with the amount raised over the same period last year, which went on to be a record year for so-called follow-on stock offerings with about $18 billion raised.

The cash injections haven’t guaranteed stability for the companies selling shares, though. Emerald Oil, which sold $27.5 million of new shares last year, filed Tuesday for chapter 11 bankruptcy protection. Wunderlich Securities estimates that a prearranged sale of Emerald’s North Dakota drilling fields will yield roughly enough to pay back its bank lenders, leaving little for other creditors and nothing for shareholders. Those who bought roughly $50 million of stock that Goodrich Petroleum sold last March have been basically wiped out. The Houston company’s stock, which ended the week trading at 8 cents, was delisted from the New York Stock Exchange earlier this year. Earlier this month Goodrich said that when it discloses its 2015 financial results, its auditors are likely to express “substantial doubt” about its ability to stay in business.

Much of the money raised by oil and gas producers this year has been through deals that involve banks putting up their own capital to buy a chunk of the company’s stock—below the market rate because of the risk they are taking on—before selling it to investors. A bigger discount in these so-called block, or bought, deals reflects the risk perceived by banks when it comes to energy companies at a time when the price of oil has been fluctuating and large U.S. banks have said they are seeing more energy loans go bad. Last June, Energen raised about a net $400 million in a sale of 5.7 million shares, according to Dealogic. Following the offering, shares declined by nearly 70% by Feb. 16, more than the nearly 60% decline of the SIG Oil Exploration and Production stock index, an industry benchmark, in the same period.

Read more …

Australia is belatedly waking up. It won’t stop the pain.

Negative Gearing Has Created Empty Houses And Artificial Scarcity (SMH)

A major myth that permeates the recent debate on housing affordability is that the present level of housing supply is not meeting demand. Scarcity of housing, we are repeatedly told, is driving up prices. The same voices simplistically suggest, reduce the barriers caused by planners and housing supply will respond, bringing affordability back into the market. But more reasoned voices can be heard above the clamour, focussing on the perverse effects of our highly skewed housing taxation and subsidy system, as well as a complete lack of a national housing policy framework to support affordable housing. Nevertheless, throughout this debate there is little recognition of the broader shifts in housing stock, tenure and housing opportunity that these policies have created.

At the last census there were nearly 120,000 empty dwelling in the greater Sydney region alone, representing nearly one fifth of the projected new housing demand to be met by 2031, or equivalent to nearly five years of projected dwelling need. When this is combined with under-utilised dwellings, such as those let out as short-term accommodation, the total number of dwellings reaches 230,000 in Sydney, and 238,000 in Melbourne. There is a possibility that these aggregate figures could be accounted for by a spatial mismatch between supply and demand. That is, they are in places that people simply don’t want to live. But this isn’t the case. When these numbers are mapped there is a clear concentration of unoccupied dwellings in central parts of all our metropolitan areas. In Sydney there is a clear bias towards inner, eastern suburb and north shore locations.

This aligns with established areas of highest rents and prices. This picture is repeated in the other cities. If you chose to accept that there is a housing shortage in Sydney, then the sheer scale and location of these figures strongly suggest that this is an artificially produced scarcity. The number of empty dwellings could more than account for the notional supply shortfalls. Why, then, are these homes left vacant when they could command the highest prices or rents? To answer this, we mapped rental yields for the same period. What it reveals is that rental yields tend to be highest in the outer suburbs, where residential property is cheaper to purchase. Where rental yields are lowest is in the inner city and eastern and north shore suburbs, where capital values (and therefore gains) are highest. And this is where we also see higher rates of vacant properties. This is not a coincidence.

Read more …

There’s a lot more bursting in the offing.

Has The Brics Bubble Burst? (Guardian)

The political crisis in Brazil over economic mismanagement and high-level corruption, likely to come to a head next week, has reinforced the fashionable view, popular among western governments and businesses, that the Brics bubble has burst. Members of the exclusive Brics club of leading developing countries – Brazil, Russia, India, China and South Africa – are failing to justify predictions that, separately and together, they will dominate the 21st century world, or so the argument goes. The Brics concept, plus acronym, was dreamed up in 2001 by Jim O’Neill, chairman of Goldman Sachs Asset Management. He highlighted the combined potential of non-western powers controlling one quarter of the world’s land mass and accounting for more than 40% of its population. O’Neill’s idea morphed into a formal association, with South Africa joining the original Bric group in 2011.

The five nations, with a joint estimated GDP of $16tn, set up their own development bank in parallel to the US-dominated IMF and World Bank and hold summits rivalling the G7 forum. Their next meeting will be in Goa, India, in October. But ambitious plans to create an alternative reserve currency to the US dollar and challenge American dominance in IT and global security surveillance have come to little. Meanwhile, adverse economic conditions compounded by falling global demand and lower oil and commodity prices are taking their toll. Last November, Goldman Sachs, where the idea originated, closed its Bric investment fund after assets reportedly declined in value by 88% from a 2010 peak. The bank told the SEC it did not expect “significant asset growth in the foreseeable future”. “The promise of Bric’s rapid and sustainable growth has been challenged very much for the last five years or so,” Jorge Mariscal at UBS told Bloomberg Business. “The Bric concept was popular. But nothing is eternal.”

Read more …

“..Yahoo, if it had invested that same amount of money in its operations, would have had to generate only a 3.2% after-tax return to produce overall net profit growth of 16% annually over those years.”

In Yahoo, Another Example of the Buyback Mirage (NY Times)

It is one of the great investment conundrums of our time: Why do so many stockholders cheer when a company announces that it’s buying back shares? Stated simply, repurchase programs can be hazardous to a company’s long-term financial health and often signal a management that has run out of better ways to invest in the business. And yet investors love them. Not all stock repurchases are bad, of course. But given the enormous popularity of buybacks nowadays, those that are harmful probably outnumber the beneficial. Those who run companies like buybacks because they make their earnings look better on a per-share basis. When fewer shares are outstanding, each one technically earns more. But a company’s overall profit growth is unaffected by share buybacks.

And comparing increases in earnings per share with real profit growth reveals the impact that buybacks have on that particular measure. Call it the buyback mirage. Consider Yahoo. The company bought back shares worth $6.6 billion from 2008 to 2014, according to Robert L. Colby, a retired investment professional and developer of Corequity, an equity valuation service used by institutional investors. These purchases helped increase Yahoo’s earnings per share about 16% annually, on average. But a good bit of that performance was the buyback mirage. Growth in Yahoo’s overall net profits came in at about 11% annually. Given these figures, Mr. Colby reckoned that Yahoo, if it had invested that same amount of money in its operations, would have had to generate only a 3.2% after-tax return to produce overall net profit growth of 16% annually over those years.

Some companies argue that the money they spend repurchasing stock is a shrewd use of their capital. And given Yahoo’s track record in recent years, its management team seems to have had a hard time identifying profitable investments. But Mr. Colby pointed out that buybacks provide only a one-time benefit, while smart investments in a company’s operations can generate years of gains. This analysis may be of interest to Starboard Value, an activist investor that is a large and unhappy Yahoo shareholder. On Thursday, Starboard nominated nine directors to replace the company’s entire board, saying its current members lack “the leadership, objectivity and perspective needed to make decisions that are in the best interests of shareholders.”

Read more …

“Sure, the French may have day care and five-week vacations and 35-hour work weeks,” we’ve argued. “But we’ve got flat-screen TVs, $5 footlongs and big cars.”

Wealthier Countries Have More Leisure Time – With One Big Exception (Wef)

The American work ethic can basically be boiled down to one well-worn phrase: “Work hard, play hard.” But new research from a pair of Stanford University economists suggests we are failing, miserably, at the latter half of that maxim. Take a look at the chart below. It’s a plot of hours worked per capita versus GDP, and one country really stands out. As countries get wealthier, their annual hours worked per capita tend to decrease, at least in the sample examined here by economists Charles Jones and Peter Klenow. They measure GDP in fractions of U.S. GDP, because they’re most interested in how other countries stack up to the United States in terms of economic well-being. For instance, Russia’s GDP per capita is less than half of that in the United States, so it lands halfway down the chart’s X axis.

The relationship between GDP and working hours harkens back to economist John Maynard Keynes’ famous prediction that his grandchildren would be working 15-hour work weeks – thanks, in part, to increased productivity from new machines and technology. Since you’re probably reading this story at your office or on your commute, you’re well aware that things didn’t exactly work out this way. We didn’t trade our productivity gains for more time, we traded them instead for more stuff. But the extent of that trade-off -time versus stuff- hasn’t been the same in all countries, as the chart above illustrates. “Average annual hours worked per capita in the U.S. are 877 versus only 535 in France: the average person in France works less than two-thirds as much as the average person in the U.S.,” Jones and Klenow write. You see similar numbers in Spain, Italy and the UK.

For a long time we’ve used our stuff to justify our workaholism. “Sure, the French may have day care and five-week vacations and 35-hour work weeks,” we’ve argued. “But we’ve got flat-screen TVs, $5 footlongs and big cars.” Or, in strictly economic terms: “France’s per capita GDP is only 67% of ours. Who’s living the good life now?” But in their new research, forthcoming in the American Economic Review, Jones and Klenow attempt to devise a “a summary statistic for the economic well-being” that goes beyond GDP. Economists have proposed alternative measures incorporating everything from “greenness” to “gross national happiness.” The Stanford economists make the latest contribution to the genre with their measure that “combines data on consumption, leisure, inequality, and mortality.”

They find that when you throw these other qualities into the mix, the economic well-being gap between the United States and other wealthy countries shrinks – but it doesn’t disappear completely. “Living standards in Western Europe are much closer to those in the United States than it would appear from GDP per capita,” Jones and Klenow conclude. “Longer lives with more leisure time and more equal consumption in Western Europe largely offset their lower average consumption vis a visthe United States.” So, even when you factor in our ridiculously long work weeks, the things we miss out on when we work long hours, and the myriad ways that overwork iskilling us, the United States is still No. 1! Which is irksome, I’m sure, to the millions of French workers who spend literally the entire month of August at the beach.

Read more …

Monsanto counts on the TPP and TTiP.

Is Monsanto Losing Its Grip? (WS)

Monsanto is not having a good year. The company recently slashed its 2016 earnings forecast from the $5.10-$5.60 per share it had forecast in December to $4.40-$5.10, claiming that about 25-30 cents of the reduction was due to the stronger dollar. But judging by recent trends, a strong dollar could soon be the least of its concerns. Across a number of key markets, the company is facing growing resistance, not only from farmers and consumers but also, amazingly, governments. In India, the world’s biggest cotton producer, the Ministry of Agriculture accuses Monsanto of price gouging. It even imposed a 70% cut in the royalties that the firm’s Indian subsidiary could charge farmers for their crop genes, prompting Monsanto to threaten that it would withdraw its biotech crop genes from the country. If Monsanto’s threat was a bluff, it’s just been called.

According to Mandava Prabhakara Rao, the president of the National Seed Association of India (NSAI), Monsanto’s threat came as a big relief: All these years, the company has restrained us from using technologies other than the one developed by it. It forced the seed firms to sign the licence agreements that barred them from using other technologies. India’s government also seems unconcerned by the prospect of Monsanto’s withdrawal.“It’s now up to Monsanto to decide whether they want to accept this rate or not,” said Minister of state for agriculture and food processing, Sanjeev Balyan. “We’re not scared if Monsanto leaves the country, because our team of scientists are working to develop (an) indigenous variety of (GM) seeds.” India’s pushback against Monsanto is part of a gathering global backlash against Monsanto and the GMO industry as a whole.

Even in the U.S., where GMOs are estimated to represent more than 90% of corn, soybean, and cotton acres, the trend is no longer Monsanto’s friend. Earlier this year the company filed a lawsuit against the state of California for its intent to label glyphosate, the main chemical used in Monsanto’s flagship Roundup herbicide, as a probable carcinogen, in accordance with the World Health Organization’s recent findings. There’s also growing pressure on major food outlets to stop using GMO ingredients. After the USDA’s 2015 approval of genetically modified apples and potatoes, companies including McDonald’s and Wendy’s claimed they didn’t plan to use them, saying they were happy with non-GMO suppliers. Even more importantly, the Orwellian-titled Deny Americans the Right to Know (DARK) act, aimed at prohibiting mandatory GMO labelling, was defeated in the Senate last week.

Meanwhile, in Mexico, Monsanto’s fourth biggest market after the U.S., Brazil, and Argentina, a moratorium remains in place on the granting of licenses for GMO seed manufacturers like Monsanto, Dow, and Du Pont. In the face of growing public and judicial opposition, Monsanto & Friends have pinned their hopes on the Peña Nieto government’s upcoming agrarian reform act. Manuel Bravo, Monsanto’s director for Latin America, recently told El País that he is confident that once the legal problems in the courts are “resolved,” the issue will become a central plank in the current administration’s agenda. “The Government has been very clear about the importance of these technologies,” he said. Across the Atlantic, Monsanto’s problems are somewhat more intractable. Already more than half of EU countries have moved to bar GMO cultivation, while a last-minute mutiny by four EU states (France, Sweden, Italy, and the Netherlands) recently forced the postponement of a vote in Brussels on re-licensing glyphosate.

Read more …

“This is a complicated, multi-sided war where our options are severely limited..”

Pentagon, CIA-Armed Militias Fight Each Other In Syria (LA Times)

Syrian militias armed by different parts of the U.S. war machine have begun to fight each other on the plains between the besieged city of Aleppo and the Turkish border, highlighting how little control U.S. intelligence officers and military planners have over the groups they have financed and trained in the bitter five-year-old civil war. The fighting has intensified over the last two months, as CIA-armed units and Pentagon-armed ones have repeatedly shot at each other while maneuvering through contested territory on the northern outskirts of Aleppo, U.S. officials and rebel leaders have confirmed. In mid-February, a CIA-armed militia called Fursan al Haq, or Knights of Righteousness, was run out of the town of Marea, about 20 miles north of Aleppo, by Pentagon-backed Syrian Democratic Forces moving in from Kurdish-controlled areas to the east.

“Any faction that attacks us, regardless from where it gets its support, we will fight it,” Maj. Fares Bayoush, a leader of Fursan al Haq, said in an interview. Rebel fighters described similar clashes in the town of Azaz, a key transit point for fighters and supplies between Aleppo and the Turkish border, and on March 3 in the Aleppo neighborhood of Sheikh Maqsud. The attacks by one U.S.-backed group against another come amid continued heavy fighting in Syria and illustrate the difficulty facing U.S. efforts to coordinate among dozens of armed groups that are trying to overthrow the government of President Bashar Assad, fight the Islamic State militant group and battle one another all at the same time. “It is an enormous challenge,” said Rep. Adam Schiff (D-Burbank), the top Democrat on the House Intelligence Committee, who described the clashes between U.S.-supported groups as “a fairly new phenomenon.”

“It is part of the three-dimensional chess that is the Syrian battlefield,” he said. The area in northern Syria around Aleppo, the country’s second-largest city, features not only a war between the Assad government and its opponents, but also periodic battles against Islamic State militants, who control much of eastern Syria and also some territory to the northwest of the city, and long-standing tensions among the ethnic groups that inhabit the area, Arabs, Kurds and Turkmen. “This is a complicated, multi-sided war where our options are severely limited,” said a U.S. official, who wasn’t authorized to speak publicly on the matter. “We know we need a partner on the ground. We can’t defeat ISIL without that part of the equation, so we keep trying to forge those relationships.”

Read more …

More refugees.

Saudi Arabia Campaign Leaves 80% Of Yemen Population Needing Aid (G.)

It is difficult to view Saudi Arabia’s relentless war of attrition in Yemen as anything other than a destructive failure. The military intervention that began one year ago has killed an estimated 6,400 people, half of them civilians, injured 30,000 more and displaced 2.5 million, according to the UN. Eighty per cent of the population, about 20 million people, are now in need of some form of aid. The Saudis’ principal aim – to restore Yemen’s deposed president, Abd Rabbuh Mansur Hadi – has not been achieved. If they hoped to contain spreading Iranian regional influence, that has not worked, either. If the US-backed coalition’s campaign was intended to combat terrorism, that too has flopped. Al-Qaida in the Arabian Peninsula (AQAP), in particular, and Islamic State (Isis) have profited from the continuing anarchy.

The conflict pits Aden-based Hadi government forces and their Sunni Arab allies against Houthi Shia militias, backed by Tehran, who control the capital, Sana’a, and much of central and northern Yemen. Already one of the world’s poorest countries before fighting escalated last year, Yemen now faces widespread famine. Food shortages are being exacerbated by a growing bank and credit crisis, Oxfam warned this week. “The destruction of farms and markets, a de facto blockade on commercial imports, and a long-running fuel crisis have caused a drop in agricultural production, a scarcity of supplies and exorbitant food prices,” Oxfam said. Sajjad Mohamed Sajid, Oxfam’s country director, said: “A brutal conflict on top of an existing crisis … has created one of the biggest humanitarian emergencies in the world today – yet most people are unaware of it. Close to 14.4 million people are hungry and the majority will not be able to withstand the rising prices.”

Read more …

Inevitable. Refugee streams flow like water. Impossible to stop.

Smugglers Prepare New Human Trafficking Route To Italy (DW)

Trafficking gangs are arranging a new way to ship migrants from Turkey to the EU by sailing to Italy, a leading German newspaper reports. Demand for alternative routes has been rising for weeks, according to the article. The smugglers intended to start transporting refugees via the new Italian route in the first week of April, according to the Sunday edition of the “Frankfurter Allgemeine Zeitung” newspaper. They would reportedly use small cargo vessels and fishing ships to ferry their customers from the seaside resort Antalya in Turkey, the Turkish city of Mersin near the Syrian border, and the Greek capital Athens. According to the paper, the price for such trip is between 3,000 and 5,000 euros ($3,400 -$5,600), which is much more expensive than traveling the usual route from Turkish shores to one of the Greek islands.

However, refugees face growing obstacles attempting to reach Western Europe through Greece, with several countries along the Balkan route closing their borders to migrants. Last week, the EU also forged an agreement with Ankara about shipping migrants back to Turkey, slowing the influx to a trickle. The traffickers responded to growing demand for alternative routes in recent weeks by preparing their new venture, according to the Sunday article. Some of the smugglers aimed to offer two trips per week, and at least one claimed he could fit 200 people on a boat. They also advised migrants to stay below deck until the vessels reached international waters. In addition to migrants in Turkey and Greece, hundreds of thousands of people were waiting to cross to Italy from Libya, EU officials said. The Italian interior ministry has registered almost 14,000 arrivals this year.

Read more …

“..In August [2015], we had 40-50 Moroccans, and in November, their number was over 7,000.”

EU Prepares For Massive Migration Flows From Libya (EurActiv)

EU leaders will discuss the critical situation in Libya and potential waves of immigrants trying to reach Europe on 18 April, EurActiv Greece has been informed. The discussion will take place following the regular Foreign Affairs Council meeting and ahead of Foreign Affairs Council Defence on 19 April, in Luxembourg. French Defence Minister Jean-Yves Le Drian said yesterday (24 March) that some 800,000 migrants are in Libya hoping to cross to Europe. Le Drian told Europe 1 radio that “hundreds of thousands” of migrants were in Libya, having fled conflict and poverty in the Middle East and elsewhere, adding that the figure of 800,000 was “about right”. In an interview with EurActiv in December, Greece’s Alternate Foreign Minister for European Affairs, Nikos Xydakis, noted that new routes and new compositions [in migration flows] were found.

“The people who now come from the Turkish coast to the Greek islands are from the Maghreb. Let me give you an example. In August [2015], we had 40-50 Moroccans, and in November, their number was over 7,000.” “The route we have identified is the following: Moroccans and Algerians can travel without a visa from Maghreb countries, with a very cheap ticket with Turkish Airlines, directly to Constantinople [Istanbul], and then they easily reach the coast and go to the other side [Greece],” Xydakis said. But the presence of NATO in the Aegean Sea combined with a possible “isolation” in Greece due to the closed borders on the north might have discouraged migrants and re-directed the routes.

Read more …